When city auditors recently went to a city warehouse to inventory over $6 million in lights bought by the city from a local company, they were in for a big surprise. The lights were gone.
A followup report says it was found that a large majority of the LED lights purchased by the city were picked up by the company president from a city warehouse on Main Street in 2018.
City Auditor Stan Sewell said in the report that the attorney for Global Green Lighting said that was done under an agreement with then City Attorney Wade Hinton. The attorney said both parties agreed not to sue the other in the agreement.
The report said Don Lepard, GGL president, removed the light fixtures from the city warehouse over several days starting June 13, 2018.
Mr. Sewell said the agreement between attorney Hinton and GGL required the City Council to approve it. He said the matter never was approved by the council. He said that meant that GGL had no right to take the lights as it did.
The auditor said when his staff went to take an inventory of the lights purchased in 2013 they expected to find a substantial number of lights in city storage, but they were no longer there.
The report says current city staff, including City Transportation Director Blythe Bailey, did not know that the lights were missing.
It says personnel from the Chattanooga Furniture Bank, which occupied the same city warehouse, said the majority of the lights were taken without a city representative present. The report says the attorney for GGL said a woman from the City Attorney’s Office met GGL staff to remove a padlock from the fenced area containing some of the light fixtures. The report says no one from the city acknowledged that any city personnel let them in.
It was found through examining invoices that the city paid GGL $6,105,288.09 for the lights. The approximate original cost of the lights removed by GGL was $5,590,000, it was stated.
Mr. Sewell said the city is still carrying the lights on its books. He said, "The lighting project discussed in this memorandum was never fully implemented and the city no longer has possession of the light fixtures. However, the city has capitalized an infrastructure asset with a value near $6,000,000. Accounting standards require this asset be removed from the city’s balance sheet."
The lights were bought during the Ron Littlefield administration as part of a planned $18 million purchase touted as saving the city $36 million over 15 years, plus providing security features.
Governor Bill Haslam was on hand at the launch of the new lighting system. He said, "This is another symbol of how Chattanooga's leading, really our country in manufacturing."
When the Andy Berke administration came into office, the deal was canceled. Mayor Berke said hidden costs associated with the lights proved expensive and EPB had begun removing them after finding them inferior.
On December 9, 2019, the Office of Internal Audit (OIA) attempted to conduct a physical inventory of the Global Green Lighting (GGL) fixtures stored at the City’s warehouse on Main Street. We expected to find a substantial number of light fixtures that were purchased during 2013. Some light fixtures were never placed in service (new). However, most were previously placed in service, taken down and returned to the City’s Main Street facilities by EPB. We found the City no longer had possession of the GGL light fixtures and City management was not aware the light fixtures were gone.
After finding the light fixtures were not present and key City personnel had no explanation, we set two primary objectives: 1. Determine how and why the light fixtures were removed (i.e. who, if anyone, authorized the removal of the light fixtures and why), and 2. Determine how it was possible City management could be unaware the light fixtures had been removed.
Background: OIA inquired of the former City Attorney, City Attorney’s Office, Public Works (formerly General Services), Finance, Chattanooga Furniture Bank, Chattanooga Department of Transportation (CDOT), a retired CDOT employee, and City Administration (Mayor’s Office) about the removal of the GGL fixtures in an attempt to determine who authorized the transfer of the GGL light fixtures and how management was not aware the fixtures were removed eighteen months prior. We also inquired of GGL’s attorney who confirmed Don Lepard of GGL removed the light fixtures from City facilities over several days starting June 13, 2018.
Almost $6 million of light fixtures were purchased by the City as part of a lighting project being implemented by EPB. Prior to project completion, EPB began removing the lights that had been placed in service and returning them to the City (i.e. the project was never completed). Upon inquiry, the City Attorney advised there might have been a settlement agreement between the City and GGL allowing GGL to take possession of the light fixtures. Ultimately, the City Attorney could not locate a related file or agreement in his offices. A signed agreement was located and provided by GGL’s Attorney on January 22, 2020.
