City Internal Auditor Stan Sewell has sent a report to the state comptroller's office after finding some problems with city purchases from Excalibur Integrated Systems.

Mr. Sewell said under one purchase for security cameras, the city made the purchase from Excalibur off the state contract. But he said the state contract section cited was for scanners, not cameras.

He said another $800,000 equipment purchase by the city with the Chattanooga-based firm "was not advertised and bid as required by code."

The Sewell probe began after April Eidson, who has a local citizen watchdog group, made charges about multiple city purchases from the firm that she said is headed by a felon with close ties to city Chief of Staff Dan Johnson.

Mr. Sewell said he found no law or city policy barring the city from doing business with a felon.

Excalibur President Rodger Dale Jenkins and Ricky Dyer in 1993 were convicted by a federal jury in Rome, Ga., in a case which arose out of an elaborate kickback scheme. They were convicted on multiple counts of transporting stolen and fraudulent securities in interstate commerce, of conspiring to do so, and of engaging in money laundering.

Mr. Jenkins was sentenced to serve 51 months in federal prison and perform 300 hours of community service. He and his co-defendant were also ordered to repay $189,082.43.

Mr. Johnson said Excalibur and Mr. Jenkins were a client when he was a CPA seven years ago.

He said, "I know him real well. His company does an excellent job."

Mr. Johnson said he is "well aware" of Mr. Jenkins' criminal background. He said, "He's paid all his dues to society and repaid all the restitution. He is a full-blown U.S. citizen, and that (his conviction) should not be held against him."

Mr. Johnson said the Excalibur charges "were brought by a person who has been constantly attacking the city ever since she couldn't get a city job. I don't pay any attention to her. I don't know why anyone else would either."

When Mr. Johnson was running for mayor in 2005, Mr. Jenkins wrote a letter to the editor of Chattanoogan.com in support of him. He said that 24 years earlier Mr. Johnson had become his accountant. "Shortly after that, he became my friend and mentor. Now he is like a father in business to me. Over the years he has guided me and helped me make hundreds of decisions affecting millions of dollars. He has assisted me in making decisions about when, where, and how to do things that have had a profound effect on my personal and business life. He is always accessible and never too busy when I needed his advice. I have had the pleasure of discussing everything from sports to finance over lunch on an almost weekly basis for most of those years. He and his wife, Linda, have invited me into their home on many occasions and treated me as wonderfully as they do their four children. Anytime I need a second opinion, Dan is always there. His influence over me personally and over my business could not be measured in dollars."

Mr. Sewell said he found no evidence that Mr. Johnson has any financial interest in Excalibur or that he had any involvement in the city purchases.

Ms. Eidson said, "I was already employed as a staff engineer for Cleveland and served as spokesperson for Hire Here when the city invited me to interview. My career was not impacted at all by the city, and Mr. Johnson's attempt to distract from the core issue of these city contracts is apparent."

Mr. Jenkins said, "My company is an integrator of IT solutions and we provide hardware, software, design and consultation service to meet the needs of our customers. We respond to RFPs, RFQs, Bids and all manners of requests from customers and potential customers that promotes the sales of such. When we receive purchase orders, we fulfill our obligations.

"I am unaware of any problems with any services or products which we have provided for the city. Neither the city auditor, city attorneys, the City Council, the purchasing department nor the IT department have brought any issues, violations of procedure or problems any type to my attention.

"During the past few years Excalibur has won a numerous awards and gained substantial recognition for performance and achievements on a national level. Among those awards Excalibur has been listed in Inc. Magazine’s top 5000 fastest growing privately held companies in the United States for each of the past 5 years. We have also been listed in the Tennessee Hot 100 list for fast growing IT companies during this period as well. Also of noteworthiness, The city recently won international recognition for the 'Coolest App' award from the Intelligent Community Forum in NY and this was for the city MESH project which we won in a competitive RFP approximately 1 ½ years ago.

"The bottom line is that we are a growing company creating jobs in Chattanooga for Chattanoogans. I love our city and our forward vision as a community. Excalibur will continue to do all we can to continue to grow, produce jobs and help create a better city."

Ms. Eidson this week filed a formal complaint involving the Excalibur purchases with state and federal officials.

She said, "The actions taken by the city's Information Systems Department to avoid advertising, and purchasing on a false state contract line items are very disturbing. These are actions taken to achieve a desired outcome to ensure who got this contract. These are not accidents over this many transactions. No way."

She criticized "why a bar code scanner, and consulting fee from the state contract was not questioned thoroughly. The purchase was for cameras, not a bar codescanner. The IS staff used a false line item to suggest a state contract existed for this purchase. A $150,000 change order was also issued on the same false line item. The consulting fees also came from the bar code scanner, not the camera equipment or computers.

"Why an $800,000 equipment agreement was never advertised, or a contract ever executed, is simply mind-boggling."

