Secrecy & Favoritism: Auditor General draft report slams administration handling of tech contracts
BY JAN MURPHY
Of The [Harrisburg] Patriot-News
Auditor General Jack Wagner is accusing Gov. Ed Rendell's administration of hiding the details of nearly $600 million in technology contracts with one company and is suggesting abuses ranging from vendor favoritism to no-bid contracts.
An explosive draft audit from Wagner's office, obtained by The Patriot-News, indicates the administration stonewalled the Democratic auditor general's staff in its quest to unravel details that led to contracts with Deloitte Consulting and its affiliates for the years 2004 through 2007.
Deloitte, an international firm with U.S. headquarters in New York City, provides information technology, audit, tax, consulting and financial advisory services. An eight-month audit draft also raises concerns about possible favoritism shown toward Deloitte over other information-technology vendors.
It questions practices that allow Deloitte to have internal knowledge that helps the company get state businesses without having to compete with other firms.
And it challenges a state grant awarded to Deloitte for job creation/retention for which auditors had difficulty determining how the state benefited.
All of those concerns have been exacerbated by a lack of cooperation from administration officials, especially when it came to sorting allegations of conflicts of interest between high-ranking Rendell administration appointees and Deloitte, the audit draft states.
Rendell spokesman Chuck Ardo maintained that the administration is cooperating and said further comment would come after the audit is finished. An attempt to speak to the governor yesterday was unsuccessful.
Deloitte spokeswoman Deborah Harrington and a spokesman for the state Department of General Services, which oversees state purchasing and contracts, also said they would reserve comment until the audit is final, which is expected to be this month. Both pointed out that the preliminary findings might change once auditors review the administration's response to the audit.
The auditor general's office awaits that response, which General Services said is due by Feb. 20.
The auditor general also will decline comment until the audit is final, said spokesman Steve Halvonik. He said government auditing standards require a response before a final report is issued. He also said the response could change the preliminary audit's contents.
Audit's findings:
Meanwhile, state lawmakers condemned the administration's alleged refusal to cooperate with auditors and vowed to tighten state contracting rules. One House Republican, after hearing highlights of the preliminary audit, said it smells.
"As the saying goes, the fish stinks from the head. If this is all true, it leads directly back to the governor," said Rep. Doug Reichley, R-Lehigh. "This calls for a full-scale investigation of how this contracting procedure was handled by this administration."
Among the findings in the preliminary audit:
The preliminary audit also points out that, if state workers are not trained, that could "result in commonwealth agencies being held hostage by contractors."
While General Services would not comment officially on the preliminary audit, the report is creating concern among agency officials. On Jan. 28, Anne Rung, a department deputy secretary, told state agency officials that the audit draft "levels serious accusations against our agencies, accusations which are clearly misguided, misleading and/or blatantly inaccurate."
A call placed to Rung on Tuesday was referred to press secretary Ed Myslewicz, who declined comment until the audit is finished.
In her e-mail to officials, Rung advises agencies to provide auditors with copies of proposals from vendors who lost a contract to Deloitte. The preliminary audit indicates those documents previously had been among the records auditors were denied.
A revolving door?:
Several of the preliminary audit findings echo allegations that dozens of state employees and other contractors shared with The Patriot-News after it published a story last year about the amount of state business going to Deloitte.
One concern has been a perceived revolving door between the state and Deloitte employees.
Former Deloitte partner Art Stephens and Deloitte senior manager Kristen Miller both had served as the state's chief information officer. In 2004, Rendell empowered their office to review and approve all information technology contracts worth more than $100,000.
Stephens held the post from 2003 to 2005, when he was named Rendell's deputy chief of staff. He now works for the state university system.
Stephens, reached on Tuesday, said he had not seen the preliminary audit. He said it would not be "fair for me to comment on something I haven't seen."
Last year, when contacted by The Patriot-News, he said those unfamiliar with the state's procurement procedures could reach the conclusion that improprieties exist. "But if you understand all the checks and balances in procurement, it's such a detailed process that there really is not a lot of opportunity for that," Stephens said.
