Report on school pact points no fingers

Carnegie Morgan's fees are `reasonable'

September 27, 2000|By Liz Bowie and Erika Niedowski | Liz Bowie and Erika Niedowski,SUN STAFF

A long-awaited auditor's report on the management of a multimillion-dollar Baltimore school contract falls far short of an in-depth analysis of the school system's failed financial controls.

A report by Arthur Andersen LLP released to the school board last night provided no new details on why a contract with Carnegie Morgan Resource Management was not approved by the school board.

Recently, school staff raised concerns at a public meeting of the school board's finance committee about the thoroughness of the Arthur Andersen report.

Carnegie Morgan was hired in September 1999 to manage a $12.3 million project to retrofit 30 schools with new equipment to reduce energy costs. The company was paid for eight months under a $670,000 contract that was not approved by the school board.

Last spring, the board acknowledged it may have made a mistake, and approved the contract retroactively.

The mishandling of that contract and two others highlighted the school system's weak financial controls at a time when the city had surrendered financial oversight. In 1997, the city gave up much of its control in exchange for more than $250 million in new state aid to reform the system.

The board did not adopt its own purchasing rules and ethics policy until after problems with the contracts came to light earlier this year.

The school system's chief financial officer and business officer resigned this summer.

School board Vice Chairman C. William Struever said the Arthur Andersen report finds that Carnegie Morgan's fees were "fair and reasonable" and that the work it did was necessary and competently done.

Struever said he feels "satisfied with the audit and where we stand with Carnegie Morgan."

The report, however, does not spell out Struever's conclusions in those words. Four pages long and written in carefully constructed, often technical language, it avoids assessing responsibility. It also provides no new details on how school officials handled the contract.

"This is not an audit or anything, nor is it a review," said William Crowley, managing partner at Arthur Andersen.

The auditors apparently never went beyond interviews with school system and Carnegie Morgan staff in writing the report.

The school board recently extended Carnegie Morgan's contract so that it can continue to manage the work of two subcontractors who are fitting the schools with new boilers, window caulking and lighting. The energy savings accrued over the course of the next decade are expected to cover the cost of repaying the $12.3 million the school system borrowed.

The report on Carnegie Morgan is the first of three expected to look at what went wrong in the financial management of the school system.

The second is to examine how First Municipal Credit Corp. arranged financing for the energy project and is getting up to $1 million in fees, the schools say. Those fees far exceed industry standards.

The third will look at the work done by Information Control Systems, a local computer contractor. The costs of computer work ballooned to $11.3 million from the original $5.2 million.

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