December 12, 2014
New York State Office of the State Comptroller
Thomas P. DiNapoli
New York State Comptroller
110 State Street
Albany, New York 12236
New York State Education Department
89 Washington Avenue
Albany, New York 12234
RE: Buffalo Joint Schools Construction Program Audit
Dear Comptroller DiNapoli and Commissioner King:
The Program Provider seeks to close out the 12- year, $1.4 billion, Buffalo Public School System– Joint Schools Construction Program (Program) with the Joint Schools Construction Board (JSCB.) The current Board of Education majority members appointed to the JSCB conducted an independent inquiry and have found clear and convincing evidence that the oversight, review and internal audit performed during the course of the Program was severely lacking and corrupted, requiring a comprehensive independent audit to be conducted immediately. What some want to describe as a model school reconstruction program appears instead to have been an intentional ongoing conspiracy to defraud the taxpayers of New York State of millions of dollars.
The Program Agreement was not consistent with usual and customary controls over the Program Provider. The Program Provider’s procedures, the bidding and award of sub-contracts, the lack of definition, the lack of transparency and the lack of any agreement to establish the amount of profit earned by the Program Provider, its consultants and contractors, self-dealing, political “fees” paid to consultants and the disbursement of taxpayer funds must all be reviewed.
Until recently, the JSCB and its representatives never asked for, nor were they made aware of, all of the Program Provider’s subcontractor bids received or the manner in which bids were awarded. In some cases bids awarded to contractors who had close relationships with certain consultants, paid the consultants to secure contracts for them. The same consultants also received funds from the Program Provider. JSCB representatives, who had no experience with construction management, were never instructed to request, obtain and review such documents. There were no checks and balances over executed contracts and no evidence of the amount and nature of all payments, disbursements and profits made on any of the projects.
The hybrid and unique nature of the Program Agreement was not consistent with usual and customary controls over a Program Provider. It is evident that from inception the provision for a guaranteed maximum cost allowance, apparently determined jointly by the State Education Department and the Program Manager, prior to the rendering of a definition, feasibility and any scoping and the preparation of any plans or specs, left the Program Provider with the exclusive right, without oversight, to determine the scope and cost of the work and the amount of its own profits. The Program Provider dictated the plans and specs, hired and guided the architect, negotiated and awarded contracts with sub-contractors and set its own profit margins, all without objective public scrutiny. Allegedly the Program Provider also owned a non-union contracting company which was allowed to bid on certain sub-contracts.
As a result of the above, the JSCB and the Buffalo Board of Education voted to have a complete and thorough independent audit of the entire Program from Phase 1 to Phase 5.
The JSCB also voted to request that the New York State Office of the State Comptroller (NYSOSC) conduct a full and comprehensive audit with respect to the Program.
The politics involved, considering the special relationship between the Governor and the Program Provider, especially in the context of the Albany’s corruption, will put NYSOSC and the State Education Department (SED) in an unbearable position, if not a clear conflict. The audit may very well turn into a forensic audit as the history of the untoward relationships are peeled back.
For that reason, I request that NYSOSC and or SED fund an independent comprehensive audit by a credible private auditor.
Note that an audit conducted by the NYSOSC of the Phase I of the Program for the period from September 2003 to February 28, 2006 was incomplete and resulted in little or no follow up on its recommendations. The audit pointed out that the Program Manager was self- dealing but did nothing except to say that the practice must stop (which it apparently did not.)
Also in September, 2014, the JSCB voted to request that the Program Provider furnish it and its agents with copies of all subcontractor bids, contracts, payments and disbursements made from the maximum cost allowance which was paid to the Program Provider during the entire term of the contract. It is now three months later and the Program Provider is non- responsive, stonewalling, refusing to answer whether or not and when they might produce the requested information and documents.
The Program Provider’s attorneys are conflicted insofar as they are also outside counsel to the Buffalo Public Schools.
Please advise of your intentions.
Very Truly Yours,
Carl P. Paladino