Contract Audit Report - Los Angeles Unified School District

Los Angeles Unified School District Office of the Inspector General Contract Audit Unit

Contract Audit Report Incurred Cost Audit Vanir Construction Management Inc. Contract No. 0590089

CA 09-761

May 3, 2010

May 3, 2010

Mr. Greg Garcia Director, Facilities Contracts Facilities Services Division Los Angeles Unified School District 333 South Beaudry Avenue, 23rd Floor Los Angeles, California 90017

Dear Mr. Garcia: This is our report on the incurred cost audit of Vanir Construction Management Inc. (Vanir) under Contract No. 0590089. The audit report addresses whether Vanir billed according to Contract terms and provided adequate support for its billings. The audit also addresses whether Vanir’s consultant had the qualifications required by the Contract, and performed the contracted scope of work. The audit found that Vanir adequately supported its billings and complied with the terms of the Contract. Vanir’s consultants performed the contracted scope of work; however, 6 of the consultants did not meet the qualification requirements. FSD placed two of Vanir’s consultants in positions that were not authorized by the contract, but authorized Vanir to bill for the consultants as Contract authorized positions, selected based on the billing rates of the positions. One of Vanir’s consultants was appointed to his position without a formal interview and evaluation as required for construction management contract professionals. We have recommended that FSD implement policies and procedures to ensure that contract professionals meet the minimum qualifications, FSD enforce compliance with hiring procedures when hiring contract professionals, and discipline staff who violate its policies and procedures. I appreciate your continued support of our contract audit services. Sincerely, /s/ Austin E. Onwualu, CPA, CIG Deputy Inspector General, Contract Audit C: Matilda Manjikian

EXECUTIVE SUMMARY We have audited the amounts billed by Vanir Construction Management, Inc. (Vanir) under Contract No. 0590089 with the Los Angeles Unified School District (LAUSD). The objectives of the audit were to determine whether (i) Vanir’s billings were adequately supported and complied with contract terms, (ii) Vanir’s consultants had the qualifications required by the Contract, and (iii) Vanir’s consultants performed the contracted scope of work. Based on our audit, we determined that: •

Vanir’s billings were adequately supported and complied with contract terms.

•

Vanir’s consultants performed the contracted scope of work.

However, we also found that: •

6 of Vanir’s consultants did not meet the qualification requirements of the Contract for their billed positions.

•

FSD placed 2 of Vanir’s consultants in positions that were not authorized by the Contract, but authorized Vanir to bill them at 2 of the Contracts’ authorized positions (Regional Project Director and OAR II) based on the associated billing rates of those positions ($202 per hour and $150 per hour respectively). These 2 consultants were occupying positions that did not correspond to their billed positions.

•

1 of Vanir’s consultants was appointed into his position without any formal interview and evaluation as required for the construction management contract professionals. As such, FSD was not in compliance with its own hiring procedures for contract professionals in the case of this consultant.

•

Vanir did not obtain clearance from the California Department of Justice for 3 of its consultants.

Recommendations: •

FSD should implement policies and procedures to ensure that contract professionals meet the required minimum qualifications stated in the Contract, and that they are appointed into positions which correspond to their actual positions and duties.

•

FSD should enforce compliance with its hiring procedures for contract professionals.

•

FSD should discipline staff who violate its policies and procedures for contract professionals.

•

FSD should require Vanir to obtain DOJ clearance documentation for all of its consultants prior to placing them at the District.

Vanir Construction Management, Inc. Contract No. 0590089

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INTRODUCTION LAUSD entered into a unit cost contract with Vanir to provide qualified staff for construction management, project management and related services support to LAUSD Facilities Services Division, New Construction. The initial Contract period was from July 22, 2005 to June 30, 2007. The Contract was amended four times. The first two amendments were for minor changes to the scope of services, terms and conditions, and to add an Intern labor position along with its billing rate. On May 21, 2007, the Contract was amended to extend the contract period from July 1, 2007 to June 30, 2008. On June 24, 2008, the Contract was amended again to extend the contract period from July 1, 2008 to June 30, 2009. None of the amendments modified the original non-to-exceed value of $10 million. LAUSD paid Vanir a total of $7,268,886 for invoices it submitted dated from November 30, 2005 through December 31, 2008. Vanir is a family-owned construction management firm established in 1980 that has provided services with a total construction value in excess of $9 billion over twenty-five (25) years of service. It has 15 offices serving seven states including California. Vanir’s corporate office address is 4540 Duckhorn Drive, Suite 300, Sacramento, CA 95834.

