Audit finds improper spending, use of credit card by NES - WKRN News 2

Audit finds improper spending, use of credit card by NES

Posted: Updated: Dec 13, 2012 5:38 PM

Nashville Electric Service is under fire following an investigation from the State of Tennessee Comptroller of the Treasury.

The 23-page report was released Thursday detailing questionable expenses, deals and business practices at the utility company.

The audit was done at the request of Nashville and Davidson County Metropolitan Council and covers NES activity between January 1, 2010, and December 31, 2011.

State auditors spent eight months doing field work, which began in March 2012.

Amid the findings were several questions and evidence of deficient record keeping in regard to employee spending and reimbursement, but the bulk of the audit focused on three items.

The first item involved competitive bids.

The audit revealed NES purchased cables from the same manufacturer and distributor for nearly two decades at a cost of $17 million. Other manufacturers/distributors were shut out of the bidding process after engineers tailored the requirements so that only one company could compete.

"The $17 million was spent on cable that had a 20-year history, which I think is a good thing," NES President and CEO Decosta Jenkins said in a news conference Thursday morning. "But the auditors seem to think it should've been competitively bid. It was competitively bid, but they think that specific requirement [of a 20-year history] was too restrictive."

The second item involved two multi-year deals between NES and Gaylord Entertainment. In the agreements, it appeared Gaylord was allowed use of a transformer in exchange for a hospitality package that included tickets to shows like The Rockettes and ICE!

NES disputes the deal.

"When they brought the ICE! exhibit, it generated $200,000 for NES," said Jenkins. "In that case, there are certain, what we would call, 'line extensions' we would provide any vendor. In this case, we gave them the transformer."

The third item questions online activity by Vice President Chief Information Officer Vic Hatridge.

Six pages of the report detail his multiple online accounts, with no division between personal and business use. Purchases were made on those accounts using his company credit card, listed as a procurement credit card. From January 2010 to December 2011, Hatridge spent nearly $23,000 through Amazon.

"He felt he was saving money. He circumvented policy, but he felt he was saving money," Jenkins said.

Auditors could not determine if all purchases were made for the benefit of NES.

"There are supplies and parts for computers. It's not computers. It's not printers. It's parts for those things," Jenkins said. "The reason why he did that was because of the age and the uniqueness of what he was trying to purchase."

A review by District Attorney General Torry Johnson found no evidence of criminal activity within the audit.

"The audit outlines a number of weaknesses in the financial management of NES," Johnson said in a statement to Nashville's News 2. "There were indications of internal policies and procedures that were violated and poor documentation of spending, [but] none of that rose to the level of criminal activity."

Mayor Karl Dean also weighed in on the audit.

"This is something that's really about public trust, and it's about accountability," he said.

State auditors could only make recommendations to company management.

"I appoint the board of NES, so I expect the board to ask hard questions," said Dean. "I expect the board to take whatever action is necessary to meet the recommendations of the audit."

"I would like point out that we've already put in place several changes that put us in line with the audit suggestions," Jenkins said during Thursday's news conference.

Jenkins would not comment on employee disciplinary actions taken as a result of the audit. However, the final report shows two employees no longer work for the company, but their departure was unrelated to the audit.

Jenkins also confirmed four to six employees were fired after they submitted false claims for educational reimbursement prior to the release of the audit.

When asked why an internal auditor didn't find the discrepancies found in the state audit, Jenkins said, "Anytime you have an entity as large an NES, you'll find some instances."

In October, the company's internal auditing system underwent a quality control review by the Association of Local Government Auditors. It was the first review in seven years.

Typically, a quality control review is conducted every three to five years. At NES, the person responsible for scheduling a review is the internal auditor.

"There were a number of things she was given responsibility for, and that was one of things on her list to get done," Jenkins said.

The October review found NES in compliance with Government Auditing Standards.

Jenkins is confident the state audit will bring positive changes to the company.

NES provides power to more than 360,000 Middle Tennessee customers, and is among the 12 largest public electric utilities in the country.

NES employs less than 1,000 people and generates $1.6 billion in revenue annually.

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