1. Two of my mentors (retired federal employees) now live in New Smyrna Beach, Florida, active in government reform and corruption-fighting. They've encountered the same style of slapdash local government there, complete with SLAPPs, threats and pejoratives, that we have here. Amazing!
2. The FDLE's NSB investigation teaches that those who desire to reform St. Augustine and St. Johns County will perservere, despite scorn and skeptics.
3. As our Founders intended, the First Amendment teaches that we shall overcome any and all misfeasance, malfeasance, nonfeasance, fraud, waste and mismangement in St. Aug and SJC.
4. For more information, go to http://www.nsbshadow.com/
Cheers,
Ed Slavin
Where did $7.3 million go?
By MELANIE STAWICKI AZAM Staff Writer
NEW SMYRNA BEACH -- Fraud, lies and cover-up are not allegations you'd expect to hear in this charming seaside town, especially involving the mundane city agency that provides electric, water and sewer service.
But in the past year and a half, a scandal has been unfolding, involving millions of dollars of taxpayer money from the utility's sale of phone and Internet service.
The result has been jolting -- $7.3 million in losses at the utility, a Florida Department of Law Enforcement investigation and five top utility officials out of jobs.
What went wrong and who's to blame isn't entirely clear. FDLE recently finished a year-long criminal investigation, but the findings are confidential until prosecutors decide whether to file charges.
However, reports from outside auditors tell a shocking story: Taxpayers footing the bill to recruit customers for a private company. The utility director creating a Web site for a company doing business with the utility. Staffers manipulating thousands of customer accounts to pay commissions to that company, even though it didn't earn them. Utility officials lying about their involvement and a potential conspiracy to cover up the deeds.
It all started in 2001 as a plan for the utility to expand its services from selling electric, water and sewer service to adding phone service. Utility officials said it would be an easy way to make extra money, which could help them lower bills for local ratepayers.
Initially, the utility signed up phone and Internet customers for a private company.
Over the next few years, the utility teamed up with more businesses to recruit customers throughout Florida and five Southern states.
"We were given all these wonderful reports of how this would be making all this money," said New Smyrna Beach City Commissioner Lynne Plaskett, whose husband works as an electric lineman for the utility.
At first, few questioned Utilities Commission Director Ron Vaden, who started in 1987 as an electrical engineer making $25,000 a year and moved up to the $160,000-a-year top job.
The utility's governing board members generally deferred to his expertise. Their monthly meetings often lasted just 15 minutes in the middle of the day.
Reflecting back, City Commissioner Jim Hathaway said Vaden apparently was not informing the utility board of his actions, and the board's five members should have questioned him more. The City Commission, which appoints members to the utility board and has ultimate oversight of the utility, also was kept in the dark.
"The City Commission was, I guess, misled on the phone business," Hathaway said.City Mayor Jim Vandergrifft sees it differently. The mayor, supporting Vaden in the past, said the mess may simply be a business plan gone bad."I would never blame anyone unless there's facts to back it up," the mayor said, noting the city is awaiting the results of the FDLE investigation.
Vaden and other former utility officials deny involvement in criminal activities, although some have acknowledged the utility may have been mismanaged.
Auditors Brent Millikan & Co. said in a stinging report last month that the problems appear to go far beyond mismanagement. The report is filled with phrases like "potentially unlawful" and "potential criminal acts."
The most serious allegations involve the utility's dealings with three companies: One that provided phone and Internet service, and two telemarketing companies that recruited customers.
Here is the story that emerges from their report.In 2001, the utility started selling phone and Internet service for a Lake Mary company, called Epicus, and in return received a cut of sales.
It wasn't long before Genny Turano, former utility telecom director, heard Vaden was acting as a consultant for Epicus and "helping (CEO) Mark (Richards) run the business," she wrote in the auditors report.Utility regulations prohibit employees from working for companies that do business with the utility.
As head of the telecom division, Turano typically worked closely with outside vendors. But on the Epicus contract, her boss Vaden worked directly with CEO Richards."I was left out of the loop," Turano wrote.The CEO asked Vaden twice to provide $200,000 deposits on behalf of the utility. Vaden authorized the $400,000, without seeking approval from the utility board, according to the auditors. Only $40,000 of the deposit was repaid before Epicus filed for bankruptcy.
While Epicus was in default on repaying the deposits, Vaden told his staff to pay an additional $612,500 to Epicus for telemarketing solicitations to add customers to Epicus on behalf of the utility. These arrangements violated utility policies, which require competitive bids on contracts and approval from the utility board on payments greater than $25,000, the auditors say.The utility requires bids and contracts for any business dealing involving more than $500. But next, Vaden entered "an unwritten oral business arrangement" with a Canadian company, called RSVP Customer Care Centres, for telemarketers to sign up customers.