The Eidson complaint says:

Dear Homeland Security Fraud Line and Tennessee State Comptroller’s Office; This is a formal citizen complaint issued against the City of Chattanooga, TN jurisdiction by a citizen. The City of Chattanooga, a municipal jurisdiction in the State of Tennessee has failed to advertise project(s) for bid that were funded with, or in part with, federal Homeland Security Grants and bond issue funds. I request a formal audit and inquiry as a matter of ensuring the uniform application of bid law in Tennessee Code Annotated and Federal Procurement rules associated with Homeland Security Grants awarded to municipalities. The federal procurement process mandates that business opportunities be advertised to make the business opportunity known to all business alike, including minorities and small business, for the purpose of obtaining competitive bids in the best interest of taxpayers. If the business opportunity is not known to the public, then business and taxpayers alike are not served. The City of Chattanooga has failed to advertise millions in federal projects funded by the Homeland Security Grants and Bond issue funds. Our citizen’s group strongly believes that conflicts of interest in the procurement process have driven the City’s failure to make the business opportunity known through advertisement for either RFQ’s for consulting services, or competitive bids. I have inquired to the City of Chattanooga about their failure to advertise bids in accordance with federal and state procurement rules, where Homeland Security funds are utilized. There is no proposal to abate their current procurement methods that are direct violations of and state and federal bid requirement with both public money and federal grant funds. I request that the Homeland Security Grant Office and Tennessee Comptroller’s office conduct a full audit or inquiry of the City of Chattanooga procurement methods related to the Homeland Security Grants, and ask that conflicts of interest be reviewed, as well.

Here is the Stan Sewell memo to the state comptroller's office:

MEMORANDUM

To: Councilman Peter Murphy
Councilwoman Deborah Scott
From: Stan Sewell, Director of Internal Audit
Date: January 13, 2012
Re: Excalibur Integrated Systems

Pursuant to information you received alleging inappropriate procurement practices related to the above referenced company, we initiated a special project (review) of related transactions. We noted more than fifty system-generated purchase orders and over one hundred separate checks disbursed. Many checks paid contained payment for multiple invoices. An initial review of files in the Purchasing Department revealed system generated purchase orders did not match procurement files. The various transactions could not be efficiently tied to a related contract, agreement, or actual/valid purchase order. We therefore set our scope to include a comprehensive review of all documentation, laws, policy, and procedures related to Excalibur Integrated Systems.

Due to concerns expressed regarding timeliness, we have narrowed the scope of our review substantially. We have attempted to address, in a limited approach, various procurements specifically identified in Council minutes as listed in an email from Ms. April Eidson to you dated October 27, 2011 (copy attached). With regard to the general concern expressed in the email about conflicts of interest and the City contracting with a company owned by a felon, please consider the following:

• After substantial research and consultation with the City Attorney, I have been unable to locate any state code, city code, executive order or policy prohibiting the City from entering into contracts with companies owned by felons. Further, the City does not have a practice of conducting background checks on vendors (i.e. Excalibur was treated no different than any other vendor).

• Matters related to the City’s Code of Ethics (conflicts of interest) are specifically required to be addressed by the City Attorney. I will defer to the City Attorney with regard to any determination of inappropriate activity. However, I will note that a violation of TCA 12-4-101 would appear to require the Chief of Staff to have a financial interest in Excalibur Integrated Systems. Ms. Eidson has provided no evidence of any such ownership in Excalibur and I am unaware of any such interest. Likewise, it appears a mere friendship or personal relationship with the owner of Excalibur by the Chief of Staff would not result in a violation of the City Code, as a “personal interest” would require a more direct family relationship (sibling, parent, child, etc.).

Each of the procurements is addressed below under a separate heading, in the order presented by Ms. Eidson:

September 23, 2008 Minutes (R0112404/PO030164)

• Requests for quotes were sent to three companies (ISN, Info Systems, and Excalibur) on August 15, 2008 via fax with an August 20, 2008 submission deadline.
• Excalibur submitted a quote of $9,600.
• Burgess Russell from ISN provided a No Bid stating they did not have the capability/equipment to provide the service.
• The buyer faxed a second bid request to Info Systems. Leslie Daniels from Info Systems provided a No Bid stating they did not have the expertise to provide the service.
• Multiple attempts by the buyer to obtain quotes from alternate vendors are documented in the file with the bid submission deadline being extended to September 11, 2008.
• Purchase order was to Excalibur at their quote of $9,600.
• Per TCA 6-56-305, advertising is not required for purchases under $10,000. Such purchases shall “whenever possible, be based upon at least three (3) competitive bids.”