Miller, who worked for Deloitte before coming to work for the state, served as chief information officer after Stephens until fall 2007. She left that post to return to work at Deloitte. Miller could not be reached for comment Tuesday.
General Services Secretary James Creedon stated last year that neither Stephens nor Miller -- nor other former Deloitte employees working for the state -- were directly involved in contract-proposal evaluations that resulted in Deloitte landing a state contract.
But auditors indicated in the preliminary audit they had not been provided the names of individuals who reviewed contract proposals, making it difficult to validate Creedon's assertion.
Senate Republican leaders requested the audit on Deloitte contracts "because of concerns raised by state employees and other constituents regarding problems with how the contracts were being implemented," said Lt. Gov. Joseph Scarnati, R-Jefferson County.
House and Senate Republicans intend to introduce legislation to address some of the concerns raised by the preliminary audit, particularly the no-bid contract process.
Senate Majority Leader Dominic Pileggi, R-Delaware County, wants to see a measure introduced to "address the revolving-door employment policies" that he said allows a firm to have an employee circle into a high-level state job, land work for the firm, and then return to work for the same company.
"Such an incestual relationship cannot be tolerated if our goal is for state government to be above reproach," Pileggi said.
A number of House Republicans are planning a Capitol news conference at 11 a.m. today to discuss a package of bills that would ensure more transparency in state contracts and more open contracting practices.
"The goal is to end, or at least curb, pay-to-play in Harrisburg," said House Republican spokesman Stephen Miskin.
Staff writer Charles Thompson contributed to this report.
Of The [Harrisburg] Patriot-News
Auditor General Jack Wagner is accusing Gov. Ed Rendell's administration of hiding the details of nearly $600 million in technology contracts with one company and is suggesting abuses ranging from vendor favoritism to no-bid contracts.
An explosive draft audit from Wagner's office, obtained by The Patriot-News, indicates the administration stonewalled the Democratic auditor general's staff in its quest to unravel details that led to contracts with Deloitte Consulting and its affiliates for the years 2004 through 2007.
Deloitte, an international firm with U.S. headquarters in New York City, provides information technology, audit, tax, consulting and financial advisory services. An eight-month audit draft also raises concerns about possible favoritism shown toward Deloitte over other information-technology vendors.
It questions practices that allow Deloitte to have internal knowledge that helps the company get state businesses without having to compete with other firms.
And it challenges a state grant awarded to Deloitte for job creation/retention for which auditors had difficulty determining how the state benefited.
All of those concerns have been exacerbated by a lack of cooperation from administration officials, especially when it came to sorting allegations of conflicts of interest between high-ranking Rendell administration appointees and Deloitte, the audit draft states.
Rendell spokesman Chuck Ardo maintained that the administration is cooperating and said further comment would come after the audit is finished. An attempt to speak to the governor yesterday was unsuccessful.
Deloitte spokeswoman Deborah Harrington and a spokesman for the state Department of General Services, which oversees state purchasing and contracts, also said they would reserve comment until the audit is final, which is expected to be this month. Both pointed out that the preliminary findings might change once auditors review the administration's response to the audit.
The auditor general's office awaits that response, which General Services said is due by Feb. 20.
The auditor general also will decline comment until the audit is final, said spokesman Steve Halvonik. He said government auditing standards require a response before a final report is issued. He also said the response could change the preliminary audit's contents.
Audit's findings:
Meanwhile, state lawmakers condemned the administration's alleged refusal to cooperate with auditors and vowed to tighten state contracting rules. One House Republican, after hearing highlights of the preliminary audit, said it smells.
"As the saying goes, the fish stinks from the head. If this is all true, it leads directly back to the governor," said Rep. Doug Reichley, R-Lehigh. "This calls for a full-scale investigation of how this contracting procedure was handled by this administration."
Among the findings in the preliminary audit:
- The Department of Public Welfare had a $23 million contract with Deloitte that had 35 change orders, which added $72.6 million to the contract.
- An outside firm was hired to monitor Deloitte's work at the Department of Labor and Industry because department officials said state employees there lacked the expertise to do so.
- The state pays for training to teach state employees how to maintain and upgrade Deloitte systems, called "transfer of knowledge," once a contract is complete. But that training is not provided.
