Attorney hired to draft reply to audit

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Circuit Engineering District #7

  • Audit
    Audit
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OKLAHOMA CITY – Circuit Engineering District 7 hired an attorney recently to develop “a response” to a critical audit prepared by the State Auditor & Inspector’s Office.

The association hired Robert Nance of the Tulsa law firm Riggs, Abney, Neal, Turpen, Orbison & Lewis, said Tillman County Commissioner Joe Don Dickey, president of CED7.

Nance joined Riggs, Abney in 1992 after more than 10 years in the state Attorney General’s Office, and has argued two cases before the United States Supreme Court. It was unclear at press time what the “response” to the state audit might entail; Nance never answered a message left for him by the Ledger.

To say that CED7 intends to “challenge” the audit would be “a little provocative,” and the district has “no plans” to file a lawsuit over the audit, Dickey told the Ledger 

CED7 BUILT EMULSION PLANT

Circuit Engineering District #7 (CED7) was created in 1998 by 11 western Oklahoma counties: Tillman, Jackson, Kiowa, Harmon, Greer, Washita, Blaine, Custer, Dewey, Beckham and Roger Mills.

CED7 and its creation, the CED County Energy District Authority, constructed, equipped and operated an asphalt emulsion plant. Their primary purpose was to “engage in the business of manufacturing and marketing of a proprietary formula road repair and maintenance product,” State Auditor & Inspector Cindy Byrd wrote.

The plant was constructed at Clinton “from the ground up,” said Kiowa County Commissioner Tim Binghom, vice president of CED7. The facility was financed with a $2,350,000 commercial loan that was repaid between July 2013 and December 2019 at a total cost of $2,677,902, the audit relates.

The “principal finding” of the state audit “is that the operation of an asphalt emulsion plant is not in compliance with law,” Ms. Byrd wrote. “However, a decision as to how, or if, the operation of this plant should continue is beyond the authority of this office,” she concluded.

Nevertheless, Dickey, president of CED7, said their legal adviser, Derryberry & Naifeh, and then-Executive Director Monte Goucher “guided us through the proper processes and procedures known to them.”

CED PURCHASED EMULSION FORMULA

The Authority authorized Goucher to purchase “a proprietary property (asphalt emulsion formula) to produce oil products for the benefit of the member counties of the District,” auditors wrote. The Authority bought the formula from its inventor for $575,000, ledgers show.

The emulsion product was patented in 1993, but the ingredients and preparation instructions became public upon expiration of the patent in 2011.

According to Goucher, although the patent had expired, purchase of the formula was necessary “because a number of details and nuances, along with the intellectual knowledge and notes of the inventor, were needed to properly produce” the emulsion.

The auditors contended that the 7 Oil road emulsion “is not unique enough to be considered a sole-source product.” Although the formula was patented, “it was not exclusive, according to engineers” from the Materials Division of the Oklahoma Department of Transportation.

CED7 NEEDED OIL FOR ROADS

“One of the core services counties perform is county road maintenance,” Dickey noted.

“The primary material we use is road oil. Approximately 12 years ago the major supplier of road oil in the state filed for bankruptcy and the product was difficult, if not impossible, to obtain. We could not adequately maintain our roads.

“The counties in Southwest Oklahoma, guided by our legal counsel, formed a trust authority, enabled by statute, which could provide this material. This gave the counties control over the quality and availability of this product.” 

‘7 OIL’ PROCEDURES, PRACTICES CRITICIZED

• CED7 and the Authority in 2012 created a joint venture, called 7 Oil, “to engage in the business of manufacturing and marketing an asphalt emulsion formula road repair and maintenance product,” records reflect.

State auditors criticized several member counties for “incorporat[ing] the specific 7 Oil emulsion product or other product specifications” into their bidding requirements. This discouraged vendors other than 7 Oil from bidding on the product and ensured that the emulsion made by the 7 Oil plant was chosen for their county road projects, auditors contended.

“Counties may not restrict their bid solicitations in ways that result in restricted, non-competitive bidding, which could result in paying higher prices for goods or services,” auditors wrote.

• Although the practice was not prohibited, 7 Oil bid its products at higher amounts among its member counties, auditors wrote. “This appears to undermine the objective of the joint venture, which was to reduce costs for CED7 member counties,” state auditors wrote. 

• The auditors claimed that CED7 committed nepotism when it paid nearly $17,000 between 2010 and 2013 to Goucher’s then-wife and son. 

Title 21 of the State Statutes “prohibits executive officers from appointing family members to any positions or duties in the officers’ government entity when the pay or compensation for the positions or duties is to be paid out of the public funds of the government entity.”

EMBEZZLER NOT CHARGED

Other “notable issues” cited by auditors were violations of the state’s Open Meetings Act by the CED7 board, improper repayment of loans employees received from the district’s retirement plan, and a special investigation of CED7 embezzlement.

“Immediately after engaging in our audit” in 2017, “an employee came forward admitting to an embezzlement of CED7 funds,” State Auditor Byrd reported. An internal investigation of the alleged embezzlement was performed by Clinton CPAs R.S. Meacham.

After the internal investigation was completed and “appropriate law enforcement agencies” were notified, the Stillwater CPA firm of FSW&B “was engaged to perform a follow-up investigation.” FSW&B concluded that $99,300 “is the amount in which restitution should be based.”

It is unknown whether the amount embezzled has been repaid. Furthermore, none of the four district attorneys who requested the state audit – Angela Marsee, Ken Darby, Mike Fields and Christopher Boring – has indicated whether criminal charges will ever be filed.

“It’s been nearly three years,” CED7 President Dickey noted.

‘MAYBE A FEW MISTAKES BUT NO WRONGDOING’

By statute, CED7 has an independent audit performed every year, which is “submitted to the State Auditor’s office and is posted on their website,” Dickey said.

“Maybe we made a few mistakes but there was no wrongdoing,” CED7 Vice President Binghom said.

Goucher “saved the counties a lot of money” when he managed CED7, Binghom said. Goucher resigned from CED7 in 2018 and “took another job for a lot more money,” Binghom said.