BIRMINGHAM, Alabama -- An internal Birmingham Water Works report cites numerous problems, including poor record keeping, bad communication and substandard software that cripples the utility and makes it ripe for fraud.

The report from Michael Mason of Forensic CPAs was commissioned in 2012 by the Water Works Board after an overtime fraud scheme involving employees was reported in the distribution department. The report was completed Friday and obtained by AL.com/The Birmingham News.

Mason's report involves interviews with staff members, observations and a review of Water Works polices and internal documents.

"Overall, my initial findings and observations would suggest a serious lack of an adequate control culture throughout the organization," Mason wrote.

Reporting problems inside the Water Works is even difficult, Mason said.

"Based on interviews with several employees and managers, employees are afraid to deliver bad news to supervisors or management," he wrote. "Several employees indicated that management and the board promote a culture in which employees are afraid to deliver bad news."

Mason observed basic oversight at the utility, including failure to use lock boxes for cash receipts and the absence of random reviews of customer checks and credit card statements.

Mason was hired after several employees reported a supervisor granted them overtime in exchange for a monetary kickback from each of his subordinates. The Water Works has since sued the fired employees and the workers have also sued the utility, seeking a return to work. A former supervisor was also indicted.

The report is blistering at points, assigning direct responsibility to senior management, including the general manager and assistant general managers for internal failures.

One example given was the botched implementation of SAP software, a custom built Enterprise Resource Planning (ERP) software system that was supposed track projects and times. While the multi-million dollar system was bought in 2009, SAP has yet to be fully implemented, nor does it integrate with current software, Mason said.

Mason expressed doubts that the Water Works is capable of completing the project.

"It is hard to imagine that BWWB will be able to implement ERP with its requirement for cross departmental integration and approval verifications, given BWWB management's reluctance to (work) as a team and hold each other accountable for failed expectations, broken promises and lack of proactive commitment by members of executive management," Mason wrote.

Mason spent numerous pages outlining flaws in timekeeping and overtime oversight. The last time that overtime was audited was in 2008, while the overall payroll hasn't been audited since 2007.

According to Mason's report, nearly $150,000 in overtime and hourly work either wasn't verified or contradicted timekeeping records.

"Supervisors, managers and at least one assistant general manager have been instructed not to question overtime approved by an employee's direct supervisor," Mason wrote.

Mason said the board is given limited information on potential problems and is shielded from direct contact with the company's internal auditor.

"Reports presented to the board are not vetted for accuracy and incorrect reports have been presented and not subsequently corrected and presented again to the board," Mason wrote. "The board could, if so inclined, be wary of management's determination to provide quality understandable data."

Mason suggested that the auditor be taken away from supervision by the general manager and given direct access to the board. In addition, he said an inactive board audit committee should be reactivated

His report notes the Water Works has weak policies addressing dishonest and unethical behavior by both employees and board members.

"Employees or board members with a close relationship to a vendor, competitor or customer should be monitored for potential conflict of interest and acknowledge any relationship in writing while a board member or employee," Mason wrote. "It is recommended that the board of directors adopt a policy whereby no employee or board member receive or give gifts to or from any vendor or customer at any time or for any amount."

The report does not include any specific allegation that board members or staff have taken favors from contractors or vendors.