CURRENT Illinois Issues

Audit questions CMS cost-cutting efforts, authorities reviewing findings

The Illinois attorney general's office is reviewing charges that the Blagojevich administration broke dozens of contracting rules in its attempts to streamline state government.

The Department of Central Management Services, or CMS, allowed firms to work without contracts, bill taxpayers half a million dollars in questionable expenses and even help establish bid criteria for contracts they later won, according to a report by Auditor General William Holland.

The audit focuses on the bureaucracy's consultant-driven approach to cost cutting. To that end, CMS awarded $68 million in contracts to firms charged with improving key state functions, including telecommunications, purchasing and real estate management.

Holland's report follows Illinois Issues' examination of the administration's attempt to reinvent state government with the help of high-priced consultants. (See Public work, private gain, February; Contract watch,  March; and CMS criticized on efficiency fund shifts,  April.)

CMS says the consultants saved taxpayers $252 million last year. But Holland says he's hesitant to acknowledge even half that, given the disheveled documentation he reviewed.

"Sloppy is a very kind word," Holland says. "It's above sloppy. I don't know that it's sinister, but I guess I don't know that it's not." The auditor general says he'll leave that determination to other authorities.

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Holland says he turned over documents detailing $546,560 in questionable vendor expenses to Blagojevich's inspector general. Illinois Attorney General Lisa Madigan is reviewing the entire audit.

CMS says it has asked a politically connected firm to repay $35,000 in expenses, including travel and meal money, SUV rentals, parking at a Chicago Bulls game and a $495 celebration dinner billed to taxpayers. The expenses were submitted by Illinois Property Asset Management, which won a $30 million property management contract.

Unlike most of the audit findings, CMS agreed with Holland on the exorbitant expenses.

But Holland says it was caustic interactions with CMS that led him to defend his audit in an hour-long media briefing, the first in his 12-year tenure as auditor general. Holland says CMS staff began searching through contracts in his office after he delivered a draft of the audit last month.

Ed Wynn, general counsel for CMS, dismissed suggestions that the search was aimed at discrediting Holland. Wynn says he ordered the review in the hope that it might help discern differences in contracting policies between CMS and Holland's office.

CMS received a draft of the audit on March 17, less than three weeks before Director Michael Rumman delivered his resignation. He is to be replaced by Assistant Director Paul Campbell, who defended the agency's efforts to streamline state government.

"We respectfully disagree with certain aspects of the report and we welcome the opportunity to talk about CMS accomplishments over the past two years," Campbell says.

At their own news conference following Holland's, top CMS officials handed reporters documents showing $621 million in administrative savings over the past two years. But Campbell acknowledged that information was never shared with the auditor general.

Holland's audit found that CMS allowed companies to bid on contracts even after they helped the agency establish bidding criteria. One of those firms was McKinsey and Company Inc., which won a $14.7 million contract and recently employed Brian Chapman, CMS' chief operating officer. Chapman, who started with the state last August, says he did not conduct any of the "pro-bono research" that went into bid specifications.

Some of Holland's sharpest criticism was aimed at Illinois Property Asset Management, the Chicago consortium hired to reform real estate practices. CMS allowed the consortium to dramatically alter its proposal after other vendors were eliminated, Holland found.

The company slashed its asking price by $10 million, bringing the original contract to $24.9 million. Since then, CMS has boosted the contract by $5.75 million to reinsert duties removed when the consortium revised its original offer. CMS also failed to include a clause from the original contract that would have given the state a 10 percent refund when the consortium failed to meet its $14 million cost savings goal last year. The company claimed to save $7 million, but the auditor general could substantiate only $185,159 from lease terminations. The consortium took credit for $6 million in vacant state employee positions and $500,000 from an energy audit. Neither initiative was the consortium's work, Holland found.

The company was paid $8.9 million last year. But the contract wasn't filed with the state comptroller until six months after work began. By then, the company had submitted $31,000 in questionable expenses.

Eight other firms hired to streamline state government also worked for months without contracts, Holland found. On average, a contract wasn't filed until four months after work began.

While the audit was long expected, CMS' combative response was not. Rep. Frank Mautino, a Spring Valley Democrat, says he was surprised the agency seemed to question the integrity and credibility of Holland's work. "I think it is very inappropriate to say there is no merit behind the finding or there's something else behind it,"  he says. "I think that it's disingenuous at best to try to make that argument."

Mautino, a member of the Legislative Audit Commission, says the panel will hold a hearing on the CMS audit in May.

Pat Guinane
Illinois Issues, April 28, 2005