SCOPE AND OBJECTIVE The objectives of the audit were to determine whether (i) Vanir’s billings were adequately supported and complied with contract terms, (ii) Vanir’s consultants had the qualifications required by the Contract, and (iii) Vanir’s consultants performed the contracted scope of work. Our examination was conducted in accordance with Generally Accepted Government Auditing Standards (GAGAS) and included tests of Vanir’s records and other auditing procedures we considered necessary in the circumstances. The provisions of the Contract and the amendments were used as criteria in analyzing Vanir’s compliance with the Contract requirements. We conducted our audit from February 10, 2009 to August 5, 2009.

METHODOLOGY To accomplish the audit objectives, we (i) reviewed and briefed the Contract and its two amendments; (ii) obtained and reviewed all invoiced amounts and reconciled them to LAUSD’s payments to Vanir; (iii) met with LAUSD Facilities Services Division, New Construction, Deputy Director of Operations to obtain pertinent information and to inquire about any issues with Vanir; (iv) interviewed Vanir’s President; (v) tested 10 invoices selected statistically and judgmentally to determine whether Vanir billed its services using labor hours supported by signed timesheets and labor rates authorized by the Contract; (vi) checked these invoices for mathematical accuracy; (vii) reconciled billed invoices to payments made by LAUSD, (viii) compared the resumes of selected Vanir staff with minimum education and experience requirements for their respective labor position, as specified by Exhibit A of the Contract; (ix) compared the work performed by selected Vanir staff to the requirements of the Contract and interviewed their respective LAUSD supervisors to determine whether the staff were performing the contracted scope of work; and (x) reviewed evidence Vanir obtained a DOJ background clearance for all staff who worked on LAUSD projects. Vanir Construction Management, Inc. Contract No. 0590089

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EVALUATION OF INTERNAL CONTROLS In planning this audit, we obtained an understanding of internal controls that are material to Vanir’s compliance with the terms and conditions of the Contract. In so doing, we did not note any significant deficiencies in internal controls that are reportable under Government Auditing Standards. During the audit, we also noted the following material weaknesses in FSD’s internal control which adversely affected FSD’s ability to prevent fraud, waste and abuse in the use of contract professionals in its construction program: 1. FSD misused the Contract to hire contract professionals into positions that were not authorized by the Contract The Contract specified a list of specific positions to be staffed by Vanir through the Contract. However, FSD used the Contract to hire contract professionals for positions that were not authorized in the Contract, such as in the case of John Creer and Samuel Mistrano. Because Mr. Creer and Mr. Mistrano’s positions were not authorized in the Contract, there were no authorized rates for these positions. FSD determined Mr. Creer’s and Mr. Mistrano’s “appointed” positions, based on the authorized billing rates of the positions. Mr. Creer was appointed to a position that paid $202 per hour and Mr. Mistrano was appointed to a position that paid $150 per hour. Mr. Creer and Mr. Mistrano were not performing the duties related to their appointed positions and did not have the qualifications specified by the Contract for their appointed positions. In addition, there was no information from FSD documenting how FSD determined that the $202 or $150 per hour rate was reasonable or appropriate for the actual positions filled by Mr. Creer and Mr. Mistrano. We found that in these two cases, FSD disregarded the terms of the Contract and misused the Contract to place contract professionals into the District. When FSD appoints a contract professional to a position based solely on the contract billing rate for the position and not based on the actual work to be performed by the individual or his/her qualifications, FSD is circumventing the controls put in place by the Contract. The result may be the hiring of persons not qualified for their duties, or overpaying for the services of contract professionals. We recommend that FSD implement policies and procedures to ensure that (i) contract professionals are appointed into positions which correspond to their actual duties, and (ii) they meet the required minimum qualifications stated in the construction management contracts. We recommend that FSD discipline staff who violate such policies and procedures. 2. FSD did not comply with its hiring policies and procedures with the hiring of one contract professional FSD’s policies and procedures required a call for resumes to the construction management firms when a position becomes available. The firms would submit resumes of candidates for Vanir Construction Management, Inc. Contract No. 0590089

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the position, and the short-listed candidates would be interviewed by a panel of evaluators. However, we found that for the case of Mr. Creer, he was hired without having to compete nor interview for his position. We recommend that FSD enforce compliance of its hiring policies and procedures for contract professionals, and discipline staff who violate such policies and procedures.

TECHNICAL EVALUATON The Contract was for staff augmentation. Due to the nature of this effort, we concluded that a technical evaluation was not required.

