State of Maryland

State Highway
Administration Audit:
Audit Issues
Presented By:
Victoria Espinal
Andrew Heminger
Mai Nguyen
Justin Straub

Scope, Objective, Methodology

Conducting a review of several allegations related to
SHA , received through fraud hotline
Possible conflicts of interest involving several senior SHA
management employees responsible for certain
construction-related contracts
Purpose: Determine whether the allegations were valid
and if the related activities violated State Law,
regulations, and policies
Consisted of tests, analyses, observations, and
discussions with SHA personnel and others

Introduction
SHA is responsible for the planning, construction,
improvement, maintenance, and operations of the State
highway system.
SHA entered into multi-year contracts with engineering
firms to provide both construction management and
inspection services for SHA construction projects.

Structure of Contracting Process

Separate contracts are issued for each of the seven SHA district offices
SHAs Office of Construction (OOC) was responsible for developing the
scope of contracts on behalf of the district offices
The Office of Procurement and Contracts (OPC) was responsible for
conducting the actual procurements
Both units were responsible for independently evaluating and rating
proposals, and comparing their results
After resolving any discrepancies, the final rankings are submitted to
an independent screening committee
The screening committee makes a recommendation to the SHA
Administrator for awarding the contract

Structure of Contracting Process

Office of
Procurements
and Contracts
(OPC)

Office of
Construction
(OOC)

Independent
Screening
Committee

SHA
Administrator
Approval

Fraudulent Schemes
Employees were diverting funds from contracts to be
used on other over budget projects or for expenses that
were not included in the scope of work that had been
approved by the Board of Public Works
Employees that diverted funds to over budget projects
would later go work for the contractors that were hired
for the over budget projects
Two anonymous tips were sent to the State Highway
Administration concerning the collusion and fraud

Finding 1
A senior Office of Constructions (OOC) management
employee appeared to have solicited funds from firms
doing, or seeking to do, business with SHA potentially
violating State Ethics Laws, a Governors Executive
Order, and SHA policies

Evidence
A senior OOC management employee appeared to solicit
funds from contractors doing or seeking to do business
with the SHA
The employee was a partial owner of an out-of-state
company that promoted sports activities and events
7 contractors that do business with the SHA were listed
as sponsors of a charity event hosted by the employees
company.
5 of the firms had ongoing contracts with the SHA,
which were procured by the OOC

Analysis
Should an employee from the OOC been able to procure
a contract?
Should the employees relationship with other
companies be disclosed, even if the relationship was
non-profit?

Result
The employee may have violated State Ethics Laws, a
Governors Executive Order, and SHA policies
2 of the 5 firms with contracts were awarded two $16
million contracts shortly after the sporting event
The employees business interest was not always
reported on the annual Financial Disclosure Statements
filed with the State Ethics Commission

Recommendations
The SHA should:
1. Take appropriate action regarding the employees
violations of State Ethics Laws, Executive Order, and SHA
ethics policies
2. Ensure employees comply with laws and regulations
3. Refer the matter to the State Ethics Commission

Finding 2
A former senior management employee was hired by a
firm doing business with SHA within 12 days of
retirement and subsequently worked on an SHA contract
that, as an employee, this individual had helped to
procure

Evidence
A former senior SHA management employee started
working for a firm doing construction management and
inspection services for the SHA within 12 days of retiring
from the SHA
The employee was directly involved in the SHAs
procurement of a contract with the firm
After being hired by the firm, the employee was directly
involved with overseeing the contract as an executive of
the firm

Analysis
Do you think employees who retire from a government
agency should be prevented from going to work for firm
who do business with that agency?
Would a grace period, similar to a non-compete
clause in a private sector contract, be effective?

