The forensic audit of the Great Park in Irvine has been underway since mid-June and is scheduled for completion by October 16, 2013 according to the contract between the City of Irvine and HSNO of Costa Mesa with the auditor promising to provide updates when the project was 25 percent completed, 50 percent completed and 75 percent completed. But the City of Irvine tells TheLiberalOC that no such update reports exist.
The contract language is pretty clear: “The Contractor shall provide the City with Stated Reports upon completion of 25%, 50%, and 75% of the services, and upon approval of the City, Contractor shall submit invoices for the associated work. Upon completion of the services, Contractor shall provide City with a comprehensive final report prior to submitting an invoice for the final 25% of the contract amount.”
Since no such reports have been submitted, we can surmise a couple of things. The audit hasn’t reached the 25% stage or the auditors haven’t submitted any reports (or invoices) that anyone is aware of. Now if the auditor hasn’t completed 25% of the work and the completion date was to be mid-October, this will kick the delivery of the audit report well into the new year to make the audit of the Great park a political issue in the coming Irvine City Council elections, especially since the Republican majority has the ability to dictate which contracts are to be closely scrutinized in the audit.
Earlier this month, I contacted Christopher Money of HSNO (a perfect name for an accountant!). I identified myself, the blog and asked if he had a few minutes to talk. He said it wasn’t a good time, and when I asked him to identify a good time to speak, he declined to talk with us period. He did so without our asking a single question about the project or why we were even calling.
According to Bruce Dorris, a vice president and program director for the Association of Certified Fraud Examiners, a forensic audit is different than a standard financial audit because it seeks to uncover specific facts or identify specific anomalies, different from a financial statement audit which looks at whether the financial statements overall are fairly represented in accordance with accounting standards.
When I asked if the audit itself could be politicized, Dorris stated, “Part of any audit plan would be to speak to directors and management regarding problem areas they see or have concerns with. Auditors, as well as any profession, are bound by their code of ethics and standards.”
He added based on the number of years and the size of the budget and number of contracts over $100,000 annually (85) that the audit could take several months. HSNO was awarded the contract in mid-April but didn’t start working on the project until mid-June. Starting late drags the process out. The value of the contract is nearly a quarter of a million dollars.
In their contract winning proposal, HSNO will “analyze the progression of the Great Park for the purpose of determining material deviations from the original plan as set forth to the City, the reasons for the material deviations, and the cost impact of the deviations. They will also analyze the contract award process for the purpose of determining that City procedures were followed in awarding contracts and that the type and amount of awarded contracts are commensurate with the scope, time constraints and deliverables of the contract.
Additionally, HSNO will analyze contracts for the purpose of determining that the scope requirements of the contracts were fulfilled in accordance with the terms and conditions of the contract. And they will analyze the payment process of the contracts for the purpose of determining that City Procedures were followed in the payments of contracts. They will conduct the audit with a combination of statistical and judgmental sampling that considers the amount of the contract as well as the types of services provided (i.e. professional services, non-professional services, construction, etc.). The audit will cover the period of July 2005 through December 2012.
For the uninitiated, the public relations contract with Forde & Mollrich is what they will likely spend most of their time on, since so many people viewed the $100,000 a month retainer as outrageous. The PR budget was cut to $50,000 a month in 2012 and F&M functioned effectively as the Park’s in-house marketing department so a significant chunk of F&M’s budget was reimbursable funding where F&M paid multiple local small businesses like printers, graphic designers, copywriters and others so the city didn’t have to pay that directly. F&M’s net net per month was actually less than the $100,000 a month and it varied depending on the tasks and expenses of each month’s work.
The Great Park’s annual operating budget hovers in the neighborhood of $20 million a year, and F&M did quite a bit more than PR including marketing support, printing and research. So the $1.2 million they got over the course of a year is just a little north of the five percent most mid-size companies with a similar revenue streams as the Great Park would spend on marketing annually.
