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Because
County Council specifically authorized the deal at its outset,
the arrangement is legal. However, auditor Robert Hicks said he
will ask the Ethics Commission to rule on its propriety and
urged Council to expand the section of the county code covering
conflicts of interest to include business arrangements involving
brothers and sisters of county employees.
According
to the audit, the professional services contract to handle
insurance claims, risk management, loss control and safety --
all having to do with workers compensation for on-the-job
injuries -- was awarded in 1997, six months after the Gordon
administration took office, without there having been any
competitive bidding, to A.I.S. Risk Management Services.
Although the published report does not say so, that firm is
owned by Lynn Moroz, the county's risk manager.
The audit
report said the county has paid the firm fees totaling $2.6
million through Mar. 16.
The
report said there has been no subsequent review of the contract
nor any determination that the county "is receiving the best
possible service at the lowest possible cost."
A.I.S.,
it goes on to say, subcontracted related legal work to Freebery
& Houghton. Michael Freebery, one of the law's firm's
principals, is the brother of Sherry Freebery, the county's
chief administrative officer, the second-ranking position in the
administration, and Joseph Freebery, general manager of the
county Department of Special Services.
Legal
fees have totaled $1.5 million, according to the report. They
were paid by A.I.S. out of the fees it received.
In a
response to the findings published with the audit, the county
does not dispute existence of the arrangement nor its reported
cost. "Those expenditures were not, however, expended without a
substantial benefit being realized," it said. The response is
not specifically attributed to any person.
It goes
on to say that in the five fiscal years prior to A.I.S.'s taking
on the business, the county spent $9.49 million on workers
compensation. In the five fiscal years since, spending amounted
to $5.67 million.
Moreover,
it goes on to say, the backlog of unsettled compensation claims
has been significantly reduced, thus improving the county's
balance sheet. Although not stated in the response, that would
be a factor in the county's having received high bond ratings
which, in turn, has enabled it to borrow capital funds at less
cost.
Employee
lost time attributed to workers compensation claims management
was reduced from 5,645 man-days in 1996 to 464 in 2003. That,
the response said, is equivalent to not having to hire 24
additional full-time employees at a cost of $1.5 million a year.
The
response said "the entire panoply of savings is the result of a
team effort between the county, the risk manager [firm] and the
risk manager's legal team." But it also credits the law firm
with having contributed additional cost-savings benefits. For
instance, it said, Freebery & Houghton determined that county
pension benefits could be partly offset by workers compensation
and that ruling resulted in a one-time savings of $1.5 million
on future pension expense.
The audit
report also said that two Jeep vehicles were leased without
there having been competitive bidding although the aggregate
cost over the term of the leases exceeded $25,000, the maximum
amount allowed without bidding. The county responded that it
counts expenditures as they are made and that payments on those
leases were below the limit in each year. The dealer which
leased the trucks is not identified.
The
actual audit was conducted by and the report prepared by
Moorestown, N.J.-based Outsourcing Partnership L.l.c. Hicks
previously said that the press of other duties and lack of staff
did not allow him to personally conduct the audit. But, he said,
he reviewed and stands behind the work. The report is signed by
Brian Kerr, identified as director of Outsourcing Partnership.
It was
the first internal audit since Hicks was hired by County Council
a year ago.
The
report lists 13 areas having to do with county government's
procurement practices that it said were investigated Findings in
areas other than the one example of contractual services and the
leasing of the Jeep are not disclosed nor is there any
indication of how extensive the audit was. Other areas listed as
having been studied include purchase requisitions and orders,
emergency purchases, add-ons and overruns, and sale of surplus
property.
Publication of the report was delayed after County Executive Tom
Gordon, Sherry Freebery and other administration officials
objected to some of its contents. Follow a private conference
with them Hicks agreed to some modifications to the report. He
did not say what those changes were.
The body
of the report does not identify the risk management firm. It
refers to an "understanding that a principal of the law firm is
related to a [sic] senior county official." In a cover
memorandum, Hicks identifies both firms.
Following
publication of the report on Apr. 20, County Council's executive
committee agreed to to get moving on complying with one of its
recommendations; namely, that it find people to serve on the
advisory board for the special services department. The board
was authorized by county ordinance but never actually
established. The administration response to the audit said that
it actually is not necessary because its function would be
purely advisory and Council has an active committee-of-the-whole
related to the department.
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