SC construction firm disputes LR5 audit that alleged overspending, ‘fraud’ in school build
The construction firm that was the subject of a biting audit in the Lexington-Richland 5 school district is firing back at the auditing firm’s verdict, calling into question the accuracy of their findings.
Top figures at Contract Construction of Irmo call the audit conducted by Lexington-Richland 5 “an opinionated, derogatory, and many times erroneous account” of the work done by the firm to build Chapin’s Piney Woods Elementary School.
That audit, conducted by the Jaramillo Accounting Group, concluded that Contract Construction made unauthorized changes to billing for work done on the Piney Woods site and questions the legitimacy of some of the spending decisions made by the company.
The report accused the construction firm of going 50% over budget on the project and said its use of one contractor raised a “fraud red flag.” But the company’s president calls that a wildly inaccurate representation of his firm’s work.
“After a thorough review of the audit, we feel that it was an opinionated, derogatory, and many times erroneous account for the actual events that occurred on this project,” Contract Construction President Greg Hughes told The State this week.
The company has also formally responded to the school district by sending a letter drafted by attorney William McGee.
“Based on this draft report, which is filled with false information, lack of thoroughness, mathematical errors, and even some apparently spoon-fed irrelevant speculation, they display no knowledge of the specialized accounting required” for such a contract, McGee writes.
A call from The State to Jaramillo Accounting Group asking for a response to Contract Construction’s claims was not returned before publication.
Lexington-Richland 5 said in a statement its “administration is tasked with reviewing the audit recommendations for internal controls and making a report to the Board of Trustees about how to improve our current financial accountability.”
The partial audit report released by the school district Sept. 20 is part of a larger, ongoing review of school district spending decisions from 2016 to 2021. A summary audit report released by Lexington-Richland 5 in July flagged potential misspending or unauthorized spending of millions of dollars that may have violated school district procedures or even the law, although only the partial summary looking at Piney Woods has been publicly released so far.
One of Contract Construction’s main objections is to the contention that it exceeded spending estimates by 50%. The Jaramillo report claims the Piney Woods project finished some $10 million over the district’s initial estimates, going from $20 million to $30 million.
“With inflation at that time roughly 5%, the significant increase during the project and even comparing to other District projects ... does not make sense,” the audit report says.
The company disputes that claim, arguing $20 million was a ballpark figure in the district’s initial request for proposals not tied to any specifics of the project. When the school board voted to award the building contract in December 2018, it set a maximum price of $30 million, which Contract Construction says it stayed under.
“The $20 million was an arbitrary number in the original request for proposals, just to give the offerers an order of magnitude for what type of project is being solicited,” Hughes said.
Contract Construction said the final cost of the project was $26,569,355, which was $1.9 million less than the estimate at the design development phase. The company says it returned more than $350,000 to the district in savings and added $450,000 in enhancements to the site such as playground equipment and other features.
“At no time did Contract Construction contemplate building a school to the district’s specifications for $20 million,” McGee writes in his response. “It’s proposal certainly did not indicate that because it would have been impossible to meet the district’s stated requirements for $20 million.”
“Based on many inaccurate statements in the draft report it appears JAG does not understand the conditions of a GMP (guaranteed maximum price) Contract.”
Fraud or dragged through the mud?
Contract Construction executives also balked at the report’s accusations about a cleaning service used by the company at the Piney Woods site. Jaramillo called Owens Cleaning Service an “unusual vendor” that was registered three months before Contract Construction was awarded the Piney Woods contract using a residential home address.
Auditors questioned the $315,855 Owens was paid after they found no website associated with the cleaning service or an indication it was a “valid business,” which the report calls a “fraud ‘red flag.’”
Hughes pushed back against that suggestion, noting that Owens Cleaning is used by multiple contractors in the Midlands.
“Susana Owens is a small, minority, woman-owned business enterprise that was started out of her house, continues to function out of her house, and performs many more tasks than just cleaning,” Hughes said. “The name ‘Owens Cleaning’ is misleading because she started out as just a cleaning service and she has evolved into a full-service skilled labor provider, which performed many activities on the project, not just cleaning.”
Owens is the wife of a supervisor at Contract Construction who had no hiring authority over the Piney Woods project, Hughes said.
“It was particularly concerning to see JAG drag a small and minority-owned business through the mud with condescending comments about the business’s logo, lack of a website, etc.,” McGee wrote to the district. “The construction industry and this country are built on the backs of many small businesses. Contract Construction began as a home-based small business, and it always has and always will support and encourage similar companies.”
More broadly, Contract Construction disputes the central contention that it charged the school district more than it was allowed to under its contract. Hughes said claims about overtime in the report don’t make sense in terms of the contract, which sets its schedule according to calendar days, not a 40-hour workweek. Any overtime clocked up was in the interest of getting the project done on schedule amid bad weather and a pandemic, Hughes said. In the end, the school district moved into Piney Woods ahead of schedule, he said.
He said when Contract Construction did its analysis of some of Jaramillo’s claims, they found claims based on mathematical errors such as double-counting or inadvertently adding numbers from one column to another.
“When we did our own audit of the information we provided JAG, it was riddled with errors throughout,” Hughes said. “I created a spreadsheet to try to get to the bottom of it, and as far as I can tell, it’s just strictly careless errors. It’s errors in the spreadsheet formulas and just math errors. Really it’s just adding numbers up. You could have done that easily.”
McGee also hammered on the point in the company’s formal response.
“The subjective tone of the draft report is peppered with several glaring errors of irrefutable facts,” McGee writes. “One prime example is the complete misrepresentation of Contract Construction’s billing practices. ... Your reviewers miscalculated Contract Construction’s actual invoiced hours, giving the appearance that it had overbilled the school district some 2,700 hours towards the Project. That is completely false.”
Contract Construction says it provided JAG auditors with any documents they requested but were never questioned or asked for clarification on any of the audit’s findings prior to publication.
Hughes did credit the audit with finding two billing errors, Hughes said.
“We found two items of concern in the audit, and they totaled $26,000 including interest, and we repaid those funds with interest, along with our response to the audit,” Hughes said. “They were an erroneous billing on a business license and a lack of reduction in our fee to reflect the final deductive change order.”
This story was originally published November 3, 2022 at 11:39 AM.
.jpg)