Audit breaks up city workers' purloined scrap metal party

An investigation into charges that San Diego workers were illegally hoarding scrap metal to raise cash for an employee bash has uncovered chronic problems with the way the city has been running its industrial recycling program.

"The Office of the City Auditor received an anonymous Fraud Hotline report alleging that a City employee in the Fleet Services Division was storing scrap metal salvaged from repairs of City vehicles with the intent of selling the metal and using the proceeds for personal purposes," according to a report by city auditor Eduardo Luna issued in early December to city fleet services director Alia Khouri and purchasing director Kristina Perata.

"We determined that repair technicians were storing scrap aluminum with the intent of using the proceeds of the sale of the metal to fund a 'recognition barbeque' for the shop staff," Luna wrote.

"While the dollar amount of the potential loss in this case was relatively small, and the sale was not completed, the fraud, waste, and abuse risks related to mishandling scrap metal can be substantial," the memo continued, noting that it wasn't the first time city workers had been caught diverting materials supposedly destined for recycling to an employee banquet fund.

As reported here in October 2010, auditors broke up a similar 2009 scheme involving fundraising for extra-curricular activities for General Services department workers.

“In December 2009, an employee recycled scrap metal and received payments of $488.65 and $4,649.05. The scrap was salvaged from various City jobsites. The employee received a check, cashed the check, withheld $16 which he reported was provided to the yard workers as a tip, and transferred $5,122 in cash to another employee who was the committee chairperson. The committee members utilized the proceeds from the sale of scrap metal to purchase the food, decorations, and raffle gifts for the banquet.”

The report added that “raffle prizes included TVs, GPS devices, Blu-Ray DVD players, iPods, gifts cards, cameras, game consoles, etc. No record of the results of the raffle was located.”

The auditor's latest discovery led to a raft of new negative findings regarding how the city handles purloining problems with its scrap.

"During the course of this investigation, we also identified several deficiencies in the City’s described business relationship with a bulk scrap metal recycling company," Luna's report said.

"We concluded that the City’s identified piggyback contract between the City and the bulk scrap metal recycling company is deficient."

Continued the document, "Our investigation found that concerns were expressed regarding a lack of insurance, undefined pricing, and non-compliance with City policy. Our analysis of the City’s identified piggyback contract also showed that City policy regarding the award and use of cooperative procurement contracts was not being followed."

In addition, "To date, Purchasing and Contracting staff have not established a valid contract with a metal recycling company. There has been no contract in place between the City and a bulk metal recycling company for over two years and eight months."

According to the audit, "Despite not having a contract in place, the vendor continues to provide bulk metal recycling services to the Public Utilities Department, Fleet Services, and other City facilities several times a month. The last four quarterly payments to the City from the vendor amounted to approximately $117,000."

In response to the auditor's findings, officials agreed to undertake reforms.

"Though the [San Diego Municipal Code] does not impose competitive bidding requirements for revenue generating contracts under the purview of the Purchasing Agent, the Purchasing & Contracting Department agrees that it is in the best interests of the City to secure the best rate possible for recycled metals," said the reply.

"An Invitation to Bid will be released publicly on 11/23/2015 and will close on 12/10/2015. The resulting contract will be a single award to service multiple City departments requiring scrap metal hauling and recycling and will be administered through the Central Stores Division of Purchasing & Contracting. The contract will define specific reporting requirements from the successful bidder regarding revenue by department, by month.”

The closing date for bids was subsequently delayed until January 14, documents show. Resulting bid tabulations have yet to be posted online.

According to the records, the vendor is expected to handle about 950,000 pounds of ferrous and approximately 80,000 pounds of non-ferrous metal.

Regarding a recommendation by the auditor that the fleet-service workers be provided funds for recognition in lieu of purloining scrap metal, the officials said, "Fleet Services Division will be adopting the new City-wide Rewards and Recognition program which is scheduled to be presented to City Council this fiscal year."