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IPSR examination prompts independent audit of federal Covid-relief funds

Gipson Mechanical employees work in the HVAC mechanical room at Westside Elementary. Gipson was the only bidder on the project. (Courtesy Memphis-Shelby County Schools/The Daily Memphian file)
Gipson Mechanical employees work in the HVAC mechanical room at Westside Elementary. Gipson was the only bidder on the project. (Courtesy Memphis-Shelby County Schools/The Daily Memphian file)

Memphis-Shelby County Schools has hired a national accounting firm to audit its internal procedures in spending millions in federal COVID-19 relief funds, also known as ESSER funds.

Forvis, one of the nation’s top 10 public accounting firms, signed a $60,000 contract in August to conduct the audit, according to a document obtained by The Daily Memphian.

No deadline has been announced for the completion of the audit. 

The document shows the audit firm was hired a month after The Daily Memphian published an  opens in a new windowin-depth examination of the district’s ESSER spending on construction projects.

The examination, conducted by the Institute for Public Service Reporting at the University of Memphis, found the district likely had overspent millions of federal dollars on HVAC upgrades that benefited one company in particular.

It also showed how normal bidding processes and job specs had been  opens in a new windowchanged in ways that limited bidders and favored the same local company, Ewing Kessler.

Meanwhile, local contractors are raising questions about other non-ESSER-funded construction projects.

Earlier this year, the school board awarded 10 contracts totaling $3.7 million in general funds for repairs and renovations in College, Career and Technical Education classrooms in 31 schools.

All 10 contracts were awarded by the board to the same company unanimously and without discussion. The company is Curtis Construction of West Memphis and Memphis.

Curtis was the only bidder on three CCTE jobs and one of only two bidders on five other jobs.

“We just want the process to be fair,” said Carlos Fifer, president and CEO of Fifer & Associates, which was underbid on two jobs.

The audit

The district was unable to make Interim Superintendent Toni Williams available for an interview about the developments, citing the holidays as a busy time. MSCS requested The Daily Memphian send a list of questions by email but has not responded.

Williams  opens in a new windowannounced the independent audit Oct. 27. The letter outlined the results of what she called a “critical needs assessment.”

She did not provide details of the audit, writing only that it was aimed at helping facilitate one of the changes to the district’s business operations department that she announced in the letter.

The contract with  opens in a new windowForvis shows the accounting firm would be “evaluating internal procedures related to compliance with Elementary and Secondary School Emergency Relief (ESSER) grant.”

The ESSER program has brought the district more than half a billion dollars in COVID-relief funds since 2020.

The examination by the Institute for Public Service Reporting found the district likely had overspent millions of ESSER dollars on at least 29 HVAC upgrades.

The Institute showed the normal bidding process had been changed in ways that limited competition for contracts. There was only one bidder on 15 of the 29 contracts and only two bidders on 10 others.

It also showed that HVAC job specs were revised in little ways that favored one local equipment supplier and excluded others.

As a result, the ESSER-funded HVAC jobs turned out to be several times more expensive than other HVAC jobs in recent years.

The day after the Institute’s examination was published, the school board began an investigation of Charles White, a senior facilities manager at MSCS. White was  opens in a new windowfired in late July for “gross misconduct” in connection with construction contracts awarded to a school district vendor.

According to the school district’s internal investigation, White awarded purchase orders to an MSCS vendor in exchange for business with his own company.

White reported to Genard Phillips, the district’s former chief of Business Operations.

In the same letter she announced the independent audit, Williams announced Phillips would leave the district in December.

In addition to Phillips’ departure, Williams announced that procurement “will transition from reporting to Business Operations to reporting to Finance,” in part “to help avoid conflicts of interest.”

About a week before Williams announced those changes, she met with at least five local contractors who were awarded HVAC contracts.

The contractors told Williams they were concerned about being able to meet construction deadlines. MSCS HVAC specs allow only for equipment supplied by Ewing Kessler, a local firm.

“All of the contractors were behind schedule because EK is not able to deliver the equipment in a timely manner,” an industry source told the Institute for Public Service Reporting.

Shelby County Commissioner David Bradford, who spent 22 years in the HVAC industry as a consulting mechanical engineer, also expressed his concerns to Williams in early November.

“It was always odd to sit down with the school system and be told immediately what size equipment to use and which equipment supplier to use,” Bradford said. “We worked with a number of other governmental entities including the state of Tennessee, City of Memphis, Desoto County Schools, the U.S. federal government — and none allowed sole-source specification of equipment.”