PRIOR AUDIT COVERAGE On November 25, 2003, the Office of the Inspector General (OIG) issued two audit reports: 1) an audit report on incurred costs of Vanir under LAUSD Contract No. 971099L and indirect cost rates for years ending October 31, 2001 and 2002, and 2) an audit report on incurred costs of Vanir under Contract Nos. 971099S and 971099R, and indirect cost rates for years ending October 31, 1997, 1998, 1999, and 2000.

RESULTS OF AUDIT 1. Invoices We reviewed and tested a sample of 10 invoices from the 38 invoices submitted by Vanir from the inception of the Contract through December 31, 2008 to determine whether the costs were billed according to the terms of the Contract, were adequately supported, and were not in excess of the Contract value. We (i) checked the mathematical accuracy of each invoice, (ii) verified Vanir staff charged to time worked to LAUSD projects, (iii) verified that the number of invoiced labor hours agreed with the total hours worked on LAUSD projects as reflected in supporting manually signed monthly LAUSD timesheets, (iv) compared the LAUSD timesheets with Vanir’s internal monthly electronically signed timesheets, (v) verified that the labor rates billed by job position agreed with the labor rates and job positions authorized in Exhibit B, Fee and Payment Schedule, of the Contract, and (vi) reviewed LAUSD issued and approved Appointment Memos to verify Vanir staff were properly assigned to a LAUSD project. We found no exceptions during this review. 2. Staff Qualifications Vanir provided 28 staff to LAUSD from July 22, 2005 through December 31, 2008. We obtained the resumes of 18 or 64.3%, of these staff to compare their educational background and work experience to the minimum educational requirements and work experience for the billed labor positions, as described in Exhibit A, Scope of Work, of the Contract. As a result of our review, we determined that six (6) staff did not possess the minimum education and/or work experience required by the Contract.


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Section 5 of Exhibit A of the Contract stated, “Educational requirements may be offset by experience at the discretion of LAUSD”. However, we noted that some of the consultants did not meet the education and experience requirements stated in the Contract (the OAR I, OAR II, Senior Project Analyst, and Office Engineer II). Table I Staff Lacking Minimum Education or Work Experience No. 1

Name John Creer

Job Position Regional Project Director

Qualifications Per Resume B.S.,Accounting and Law, Licensed Real Estate Broker 21 years of experience.

Requirements Per Contract Graduation from an accredited college or university with a degree in architecture, engineering, urban planning, construction management or a closely related field. Certified Construction Manager (CCM), Professional Engineer (P.E.) or Architect license/certification preferred. 15 years of experience.

2

Sonia AvilaGranados

Sr. Cost Specialist

AAS, Hotel Management 14 years of experience.

B.S./B.A. degree in engineering, architecture, business, construction management or related field required. 8 years of experience.

3

James Depew

OAR I

B.S., Law Enforcement, Certificate in Project Management 2 years of experience in project/construction management

4

Samuel Mistrano

OAR II

B.A. in Political Science and Law About 5 years of construction related work experience.

Prefer B.S. or B.A. in architecture, engineering, urban planning, construction management or a closely related field. At least 10 years of experience in project/construction management of commercial and/or public facilities, preferably including educational facility construction. Strongly preferred strongly a B.S. or B.A. in architecture, engineering, urban planning, construction management or a closely related field. Certified Construction Manager (CCM), Professional Engineer (P.E.) or Architect license/certification preferred. 12 years of experience.

5

Trudy

Sr. Project


Less than 7 years experience with general Page 5 of 10

7 years experience with general

CA 09-761

No.

6

Name

Job Position

Qualifications Per Resume

Requirements Per Contract

Montgomery

Analyst

project/construction budget reporting.

project/construction budget reporting.

Christa DeBoer

Office Engineer II

B.S., Business Management

Strongly preferred a B.S. or B.A. in architecture, engineering, urban planning, construction management or closely related field.

2 years of construction management experience.

3 years of experience in construction management.

