Thursday, March 22, 2007
Huntley District 158’s Site & Construction Fund Auditor: “No Evidence of Something Being Spent that Was Not for the District’s Use," "Reasonable"
With $10 million not showing up in accounts where it should have been, the Huntley school board must have breathed a sigh of relief with Jefferson Wells forensic auditor Mike Nowark said,
“We balanced it to the minutes of the board.
“We balanced to what the construction managers billed.”
Board member Tony Quagliano, who served as the board liaison to the auditors, took responsibility for the word “missing” having been used in relationship to the $10 million.
“On the $10 million. There was a bad term floating around and the correct terminology. There never was $10 million missing. It was unaccounted for.”
Nowark explained that construction financed by the $80 million bond referendum started out $5 million short.
Quagliano pointed out that the school district was butting up against the 13.8% bonding limit. Unit districts can only borrow 13.8% of their total assessed valuation.
From what I could gather the board was basically “betting on the come.” They were betting that developer impacts fees would fill the gap and, apparently, they did.
After explaining that the disbursements seemed correct, Nowak advised how to make future building contracts more favorable to the district.
“(With the fixed fees for the construction and architecture, you) can audit only increased fees.”
Board member Larry Snow asked if Nowark had asked for anything else.
“We didn’t have the right to ask. It’s not in your (contract).”
“So you didn’t ask?” Snow persisted.
“No they didn’t,” Quagliano answered.
“It would have been OK to ask,” Snow added.
“We hired him because he’s the professional,” board member Rosemary Herringer added.
“All you can audit is the quality of the product after you accept a fixed fee…because that’s his profit, that’s his costs,” Nowark explained.
The construction expert said that such fixed fee construction contracts were common is school circles, but not in the private sector.
“This is the first time I ran into a construction contract that was not an ‘at risk’ contract, he said. “(With a fixed fee contract,) they’re getting their fees and something goes wrong, it’s your fault.”
(What’s needed are) “contracts with ‘not to exceed’ limits. You can make it to the contractor’s benefit (by having) a shared savings (clause).
He also suggested forcing contractors to report in a format convenient to the district, not an off-the-shelf format used in other jobs. That would make it easier to figure out whether they are doing what the school district wants them to do.
“Contracts with subcontractors had not right to audit,” so the firm could not look at what happened there.
“Unfortunately, this is not unusual,” he said, suggesting that the school district get future contracts “previewed” by someone like himself. Nowark pointed out that construction contracts are “negotiable,” so if a school district wanted the right to audit subcontractors, they could probably get that right.
Board member Kim Skaja asked whether “the costs we agreed to were reasonable.”
“They were reasonable,” Nowark replied.
“The fees were reasonable and what I would expect on contracts like this,” he concluded.
But, “$2.79 million is included in your 2006 (financial reporting instrument) draft (which was) put into the Operation and Maintenance fund (which should have gone into Site and Construction).”
It has yet to be transferred back to the Site and Construction Fund.
He concluded that change orders should be below 5% of the cost of the jobs. (I have written down the number 3.6%, which I think was the change order figure for one of the jobs he reviewed.)
He said change orders often are in the 5-10% range.
“Where you end up with problems usually is in change orders,” Nowark explained. A lot of contractors come in low. They buy the job. Then for the next two years they come in with change orders.”
“So lower than expected change orders?” Skaja asked.
“Lower than I expected,’ Nowark replied.
He concentrated on the change orders where they were largest and found them mainly “driven by a desire to have better roads and curbs,” plus requirements from the Village of Algonquin.
Nowark pointed out, “Construction companies are making sure if there are changes they get paid for it.
He did point out, “A lot of stuff was charged to administration that should have been coded out to the schools,” mentioning soccer balls and Dell computers.
Snow observed that the construction project in question “was really an $88.5 million project” and pointed out that $5 million had been accounted for and that it “started $4.5 million in the hole.
“So, you found the money.”
“It was never lost,” Board President Mike Skala replied.
“I think it’s very valuable to figure all of that out,” Snow concluded.
Finishing up, Nowark said, “I’ve never looked at that many invoices in the last 20 years.
“It was actually quite a bit of fun. A lot of detail work has to be done.”
“I just want to hear it one more time so the headline writers in tomorrow’s paper could read, “Reasonable,” Herringer added.
Nowark said he had managed construction jobs from $700,000 to $3.5 billion after having been trained at International Paper.
= = = = =
The top two pictures are of Mike Nowark, the forensic auditor from Jefferson Wells. The bottom picture was taken after the meeting. From left to right, you can see Jefferson Wells' Mark Warner and Mike Nowark, Huntley School Board President Mike Skala, board memeber Tony Quagliano and the back of board member Frank Coleman.
