Final Report - Case No. 07-07 San Joaquin Regional Transit District

A security guard, hired as a contract employee by SJRTD, was paid in excess of the specific terms of his contract. SJRTD’s payroll records show that a security guard, hired as a fixed term employee worked a twelve hour day, seven days per week; taking off only two days in the year 2007. The guard worked from January 2007 to July 2007 without a contract at an average monthly compensation of $7,260. The guard was paid for hours worked beyond the provisions of his contract (exceeding 12 hours per day) and received fuel for his private vehicle at public expense also not provided in his contract. The guard later began using an SJRTD vehicle to make his “rounds” in violation of his contract, which specified that he must furnish his own transportation.

The American Express (AMEX) Credit Cards, held exclusively by the General Manager/CEO and her Administrative Assistant, were often used in violation of procedures outlined in the SJRTD Procurement Manual. Personal gifts for employees and personal meals are frequently purchased. Gasoline for SJRTD vehicles had been purchased at local retail gas stations for greater than $3.00 per gallon, even though SJRTD Facility gas was readily available at $2.12 per gallon. A cash rebate of approx $243 from AMEX is unaccounted for. Late fees and finance charges in excess of $300 have been charged on the AMEX account.

Purchase cards (P-Cards) were often used to purchase meals and other food items, in local restaurants, sandwich shops, grocery stores and coffee houses, in violation of published procedures. “Restaurant expenses are allowable charges for the P-card while traveling.” Examples include: over $11,000.00 in food purchases made in 2007, a $1,038.00 dinner at Mallards restaurant, and an $800.00 charge made at Starbucks Coffee shop. Meetings were regularly held in local restaurants during the lunch and dinner hours and charged to the P-card.

Purchase cards were used to purchase items for resale to employees at discounted prices in violation of prescribed (P-Card) use. Regal gift certificates (movie tickets) in increments of $1,758.00 per purchase, totaling $8,790.00, were made in 2007. They were purchased to use as gifts for employees for good work and as birthday presents, or they could be purchased by the employees at a discount.

Final negotiations between SJRTD and the design builder firm for the Downtown Transit Center, involved a contract consultant who had a contractual relationship with both parties. This created an appearance of “conflict of interest” that may have affected SJRTD’s standing during the negotiation. A consultant, who was compensated by both SJRTD and the design builder firm of the Downtown Transit Center, played an integral role in negotiating the final disputed construction settlement agreement between both principals. This is a potential conflict of interest as described in Chapter II section 2.2 of the SJRTD Procurement Manual.

A labor relation consultant was hired to resolve management/union problems at SJRTD. This consultant has continued to be employed after four years even though the labor problem was resolved. The specific requirements of that contract are not being followed or enforced. The consultant has not furnished, nor has SJRTD supplied, “Deliverables” as defined in the contract, as requested by this Grand Jury.

A consultant was hired to provide training to management employees. It appears this consultant has completed the scope of his initial contract and is currently repeating training assignments completed in the first four years on the job. Such employment results in unnecessary expense to SJRTD, and ultimately, to tax payers. The consultant has not furnished, nor has SJRTD supplied, “Deliverables,” as defined in the contract. “Strategy Papers,” as required in the contract were not furnished to the Grand Jury as requested. Documents delivered by SJRTD turned out to be extracts from trade publications and letters of

The “Events Coordinator” continued to provide services and was compensated after the 2006 employment contract had expired. A new contract was signed March 13, 2008 and made retroactive to July 1, 2007. Prior payments made in 2007 were charged to the 2006 contract on the invoices. No verification of completed “Deliverables,” as defined in the contract, were furnished to this Grand Jury as requested. After a review of several other employment contracts, it was determined that most contractors did not produce the “Deliverables” specified in their contracts. No evaluation system has been established at SJRTD to determine if all contractors are producing a satisfactory result for the agency. Additionally, there is no system in place to determine if and when the contractor has finished the assigned tasks.

Several employees, consultants, and contractors were hired without the benefit of a competitive hiring process. In some cases, there appears to be the specter of “nepotism”. As an example, one consultant managed to have his daughter, and daughter-in-law hired and paid by SJRTD for special projects or activities. In another example, a second security guard was hired to share the workload of the first security guard. He was hired without competitive process, and he is related to the first security guard. These practices, while perhaps not outside the authority of the General Manager, have a tendency to create dissention among the current employees who seek career advancement within SJRTD, and who are not allowed an opportunity to fairly compete for positions within the District. These practices may also contribute to labor unrest.

