The Victor Valley Wastewater Reclamation Authority misspent, improperly accounted for, misapplied or mismanaged $31.7 million in federal funds put at its disposal to complete the Upper Narrows Pipeline Replacement Project, justifying a further examination of the joint authority’s books and performance, according to an audit completed last month.
The Office of the Inspector General with the U.S. Department of Homeland Security took exception with how the authority, which counts as its participants Apple Valley, Hesperia, Victorville and San Bernardino County, failed to carry out adequate cost/price analyses of bid proposals and did not apply the rigors of its own procurement policy or federal requirements regarding ensuring contractor performance in its rush to complete the project.
Completion costs on the project totaled $42 million by its July 2016 completion date. The project was necessitated, officials said, after winter storms in December 2010 washed out and ruptured a portion of a 29-year-old sewer line in the Mojave River, and roughly 42 million gallons of sewage was spilled into the river. The project permanently replaced a temporary pipeline installed after the storm-precipitated pipe rupture.
While the project was completed and appears to have achieved its stated goal, according to the audit the authority did not follow a federal mandate that accompanied the provision of the money. The federal government requires that records be kept cataloging the performance criteria of a project’s contractors, what material procurements took place and what the rationales for those purchases were. Constant change orders, the documentation of and authorization for which were lacking, substantially increased the project cost.
The Office of the Inspector General has recommended that the Federal Emergency Management Agency, through which the funding was applied, and the State of California catalog the $31.7 million as “costs ineligible for funding.” While the Federal Emergency Management Agency and state officials have previously indicated concern pertaining to the issues taken up by the Office of the Inspector General, they have not yet made official acceptance of the totality of the audit’s findings. The report issued last month was focused primarily on issues relating to contracting and accounting, while calling for further inquiry into what was termed “misleading information the authority provided to the Federal Emergency Management Agency to develop the scope of work” involved in the project. There has yet to be any documentation of the “misleading information” alluded to. If the Federal Emergency Management Agency accepts the audit’s findings in their totality, the Victor Valley Wastewater Reclamation Authority – or rather its taxpaying participants consisting of water ratepayers in Victorville, Apple Valley, Hesperia and unincorporated county areas served by the authority – would be required to reimburse the full $31.7 million. Before the Federal Emergency Management Agency makes its determination, however, the Victor Valley Wastewater Reclamation Authority is due to provide to the Federal Emergency Management Agency its own comprehensive and final documentation of the project’s contracting and payment records, along with explanation of any points in mitigation it can make with regard to the audit’s conclusions. The Federal Emergency Management Agency would have the option of requiring full, partial or no restitution based on its analysis of the competing contentions. An appeals process would follow the Federal Emergency Management Agency’s determination.
There has been a degree of tension between the Victor Valley Wastewater Reclamation Authority and one of the governmental entities under the aegis of which it is constituted, that being Victorville. That tension revolves around the authority’s use of the funding available to it. While the Victor Valley Wastewater Reclamation Authority is a joint powers agency, the four governmental entities that are involved in it do not participate equally on a financial level. Victorville’s contribution accounts for a whopping 70 percent of the authority’s normal operating budget, which accounts for the extreme sensitivity its officials have over what they have sometimes seen as profligate spending.
The Victor Valley Wastewater Reclamation Authority’s revenue, which is based on how much wastewater flow it receives and processes, had been reduced as a consequence of a 22-percent reduction in flow to the wastewater treatment plant since 2010, just before the mishap with the Upper Narrows Pipeline. Some of this is attributable to the drought conditions that persisted over that time frame. This was exacerbated by the City of Victorville’s diversion of about a million gallons of wastewater flow per day, which had previously been processed by the authority’s plant, to the city’s own plant, resulting in the loss of revenue to the authority of roughly $900,000 per year thereafter. Victorville officials, beginning in 2015 and continuing into 2016, were critical of the Victor Valley Wastewater Reclamation Authority’s stewardship of public funds. In 2015, Victorville City Councilman Jim Kennedy, who is a member of the Victor Valley Wastewater Reclamation Authority’ board, said the authority was being too cavalier in the way it was spending money. Kennedy criticized the Victor Valley Wastewater Reclamation Authority’s management team for not keeping a tighter rein on vendor and contractor performance, expressing discontent with the fashion in which the authority was allowing costs on the Upper Narrow’s Pipeline replacement effort to escalate and then addressing the cost overruns by doing change orders, of which, Kennedy said, “There are so many you can’t keep up with them.”
