School board orders audit

No-bid contracts called 'indefensible'

May 31, 2000|By JoAnna Daemmrich and Liz Bowie | JoAnna Daemmrich and Liz Bowie,SUN STAFF

Embarrassed by the hiring of two consultants in lucrative, no-bid deals, Baltimore school board President J. Tyson Tildon called it "indefensible" yesterday and vowed to immediately tighten spending controls.

Tildon said he was "deeply distressed at the circumstances surrounding these awards" and would work with the other eight board members to be more vigilant in managing millions of dollars worth of school contracting.

The board voted last night to hire the Arthur Anderson LLP accounting firm to conduct an audit and is asking top officials to sign affidavits assuring that they don't have conflicts of interest.

Board members also began reviewing new spending rules, which will be put in place next month, even as Maryland school Superintendent Nancy S. Grasmick said she was preparing "an extensive set of recommendations" to help them improve financial oversight.

"Having selected a new management team for the system and having placed in that team the trust to protect the system from unethical, unprofessional or incompetent acts, the board must now accept that a few members of the team fell far short of protecting the integrity and interest of the school system," Tildon said. "I cannot defend the actions surrounding the award of these no-bid contracts; they are indefensible."

Yesterday, The Sun disclosed that two consulting agreements had been arranged last fall to finance and manage a $12.3 million energy project being run by the school system's business officer, Wilbur C. Giles Jr.

One went to Columbia financial broker J.P. Grant, whose company is making at least $1 million in fees - up to eight times the industry standard. Grant and Giles are friends, and went on a four-day golfing vacation in March at a luxury resort in Puerto Rico.

The other went to a Baltimore energy planning firm, Carnegie Morgan Resource Management, which came up with the idea to lower utility costs and was chosen by Giles, without competitive bidding, to manage the project under a $670,000 agreement that wasn't properly executed.

City schools chief Robert Booker, hired two years ago to restore financial order, has acknowledged being unfamiliar with many details of both consulting deals.

Only in recent weeks did he review the financing arrangement that was handled by his chief financial officer, Roger Reese Jr. Reese signed for Booker and did not consult with the school treasurer, as is customary, or get quotes from other brokers to determine whether Grant's fees were reasonable.

"This is appalling stuff," said state Sen. Barbara A. Hoffman, a Baltimore Democrat who played a key role in making the school system independent of City Hall under a far-reaching reform effort begun three years ago.

"They had better set up an internal process. ... I am sure there are better internal checks and balances in the other systems."

Other city and state political leaders reacted with equal dismay and said they are concerned about the way tax dollars are being spent. Several Baltimore City Council members said they would demand answers, and Mayor Martin O'Malley said he plans to meet with Booker today to discuss how to establish better safeguards.

"At a time when all of us are working hard to win resources for the school system, I'm deeply concerned that we don't have internal controls in place to make sure each and every available dollar reaches the classroom," O'Malley said.

Grasmick said through a spokesman that she had asked auditors in April to examine how the city schools are doing business now that they're on their own.

All school spending decisions used to be scrutinized by the Board of Estimates, the city's financial panel. But the city turned over contracting and purchasing in 1997 when the state became more heavily involved under a $254 million effort to turn around underachieving schools.

Grasmick does not believe the old process worked better, according to Assistant State Superintendent Ronald A. Peiffer, and wants city schools to put in place the type of safeguards that suburban districts have in Maryland.

Her auditors' preliminary findings reveal "some significant issues that must be addressed," he said.

The state audit was precipitated by other city school contracting problems, chief among them the doubling of costs by a local computer company that billed for work that had not been publicly discussed or approved.

After The Sun disclosed in March how the computer contract had ballooned, Grasmick wrote Booker in blunt terms that she feared it "may be symptomatic of larger problems with the procurement process," according to a copy of her April 4 memo obtained by The Sun.

Meanwhile, several City Council members said they were particularly troubled by the way the school system borrowed $12.3 million from Grant's firm under an arrangement that allows him to collect the interest for 13 months.

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