The Portland Water Bureau violated state law and city code by buying nearly $200,000 of water meter equipment from one business over 17 months while apparently avoiding a competitive selection process, the City Auditor’s Office says. No one at the bureau disclosed at the time that the manager who signed off on the purchases is married to a company salesperson, which also were violations, according to the auditor.

The supervisor who made the purchases consistently bought equipment in batches costing in the $8,800 to $9,600 range, just short of the $10,000 line that would trigger additional competition and scrutiny.

Water Bureau officials and the Office of Commissioner Amanda Fritz, who oversees the department, deny any ethical or procurement violations occurred, citing an internal investigation that the bureau and the city’s Human Resources Department conducted last fall after the auditor’s office first raised concerns.

Fritz said the investigation found “shortcomings in procurement training and standard operating procedures,” but she said it was likely a sign that city policies need to be improved. Gabe Solmer, the water bureau’s deputy director, said in a January email to the auditor’s office that the manager not disclosing her connection to the company employee when the purchases were made was an administrative rule violation. But the couple’s relationship was “well-known across the bureau,” she wrote.

Water bureau officials said they’ve retrained staff on procurement procedures, formally disclosed the prior conflict of interest, changed how purchase orders are approved and secured a new contract for meter equipment under city rules. No water bureau employees involved were disciplined.

The auditor’s office review stemmed from a March 2019 call to the office’s fraud hotline that alleged Water Bureau employees were making equipment purchases in which they had personal financial stakes and that the items were unnecessary and were causing production issues with another bureau. The purchases were made without a competitive contract.

The Auditor’s Office announced in a report released last week that evidence shows the Water Bureau purchases violated city and state procurement rules, but it found no evidence that the equipment was unnecessary or caused any production issues.

[Read the report]

The review found supervisor Ron Drath made 26 water meter equipment purchase orders from Consolidated Supply Co. between January 2018 and June 2019 totaling more than $182,000. There were 18 of them just under $10,000.

City code calls for any purchase of goods and services more than $10,000 to require quotes from at least three vendors. City and state laws ban public officials from intentionally dividing purchases into smaller amounts to avoid competitive procedures. The process is called “fragmenting”.

“In addition to violating city code and state law, fragmenting is problematic because the city goes without the savings, values and open process embedded in a competitive procurement,” the auditor’s office memo said. “The Water Bureau’s purchasing decisions affect water bill rates and maintenance workers’ routines and tasks and have other bureau-wide ramifications.”

The review found the bureau made purchases of $9,610 and $8,814 in May 2018 as well as four more purchases of $9,212 in June and July of that year, according to an October auditor’s office memo. They made nine more purchases of $9,212 between September 2018 and March 2019 and one more that month of $9,610.

Drath was supervised by Customer Services Group Director Kathy Koch. Koch was married to Jon Koch, a Consolidated Supply Co. water meter salesperson who previously worked for the water bureau for 12 years, according to the memo. Drath disclosed to the auditor’s office that he’s known the husband for 30 years, and emails showed that at least twice they spoke about “Water Bureau procurement decisions, which may have given [Jon Koch] unfair access to city purchasing power.”

The husband was the salesperson directly interacting with the Water Bureau for some purchases and receives commissions based on sales volume, according to the Auditor’s Office. Since leaving the water bureau, he also worked as a salesperson for at least two other companies used as city vendors, the memo said.

City code prohibits employees from using their status to obtain financial gain for themselves, their relatives or businesses they’re associated with, or awarding business to a relative “regardless of the mechanism used to provide that business.” City code also calls for an employee to not be involved in any decision where their financial or personal interests will be “specifically affected,” the memo said.

Kathy Koch signed off on all the purchases Drath made from her husband’s workplace, the auditor’s office said. The agency said procurement issues in the water bureau may have been exacerbated by a lack of a formal or consistent equipment approval and testing process.

The auditor’s office said it wasn’t clear from its investigation if Jon Koch used any past knowledge as a city employee to further anyone’s financial gain, if Drath had any financial and personal interest in the purchase decisions as well as other questions related to the scope of possible ethics and procurement violations.

Audit officials said they forwarded their review to the Water Bureau for further investigation. The office recommended implementing changes to address procurement procedures, conflict of interest oversight and controls and to provide regular and refresher training in procurement policies.

Solmer in the January email said the Water Bureau and Human Resources Bureau reviewed the auditor’s office October report, emails and other materials referenced and interviewed five witnesses as part of their investigation. She said they found no ethical or procurement rules violations due to family relationships and that the water bureau didn’t intentionally fragment purchases.

“While $10,000 purchase orders were used for meter boxes, there was no intent to avoid a contact,” she said. “Rather, a contract was being sought at the conclusion of the meter box testing process.”

Solmer said the city investigation also found “significant gaps and absences of procurement information, procedures and trainings at the Water Bureau and perhaps throughout the city.” Staff didn’t understand their roles and responsibilities for testing, ordering and approving items and there wasn’t a standard communications process in place or any way to catch procurement problems if they occurred.

Solmer said the bureau has improved internal communication so equipment needs are more clear and it is considering quarterly reviews of all purchase orders.

The auditor’s office said the Portland Police Bureau and the Multnomah County District Attorney have declined to investigate potential fraud in the case. Ron Bersin, executive director of the Oregon Government Ethics Commission, said his agency is not investigating the incident.

-- Everton Bailey Jr; ebailey@oregonian.com | 503-221-8343 | @EvertonBailey

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