Golden State lacks control over grant spending, audit finds

Local officials in California failed to properly account for millions of dollars spent on homeland security efforts in the state, made dubious purchases that may not make communities safer, and could have overpaid millions by not seeking competitive bidding for equipment, according to an audit by the inspector general of the US Department of Homeland Security.

In one example cited, a California county bought a $96,600 generator to provide its public works department with emergency power during a catastrophe but didn't factor in a $130,000 overhaul of its electrical system needed to accommodate the generator. So nearly two years after the purchase, the new equipment wasn't ready for a disaster and might never be, county leaders admitted.

Another county entered into a multimillion-dollar contract for communications equipment without competitive bidding, which an independent assessment found could have cost taxpayers as much as 26 percent less if other companies had participated. A third county paid more than a half-million dollars to outfit a witness interview room, which was rejected as an illegitimate use of homeland security funds.

In addition to citing municipalities for irregularities, the audit was critical of the state homeland security department's oversight of grant spending, saying it's monitoring "was not sufficient to assure grant funds were spent properly."

The report noted that only half of the local agencies in California that have received cash since 2001 were visited by state monitors as of December 2007 and the state's weak controls did not ensure purchases made were "eligible, allowable, and supportable in accordance with federal guidelines."

According to the audit: "Our reviews of several grant files disclosed that documents such as purchase orders, receipts, or delivery notices, were not present to support millions of dollars in grant expenditures. State officials explained that, in an effort to improve operational efficiency of grant management, subgrantees were not required to provide supporting documentation together with their reimbursement requests."

In a letter responding to the audit, California Office of Homeland Security Director Matthew Bettenhausen argued that the state has a system in place for approving local expenditures and that grant managers in his office receive extensive training throughout the year. A spokesman for Bettenhausen said "We're reviewing the report" but declined to address individual findings in the audit.

The March 13 report focused on $265 million given to the state from 2004-2006 through the State Homeland Security Program, only a fraction of the at least $1.7 billion awarded to California between 2003 and 2008 through the most common grant programs made available by the federal government. The state has received additional millions from Washington for projects that exclusively target port security, expanded interoperable radio systems, hiring new firefighters, border protection and more.

In overall dollars received, California is the leading beneficiary of homeland security grants compared to other states, according to Matt Mayer, a former top official in the federal Department of Homeland Security's Office of Grants and Training.

The audit also found that despite receiving hundreds of millions of dollars in homeland security grants since 2001, California has not adequately evaluated improvements made in emergency response efforts, so it's difficult to tell which areas of the state are better prepared to respond to a major catastrophe.

Bettenhausen, in his response letter, disputed that California had failed to measure changes in its ability to manage disasters. He wrote that the state has tracked improvements in its emergency response capabilities and can gauge today how it is better equipped for calamity than before California began receiving the grants. "California has gone above and beyond what is required at the federal level in the measurement of preparedness and capabilities," Bettenhausen wrote.

The audit does not name any of the counties singled out in examples of questionable grant expenditures, and Bettenhausen's office would not provide them, although it made assurances to the inspector general that the purchases were valid.

Two California counties CIR was able to independently identify from the report, Alameda and Contra Costa, committed $33.4 million to a new emergency communications system using grants funds, but they need at least $34 million more for additional equipment and are unsure where it will come from, according to auditors. So for now, the system is only partially operational. In addition, a contractor may have overcharged them, and auditors are questioning the entire investment.

For the most part, local California recipients of the homeland security grants Congress began handing out after Sept. 11 must purchase what they need first, such as equipment and terrorism response training, before being reimbursed with federal money controlled by Sacramento. The grants have allowed cities of all sizes across the country to buy new mobile command vehicles, gas masks, hazmat suits, decontamination shelters, surveillance equipment for identifying terrorists and more.

A number of states have struggled to comply with rules created to increase accountability over the grant spending such as seeing to it that cities and counties keep their pricey new gear in a "state of readiness" and maintain documents that validate the purchases they've made.

Bettenhausen agreed in his response letter that more monitoring visits needed to occur and vowed to ramp up their frequency, but he complained that the amount of grant funds available specifically for such administrative costs are limited and a backlog of older grant years still exists. However, he promised that more on-site inspections will help ensure "funds are being expended as intended."

