State audit finds improper contract bidding, credit card use at NES

Thursday, December 13, 2012 at 12:24pm

Updated 2:50 p.m.

Findings of an audit by the state Comptroller of the Treasury's office released Thursday allege that the Nashville Electric Service engaged in improper bidding of contracts, employees made personal purchases using a company credit card, and the utility nurtured a cozy relationship with Gaylord Entertainment.

The audit, which can be found here, found that NES “paid one manufacturer and its distributor more than $17 million over the last eight years for electric power cable that was not properly bid.”

NES president Decosta Jenkins told reporters at a press conference Thursday morning that the city’s electric utility had already begun responding to many of the problems cited in the audit. Policy changes cited by Jenkins included “revised and strengthened” policies with regards to bidding practices, a more restrictive travel reimbursement policy — which includes a prohibition on the purchase of alcohol — and a process under which hospitality items such as hotel rooms and event tickets are donated to charity.

In his report, Comptroller Justin P. Wilson said he “applaud[ed] NES officials for the corrective measures they have adopted in response to our findings.”

According to the audit, NES has maintained an exclusive arrangement with Kerite and Utilicor since 1998. NES, however, could only provide records for cable purchases dating back to the 2005 fiscal year.

Auditors from the comptroller's office found that NES specifications for electric power cable were “tailored to match” cable provided by Kerite.

Asked what ratepayers, who fund NES, should think about such a practice, Jenkins pointed to the success of the system during the 2010 flood, but acknowledged that some of the requirements and specifications for the cables were too restrictive.

Auditors found that NES entered into a contract with Gaylord Entertainment that allowed NES employees to attend events and play golf at Gaylord-owned properties for free in exchange for the lease of NES transformers.

The audit also found improper use of an NES credit card by the company’s vice president/chief information officer, stating that the vice president mixed personal and business accounts, many of which were established in the name of NES. The same vice president admitted to selling surplus NES items without authorization, according to the audit.

Jenkins told reporters that issues related to NES vice president and chief information officer, Vic Hatridge, had been handled internally. He declined to specify what disciplinary actions had been taken against Hatridge or others cited in the report.

Also, auditors found that six NES employees used altered documents to get reimbursement for education or training programs, according to the audit.

Jenkins said NES is “actively seeking restitution” for those claims of fraud by the employees and that those involved had been terminated.

In a statement released Thursday afternoon, Johnson said, “The audit outlines a number of weaknesses in the financial management of NES. There were indications of internal policies and procedures that were violated and poor documentation of spending. While some of the practices were questionable from a business perspective, none of that rose to the level of criminal activity.”

In May, the district attorney’s office requested the Tennessee Bureau of Investigation investigate NES purchasing practices, after auditors indicated to Johnson that they needed help obtaining records and conducting interviews of some NES employees. In that situation, the TBI could only have intervened at the request of the district attorney.

Jenkins told reporters Thursday morning that it was his understanding there would be no further action by the TBI or the district attorney.

“We’d love to have gotten a clean bill of health,” Jenkins said. “We didn’t. But my commitment to you is that we’ll just get better.”

12 Comments on this post:

By: JeffF on 12/14/12 at 12:00

Oh the wonders of OBE. Three times of regular government administrators but less than half the oversight. The whole reason for OBEs like NES, MDHA, and the Airport Authority is not to increase oversight but to get us out of their business. Oh, and to be able to pay private sector wages to management with political skills.

Like most Metro OBEs they will contact with McNeely Piggot & Fox to sweep it away.

By: justacitizen on 12/14/12 at 8:09

Whatever happened to the "buck stops here"? Mr. Jenkins continues to defend the improper actions of his staff and the NES vice president and chief information officer, who will obviously continue in their high paid positions even after making inappropriate expenditures and conducting nefarious bidding and other arrangements with outside organizations resulting in untold extra expenses for ratepayers.

A clean slate of leadership is needed at this organization which, I believe, had similar charges made against it several years ago under Mr. Jenkins' leadership.
Alas, the Mayor and the board will not take any action to correct this inexcusable situation. The current regime will continue and since they have "gotten away with it" again, I will put my money on similar revelations of improprieties occurring again within a few years. Until the unethical leadership is replaced, things will continue as they were as soon as the head dies down.

The ratepayers and citizens of Nashville deserve better. And it is a shame there is nothing they can do about it.

By: bobyounts@comca... on 12/14/12 at 8:15

Friends of mine who are long-time NES employees tell me that Jenkins is not only dishonest, but stunningly unqualified for the job. It appears that they are right.

By: rls165 on 12/14/12 at 8:23

Vic Hatridge's salary is $198,099.20

By: budlight on 12/14/12 at 8:35

What is the salary of the CEO at NEs? Higher than a million I think.

By: govskeptic on 12/14/12 at 8:36

The Board selected someone they knew versus someone who knew what they were
doing when selecting Mr. Jenkins. Since it's always friends of the Mayor that gets selected as Board Members, no matter the Mayor, what's more is needed to
understand how these things happen. Never expect Attorney General Tory Johnson
to find criminal fault when it comes to anything like this when government. Negotiated
resignations with full retirement benefits is as far as that office usually goes.

By: justacitizen on 12/14/12 at 8:38

According to the Tennessean, Mr. Jenkins is paid $350,000 per year.

By: Moonglow1 on 12/14/12 at 9:42

Moonglow1: Comptroller Wilson "applauded NES for taking corrective action.." Really? I would applaud the TBI if they put these crooks behind bars where they belong.

This is why private enterprise should not run infrastructure or resources (oil, gas, energy, pharma). There is no room to profit from energy which is required to run the country.

When will society learn that greed permeates corporate America.

These so called business leaders also lead in crime (fraud and abuse) against the taxpayers.

By: Shadow63 on 12/14/12 at 10:40

"Comptroller Justin P. Wilson said he “applaud[ed] NES officials for the corrective measures they have adopted in response to our findings.”"

After the clapping dies down how about putting somebody in jail for stealing from the taxpayers???
We need to get the FEDs down here to investigate these criminal networks.

By: JeffF on 12/14/12 at 1:46

Moonglow, NES is not private enterprise, it is a government chartered non-profit entity. This type of stuff is common in these organizations. The true meaning of "non-profit" is the "management got all the profits so there were none". Memphis is crazy famous for OBE corruption because these government chartered entities are the last bastion of political machines. Being under the government umbrella does not make you any money, but being in a government's off budget enterprises does.

By: JeffF on 12/14/12 at 1:50

What happened when the media finally caught (drug kicking and screaming) corruption at MDHA related to the convention center project? Dean created another OBE. Oddly enough the press thinks replacing one OBE with another OBE is an improvement in oversight and efficiency? These boards and authorities are where sunshine and oversight go to get away from us peons.

By: strongone on 12/14/12 at 1:58

So the comptroller documents evidence of mismanagement--indeed, criminallity--at NES, but instead of criticizing them, he cheers them for acknowledging their improper behavior.

There's something wrong with that. Jenkins ought to be fired.

I'd like to know how all these improprieties, including ratepayers subsidizing Gaylord, will be officially handled. Employees who were terminated only did what they were advised to do, in my opinion. That they could even get away with it is astonishing.