It’s my opinion that the value of the PR retainer and marketing budget should be evaluated by communications professionals instead of an auditor who certainly knows the cost of everything but likely doesn’t know the value assigned to the PR work completed. A hallmark of Irvine is “everyone knows someone who can do the work cheaper” but if the work isn’t done well, everyone will complain about the quality of the performance.
The Orange County Register and columnist Frank Mickadeit were the biggest critics of the Park when it was run by Beth Krom and Larry Agran. Now that the Republicans are in charge, that’s changing. TheLiberalOC has learned a massive editorial supplement promoting the new development plan from Five Points is under development by the Register. And it will most certainly be a powerfully positioned piece of fluffery advocating for the development by FivePoints. Hopefully some media watchdogs out there can liken the Register’s supplement — we’ve been told 32 pages — to the same one the LA Times published about the development of the Staples Center which was broadly criticized.
So assuming F&M was paid $1.2 million over the eight years being audited, that comes out to $19.2 million total (they actually got much less). The auditor is going to be hard pressed to find another large public/private development to compare the contract against. And the report they finally issue is unlikely to include a signature achievement of Forde & Mollrich — securing the rights to the 2013 Solar Decathlon.
The U.S. Department of Energy said that the bid submitted by Forde & Mollrich represented the “gold standard” on proposals when the agency awarded the Solar Decathlon to the Great Park. F&M pulled in a number of solid professionals to make that proposal happen; it wasn’t an accident the Great Park was chosen, as Jeff Lalloway has suggested, but a team effort of professionals at the top of their game that made it happen.
When the Republicans took over, F&M was fired and the project effectively frozen until a new firm was hired to market the project in the early Spring. While the city has lined up the needed sponsors for the event, marketing appears limited to a brochure and signs at Irvine intersections that compete with Fall Baseball signups and kids basketball. If the event fails in any way, we’ll be pointing a finger of blame to Great Park chair Jeff Lalloway, Mayor Steven Choi and councilmember Christina Shea, all of whom don’t seem to understand the value of marketing and that marketing effectively costs money.
A economic impact analysis on the Solar Decathlon for Irvine and surrounding area was conducted that said the Decathlon’s indirect estimated economic impact was $32 million and a direct impact of $15 million. So this means for every dollar spent on the F&M PR agency over eight years is recouped by $1.67. And that’s in addition to the many publications produced, positive interviews secured, presentations made and other measurable results produced by the firm. That’s a pretty good ROI. Cirque du Soleil was also a direct result of F&M’s work; that brought in hundreds of thousands of dollars in parking revenue to the Great Park’s coffers.
The Department of Energy will likely spend $15 million on the event to contract with the event management so the city doesn’t need to fund it. Each of the 20 collegiate teams will invest a million each for a total of $20 million. Sponsors and in-kind contributions will bring in another $3-4 million. All the city needed to do was come up with $1 million in funds or services to match the DoE’s $1 million grant to host the event. That is a great ROI with zero equity to the sponsors. and the federal government, and the collegiate teams where Irvine and OC get all the benefit. Thanks F&M and the Great Park team that delivered on this event.
And should the Solar Decathlon come back to the Great Park in 2015 and effectively become for Orange County what the SXSW Conference is for Austin, TX, then the ROI from Forde & Mollrich is significant and justified.
Yes, a lot of money was spent and the park is not built. The removal of the runways is the responsibility of the private developer who didn’t get the job done as promised when they promised to do it. The cleaning of waste from the soil our kids will run and play on is the responsibility of the US Military and that is still ongoing but nearly completed. I don’t think we should be putting down any athletic fields until the soil those fields rests on is clean.
The Great Park has been audited every year and small items of overpayment are found as is to be expected in projects of this size. These issues are quickly corrected.
In recent weeks, I’ve spoken with council members Beth Krom and Larry Agran; neither has expressed concerns that the Forensic audit will reveal anything significant. What will be interesting is the auditor’s report which is bound to exclude any benefit associated with the Solar Decathlon, giving Republicans fodder for the election but likely no evidence of the corruption they believe the auditor will uncover.
And it only us $240,000.