Suspect equipment purchases were made in cases identified by the auditors. One of the two aforementioned counties not named hired an engineering firm after determining that the $96,600 generator it had purchased with grant funds would be too difficult for its own employees to install. The consultants discovered that an electrical system would first need to be expensively renovated before the generator could be used. Because the county wouldn't put up the money needed to cover the previously unrealized costs, the generator has sat inactive for almost two years. A public works director from the county didn't believe the money would ever be made available, according to the report.

Another recipient spent nearly $600,000 on audio recorders and additional equipment to outfit a witness interview room for law enforcement purposes, but such items do not "enhance preparedness for terrorists' attacks or natural disasters," the report found. Auditors recommended that the state recover the costs of both projects.

Bettenhausen countered in his letter that the audio equipment "can be used to monitor and record suspects and witnesses involved in a terrorist event." Bettenhausen also promised to make sure that the emergency generator was eventually installed.

Many local authorities in California, according to the report's findings, also are not meeting federal procurement guidelines that require competitive bidding for major homeland security purchases, an obligation that's designed to make certain taxpayers receive the most value possible. "As a result, the grants' requirements for fair and open competition in procurement were not always practiced and subgrantees may have paid more than was necessary," the report states.

Local grant administrators bought large-ticket items but were not familiar with federal procurement rules and did not have records showing what processes they did use to purchase the gear. The report cited examples totaling $11.6 million worth of questionable transactions, including a $294,000 bomb disposal robot, $81,000 worth of night-vision goggles and a $5.1 million communications system.

Multiple purchases were made without competition, or local officials failed to prove that there weren't enough suppliers of specific goods to compete with one another. Nor did grantees conduct cost analyses to determine whether prices were "fair and reasonable" when only one vendor was used without competition.

The $5.1 million communications system was supposed to be part of a much larger regional network in the San Francisco Bay Area of northern California, designed to serve multiple dispatch centers and emergency radios so that first responders could more readily talk to one another. Two Bay Area counties, Alameda and Contra Costa, which encircle several California cities including Oakland and Berkeley, manage the interoperability project together, one of many similar but expensive efforts that exist today around the country. Because of the system's original design, according to the report, most of the equipment for an early phase of the undertaking was purchased from the same company that conceived it.

The contractor, which is not named in the report but CIR identified as Motorola by searching documents online, estimated that the larger system ultimately would carry a price tag of about $54.8 million, including the cost of transmission towers, repeaters and other equipment. A later independent assessment, however, found that Motorola had added a substantial premium to the price of as much as 26 percent compared to what the cost may have been if more than one company competed to offer a better deal.

A spokesman for Motorola declined to comment on the audit's findings. The East Bay Regional Communications System Authority has spent approximately $10 million so far against the contract with Motorola. Bill McCammon, executive director of the authority, told CIR that it has since learned of other less costly alternatives, such as piggy backing on a contract that was competitively bid out to Motorola by Riverside County in southern California. The authority will pursue those options rather than continuing with the existing contract, but McCammon admits some service fees charged by Motorola so far were overpriced.

He said that when Alameda County sought a contractor initially for a new radio system, Motorola was the only bidder. Officials chose to proceed with the company anyway because the Department of Homeland Security requires grants to be obligated quickly for projects each year after the federal awards are announced.

"It was a question of using those dollars or losing those dollars entirely," McCammon said. "Those funds need to be expended within a certain amount of time."

Regardless of the system's estimated cost now, it doesn't include the additional millions it will take to provide the police, sheriffs, firefighters, paramedics, public works personnel and others who would benefit from interoperability with individual radios, thousands of which may be needed. McCammon isn't sure how much more that could cost.

As of May 2008, the two counties were looking for a way to meet a funding gap in the project of $34 million, but according to the audit, they don't know how to fill it. McCammon responds that "we're going through a very deliberate process to evaluate our options" with the aid of a communications consultant. Nonetheless, if the system does not eventually work, auditors say that all of the money used from homeland security grants for the project – more than $33 million earmarked so far – should be relinquished.

Bettenhausen responded in his letter that the state would not be requiring an "artificial date" for completion of the communications project but would review its implementation plan to see if the system is technically feasible and compatible with other interoperable radio initiatives in the state.

The report, meanwhile, did single out another project in California for commendation. The California National Guard created a unique truck-bound system that can bridge disconnected communications systems in a disaster area. But it would still take a few hours for the system to be deployed during an emergency with the help of a military airlift. An early prototype was used during Hurricane Katrina and also California's 2007 wildfire season. Six of the units are being manufactured and will be set up in regions across the state. Other states are examining the system's state-of-the-art design.

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