The settlement agreement dated June 6, 2018 was signed by former City Attorney Wade Hinton and Don Lepard of GGL. The intent of the agreement was to resolve all claims by GGL against the City, as well as all potential claims by the City against GGL. The terms stated that upon approval of the City Council and signature of the City’s authorized representative, the City would transfer ownership, use and control of all GGL light fixtures currently in the possession of the City located at the Main Street warehouse and adjacent lot. Council approval to dispose of the light fixtures was never obtained.
According to GGL’s Attorney, GGL began picking up the light fixtures on June 13, 2018. Upon inquiry, he explained former City Attorney Wade Hinton had authorized GGL to pick up the light fixtures. He further stated it was his understanding a woman from the City Attorney’s Office met GGL staff to remove a padlock from the fenced area containing some of the light fixtures. GGL’s Attorney was unable to provide the name of the woman asserted to have provided access. OIA inquired of the City Attorney’s Office and former City Attorney, Wade Hinton, about these assertions. No one acknowledged authorizing or providing access for GGL to pick up the light fixtures. Chattanooga Furniture Bank staff verified GGL picked up the majority of light fixtures in June 2018 without a representative of the City present (Chattanooga Furniture Bank was located inside the City’s warehouse on Main Street). According to Furniture Bank staff, it was a regular practice of GGL and EPB to enter the warehouse without a City employee present. They would drop off and pick up GGL equipment. Furniture Bank staff stated Mr. Lepard showed them an agreement with the signature of former City Attorney, Wade Hinton, and stated that gave him the right to the light fixtures.
Conclusion in Regard to Objective 1: There is no question the settlement agreement executed by the City Attorney with GGL required approval of City Council prior to GGL taking possession of the light fixtures. There is also no question such approval of City Council was not obtained. Therefore, per terms of the agreement, GGL did not have the right to take possession of the City’s light fixtures. However, on June 5, 2018, City Attorney, Wade Hinton, emailed GGL’s attorney “The vote of Council will take place next Tuesday…Barring some emergency, I [would] say, your client can plan on start picking up the items next Wednesday afternoon.” That “Wednesday” would be the date GGL did begin picking up the light fixtures (June 13, 2018). It appears GGL entered the City’s Main street warehouse without a City employee on June 13, 2018 and began removing the light fixtures either: (a) with the knowledge City Council had not approved, or (b) without regard or concern as to whether City Council had approved.
Conclusion in Regard to Objective 2: Historically, Rick Davis, Traffic Engineering Coordinator within CDOT, had been the key individual responsible for oversight of the GGL light fixtures. Mr. Davis retired in November 2017. After Mr. Davis’ retirement, it appears oversight of the GGL light fixtures was not reassigned or was not properly assumed by any CDOT staff. Finance made several inquiries of CDOT about the status of the GGL lighting project. In July 2018, after no response from CDOT about the status, and because there was no payment activity for several years, Finance capitalized the light fixtures. This resulted in the elimination of the work in progress status (inventory) of the light fixtures and created a depreciable (infrastructure) asset. Although inventories and other fixed assets are subject to periodic physical inventories, infrastructure is not. It appears City management was unaware over 5,600 light fixtures were missing for eighteen months due to: (a) failure to ensure all duties and responsibilities of Mr. Davis were properly assigned and assumed after his retirement, and (b) failure of CDOT staff to appropriately and properly respond to CIP/Inventory inquiries of Finance.
Additional Consideration: OIA obtained GGL invoices3/payments and compiled a listing of light fixtures purchased from January 2011 to August 2015 totaling $6,105,288.09. GGL reported picking up 5,617 light fixtures in June 2018. The approximate original cost of the lights removed by GGL was $5,590,000. The light fixtures removed by GGL included some new fixtures and mostly used fixtures returned by EPB. A complete list of the GGL invoices and details is being provided to the City Attorney via separate communication along with PDF copies of the invoices.