Result
The employee awarded a $16 million to a private firm to
provide construction management services
This was the first time in SHA history where the SHA
utilized an outside firm to provide construction
management services rather than using the SHAs own
staff
This senior employee also approved the scope and
award amount of the contract
Within 10 months after retiring, the employee approved
2 invoices totaling $96,896 as an executive of the firm

Recommendations
The SHA should:
1. Take appropriate action and refer the matter to the State
Ethics Commission
2. Ensure employees comply with the Law and regulations

Finding 3
SHA did not ensure that firms doing business with SHA
complied with State Ethics Laws and SHA policies
regarding the hiring of former State employees

Evidence
SHA employees are routinely hired by firms doing
business with the SHA
No attempts were made to identify these employees
and ensure that their employment doesnt violate State
Ethics Laws and SHA policies
Firms would advertise in their construction bids that no
learning curve would be needed because their staff
included former SHA employees

Analysis
Should other government agencies, such as the State
Ethics Commission, oversee and regulate the SHA in its
bid selection process?
Many of the contractors implied that the revolving
door between the SHA and its contractors is a good
thing, because they work more efficiently. Is this
attitude wrong? If so, how?

Result
Another former employee was hired within 9 months of
retirement from the SHA
The SHA advised that this did not conflict with State
Laws and regulations or SHA policies
They argued that as long as the former employees were
working on different projects, there were no problems
However, there is no way of knowing whether the firms
use former SHA employees on SHA contracts

Recommendations
The SHA should:
1. Periodically obtain a record of former SHA employees
from those firms that have contracts with the SHA
2. Refer these records during the invoice payment approval
process to determine if the firms were in compliance
with the Law and SHA regulation prohibiting former
employees from working on contracts that they were
involved in procuring

Finding 4
SHAs procurement of two $16 million contracts
circumvented certain established independent bid
evaluation processes and was not adequately
documented

Evidence
The SHA did not perform a complete rating of the technical proposals
as required
The OPC only evaluated and rated 4 out of 14 categories used to rank
firms, which accounted for less than 50% of the possible points for
ranking the firms
SHAs independent contract approval process provided by the
screening process was compromised. 2 of the 4 members on the
committee were not designated to serve on the committee
SHA could not document certain key components of the rating process
SHA did not document how disparities between the evaluation by the
OCC and OPC were resolved

Analysis
If the SHA did not reconcile the differences between the
OOC and OPC, could the selection committee been
influenced by either the OOC or the OPC?

Result
Basically, recommendations to award contracts were
deferred to the OCC, since the OCC personnel were the
ultimate end users of the contracts
2 of the members of the selection committee were OOC
employees who had previously evaluated and rated the
firms being selected in the bidding process

Recommendations
The SHA should:
1. Ensure that the OPC evaluates all proposal categories
2. Document the resolution of rating variance between the
OPC and OOC
3. Ensure that bid evaluations and ratings are fully and
properly documented
4. Establish a written policy regarding the membership of
the screening committee, and make sure that the
screening committee remains independent

Finding 5
SHA solicited the cooperation of two of the firms
involved in the hotline allegation to redirect contract
funds from the two aforementioned $16 million
contracts for unrelated projects, and/or to conceal
overspending on other contracts, thereby circumventing
Board of Public Works oversight and approval.

Evidence
A senior SHA management employee sent a letter to a
contractor asking them to use funds from the
contractors contract (its $16 million construction
management and inspection services contract) to
provide technical support, maintenance, and
enhancements the OOCs IT system
The SHA considered this an extension of their
Supplemental Construction Inspection Contract
The contractor said it was a different task unrelated to
the contract, but agreed to do it anyways

Discussion
Does this modification fall outside of the scope of the
SHAs contract (Highway Construction) with the
contractor?
Why would the government allow SHA offices to
unilaterally make extensions to contracts?
Were the internal controls sufficient enough to prevent
this from happening, or were they circumvented by the
SHA employee?

Result
The SHA did not maintain records to account for the
potential financial impact of these activities
It is estimated that $1.5 million had been diverted from
the $16 million contract to cover over-expenditures on
other projects in other SHA districts
Two paid invoices submitted by one of the contractors
revealed that the majority of funds (71 percent of
$250,583 and 65 percent of $274,505) related to
projects were not within the scope defined by the Board
of Public Works

Recommendations
The SHA should:
1. Take appropriate corrective measures
2. Develop Procedures and controls to ensure contract funds
are used only as authorized
3. Document the basis of contract amounts submitted to the
Board of Public Works
4. Obtain Board of Public Works approval for significant
contract modifications and changes

References
Myers, Bruce A. Special Review of the Department of
Transportation State Highway Administration. Office of
Legislative Audits. June 24, 2011