Article -- Scandal cleanup proves costly: Bill for Workers' Comp probe needlessly steep, critics say
Imagine getting paid $6,200 for a day of meetings.
How about $1,695 for three hours spent traveling, $470 for two hours copying documents, or almost $1,300 for reading and writing e-mails for a couple of hours?
That’s what Ennis Knupp & Associates charged the Ohio Bureau of Workers’ Compensation as part of the $1.2 million bill submitted by the Chicago consultant hired to analyze and help stabilize the bureau’s troubled investment operation.
They’re not alone.
While probing investment losses and working to make Ohio’s injured workers’ system more accountable, dozens of consultants, lawyers and specialists are racking up whopping bills with limited accountability, a review by The Dispatch found. For example:
• Ennis Knupp was advised by a bureau attorney to artificially inflate its hourly fees to dodge state limits on reimbursable expenses such as travel costs. Even so, the firm still charged the bureau for travel time at the higher rates.
• Despite a $75-a-night maximum for lodging, the state paid more than $300 for a consultant’s one-night stay May 27 at a Toledo hotel.
• The state is paying some bills without a receipt.
The spending is covered by contracts signed by bureau officials, Attorney General Jim Petro and Auditor Betty D. Montgomery. They justify the unbid contracts by saying quick action was needed for the services of top-notch professionals in response to investment scandals at the bureau.
But critics question the amounts paid and why the state didn’t negotiate lower costs — especially because the contracts were not competitively bid.
"Could we have gotten a better deal for the state for these services? I think the answer is clearly yes," said state Sen. Eric D. Fingerhut, D-Cleveland, a nonvoting member of the bureau’s Oversight Commission.
Fingerhut asked why other firms weren’t solicited. He also said it was "very disturbing" that the bureau allowed the firm to charge higher rates to avoid reimbursement limits.
Catherine Turcer, legislative director of the government watchdog group Ohio Citizen Action, said the high fees and expenses are over the top.
"It’s so important to determine what went wrong and to clean house," Turcer said, "but as we go through the investigation we should also learn from those mistakes.
"Maybe we need to audit the auditors."
The price tag for investmentscandal inquiries at the bureau — excluding salaries and expenses for the army of federal, state and local investigators — is estimated at $5 million.
Most consultants, such as Sotheby’s, the New York firm hired by Montgomery to do coin valuations, are submitting billable hours as well as expenses.
But consultant spending in some cases is in sharp contrast with travel-expense limits for state employees: $30 a day for meals ($40 if the employee has receipts), $75 a night for in-state lodging and 30 cents per mile for use of a personal vehicle.
David Tripp, a Sotheby’s employee and author of Illegal Tender, a book about a mysterious coin, spent eight days in Ohio during May and June working on the coin case. Tripp charged $16,000 in fees, plus $5,235.80 that included airfare, $2,306 for hotels, car rental and meals, and more than $300 in undetailed miscellaneous expenses.
He charged $341.65 for an overnight stay in Toledo.
Tripp could not be reached for comment. Sotheby’s spokesman Matthew Weigman said the firm doesn’t discuss expenses.
Montgomery spokeswoman Jen Detwiler confirmed that no receipts were provided by Sotheby’s. She also said high expenses were "justified by the urgent nature of the situation."
However, Sotheby’s wasn’t supposed to be paid anything under its initial agreement with Montgomery, in exchange for being allowed to participate in a potential coin auction. Montgomery’s office later said it agreed to pay the firm after seeing how much work was involved.
Another firm, Development Specialists Inc., a coin-fund liquidator, submitted more than $57,940 in expenses over four months, including $27,438 for airfare, $13,733 for lodging, $3,251 for meals and $5,778 for car rental.
The firm’s contract calls for those receipts to be made available to the bureau, but the agency has paid the bills without asking for further documentation.
The liquidator did cap the hourly fee it normally would charge at $175 and has an arrangement to recoup some of the money it is forgoing if the firm recovers a certain percentage of Thomas W. Noe’s $50 million coin investment for the bureau that went sour.
As a way to help the horde of investigators and to respond to public-record requests, the state also paid handsomely for scanning and copying documents, as well as production of electronicdisk versions of files.
A Dublin firm, 3 SG Technology, billed the attorney general nearly $240,000, including $42,750 for computer imaging of 300,000 pages of documents and $30,420 for scanner usage.
But the largest amount spent has been for Ennis Knupp. Beyond the $1.2 million the firm has received, the bureau is paying $325,000 for an analysis of its private equity agreements.
Although the $325,000 was negotiated as a flat fee, the bureau advised the firm early on to increase its normal rates for the other work.
"Under Ohio law we can only reimburse consultants/contractors for travel fees at the rates applicable to state employees," Pat Smith, a bureau lawyer, wrote to the firm in a June 20 email obtained by The Dispatch.
"I can send you BWC’s travel reimbursement guidelines if you wish to see it, but I suspect it may raise issues for your employees," she wrote.
"Therefore, if you could set your fees at a level to include expected travel, that would be easier for you from an administrative perspective."
Bureau spokesman Jeremy Jackson defended the move, saying it was a "dire situation" and the bureau was doing everything it could to get Ennis Knupp working as quickly as possible.
"It was well worth" the cost, Jackson said.
But firm co-founder Richard Ennis said it was the bureau that proposed the higher fees instead of expense reimbursement.
"We just did what was suggested," he said.
Ennis said the firm increased its hourly rates by 5 percent based on estimates of the typical amount of expenses charged to other clients.
He also defended the cost, saying the bureau "got a heck of a deal" and "knew what the price was when they hired us."
Tom Hayes, leader of a management-review team at the bureau, and state Sen. Jay Hottinger — like Fingerhut, a nonvoting member of the bureau Oversight Commission — both said the fees paid to Ennis Knupp was money well spent.
"They’re absolutely one of the best, and to get the best, you’re going to have to pay market value," said Hottinger, R-Newark.
Still, not everyone inside the bureau was happy with what one official described as Ennis Knupp’s $50,000-a-day "burn rate" of spending.
Jim Nichols, Ohio State University’s treasurer who was a member of the management-review team, questioned the firm’s costs and work done outside the scope of the contract during the summer.
In an Aug. 4 e-mail to Tina Kielmeyer, the bureau’s former interim administrator, Nichols said the firm accomplished significant tasks but that "this has come at a high cost."
Nichols said Friday that the work Ennis Knupp performed was worth the money. But he said it was "strange" the bureau asked the firm to raise its rates to include expenses and then also paid for travel time.
"The bureau was supposed to monitor the spending," he said.
ajohnson@dispatch.com
mniquette@dispatch.com
posted by Kathie Bracy at 3:25 PM
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