Numerous consultants were hired, some with questionable qualifications for the contracted position, without an overall plan for project execution and management. Furthermore, some of the consultants’ duties overlap some of the responsibilities of fixed-term employees. For example, two Procurement Specialists, contracts S-2004-020 (dated 6/4/2004) and S-2004-002 (dated 1/27/2004) respectively, contained essentially the same task requirements. However, two individuals were simultaneously employed to do identical assignments. Also, an Information Technology specialist was converted from independent contractor status in contract S-2005-022 (dated 6/20/2005) to SJRTD fixed-term employee status in contract E-2005-09 (dated 12/01/2005); then converted back to independent contractor status in contract S-2007-016 (dated 8/15/2007). This individual completed the required duties while receiving dual compensation from 12/1/2006 through 3/24/2007.

An automobile was purchased with Federal grant money with the intention of using it as a police patrol vehicle. The necessity and the proper authority were not sufficiently explored before the purchase was made. Prior to SJRTD’s purchase of the vehicle, SJRTD was already under a service contract with the Stockton Police Department, which included the use of a city police vehicle. The automobile purchased by SJRTD in 2006 was done without Stockton Police Department (SPD) approval as to ownership, operating rules, or responsibility for the vehicle. The vehicle was stored at the SPD corporation yard awaiting installation of special police equipment. The SPD refused to install all necessary police equipment as it was owned by SJRTD and could not be legally used as a police vehicle. The car has never been put into service. This is a misuse of public funds since the original cost cannot be recovered at this late date.

The General Manager/CEO of SJRTD has failed to provide a summary of the contracts executed under her authority to the board of directors, as required by the SJRTD Procurement Manual. SJRTD Procurement Manual section 1.3 provides that, “A report summarizing contracts awarded within the General Manager’s authority shall be presented to the Board of Directors on a periodic basis, no less than quarterly.” Failure to provide this timely report deprives the Board of Directors of the data needed to exercise their responsibility to oversee the operation of SJRTD.

The General Manager/CEO has exceeded her authority to award and execute contracts on multiple occasions. The Board of Directors set her spending authority at $150,000. The Chairperson of the Board must sign contracts exceeding that amount. Examples of this misuse of authority may by found in contracts S-2004-031 (dated 10/20/2004) and S-2005-015 (dated 5/9/2005) both in the amount of $200,000. Section 1.3 of the SJRTD Procurement Manual states that “The Board of Directors shall approve the award of contracts and leases for equipment, supplies, materials, services or construction when the amount to be paid by the District exceeds $150,000. The chairperson of the Board of Directors shall sign contracts and leases that require approval by the Board.” These contracts do not bear the signature of the Chairperson of the Board of Directors.

A purchase card transaction made by the General Manager/CEO and the Maintenance Director in June 2007 appears to have been done with the intent to circumvent the informal bid process. Two purchase-card transactions in the amount of $1,784.34 were made on the same date in June 2007 by the General Manager/CEO and Maintenance Director for the same product from the same dealer. Section 4.4 of the SJRTD Procurement Manual describes an “Informal Bidding” process for expenditures exceeding $2,500. The section also declares that, “The District shall not arbitrarily split contracts or procurements so as to avoid the formal competitive bidding process.” Since the total of the two purchases exceeded $3,500.00, this appears to be a violation of SJRTD procedure.

SJRTD is not consistent in the use of “retainer agreements” for consultants. The line between salaried employees and those on retainer have been blurred. Some consultants are consistently paid for undocumented services against a retainer and are also paid for partially documented services at an hourly rate. Records reveal that these consultants always receive the maximum allowable payments, whether or not they provide the required “Deliverables” specified in their contract. For some individuals, payments for “retainer” services are akin to payments typically made to a “salaried” employee.

SJRTD has not effectively used their marketing department to generate advertising revenue on their bus fleet. SJRTD has adequate staffing in their marketing department, yet bus advertising seems to be minimal. Advertising can be an excellent source of revenue. Other transit districts produce significant revenues from advertising and additional revenue would reduce SJRTD’s dependence on taxpayer funds.

Contracts requested from SJRTD by the Grand Jury were not delivered upon our initial requests, and it became necessary for the Grand Jury to petition the Court to issue a subpoena.

The design of the Downtown Transit Center Construction Project was revised by Change Order after the contract had been awarded to the lowest bidder. The result of the change reduced the cost of the contract price by $2,481,474. The contract should have been returned to all original bidders to allow for continued participation in the formal bidding process, possibly saving the public additional dollars.

The General Manager/CEO did not follow SJRTD established procedures for “change orders” during construction of the Downtown Transit Center. To avoid litigation, it became necessary for SJRTD to enter into a negotiated global settlement agreement with the building contractor.

Thirteen hotel rooms in the cities of Stockton and Lodi were rented to use as meeting rooms at an expense of over $5,000. in 2007. The Downtown Transit Center has several large and well-appointed conference rooms capable of accommodating meeting room requirements.