BATON ROUGE, La. — A wide-ranging legislative audit of the drainage system operated by the Sewerage & Water Board of New Orleans, its financial system and contracting policies found the agency lacked the controls necessary to ensure compliance with some of the state’s bid laws and uncovered possible constitutional violations regarding the donation of public funds.

Among the areas of concern for the Louisiana Legislative Auditor was an employee awards banquet held annually at local hotels from 2013 to 2016 that cost upwards of $34,000. At the buffet-style banquet, the agency handed out 10K solid gold rings, 24K gold-plated watches, 10K solid gold pendants and tie pins and sterling silver rings ranging in price from $66.75 to $449.50 each.

The Louisiana Constitution prohibits the donation of public funds and opinions from the Louisiana Attorney General have said awards for public employees should be moderate in price.

The auditor recommended the agency stop the awards banquets, and in his response, new Executive Director Ghassan Khorban agreed, noting the events are no longer being held.

But the revelations about the lack of consistency and controls in contracting stretch far beyond the contracts for special events.

The agency lacks a contract management system, and even after seven weeks, did not provide all the contracts and backup documentation auditors requested for their analysis.

The audit revealed the S&WB does not have policies in place to sufficiently monitor the agency’s contracts. For example, policies that were developed to rein in change orders and contract amendments were never finalized and, therefore, not routinely or consistently followed to keep costs from ballooning.

Policies inconsistent with state bid laws also led to possible violations of the law regarding the length of time bids were advertised, according to the audit.

In a statement released Monday, the S&WB said, "This utility will continue to improve. We are implementing strategies to create better oversight and tracking of contracts. We are constantly reevaluating all policies and procedures to find ways to better serve the public."

Their initial task was to evaluate the drainage system and assess the financial stability of the S&WB. In the 2018 legislative session, Rep. Pat Connick and Rep. Stephanie Hilferty expanded the scope of the probe to include a review of the agency’s contracting.

"Every dollar that goes into the organization needs to be used as effectively and efficiently as possible. We cannot afford mistakes with the condition of our infrastructure and the age of our infrastructure," HIlferty said after reviewing the audit.

The Lakeview lawmaker also sponsored a bill to create a task force that is currently evaluating the management structure of the S&WB, with a report due at the beginning of 2019 to determine if any restructuring needs to be done.

Auditors began their probe by evaluating the reliability of the S&WB drainage system after flooding on August 5, 2017, inundated parts of New Orleans, leaving residents stranded, homes and businesses damaged and residents searching for answers about the agency’s drainage capabilities.

The S&WB uses outdated 25 Hz power, self-generated by an onsite power plant, to run the majority of the drainage system. Auditors found it costs the agency double to produce its own power rather than purchasing more modern 60 Hz power from an outside energy company, as all other parishes in the metro area do.

That assessment was one Khorban took issue with, pointing out surrounding parishes’ drainage systems were installed decades after the S&WB, and the agency has incorporated 60Hz power into its drainage system as well.

“Although both broken pumps and out-of-service 25Hz turbines played a significant role in the severity of the August 5th flood, we cannot accurately quantify their impact on flood levels within Old City or other portions of New Orleans,” the auditor wrote, adding that the diminished capacity of the canals and pipes after years of deferred maintenance likely played a significant role as well.

The auditor also painted a grim picture of the S&WB future financial position as well, with limited reserves from recent emergencies and upcoming obligations that could further stretch the agency’s finances.

“The S&WB’s diminished cash reserve position will be negatively impacted by a series of $2 million minimum annual payments required on a 10-year agreement with the Southeast Louisiana Flood Protection Authority-East, as well as $1 million to $11.4 million annual payments required on a 30-year financial obligation to the federal government for construction of the Southeast Louisiana Urban Flood Control Project in Orleans Parish,” the audit says.

Connick applauded the audit as a first step toward improved transparency, while also noting the difficulty the board had in providing contracts and complete backup documentation to auditors for their review.

"It raises more questions than answers, and that's the thing the public needs to know," Connick continued, "I'm sure there are some contracts that we still don't know about that may raise some eyebrows."

Khorban agreed with many of the auditor’s findings about the need for better policies and even tweaks to state law that could make S&WB contracting more standardized and regulated.

Click here to read the full report from the Louisiana Legislative Auditor.

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