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Auditor General Wagner’s Special Investigation: Faulty Billing, Improper Gifts, and Excessive Compensation at Pa. Twp. Supervisors Association
State was overbilled millions, former director was paid over $400,000 annually
HARRISBURG (Dec. 7, 2010) – Auditor General Jack Wagner said today that the Pennsylvania State Association of Township Supervisors provided employees of the Department of Community and Economic Development – who were responsible for evaluating and ultimately awarding the association a state training contract – with gifts including luncheons and free lodging and conference expenses at a lavish resort. PSATS subsequently overbilled the state millions of dollars while paying PSATS’ former executive director an excessive compensation package averaging $407,608 per year between 2004 and 2008.
Wagner said that a special investigation of DCED’s contract with PSATS found that the former executive director’s compensation package was nearly triple the compensation of the next highest paid employee of the association, and it significantly exceeded the salaries of executive directors of township associations in other states and that of comparable non-profit agencies in Pennsylvania. The former executive director was paid total compensation of $2,038,040, between 2004 and 2008, and his compensation package peaked at $561,274 in 2008.
Wagner’s investigators found that the executive director’s compensation package included an incentive or bonus payment equal to 1.9 percent of the gross revenues from all contract business, including but not limited to the contract with DCED. Federal and state laws prohibit the use of the net earnings of a non-profit organization from being used to benefit members, officers, or directors of the organization.
Wagner’s report noted that 54.6 percent of PSATS’ total revenue was derived from state grants and contracts, or $18.6 million of $34 million in total revenue between 2005 and 2008.
DCED’s Center for Local Government Services is responsible for monitoring and coordinating municipal training to meet the needs of local governments by providing affordable training opportunities including a full range of disciplines such as municipal finance, administration, tax collection, land use planning, police, fire, and public works. Rather than meeting those responsibilities using state employees, DCED has outsourced those services to an outside vendor since 1996.
Wagner’s investigators determined that DCED employees accepted meals, hotel lodging, and conference expenses from PSATS totaling $2,716, including eleven meals during the time when the competitive proposals were being evaluated. This was in violation of state gift and travel rules and possibly in violation of the state Public Official and Employee Ethics Act, Wagner said.
“Accepting meals and stays at luxury resorts at the expense of a vendor compromises objectivity and independence, and prevents government employees from discharging their duties without bias towards a particular vendor,” Wagner said. “Government employees must maintain objectivity and independence in their duties, both in appearance and in reality.”
PSATS has held the training services contract since 1996, and it received its latest contract award in 2005. At that time, the commonwealth allocated $3.9 million for a five-and-a-half-year period covering January 2006 to June 2011. However, within the first 14 months of the contract, DCED on three occasions expanded the scope of the work to be provided and increased total contract amount to $5.6 million, because of other commonwealth agencies and other offices within DCED “piggy-backing” on the contract. Subsequent amendments to the contract have increased its total cost to $12 million.
In addition, Wagner’s investigators found numerous billing discrepancies and flaws. They included:
“The findings and recommendations presented in the special investigation report are intended to not only provide guidance to DCED when drafting and entering into future contracts for training services, but also to assist DCED in its monitoring of the current contract with PSATS and to serve as a basis for DCED to withhold future payments to PSATS until it provides the information necessary to prove that it has not overbilled the commonwealth,” Wagner said.
Wagner made 19 recommendations to fix the deficiencies identified by the investigation to improve the monitoring of the training contract, including that DCED should:
Based on DCED’s response to the investigation, which is included in the report, Wagner said, “It is encouraging that DCED has already taken some limited steps to tighten up the terms of the contract to improve PSATS’ accountability and has expressed an intention to consider some of our recommendations in the drafting of future contracts. We will follow up at the appropriate time to determine whether all of our recommendations have been implemented.”
Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly. He is the Commonwealth’s elected independent fiscal watchdog, conducting financial audits, performance audits and special investigations. The Department of the Auditor General conducts more than 5,000 audits per year. To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department’s Web site at www.auditorgen.state.pa.us
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