The San Diego Association of Governments increased vendor contracts by tens of millions of dollars more than their original amounts, internal auditors revealed in a new report this week.
As with the regional planning agency’s other spending, the Office of the Independent Performance Auditor found SANDAG’s contract process lacks adequate oversight, proper documentation and sufficient employee training.
Auditors found the agency’s 10 vendors with the highest percentage changes originally were awarded nearly $48 million in work, but that total more than doubled over a four-year period to nearly $106 million.
Why this matters
With a $1 billion annual budget, the San Diego Association of Governments is a taxpayer-funded planning agency that helps make transportation and other long-term regional decisions.
One vendor received a $20 million increase, over 400% more than what its contracts initially awarded. Another vendor got nearly $9 million more — almost a 700% increase — for what are known as on-call contracts, meaning it was among firms that have undergone a prior bidding process and are available to perform general SANDAG work when needed.
Those top increases were outliers. The report said the total increase for all contracts was 5%.
Auditors said there appears to be a “disproportionate preference to certain vendors” and a “potential overuse of on-call contracts,” though they stressed they didn’t find any fraud or intentional wrongdoing.
The highlighted contractors are not named in the report, and instead are described only by what auditors labeled as “vendor type.” The majority of those with the highest percentage changes were listed as “services” contractors. Others include construction and two unidentified public agencies.
The dollar figures cited do not represent actual amounts paid to vendors but instead show how much they can invoice the agency for under the contracts.
Along with high percentage changes, auditors also said SANDAG did not have standard operating procedures and called employee training “minimal, informal, and inconsistent.” It found basic paperwork issues, including that the list of contracts provided by staff was inaccurate and incomplete and that itemized invoices from vendors were not being consistently required.
For one contract, auditors found a project manager provided a vendor with “leading information” when requesting a cost proposal, a move that “eliminates any of SANDAG’s negotiating power” and “presents a potential risk of employee and contractor collusion.”
The report also flagged the high number of SANDAG employees — nearly half of its workforce — actively listed as project managers.
SANDAG’s audit committee on Friday approved the report, the first part of a comprehensive audit on agency contracts. In January, independent auditor Mary Khoshmashrab will present details on her office’s ongoing review of contractors’ performance, invoicing and any potential fraud.
Both reports will go to the agency’s full Board of Directors for ultimate approval.
Auditors already warned that because of “the lack of controls and ineffectiveness” in SANDAG’s current contract system, it will be difficult to look for schemes such as bid-rigging or price fixing.
SANDAG management said it agrees with the audit’s findings and has been in communication throughout the review. It already moved a contract analyst into the independent auditor’s office to help oversee procurement procedures on a regular basis, and Khoshmashrab applauded CEO Hasan Ikhrata’s efforts.
Earlier this year, Khoshmashrab’s office flagged misuse of agency-issued credit cards, including nearly $70,000 at local restaurants and almost $250,000 in transactions on non-working days. inewsource later found some of SANDAG’s highest-paid staff made it a regular practice to hold business meetings at fine-dining spots and with bills topping out at more than $100 per visit.
Ikhrata was one of the most frequent spenders, charging more than $17,000 in meals over roughly two years and mostly at businesses in the county.
The agency has since created new policies that clamp down on credit card use, and SANDAG staff said it has completed all steps in an action plan that was developed in response to the audit. A staff progress report said officials sought to obtain any missing supporting documentation or monthly transaction logs and that CFO Andre Douzdjian “closely reviewed” the remaining flagged transactions.
Douzdjian also sought $380 in reimbursement from Ikhrata after officials found four instances of “disallowed” business meals. The report doesn’t say whether the CEO has repaid the agency yet.
“Should further instances of disallowed business meal expenses be identified, corrective action will be taken, if deemed necessary,” the report said.
A similar action plan is expected to be developed to respond to auditors’ findings on SANDAG contracts.
Update: Oct. 17, 2022. This story has been updated to include that SANDAG’s audit committee approved the report.
Type of Content
News: Based on facts, either observed and verified directly by the reporter, or reported and verified from knowledgeable sources.