- A welfare manager told auditors "there is no need to utilize the knowledge transfer provision because Deloitte has always won the next contract," the audit draft states.
The preliminary audit also points out that, if state workers are not trained, that could "result in commonwealth agencies being held hostage by contractors."
- The Rendell administration gave Deloitte a $750,000 grant to pay for office furnishings in exchange for a commitment to create and retain 2,000 jobs in the state for four years, starting two years before the contract was awarded.
- Sixteen contracts totaling $87.2 million with Deloitte were issued on an emergency no-bid basis. State purchasing rules say this type of contract can occur only when a public threat or compelling circumstances exist, according to auditors. Thirteen of the "emergency" contracts were to bridge a gap between an old Deloitte contract and a new one because of ongoing negotiations, delays in getting signatures or funding delays, the preliminary audit states.
- Pennsylvania Department of Transportation Deputy Secretary Betty Serian inadvertently exposed the potential for entanglement between Deloitte and state workers. In a publication she said, "You can tell the value of a good partnership when the lines are blurred and you can't tell who works for whom."
While General Services would not comment officially on the preliminary audit, the report is creating concern among agency officials. On Jan. 28, Anne Rung, a department deputy secretary, told state agency officials that the audit draft "levels serious accusations against our agencies, accusations which are clearly misguided, misleading and/or blatantly inaccurate."
A call placed to Rung on Tuesday was referred to press secretary Ed Myslewicz, who declined comment until the audit is finished.
In her e-mail to officials, Rung advises agencies to provide auditors with copies of proposals from vendors who lost a contract to Deloitte. The preliminary audit indicates those documents previously had been among the records auditors were denied.
A revolving door?:
Several of the preliminary audit findings echo allegations that dozens of state employees and other contractors shared with The Patriot-News after it published a story last year about the amount of state business going to Deloitte.
One concern has been a perceived revolving door between the state and Deloitte employees.
Former Deloitte partner Art Stephens and Deloitte senior manager Kristen Miller both had served as the state's chief information officer. In 2004, Rendell empowered their office to review and approve all information technology contracts worth more than $100,000.
Stephens held the post from 2003 to 2005, when he was named Rendell's deputy chief of staff. He now works for the state university system.
Stephens, reached on Tuesday, said he had not seen the preliminary audit. He said it would not be "fair for me to comment on something I haven't seen."
Last year, when contacted by The Patriot-News, he said those unfamiliar with the state's procurement procedures could reach the conclusion that improprieties exist. "But if you understand all the checks and balances in procurement, it's such a detailed process that there really is not a lot of opportunity for that," Stephens said.
Miller, who worked for Deloitte before coming to work for the state, served as chief information officer after Stephens until fall 2007. She left that post to return to work at Deloitte. Miller could not be reached for comment Tuesday.
General Services Secretary James Creedon stated last year that neither Stephens nor Miller -- nor other former Deloitte employees working for the state -- were directly involved in contract-proposal evaluations that resulted in Deloitte landing a state contract.
But auditors indicated in the preliminary audit they had not been provided the names of individuals who reviewed contract proposals, making it difficult to validate Creedon's assertion.
Senate Republican leaders requested the audit on Deloitte contracts "because of concerns raised by state employees and other constituents regarding problems with how the contracts were being implemented," said Lt. Gov. Joseph Scarnati, R-Jefferson County.
House and Senate Republicans intend to introduce legislation to address some of the concerns raised by the preliminary audit, particularly the no-bid contract process.
Senate Majority Leader Dominic Pileggi, R-Delaware County, wants to see a measure introduced to "address the revolving-door employment policies" that he said allows a firm to have an employee circle into a high-level state job, land work for the firm, and then return to work for the same company.
"Such an incestual relationship cannot be tolerated if our goal is for state government to be above reproach," Pileggi said.
A number of House Republicans are planning a Capitol news conference at 11 a.m. today to discuss a package of bills that would ensure more transparency in state contracts and more open contracting practices.
"The goal is to end, or at least curb, pay-to-play in Harrisburg," said House Republican spokesman Stephen Miskin.
Staff writer Charles Thompson contributed to this report.