Contract Compliance Unit exposes fraud involving general contracting firm.
Philadelphia, October 25, 2013– The City of Philadelphia Office of the Inspector General (OIG) released a policy recommendation report for improving the City’s risk management in contracting. The City worked with the OIG’s new Contract Compliance Unit in crafting improvements to the procurement process and has already begun implementing changes in response to the report.
“I thank Inspector General Amy Kurland and her Contract Compliance Unit for their detailed work done in exposing wrongdoing by a general contracting firm doing work at the Philadelphia International Airport,” said Mayor Michael Nutter. “But the IG went far beyond catching one contractor’s wrongdoing. She exposed long-standing weaknesses in the City’s oversight of our contracting processes and made specific recommendations to reduce the chances of unscrupulous contractors taking advantage of city contracting and damaging taxpayers’ interests. On the basis of her work, we are now strengthening our oversight protocols, which will save taxpayer dollars and ensure that quality work is done on all city contracts.”
The policy recommendation report follows an investigation by the OIG of Hart Enterprises & Associates, a general contracting firm owned and managed by John Hart. OIG found that the company made numerous material misrepresentations in paperwork submitted to the City for five construction and demolition contracts awarded between 2011 and 2012. The City did not properly screen the paperwork for potential fraud, awarded the contracts to Hart, and lost along with Hart’s workers approximately $297,000.
Hart forged and submitted ten surety bonds to the City. Valid surety bonds protect the City from losing funds if a contractor is unable to complete a City bid or project. But Hart successfully deceived the City, obtained the contracts, and passed on significant financial harm and risk. The company also misrepresented its financial history and City tax status.
Despite these facts, the company was paid more than $275,000 in City contract funds.
The company caused approximately $153,000 in losses that the City was left to address with limited remedies. Additionally, Hart Enterprises & Associates failed to pay its workforce more than $123,000 in minimum wages and owed more than $21,000 in taxes to the City.
OIG has already helped the City and Hart’s workers recoup more than $97,000 from Hart and his company, and OIG will continue to work with other City departments to pursue more than $200,000 in additional recovery.
As a result of the OIG’s investigation, John Hart was arrested on Wednesday and is awaiting prosecution by the District Attorney’s Office for ten felony counts of forgery and four misdemeanor counts of unsworn falsifications to authorities. OIG has also recommended that the City initiate debarment proceedings against Hart.
The OIG investigation highlighted several weaknesses in the City’s contracting process. Most notably, the report points out that many of the representations made by potential contractors are never independently verified by City officials, providing ample opportunity for dishonest companies to hide negative information and secure valuable City contracts. The report found communication and coordination problems across City departments, which prevent the City from recouping money from contractors for their outstanding wage or tax obligations.
The policy recommendation report outlines several ways to improve the process, including more stringent contractor qualification review, better communication in the payment hold process, and independent verification of supporting documentation, like surety bonds. With improved screening and communication, the City can better identify and avoid risky contractors like Hart Enterprises & Associates. The City has begun to implement the report’s recommendations including: bond verification protocols; increased information access and sharing; and improved communications between City departments.
This investigation and accompanying policy report is the most recent work of the OIG’s new Contract Compliance Unit, an ongoing OIG initiative focused on protecting the integrity of the City’s contracting process.
“Our Contract Compliance Unit approaches cases by detecting and analyzing what went wrong, helping to recover funds for the City, and identifying steps the City can take to prevent similar problems in the future,” Inspector General Amy Kurland said. “We expect the impact of this approach to be invaluable to the City and its taxpayers.”
So far, the Contract Compliance Unit has seen great success. In June 2013, an investigation by the Unit led to the first involuntary debarment of a City contractor, JHK Inc. The OIG investigation revealed that JHK received City money from a prime contractor, now known as Corizon Health Inc., only for the use of JHK’s name and woman-owned business certification in order to make it appear as if JHK was performing work on the contract when, in fact, it was not.
The Contract Compliance Unit also helped the City negotiate a settlement with Corizon. The company paid the City $1.85 million and adopted new corporate procedures to ensure compliance with the City’s antidiscrimination policies in the future. The Unit has also spearheaded similar settlement agreements concerning violations of the City’s anti-discrimination policies with more than a dozen companies, including Aramark Correctional Services, UGI HVAC Inc., and William Betz Jr. Inc.
“The OIG Contract Compliance Unit is focused on prevention,” said Inspector General Kurland. “We hope our successful investigations will deter people from violating City policies and defrauding the City, and we can prevent fraud from the ground-up.”
More information about the work of the Contract Compliance Unit and the OIG’s policy recommendation report can be found on the OIG’s website at: http://www.phila.gov/ig/contractcompliance.