Vanir’s Response: Vanir indicated that the above individuals’ qualifications were accurately presented to the District during the District’s selection process, and that the District had selected the individuals knowing their exact qualifications. Vanir stated that subsequent refinement of the job position descriptions might have changed the qualification requirements after the individuals were effectively providing quality service to the District. FSD’s Response: FSD provided the following explanations for selecting the above individuals for the positions: 1. John Creer – Mr. Creer was brought on board by LAUSD as an employee of Trammel Crow Company in 2003. The Trammel Crow’s contract expired in October 31, 2005. LAUSD found the services provided by Mr. Creer to be invaluable and needed someone with his type of expertise. Therefore, LAUSD requested to use his services as a Regional Project Director under Vanir’s CM contract. The stated job position was solely identified to establish a billing rate for Mr. Creer but not to determine his job duties and skill set requirements. 2. Sonia Avila-Granados – Based on the resume provided to LAUSD, Ms. Avila-Granados had more than 8 years of experience in construction management services and over 14 years of experience in providing administrative assistance, customer service and accounting services. While FSD agreed that her educational background did not match that of the required position description of a Sr. Cost Specialist, FSD found her experience in performing similar types of duties as those required for this position to be extensive. 3. James Depew – FSD indicated that although Mr. Depew’s educational background and years of experience did not exactly match what was required for his position, he had successfully performed similar types of services as those required for this position. 4. Samuel Mistrano – The specified job position of “OAR II” was identified to merely determine a billing rate for Mr. Mistrano. He was actually hired to work as Sr. Facilities Project Manager for Planning and Development Department to maximize underutilized LAUSD assets through third party partnerships and manage development projects from project conception through approval and legal agreements. Vanir Construction Management, Inc. Contract No. 0590089

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5. Trudy Montgomery – Ms. Montgomery’s resume stated that she had over 7 years of project support experience, which meets the years of experience requirement for the position. In addition, she had performed similar types of duties as those required for her position. 6. Christa DeBoer – The position description for Office Engineer II required a minimum of 3 years of experience. Ms. DeBoer’s resume stated that she had over 16 years of experience in performing similar types of services in construction industry. The types of services she had performed in the past exactly matched what the District was seeking for this position. FSD also indicated that the above hiring’s took place 3 to 5 years ago, and that several changes were already made to the contract professionals hiring process in the last 3 years. FSD stated that it now has clearly established policies and procedures in place and that it would use the audit finding in its training of staff involved in the selection of contract professionals. OIG’s Response: We disagree with FSD’s statements regarding the qualifications of Trudy Montgomery and Christa Deboer. According to Ms. Montgomery’s resume, Ms. Montgomery only had 6 out of the 7 years of required experience at the time of her appointment at LAUSD. With regards to Christa Deboer, the 16 years of experience cited by FSD were not all related to construction management. According to her resume, Ms. Deboer had 2 years of construction management experience at the time of her appointment, as opposed to the 3 years of experience required. One of FSD’s long-standing arguments for the hiring of contract professionals instead of employees to fill its personnel needs was that the contract professionals possessed the necessary expertise. It is unacceptable therefore that FSD should select individuals whose qualifications did not meet the Contract’s minimum requirements. FSD indicated that John Creer and Samuel Mistrano were hired as Regional Project Director and OAR II, not to perform the services related to the positions, but that FSD could pay Vanir the associated hourly rates for those positions for their services. We found this practice to be unacceptable. First of all, the actual positions occupied by Mr. Creer and Mr. Mistrano were not authorized by the Contract. FSD should not have used the Contract for positions that were not authorized by the Contract, or should have amended the Contract to add those positions prior to the appointment of those individuals. Second, the Contract’s rates for the authorized positions were the results of an industry survey, and were intended to ensure that the District pays industry (i.e. fair) rates for the services of construction management (CM) contract professionals. Furthermore, the Contract specifies minimum qualifications for each position to ensure that the contract professionals filling the positions would have the qualifications desired by the District. When FSD appoints a contract professional to a position based solely on the contract billing rate for the position and not based on the actual work to be performed by the individual or his/her qualifications, FSD is Vanir Construction Management, Inc. Contract No. 0590089

