Audit: Plant project broke state laws

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Circuit Engineering District #7

 

No charges filed against anyone involved

  • Construction
    Construction
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OKLAHOMA CITY – An association of 11 western Oklahoma counties violated multiple state laws in the construction and operation of an asphalt emulsion plant, a state audit contends.

However, no criminal charges have been filed against anyone involved in the project, nor against one person who was fired after admitting she embezzled district funds.

Furthermore, the two principal officers of the association contend the organization’s actions have been legal and have saved the taxpayers of their counties money on road construction.

CED7 CONSTRUCTED PLANT AT CLINTON

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.

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

The plant was constructed at Clinton, 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.

“It was determined that the authorization ... to engage in a business for this purpose is not in compliance with the law,” Byrd wrote.

But the president of CED7, Tillman County Commissioner Joe Don Dickey of Frederick, said their legal adviser, the law firm of 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 contracted in April 2012 to buy the formula from its inventor for $575,000. That debt was repaid in October 2019, records 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’ CREATED TO MAKE, MARKET EMULSION

In 2012, CED7 and the Authority 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.

‘7 OIL’ CHARGED MEMBERS MORE

Although the practice was not prohibited, 7 Oil bid its products “at higher amounts in the member counties,” auditors wrote.

For instance, in May 2017 the Authority bid $1.70 per gallon for an emulsion product in Comanche County and for an “anionic oil” in Stephens County – two non-members of CED7. The next month, though, the Authority bid $2 per gallon for its emulsion in Tillman, Beckham, Custer, Washita and 

Roger Mills counties, which are members of CED7. “This appears to undermine the objective of the joint venture, which was to reduce costs for CED7 member counties,” state auditors wrote.

CED7 PAID $17K TO EXEC’S WIFE, SON

The auditors claimed that CED7 committed nepotism when it paid nearly $17,000 to the executive director’s wife and son between 2010 and 2013.

Goucher’s son received 16 checks from CED7 that totaled $13,204, documents show. He was paid for contract labor, per diem, trailer usage, pay period bonus, and labor, the checks indicate.

And Goucher’s then-wife received five $750 checks totaling $3,750 from CED7 for “a fifth-wheel rental.” Moreover, minutes of CED7 meetings “do not appear to reflect board approval for any of these payments,” auditors reported.

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.”

THEFT ADMITTED, BUT NO CHARGES FILED

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 CPA 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.

The district’s office manager, Debbie Walpole, admitted embezzling CED7 funds, auditors reported at the time, and she was fired in July 2017. 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 that is 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,” said Kiowa County Commissioner Tim Binghom, vice president of CED7.

In December 2018 the CED7 board voted 7-4 to appoint Brian Young as the interim operations manager. Seven months later Young was appointed as the CED7 executive director to succeed Goucher, who “took another job for a lot more money,” Binghom said.

Goucher “saved the counties a lot of money” when he managed CED7, Binghom added. As of December 2019, Young’s salary was $87,000, which was $58,000 less than the $145,000 Goucher was paid. Binghom said the salary discrepancy is because Goucher is a licensed design engineer but Young is not.