‘All messed up’

Curtis Construction was the lowest bidder for construction works on several Memphis-Shelby County Schools, including East High. (The Daily Memphian file)
Curtis Construction was the lowest bidder for construction works on several Memphis-Shelby County Schools, including East High. (The Daily Memphian file)

Phillips and White also oversaw the bidding and procurement process on the 10 CCTE contracts, which were awarded last March, April and May.

All 10 contracts were awarded to the same company, Curtis Construction of West Memphis and Memphis.

Curtis was the only bidder on three jobs and one of only two bidders on five other jobs.

The Curtis bids were substantially lower on nearly all the competitive bids, sometimes as much as three or four times lower.

For example, Curtis bid $323,000 for CCTE classroom repairs and renovations at Germantown and Kirby high schools and Hickory Ridge Middle.

The second lowest bid was $465,000 from Barnes & Brower, and the highest bid was $964,000 from A&B Construction.

“The scope of work was all messed up and didn’t make sense,” said Jeff Barnes, president of Barnes & Brower Inc.

“There were no drawings, and there was no way the competition bid apples to apples. These were done very unprofessionally by unqualified MSCS staff.”

Barnes & Brower was underbid by Curtis on three jobs.

Curtis  opens in a new windowbid $546,000 for CCTE repairs and renovations at Bolton High. Barnes & Brower, the only other bidder, offered to do the work for $2.2 million.

Curtis  opens in a new windowbid $502,000 for CCTE work at Mt. Pisgah Middle School. Barnes & Brower, the only other bidder, bid $1.4 million.

Another contractor, who bid on two CCTE contracts, believes the process was flawed in ways that favored one company.

Ransomed Construction was one of three bidders for CCTE work at five schools — Craigmont, Douglass, East, Kingsbury and Manassas high schools.

Ransomed bid $556,000 for the work. Fifer & Associates bid $436,000. Curtis Construction  opens in a new windowwas awarded the contract for $360,000.

Ransomed also bid on a second CCTE job for work at Bolton and Cordova high schools. But that job was rebid.

“One of my estimators had to attend mandatory pre-bid meetings in order to bid these CCTE packages,” said Jennifer Ransom, the company’s owner.

“During the second one he attended, the MSCS facility director who was facilitating the pre-bid meeting didn’t start the meeting for more than 20 minutes past the noted start time. He stood by the window and stated that he was waiting for one more company, and it wasn’t until that person walked in that he got the meeting started. That person happened to be the owner of Curtis Construction.

“At that point, my estimator knew the process was rigged, so we did not bother rebidding that project. This is why you only have one bid on record for us. We haven’t bid anything else for MSCS since as it doesn’t appear to be a fair system.”

Curtis Construction  opens in a new windowwon that contract with a low bid of $342,000. Built Wright Contractors had the only other bid at $359,000.

Fifer & Associates were underbid by Curtis on two jobs.

“I was shocked by the differences in the bid amounts,” said CEO Fifer. “Typically, competitive bids are not that far off from each other. At least they’re in the same ballpark. On these bids, the scope of the work was so broad, we really didn’t know what we were bidding for.”

Serenia Curtis, owner of Curtis’ Construction, said she wasn’t surprised that she was the low bidder on all 10 jobs.

“Those were easy jobs for us,” Curtis said. “The CCTE work was nothing special.

“We looked at labor, overhead, profit, we found ways to decrease all those numbers and make it work.”

Curtis said she was surprised there weren’t more bidders for the CCTE jobs.

”A lot of contractors are big enough to be able to pick and choose their jobs,” Curtis said. “We’re not.”

Three-phase audit

The FORVIS audit will be conducted in three phases, according to its contract with MSCS.

Phase 1: Risk-based assessment

The first phase is a discussion-heavy phase where Forvis will work to identify different risks associated with how the ESSER money has been spent.

That includes interviewing “key members of management” about the risks related to fraud and noncompliance with the funds and discussing which assets purchased with them are at the highest risk, among other things.

The contract doesn’t list the key members of management.

Phase 2: Testing and Evaluation

The next phase is centered on evaluating different aspects of the district’s processes related to spending.

An evaluation of procurement controls, or the processes in place to ensure integrity in the area, related to conflicts of interest, greater economy and efficient use and vendor qualifications is part of this phase, among other things.

Phase 3: Communication and deliverables

The final phase is essentially a wrap-up of the audit that includes helping management to come up with strategies related to the findings and training management and staff in areas related to them.

This story first appeared at dailymemphian.com under an exclusive use agreement with The Institute.

Written By

David Waters is Distinguished Journalist in Residence and assistant director of the Institute for Public Service Reporting at the University of Memphis.

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