Conflict of interest cited by Caltrans audit

A conflict of interest was identified during a recent audit of the pedestrian and bicycle safety improvements and landscape improvements around multiple schools.

Officials from the California Department of Transportation's Independent Office of Audits and Investigations reported the previous public works director's daughter-in-law was employed by Palmetto Engineering. The previous director had directly participated in the selection process of Palmetto and had neglected to note the conflict of interest and confidentiality statement.

Instead, the audit said, the previous director certified he had no personal relationship, which would be incompatible with his participation in the process. He also signed as the approving authority of all Palmetto Engineering invoices associated with the five projects under review.

The audit was part of a routine process by the Independent Office of Audits and Investigations to determine whether costs claimed by and reimbursed to grantees (the city) were allowable, reasonable, and adequately supported in accordance with the Caltrans agreement provisions and state and federal regulations and to determine whether project deliverables and outcomes were consistent with the project scope. Auditors were onsite in February 2019.

The City of Wasco underwent an audit of five Active Transportation program projects executed between June 21, 2015 and Feb. 28, 2018 that included pedestrian and bicycle safety improvements and landscape improvements within the vicinity of Palm Avenue Middle School, Teresa Burke Elementary School, John L. Prueitt Elementary School, Karl F. Clements Elementary School and Thomas Jefferson Middle School. The total audited projected costs were $2,781,433.

A conflict of interest such as the one found is contrary to federal and state conflict of interest regulations; therefore, auditors are recommending that the costs associated with the Palmetto Engineering contract be reimbursed. These costs total $168,584.

Because of the concern, Caltrans auditors reviewed the procurement of the city engineer and noted that the 2010 city engineer procurement resulted in the award to Palmetto Engineering.

In fact, the auditors asked for an explanation as to why Palmetto Engineering was awarded the contract and Helt Engineering was not, even though Palmetto wasn't the highest-ranked firm.

Staff who awarded the contract are no longer with the city and all auditors had to rely on was a staff report that indicated Palmetto Engineering provided the best overall package.

Caltrans auditors consulted with the Department of Local Assistance and Federal Highway Administration regarding the concern associated with the conflict of interest between Palmetto Engineer and former public works director.

According to additional background information on the subject, on March 26, 2019, Caltrans auditors returned to the city of Wasco to continue their investigation. This resulted in an expanded audit to include consultant procurements that have been or may be used on any current or future federal and/or state projects.

On Sept. 2, Caltrans auditors performed the formal exit conference with staff. At this time, the auditors provided the draft audit report, which identified deficiencies, associated with labor charging practices, procurement, consultant and construction management and project reporting.

Initially, Caltrans auditors informed the city that they anticipated recommending a disallowance of $219,488.03. The draft audit report reflects a recommendation to disallow a total of $224,699 based on three major deficiencies:

Conflict of Interest - $168,584

Deficiencies in labor charging practices - $45,492.

Architectural and engineering procurement deficiencies - $10,623.

City staff has until Oct. 15 to formally respond to the draft audit report.

Caltrans auditors will analyze the city's response and attach it to the final report. Upon completion of the final report, Headquarters Division of Local Assistance will work with city staff to prepare a Corrective Action Plan to address the issues found in the final audit report.

"It is extremely regrettable that the conflict of interest existed between the former Public Works Director (Bob Wren) and Palmetto Engineering," City Manager Daniel Ortiz-Hernandez said. "It is difficult to understand how such a situation that undermines the public's trust and accountability in local government occurs. Unfortunately, the issues identified by the auditors were in-line and similar to other questionable actions and practices uncovered by the city. Given the circumstances which involved former members of the city's executive leadership, the matters were referred to the Kern County District Attorney's Office for their review.

Ortiz-Hernandez also said, "The City Council and I have worked diligently since I became city manager to address the city's organizational culture and develop greater accountability and transparency. They have reinforced efforts to cultivate a new executive leadership team and committed to a greater investment in professional development and training for staff at all levels. Our new executive leadership team fosters an ethos throughout the organization of 'who we are,' what public service means, and the importance of ethics and stewardship of the public's trust and resources."