The company received $2.3 million in 2003 and 2004, although for seven months of the time, the company signed up customers for Epicus and the utility received nothing in return, according to the auditor.These dealings were "potentially unlawful," involved "potential acts of malfeasance" and violated utility policies, the auditors wrote.
Yet, the most shocking allegations were yet to come.In 2004, the utility paid $406,000 to a North Carolina company, called V-Star, whose ownership remains a mystery.
But auditors have discovered Vaden registered the company Web site while he worked for the utility.Without formal approval from the utility board, Vaden signed a contract with V-Star to provide telemarketing and recruit customers for the utility's new in-house phone company.
A few weeks later, former telecom director Turano learned checks for V-Star were being sent to the home address of Teri Vaden in North Carolina. She asked her boss about it, and Vaden said Teri Vaden was his sister-in-law and an employee of V-Star."He (Ron Vaden) also stated that he had no ownership or ties to V-Star," Turano wrote to auditors.
Six months later, Turano learned a utility employee was taking V-Star checks to a local bank, depositing them and sending the receipts to Teri Vaden. That month, August 2005, Turano announced her resignation, effective the following April, because she could "no longer work in this type of environment," she says she told her boss.A month later, in September 2004, Vaden abruptly resigned after city commissioners began asking questions about the telecom business.
A gloomy picture began to emerge. Instead of being flush with cash, the division had lost $1.1 million.That's when outside auditors began looking into the mess, and the Florida Department of Law Enforcement began to investigate.
The auditors questioned Vaden early on about his involvement with V-Star. He "emphatically denied to our firm that he had any connection with, or knowledge of, any of the principal stockholders and officers of V-Star," the auditors wrote.
By dissecting the coding on V-Star's Web site, NCVSTAR.com, the auditors discovered the domain name was registered to Ron Vaden, using his e-mail address at the utility and his home address in New Smyrna Beach, according to the auditor's report. The domain was created on Sept. 26, 2002, while Vaden was director of the utility and 16 months before he signed the V-Star contract, the auditors report says.
Vaden, who still attends utility board meetings as a member of the public, has called the accusations "a bunch of garbage."The employee who deposited checks for V-Star, Richard Paczkowski, former utility manager of agent sales, also denied involvement with V-Star. He told the auditors he deposited the checks "solely to enhance the Commission's customer service capabilities," according to the auditors.But then travel records showed the utility paid for him to travel three times to North Carolina for V-Star "sales marketing" trips.
Afterward, Paczkowski "confirmed to us that he did in fact have some personal involvement with V-Star, and that he was paid for providing professional services" to the company while also on the utility's payroll, the auditors wrote.
If true, Vaden's and Paczkowski's ties to V-Star would violate the utility's personnel and ethics policies. And Paczkowski's travel reimbursement may have been "unlawful," the auditors wrote.Yet, the allegations and fallout were not over.Turano, the telecom director, decided not to resign when Vaden stepped down and she took over as utility director. She also denied involvement with V-Star, according to the auditors.
But last year, auditors discovered e-mails showing she ordered her staff to change the coding on 4,964 customer accounts to show they were recruited by V-Star, when, in fact, V-Star didn't sign them up and didn't deserve commissions for them, according to the auditor's report. The accounts belonged to the utility.Initially, Turano acknowledged she asked for coding changes on 2,000 accounts, but only because Vaden requested it, she told the utility board last summer. She said she had no reason to doubt it wasn't part of an agreement with V-Star.
But then the auditors found another 2,964 accounts had been changed.By monkeying with the customer database, the utility "effectively paid both telemarketing solicitation fees and residual sales agency commissions to both parties (RSVP and V-Star, respectively) for solicitation of the same telecommunications customers," the auditors wrote.
The coding changes "may potentially indicate the existence of formal intent to defraud the Commission with the diversion of sales commission funds from the rightful owner of the customer accounts."Two other top officials lost their jobs over V-Star.
Last year, e-mails were found that showed the director of telecommunications and the director of information technology may have been involved in a "potential conspiracy" to "intentionally obscure the ability to track the potentially unlawful alteration of the Commission's telecommunications customer database files," the auditors wrote.
Former telecommunications director Rob Hunter and information technology director Craig Crawford deny the charges and say they were trying to fix the fraudulent coding. Crawford, in a speech to the utility board, also said it is absurd to think Paczkowski was a key player in "the criminal masterminding of the entire telecommunications cover-up."
A few weeks ago, the utility board voted to abandon its phone business.Ironically, auditors question whether the utility and City Commission had the authority to approve the telecom businesses in the first place, and provide service to customers outside the city limits of New Smyrna Beach.
The auditors say they're not attorneys, but it appears the grand telecom plan should have been put to voters in a referendum.
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