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circumventing the controls put in place by the Contract. The result may be the hiring of persons not qualified for their duties, or overpaying for the services of contract professionals. In addition, we found that Mr. John Creer was hired without any formal interview and evaluation as required for the construction management contract professionals. As such, FSD was not in compliance with its own hiring procedures for contract professionals in the case of Mr. Creer. Contrary to FSD’s claim, we did not find that FSD has implemented any policies and procedures to ensure that the hired contract professionals meet the contract’s minimum qualifications. We requested a copy of the policies and procedures referred to in FSD’s response (Policy CT-006 Contract Professional Staff Appointment Policy) and found that while such policies and procedures addressed the hiring process of contract professionals, it did not contain any policies and procedures to ensure that the contract professionals meet the minimum qualification requirements for their appointed positions. We recommend that FSD implement policies and procedures to ensure that contract professionals meet the required minimum qualifications stated in the construction management contracts, and that they are appointed into positions which correspond to their actual duties. FSD should also enforce compliance with its hiring procedures for contract professionals. Furthermore, FSD should discipline staff who violate such policies and procedures. 3. Compliance with California Education Code Sec. 45125 California Education Code Sections 45125.1 and 45125.2 provide that Contractors should submit fingerprints of anyone who may have contact with pupils to the California Department of Justice (DOJ) to ascertain if they have ever been convicted of a violent or serious felony under Subdivision C of Sections 667.5 and 1192.7 of the Penal Code. Any person who has been arrested or convicted of a violent or serious felony will not be allowed on LAUSD facilities. We found that Vanir did not maintain DOJ clearance documentation for 3 out of 28 of its staff. Table II Vanir Personnel Lacking a DOJ Clearance Name Job Position Albert Grazioli, Jr. Regional Project Director Alvaro Olague Student Intern II Ben Rodriguez Senior Project Manager II Vanir responded that the above individuals were no longer working for the District. FSD indicated that Albert Grazioli and Ben Rodriguez were originally consultants under HNTB/Yang’s contract and were later transferred to Vanir’s contract. They had been fingerprinted and cleared by the DOJ while working with HNTB/Yang, but the DOJ clearance documentation was not transferred to Vanir. As for Alvaro Olague, he worked as Intern II for the District for approximately one month from December 16, 2005 to January 19, 2006. The District’s schools were not open due to the winter recess during two weeks within this period. Vanir Construction Management, Inc. Contract No. 0590089

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Mr. Olague also did not stay employed at LAUSD long enough to apply for fingerprinting and background check. FSD further indicated that the above individuals were no longer working for the District. We recommend that FSD should require Vanir to obtain DOJ clearance documentation for all of its consultants prior to placing them at the District. 4. Scope of Work Based on interviews we conducted with LAUSD supervisors of 6 Vanir consultants, we determined that Vanir consultants performed their assigned tasks and scope of work as provided in the Contract. All of the interviewed supervisors indicated that the personnel provided by Vanir performed exceptionally well even when occasionally required to work beyond their assigned duties and responsibilities.

CONCLUSIONS AND RECOMMENDATIONS Based on our audit, we determined that: •

Vanir’s billings were adequately supported and complied with contract terms.

•

Vanir’s consultants performed the contracted scope of work.

However, we also found that: •

6 of Vanir’s consultants did not meet the qualification requirements of the Contract for their billed positions.

•

FSD placed 2 of Vanir’s consultants in positions that were not authorized by the Contract, but authorized Vanir to bill them at 2 of the Contracts’ authorized positions (Regional Project Director and OAR II) based on the associated billing rates of those positions ($202 per hour and $150 per hour respectively). These 2 consultants were occupying positions that did not correspond to their billed positions.

•

1 of Vanir’s consultants was appointed into his position without any formal interview and evaluation as required for the construction management contract professionals. As such, FSD was not in compliance with its own hiring procedures for contract professionals in the case of this consultant.

•

Vanir did not obtain clearance from the California Department of Justice for 3 of its consultants.


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Recommendations: •

FSD should implement policies and procedures to ensure that contract professionals meet the required minimum qualifications stated in the Contract, and that they are appointed into positions which correspond to their actual positions and duties.

•

FSD should enforce compliance with its hiring procedures for contract professionals.

•

FSD should discipline staff who violate its policies and procedures for contract professionals.

•

FSD should require Vanir to obtain DOJ clearance documentation for all of its consultants prior to placing them at the District.

AUDIT TEAM This audit was conducted by the Office of the Inspector General Contract Audit Team: Stella Lai, Audit Manager Richard Kuchinskas, Audit Supervisor Ronald Cojerean, Audit Supervisor Alberto Abrot, Senior Auditor


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EXHIBIT A – RESPONSE FROM FACILITIES CONTRACTS

EXHIBIT B – RESPONSE FROM VANIR CONSTRUCTION MANAGEMENT

Know about fraud, waste or abuse?

Tell us about it. Maybe you are a School District employee, or maybe you are a private citizen. Either way, you are a taxpayer. Maybe you know something about fraud, or waste, or some other type of abuse in the School District. The Office of the Inspector General has a hotline for you to call. You can also write to us. If you wish, we will keep your identity confidential. You can remain anonymous, if you prefer. And you are protected by law from reprisal by your employer.

Call the Hotline: (213) 241-7778 or 1-866-LAUSD-OIG Write to us: Fraud Hotline Center 333 S. Beaudry Ave., 12th Fl. Los Angeles, CA 90017

Website: www.laoig.org