City Code Sec. 2-5 requires “Each department and agency of the city shall, under the supervision of the city finance officer, keep a perpetual inventory of the city property under its control, and shall furnish such reports in relation thereto as the city finance officer may require.”
OIA received the final set of invoices on June 1, 2020. The delay in obtaining these documents was due to delays in receipt of requested archived documents from Iron Mountain. The lighting project discussed in this memorandum was never fully implemented and the City no longer has possession of the light fixtures. However, the City has capitalized an infrastructure asset with a value near $6,000,000. Accounting standards require this asset be removed from the City’s balance sheet. We are attaching a time line of key events, which should assist in providing a clearer picture of the events that transpired. The issues discussed in this memorandum are not the result of an audit performed in accordance with generally accepted government auditing standards. Had we performed such an audit, additional issues might have been reported. The purpose of this memorandum is to provide those charged with governance information that may be deemed useful in the execution of their responsibilities.
Timeline of Key Events Date Details
2011-2012 City purchased a relatively small quantity of GGL lights for Coolidge Park and Northshore.
March 12, 2012 As part of a major street light replacement project, the City paid GGL an advance deposit of $1,764,000 on a contract for the purchase of street light fixtures.
2013 The City purchased/acquired the majority of GGL light fixtures during this year. 6,036 light fixtures were acquired for $5,811,469.33.
November 2017 Rick Davis (Traffic Engineer Coordinator) retired. He was responsible for oversight of (maintaining inventory) the GGL light fixtures. Per Mr. Davis, EPB began returning the GGL light fixtures to the City prior to his retirement.
2017 - 2018 Sometime during this period, EPB uninstalled 5,400 GGL light fixtures that had been placed in service and returned them to the City’s warehouse on Main Street and/or gated lot across the street.
April 20, 2018 Finance emailed CDOT inquiring about the status of the GGL light project. There had been no notice of project completion on this construction in progress. However, the project had gone several years with no payment/expenditure activity.
June 6, 2018 Former City Attorney Wade Hinton signed an agreement with GGL with both parties dropping all claims and future claims against each other. The terms provide the City will transfer ownership of GGL lights located at the City’s Main Street warehouse and lot after approval by City Council and signature from the City’s authorized representative.
June 13, 2018 GGL began removing lights from the City’s Main Street warehouse and gated lot. GGL reported picking up 5,617 light fixtures. The approximate original cost of the lights picked up by GGL is $5,590,000. This amount is based upon the invoice prices of the light fixtures in CY2013.
July 25, 2018 Because there was no payment activity for several years, and CDOT failed to respond to several status inquiries on the GGL Lighting project, Finance capitalized the light fixtures1 . This resulted in the elimination of the work in progress status (inventory) of light fixtures and created a depreciable (infrastructure) asset.
December 9, 2019 OIA visited the City’s Main Street warehouse and found GGL lights were not there. December 19, 2019 OIA inquired of the City Attorney. Mr. Noblett advised there might have been a settlement agreement between the City and GGL transferring the light fixtures to GGL. He stated he would forward a copy of the agreement to OIA if one existed.
January 15, 2020 OIA notified Blythe Bailey (CDOT Administrator) that the GGL lights were picked up by GGL a year and half ago. Mr. Bailey stated he was not aware the lights were no longer in the warehouse.
January 22, 2020 OIA received a copy of the agreement executed on June 6, 2018 referenced above. The City did not have a copy of this agreement on file. It was obtained from GGL’s attorney.
January 23, 2020 OIA searched City Council minutes for any mention of declaring surplus or transferring light fixtures to GGL. No approval could be located.
January 23, 2020 After inquiries of several individuals, OIA notified City Administration, the City Attorney and CDOT of the missing light fixtures, provided a tentative synopsis and requested they provide any information they can obtain. At this date, it is unclear why, and what, authorization was given to remove the light fixtures. 1 City Code Sec. 2-5 requires “Each department and agency of the city shall, under the supervision of the city finance officer, keep a perpetual inventory of the city property under its control, and shall furnish such reports in relation thereto as the city finance officer may require.”