By Robert O'Harrow Jr.
Washington Post Staff Writer
Saturday, February 14, 2009
Design and engineering companies helping to build the nation's highways ran up millions of dollars in inappropriate charges at the expense of taxpayers, including bills for parties, luxury car leases and hefty paychecks for executives, according to auditors.
The bills were described by the firms as overhead costs but should not have been allowed, according to a Feb. 5 report by auditors in the Department of Transportation's inspector general's office.
The report serves as a cautionary tale as the federal government is preparing to quickly disburse billions in stimulus grants to states for highway projects.
A main reason cited for the misspending was the reliance on private accountants paid by the firms undergoing review. The accountants in some cases appeared to put their clients' interests ahead of taxpayers. The report also cited "deficiencies" in the Federal Highway Administration's oversight of the projects.
Among the "unallowable expenses" singled out:
$355,767 to pay the personal income taxes of executives.
$301,667 to lease 45 automobiles, including Mercedes, BMW and other luxury brands.
$247,685 for dinners, tickets to sporting events, theme-holiday parties.
$60,000 paid to a consultant with only a verbal agreement.
$35,352 charged by two firms for "image-enhancing items such as golf shirts."
The Transportation Department audit, which took four years, examined bills from a sampling of 41 design and engineering firms picked from 3,580 firms that had active contracts with state departments of transportation. Auditors looked at data from 2003 because it was the most current year available when the review began.
One firm alone charged $950,000 in unallowable costs, included a political contribution, spa resort bills and alcohol. The auditors estimate that in 2003, executives at design and engineering firms with highway contracts overpaid themselves by as much as $73 million.
None of the firms was named in the report. About 80 percent of the money in question was paid by the federal government and about 20 percent by the states.
"As we move toward implementing the stimulus package, this report shows the need for all levels of government to work together to ensure that taxpayer monies are spent only for their intended purposes and in accordance with laws," said DOT Inspector General Calvin L. Scovel III.
Although the problematic billing is five years old, the issue is ongoing, according to the report. Officials from the highway administration, state agencies and the private sector have begun working on ways to improve oversight, the report said.
In a Feb. 10 letter, Rep. James L. Oberstar (D-Minn.) called on Scovel to ensure the highway administration "has taken all necessary actions to" recover money and track spending.
"Inadequate oversight enabled these costs to evade detection," said Oberstar, chairman of the committee on transportation and infrastructure.
Highway administration officials said they generally agreed with the report's findings and recommendations.
"The agency is committed to improving the overall stewardship and oversight of the procurement, management and administration of engineering consultant service contracts," Federal Highway Administration spokeswoman Nancy Singer said in a statement yesterday. "The timing for this report could not be more opportune as the FHWA works to prepare state departments of transportation for the implementation of the President's economic recovery plan and to underscore the key accountability and transparency requirements that would be built into the plan."
The billing questions at the heart of the audit have been a matter of concern for years, especially since the federal government loosened limits on overhead costs more than a decade ago. A special concern for state auditors is that design and engineering firms on highway projects are generally hired without competitive bids, based on qualifications and experience.
Members of the American Association of State Highway and Transportation Officials -- including state auditors from across the country -- said they noticed that overhead and compensation costs had been rising for years.
"It has always been on our agenda," said Carolyn Rosti, manager of the office of internal review for the Idaho Transportation Department and the vice chairman of the transportation group's audit subcommittee. "We have been concerned about growing levels of executive compensation."
Auditors found that just more than half of the 41 firms examined had billed the government for unallowable costs.
The role of certified public accountants became a focus in part because officials from nine states expressed concerns about their independence. The auditors found that highway contractors sometimes hired accountants that were not qualified to perform the reviews required by state and federal regulations. In many cases, they "hired firms with whom they had existing relationships."