What role did ‘group think’ and ‘it’s not my job’ play in Modesto’s overspending?

Modesto’s problems with its purchasing practices — in which it spent millions of dollars more than authorized by the City Council or by the actual agreements — took place in a workplace culture in which city departments did not believe it was their job to keep track of their contracts or to question the actions of the purchasing division.

That was among the findings in a review conducted for the city by Bob Deis, a former Stockton city manager and senior consultant with the public management group of the Renne Sloan Holtzman Sakai law firm.

“(A) basic internal control and a key component of a healthy culture is the shared responsibility of good business practices,” Deis wrote in his 11-page review. “I’m sure these same departments will express opinions when it comes to personnel matters, but why not contracting/purchases matters? They deferred to the purchasing (division) to perform their magic, which is a concern.”

That magic was troubling. The city has said purchasing employees extended contracts and increased the amounts that could be spent without approval.

“I have never seen purchasing staff willing to amend contracts (both term and dollar amount), or create a new contract without the proper council approval,” Deis wrote. “... The fact that operating departments did not question this practice, when it involved contracts solely for their department’s use, is surprising to me.”

Modesto’s review of its 1,045 active contracts and agreements turned up 45 instances in which the city spent more than authorized. Interim City Manager Joe Lopez has said the review found no evidence of fraud and that the city received the goods and services it paid for. But the city has retained Deis to oversee a deeper look into the problem. Lopez said that includes a personnel investigation and a forensics and fraud investigation.

Modesto started the review because it was one of the recommendations of Mayor Ted Brandvold’s 100-day budget review committee. The recommendation was to conduct a review to ensure the city was getting good deals, but the review turned up bigger problems.

The City Council on Tuesday will consider Deis’ report and will be asked to retroactively approve the unauthorized spending and in some cases extend agreements until new, competitively bid agreements can be put in place. The council already has fixed several of the 45 contracts, and will take up the remaining ones Tuesday.

The contracts are for a range of good and services, from asphalt repairs and the mailing of utility bills to the storage of city documents and the purchase of parts for the water division. Some of the contracts are from the 1990s and early 2000s. The amount of overspending is well in excess of $10 million.

Deis’ review raises the question of whether Modesto has a larger problem, in which employees don’t take shared responsibility or are willing to ask questions. Lopez provided this email in response:

“Does that culture exist elsewhere in the city? Is this part of the bigger culture, larger cultural problem? As a mature organization, the city has a multitude of historical practices and procedures that have developed over many years,” he wrote. “My goal is to develop a culture where employees are free to question past practices and strive for greater efficiencies and effectiveness.

“The way we have always done business is no longer an acceptable response, and the responsibility to question those practices lies at every level of the organization. My goal going forward is to establish multiple overlapping systems and stronger internal controls that is supported by clearly written policies and procedures, adequate training and sufficient staffing levels.”

Modesto has started to reform its purchasing practices — including greater oversight, training, and more checks and balances — to ensure this does not happen again.

The council meets at 5:30 p.m. in the basement chambers of Tenth Street Place, 1010 10th St.

This story was originally published January 21, 2018 at 4:32 PM with the headline "What role did ‘group think’ and ‘it’s not my job’ play in Modesto’s overspending?."