Monday, April 18, 2011

Editorial: Contracting fiasco can't be repeated by Sacramento county

Published: Sunday, Apr. 17, 2011 - 12:00 am | Page 6E

With some common-sense safeguards, Sacramento County could have avoided having egg on its face and being on the hook for millions in back taxes.

That's the gist of a new Sacramento County grand jury report that confirms articles by The Bee's Robert Lewis on the shocking lack of oversight of a payroll services contract with a company whose top officials are now confessed criminals.

For taxpayers' sake, it is essential that the lessons of this fiasco be learned well, not just in Sacramento but across California, as cash-strapped local governments increasingly trust outside contractors to do important work.

Interim County Executive Steve Szalay says the grand jury's findings and recommendations are "reasonable" and will be used as a guide going forward. "I'm pushing hard for reform," he said in a telephone interview.

This cautionary tale began in 2004, when in a bid to save money, Sacramento County decided to outsource payroll processing for parks and other special districts.

There was a major flaw from the very start, says the grand jury report, released Friday. The county used its typical contracting procedures, though this was a far more complicated and potentially costly item. "Safeguards were available that might have reduced the county's risk, but they were not recognized and put in place," the report's cover letter states.

For instance, the county did not perform credit and lawsuit checks on bidders, or require adequate insurance.

No one, the grand jury says, "identified a fundamental problem, the potential theft of money entrusted to the contractor," or asked, "What is the worst thing that can go wrong?"

The county chose Ingentra HR Services, a small New York firm, over a much larger company with a national reputation. It renewed the contract four times, and the final extension was for longer than should have been allowed without county supervisors' approval, the grand jury found.

Each time, county officials failed to do audits or check for lawsuits or even do quick Internet searches that likely would have raised red flags.

During the entire contract, the county neglected to follow up with the Internal Revenue Service or California tax authorities to make sure that Ingentra actually made the payments. The county didn't know anything was amiss until last May, when the IRS said that it was missing millions of dollars of payroll taxes from the special districts.

There was one sliver of good news for the county in the grand jury report. While it found an appalling lack of curiosity, it found no criminal activity by county employees. Szalay said he was "very pleased" by that, as well he should be.

Still, the other shoe is yet to drop. The county is still waiting to hear from the IRS how much of the remaining $17 million in taxes owed it will have to cough up. Szalay says the county is hoping to spread payments over several years.

Restoring public confidence and trust could take even longer.

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