Kennedy’s then-council colleague Ryan McEachron lamented the Victor Valley Wastewater Reclamation Authority’s “reckless spending.”
Since 2015, the authority’s revenue has decreased by more than $4 million. In the last week of July and first week of August 2016, the Victor Valley Wastewater Reclamation Authority initiated a restructuring effort, laying off 13 workers, or 28 percent of its workforce.
There have been suggestions that as the authority was struggling with its recent financial challenges, it has on occasion robbed Peter to pay Paul, moving funds from accounts intended for one purpose to cover shortfalls in the monetary allotments for other programs, and engaged in deliberately dodgy or sloppy bookkeeping to keep that managerial sleight of hand on the down low. This might account for some of the discrepancies noted in the audit.
While Apple Valley and Hesperia officials have not condoned, exactly, the authority’s project management practices, spending or accounting, there is indication those municipalities believe that Victorville has gone too far in its dissension and has failed to live up to its commitments in terms of utilizing the service Victor Valley Wastewater Reclamation Authority provides, which has created an unnecessary fiscal crisis at the authority.
The improperly managed $31.7 million alluded to in the audit was that paid out for construction, construction management and engineering on the project.
David Wylie, the spokesman for the Victor Valley Wastewater Reclamation Authority’s spokesman, said, “The Victor Valley Wastewater Reclamation Authority has received the preliminary recommendations by the Office of the Inspector General in connection with its audit of the project to rebuild the Victor Valley Wastewater Reclamation Authority’s pipeline which was washed out by the Mojave River during a flood on December 26, 2010. The pipeline dated back to 1982 and was originally built in the Mojave River. As a result of the rupture, 42 million gallons of sewage were spilled into the Mojave River. Several options were considered to replace the pipeline and, after extensive engineering studies, it was determined that the most efficient, cost effective and environmentally friendly option was to tunnel under the Mojave River and avoid another potential spill. The Victor Valley Wastewater Reclamation Authority is disappointed by the current Office of the Inspector General’s recommendations, in part because the Office of the Inspector General seems to have issued its recommendations without reviewing Victor Valley Wastewater Reclamation Authority’s response to previous comments and questions by the Office of the Inspector General almost a year ago. Indeed, the Victor Valley Wastewater Reclamation Authority has previously responded in detail to the concerns raised by the Office of the Inspector General, undertaking a lengthy audit process and providing substantial legal authority and documentation as to why the Victor Valley Wastewater Reclamation Authority believes that the findings by the Office of the Inspector General are incorrect. In its current findings, the Office of the Inspector General has primarily focused on a single engineering contract worth approximately $1.3 million dollars out of a Federal Emergency Management Agency-funded emergency project worth over $30 million dollars. It is worth noting that throughout this project, the Victor Valley Wastewater Reclamation Authority reported to the California Office of Emergency Services, which was the agency that worked closely with Federal Emergency Management Agency in granting and administering the Federal Emergency Management Agency funds for this project. The Victor Valley Wastewater Reclamation Authority is nevertheless prepared to keep working closely with Federal Emergency Management Agency and the California Office of Emergency Services in reviewing the Office of the Inspector General’s recommendations and addressing them.”
Don Holland, the policy advisor to Supervisor Robert Lovingood, in whose First District the Victor Valley Wastewater Reclamation Authority functions, told the Sentinel, “Supervisor Lovingood has no comment.”