A testy two-hour discussion Tuesday between the Santa Clara Valley Water District board and staff resulted in an audit referral to delve deeper into allegations of improper payments to one of the district’s largest consultants.
More than a month has passed since San Jose Inside published a report identifying conflicts of interests and internal allegations of improper billing by RMC Water and Environment. This summer the company signed a single-source agreement with district CEO Beau Goldie to begin work on a $800 million groundwater recycling plant. Shortly after San Jose Inside’s report, the District Attorney’s office launched its own investigation.
In a presentation to the board Tuesday, district staff said that a review of financial documents found “no irregularities” in RMC’s invoices, despite admitting that work was rushed, poorly designed and managed, and might not have complied with laws on public oversight.
As previously reported, a public records request found that a civil engineer for the district, Roger Narsim, repeatedly expressed concerns to superiors about RMC’s billing practices over the course of 18 months. Najon Chu, the district’s chief financial officer (CFO), said his team conducted a detailed analysis of RMC invoices and found no evidence of wrongdoing, although it appears the review did little more than match invoices to payments rather than confirm payment for services provided.
Board chair Gary Kremen repeatedly challenged Chu and other staff on the transparency of past decisions, including the fact that a top district deputy is married to one of RMC’s owners and has managed people who handle RMC business. Kremen also picked apart the more recent financial review, which had no independent auditors or outside experts examine RMC’s work.
“So, basically,” Kremen said, “you audited yourself.”
“Yes,” Chu said.
Quality control issues occurred on the Lower Silver Creek watershed project in East San Jose, which RMC managed as a consultant starting in 2009. Out of a total of five tasks, the final two were scrapped and left for district staff to complete. The third task was originally scheduled for $375,000 in work, but additional amendments—none of which went to the board for approval—ballooned the cost to $1.7 million.
Chris Elias, a deputy operating officer who took over the project in the fall of 2013, told the board that money was often shifted through “inter-task fund transfers” that were authorized by the previous project manager, Dennis Cheong, who is now retired. Interestingly, Cheong’s name was never mentioned in the staff presentation, yet it appears he signed off on all of RMC’s requests to shift money away from previously contracted tasks, which have since fallen on district staff to pick up the slack.
“It sounds like a rather informal process,” said board director Barbara Keegan.
“That’s one of the lessons we’ve learned,” Elias said.
Another lesson that was learned only recently is the need to further prevent Melanie Richardson, a deputy administrative officer, from conducting performance evaluations of district employees who work with RMC, the company owned in part by her husband. Richardson’s review of two unit managers’ work on RMC business was stopped in July, following inquires by San Jose Inside. Norma Camacho, the district's chief operating officer, said that “additional precautions and steps to reinforce this separation” will be completed next month.
The district has refused to release a copy of a firewall agreement created several years ago, which did not require Richardson to leave meetings in which RMC work was discussed.
CEO Beau Goldie has similarly rebuffed interview requests for nearly two months, but on Tuesday he called the district and RMC’s work on Lower Silver Creek a “success,” despite the fact that the project remains a year away from completion and well over budget. (Federal funds were used, which could prove to be problematic when the U.S. government reviews deliverables on the project.) Goldie could not answer whether or not he and staff followed rules on public oversight.
“There are processes in place,” Goldie said. “The level of following those processes I don’t have the detail on.”
It appears the CEO had the authority to negotiate RMC contracts, but a key question is whether or not he was given the power to amend contracts and award millions more in taxpayer dollars. For now, that question remains unanswered.
Board chair Kremen and director Keegan, the only two board members to oppose $10 million in single-source agreements Goldie proposed in the spring, pressed staff with questions to get answers on where breakdowns occurred. Despite a unanimous vote Tuesday to refer to the matter to the district’s audit committee (director Dennis Kennedy was absent), board members Tony Estremera and Linda Lezotte bristled at the length and tone of the discussion.
Estremera compared the line of questioning to a “Benghazi hearing,” while Lezotte directly accused her board colleagues of sour grapes after losing a vote in May.
“Two people who disagree took their beef to the press instead of taking it to us, or even asking us about it,” Lezotte said. “That’s the shame we’ve spent all of this, the last 20 minutes, nitpicking a contract, because somebody lost a vote. It’s just, I agree with Tony, if you have questions of us, make the questions of us, not at staff. We’re the ones who make the decisions. All staff does is bring it to us. We get to ask questions, and we make a decision. Enough said.”
Keegan took exception to Lezotte’s comments.
“I had people that were concerned about this,” Keegan said. “There were many staff members that contacted the media. When I responded to the media it was people asking me why I voted the way I did and I explained that. I was not out rabble rousing. I was not out disrespecting either staff or my fellow board members. I believe that I have a responsibility to answer questions from the public and to answer questions from the press. And I think we all have that responsibility.”
Estremera serves as board chair for the audit committee, and staff says he has yet to call for the next meeting to be scheduled.
In closing remarks Tuesday, the CEO said he welcomed an independent audit while championing the staff report.
“This may sound odd, but even the issues that the media has raised really test our system,” Goldie said, “and I think what you actually find out as we have looked into ourselves, you’ll find the systems we have in place are solid.”
Those systems, of course, will continue to be examined, as the DA investigation, an internal inquiry launched in response to an employee complaint and now the audit committee continue their work.