“We balanced to the records."We have no evidence of something being spent that was not for the district’s use.
“We balanced it to the minutes of the board.
“We balanced to what the construction managers billed.”
Board member Tony Quagliano, who served as the board liaison to the auditors, took responsibility for the word “missing” having been used in relationship to the $10 million.
“On the $10 million. There was a bad term floating around and the correct terminology. There never was $10 million missing. It was unaccounted for.”
Nowark explained that construction financed by the $80 million bond referendum started out $5 million short.
Quagliano pointed out that the school district was butting up against the 13.8% bonding limit. Unit districts can only borrow 13.8% of their total assessed valuation.
From what I could gather the board was basically “betting on the come.” They were betting that developer impacts fees would fill the gap and, apparently, they did.
After explaining that the disbursements seemed correct, Nowak advised how to make future building contracts more favorable to the district.
“(With the fixed fees for the construction and architecture, you) can audit only increased fees.”
Board member Larry Snow asked if Nowark had asked for anything else.
“We didn’t have the right to ask. It’s not in your (contract).”
“So you didn’t ask?” Snow persisted.
“No they didn’t,” Quagliano answered.
“It would have been OK to ask,” Snow added.
“We hired him because he’s the professional,” board member Rosemary Herringer added.
“All you can audit is the quality of the product after you accept a fixed fee…because that’s his profit, that’s his costs,” Nowark explained.
The construction expert said that such fixed fee construction contracts were common is school circles, but not in the private sector.
“This is the first time I ran into a construction contract that was not an ‘at risk’ contract, he said. “(With a fixed fee contract,) they’re getting their fees and something goes wrong, it’s your fault.”(What’s needed are) “contracts with ‘not to exceed’ limits. You can make it to the contractor’s benefit (by having) a shared savings (clause).
He also suggested forcing contractors to report in a format convenient to the district, not an off-the-shelf format used in other jobs. That would make it easier to figure out whether they are doing what the school district wants them to do.
“Contracts with subcontractors had not right to audit,” so the firm could not look at what happened there.
“Unfortunately, this is not unusual,” he said, suggesting that the school district get future contracts “previewed” by someone like himself. Nowark pointed out that construction contracts are “negotiable,” so if a school district wanted the right to audit subcontractors, they could probably get that right.
Board member Kim Skaja asked whether “the costs we agreed to were reasonable.”
“They were reasonable,” Nowark replied.
“The fees were reasonable and what I would expect on contracts like this,” he concluded.
But, “$2.79 million is included in your 2006 (financial reporting instrument) draft (which was) put into the Operation and Maintenance fund (which should have gone into Site and Construction).”
It has yet to be transferred back to the Site and Construction Fund.
He concluded that change orders should be below 5% of the cost of the jobs. (I have written down the number 3.6%, which I think was the change order figure for one of the jobs he reviewed.)
He said change orders often are in the 5-10% range.
“Where you end up with problems usually is in change orders,” Nowark explained. A lot of contractors come in low. They buy the job. Then for the next two years they come in with change orders.”
“So lower than expected change orders?” Skaja asked.
“Lower than I expected,’ Nowark replied.
He concentrated on the change orders where they were largest and found them mainly “driven by a desire to have better roads and curbs,” plus requirements from the Village of Algonquin.
Nowark pointed out, “Construction companies are making sure if there are changes they get paid for it.
He did point out, “A lot of stuff was charged to administration that should have been coded out to the schools,” mentioning soccer balls and Dell computers.
Snow observed that the construction project in question “was really an $88.5 million project” and pointed out that $5 million had been accounted for and that it “started $4.5 million in the hole.
“So, you found the money.”
“It was never lost,” Board President Mike Skala replied.
“I think it’s very valuable to figure all of that out,” Snow concluded.Finishing up, Nowark said, “I’ve never looked at that many invoices in the last 20 years.
“It was actually quite a bit of fun. A lot of detail work has to be done.”
“I just want to hear it one more time so the headline writers in tomorrow’s paper could read, “Reasonable,” Herringer added.
Nowark said he had managed construction jobs from $700,000 to $3.5 billion after having been trained at International Paper.
= = = = =
The top two pictures are of Mike Nowark, the forensic auditor from Jefferson Wells. The bottom picture was taken after the meeting. From left to right, you can see Jefferson Wells' Mark Warner and Mike Nowark, Huntley School Board President Mike Skala, board memeber Tony Quagliano and the back of board member Frank Coleman.
Labels: Huntley School District 158, Jefferson Wells, Kim Skaja, Larry Snow, Mike Nowark, Mike Skala, Operations and Maintenance Fund, Rosemary Herringer, Site and Construction Fund