January 15, 2008 Minutes (R0105940/PO027902)

• This procurement was requested by the Director of IS for “implementation of Homeland Security Port Security Cameras.” He requested these services be purchased off of statewide contract 391 (Number 4031901), Line 5.
• The referenced statewide contract item is for “On-site Consulting and Survey For Line 00004 Rf Data Collector.” Line 00004 is for “Data Collector. Radio Frequency Type With 1/mg Ram and Rechargable Lithium-ion Battery….” More specifically referenced as “Psc Falcon 345” (or equal).
• The referenced line item (5) provides for services at a rate of $125 per hour. This matches the rate paid by the City.
• The statewide contract appears to be limited to items related to bar coding systems. Excerpts from the statewide contract, as well as the purchase requisition are attached.
• An explanation was requested from the Director of IS to establish a connection between his request for “camera/wireless” consulting services and the statewide contract for consulting services related to “Psc Falcon 345” data collectors. However, he was unavailable to provide any comment. We would typically delay issuance of a memorandum pending such comment. However, in the interest of timeliness, we are closing this project without a comment from the Director.
• TCA 12-3-1001 (b) provides “…Where any local or private act, charter, or general law requires that a local governmental unit purchase by competitive bidding, the local unit of government may, notwithstanding the local or private act, charter, or general law, purchase, without public advertisement or competitive bidding, under the provisions of contracts or price agreements entered into by the department.” The “department” being referenced is the Tennessee Department of General Services.

February 17, 2009 Minutes (R0118536/PO031863)

• This renewal/change order was for a procurement made in 2008 (PO027902) off of a statewide contract (4031901, Line item 5).
• The change order was for wireless system design and management, wireless managed services, troubleshooting and wireless system support.
• The change order was for a not to exceed $150,000 project with a $125 per hour rate.
• A memo from the IS Director to the Purchasing Director indicated this was a continuation of a project initiated under statewide contract 4031901 and the state did not renew the contract in 2009 due to low utilization.
• A change order was requested in the amount of $150,000 to complete the project. This request was presented to Council, noting the termination of the statewide contract, and approved.
o The change order was reported in the minutes as “Professional Consulting Services.” However, that classification may be inappropriate. In particular, it appears the state bid the services as non-professional. If these were determined to be professional services, as defined by law, Council approval would be sufficient regardless of a valid state contract or adherence to any competitive bidding procedures.
• Per a discussion with the State Comptroller’s legal staff, the continuation of procurement to complete the project after termination of the statewide contract likely resulted in a technical violation of the state code. However, it was his opinion that the action was reasonable and would be deemed appropriate/acceptable by a court of law if the services were provided under the same terms (price) as the expired statewide contract.
• As noted above, statewide contract 4031901 was related to data collection systems and had a provision for on-site consulting at a rate of $125 per hour.

December 15, 2009 Minutes (R21732/PA500931)

• This Contract Purchase Agreement with a maximum amount of $800,000 was initiated by Requisition 21732. Multiple requisitions have been made against the agreement for GETAC laptop computers and related equipment.
• This was requested as a sole source by the Director of IS due to the need to maintain consistency with the current laptops being used in police cars. A copy of the memorandum and recommendation letter is attached.
• Although this procurement was made as sole source due to compatibility issues in police cars, we noted laptops were purchased for Neighborhood Services (R34477).
• A Google search yielded multiple vendors for the GETAC laptops and related equipment.
• A price list/catalog is included, as supplied to the Purchasing Department by the Director of IS. However, there is no actual agreement or contract present in the file. The price list from Excalibur states it is “Subject to the Terms and Conditions of Purchase Agreement.”
• TCA 6-56-304 (2) provides an exception from advertisement and competitive bid for “Any goods or services that may not be procured by competitive means because of the existence of a single source of supply or because of a proprietary product….”
• The City Code does not appear to allow an exception from advertisement and competitive bid in sole source situations. City Code Section 2-552 states “Whenever any requisition or voucher or contract calls for an expenditure exceeding ten thousand dollars ($10,000.00), there shall be public advertisement for competitive bids….” City Code Section 2-553 (b) states “If only one (1) bid is received, the bid shall not be opened and the contract or service to be performed shall be re-bid. If after having re-bid the contract or service only one (1) bid is received, the bid may be accepted. Provided, a re-bid shall not be required when there is only one local supplier to perform the contract or provide the service required, or for the purchase of a unique or proprietary product.” [emphasis added]

April 14, 2009 Minutes (R0120882/PO032475)

• This procurement was for scanner equipment requested by the Waste Resources Division. It was purchased off statewide contract 312 (Number 4036702).
• The statewide contract provides for a 46% discount from catalog price for scanner units and 20% off catalog price for related peripherals and accessories.
• As noted above, TCA 12-3-1001 (b) allows the City to purchase off of statewide contracts.
• There was no catalog in the file (i.e. we could not verify the appropriate discounted price was charged/paid).
• We contacted the state purchasing agent assigned to this statewide contract and requested a copy of the related catalog. He did not have immediate access to a catalog and was unable to provide us with a catalog prior to the issuance of this memorandum.

If you would like to review documents related to the above procurements, please let me know. The Purchasing Director has placed the files in my custody for the next week to facilitate any such review you may request. I will be happy to meet with you at any time.

The issue(s) discussed in this memo are not the result of an audit performed in accordance with generally accepted government auditing standards. Had we performed such an audit, additional issues may have been reported. The purpose of this memo is to summarize limited procedures performed related to an issue or issues that have come to our attention.

cc: Ron Littlefield, Mayor
Michael McMahan, City Attorney