A fraud hotline tip about incomplete and misstated information in a staff report requesting a $14.4-million contract increase exposed systematic accounting failures that have led to overpaid and unpaid bills, according to a new report by City Auditor Eduardo Luna.
Luna’s report, dated Dec. 4, described the results of an investigation prompted by the tip about an erroneous and misleading staff report the city’s information and technology department submitted for a City Council meeting on Sept. 19.
Auditors were able to substantiate the tip and get it removed from City Council’s agenda before the meeting, the report said.
The faulty staff report requested a $14.4-million increase to an existing $2.9-million, 18-month telecommunications and data contract with AT&T, according to Luna’s report. The report failed to mention key information City Council would need to make a decision, auditors found.
For example, the report to City Council based its requested increase on figures including $2.8-million paid-to-date total for the existing contract, and monthly costs of $320,000.
In fact, the department had only paid $1.5 million as of the report’s date — and it planned to pay another $1.3 shortly thereafter, Luna reported.
The report failed to mention that staff had used a single month’s bill as the basis for the monthly costs included in the report and did not mention that actual monthly costs as ranged from $31,821 to $992,038.
Another key piece of information left out of the staff report was that the city did not have an accurate inventory of its telecommunications and data lines, and so it had no way to accurately predict costs or reconcile bills, the report said.
As a result, actual costs under the existing contract were twice its maximum value, auditors said. The city was also inadvertently double-billed and charged for an unrelated third party’s services, leading to a total $603,000 in overpayments for which the city would be receiving a credit.
Auditors’ recommendations included checks to verify the accuracy of the amended staff report for the contract extension and strengthen internal controls for invoice processing. Management agreed to all the recommendations and planned to make changes by October.