Audit finds state agency 'fell down' overseeing computer contracts

| Thursday, Oct. 22, 2009

HARRISBURG — Shoddy oversight by state officials allowed $382 million worth of contracts for computer services to swell to $592 million over four years because of routine approval of change orders and no-bid contracts, said an audit released Wednesday.

Auditor General Jack Wagner issued a stinging audit of contracts between the Department of General Services and Deloitte Consulting, which found the state agency overseeing the contracts "fell down on the job."

"This is a tale of waste, neglect and an end-run around accountability," Wagner said.

Citing potential conflicts of interest, Wagner said three state managers from the Office of Administration whose responsibilities included overseeing Deloitte contracts previously worked for Deloitte. One employee was on a committee that evaluated a Deloitte contract, the audit said.

Wagner emphasized the audit looked at how state tax dollars were handled and did not examine Deloitte.

Timothy Wiest, the lead Deloitte employee working with the state, said the company helped save Pennsylvania millions of dollars.

Deloitte is "proud of the service and savings we provide to Pennsylvania taxpayers and the expertise that has made Deloitte the national leader in health and human service technologies," Wiest said. He said Deloitte employs 2,500 people in Pennsylvania who consider ethics and compliance to be "non-negotiable principles."

"We have vigorously competed for and serviced all of our commonwealth contracts in adherence to the state's procurement rules and processes," he said. "Deloitte has always supported an open and fair procurement process that is competitive, transparent and accountable."

While it held the contracts, top Deloitte employees working on the state project were paid salaries from $81 per hour to $290 per hour, Wagner said.

Only 17 of the state's 59 contracts with Deloitte had multiple bidders, Wagner said.

"This is a textbook case of what happens when accountability, competition and transparency are absent in state government," Wagner said.

The audit focuses on "past deficiencies, which have now been corrected," General Services Secretary James Creedon said. He said the audit "did not find one instance of unethical behavior."

But Wagner referred the audit to the state Ethics Commission to make that determination. He said he did not find evidence of criminal activity.

Gov. Ed Rendell, whose administration oversees the contracts, received $15,000 in campaign donations from Deloitte's political action committee and $19,000 from individuals in the company since 2001 — a fraction, he said, of the $77 million he raised during two campaigns for governor.

"I've never been influenced by any campaign contributions, ever," Rendell said. "Unless you can reward good performance or punish poor performance, you lose the ability to get good results. It means, there is a place for no-bid contracts, to reward superior performance."

During the four-year period examined, Deloitte received $2.25 million in economic development grants to help it fulfill its contracts.

The company was awarded $750,000 from the state Department of Community and Economic Development to purchase office equipment for its offices in Harrisburg and Camp Hill.

Deloitte also received $1.5 million in tax credits for job creation and retention during the four-year period covered in the audit, Wagner said. He said the state violated the law by giving Deloitte a tax credit of $3,000 per job, rather than $1,000 per job.

General Services did not provide auditors some records, leaving questions about whether the state overpaid for services, Wagner said. The department and other state agencies said records were lost or destroyed, he said. In one instance, the Department of Education destroyed documents after the audit began, the audit claimed.

Although General Services primarily was responsible, an executive order from Rendell gave the Office of Administration authority to preliminarily approve information technology contracts higher than $100,000.

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