Richland County responds to release of preliminary penny tax program audit

Updated: Dec. 13, 2019 at 7:43 PM EST
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COLUMBIA, S.C. (WIS) - Richland County Administrator Leonardo Brown briefly addressed the media on Friday after a preliminary audit of the county’s Penny Tax program revealed $41 million in alleged ineligible spending.

The program was approved by voters in 2012 and is designed to create $1 billion of revenue over the course of 22 years. The money is meant to fund transportation-related projects, including highways, roads, streets, bridges, mass transit systems, greenbelts, and other transportation-related projects.

In 2018, the South Carolina Supreme Court sided with the Department of Revenue, ruling the department has oversight and enforcement responsibilities in the Transportation Act and determined “a proper expenditure of Penny Tax revenue must be tethered to a specific transportation-related capital project or the administration of a specific transportation-related capital project.”

After the transportation penny tax was put in place, Richland County contracted with a Program Development Team (PDT) to help with the financial management, planning, design and construction related to the program and its projects.

The 11-page audit found 10 findings of alleged misspending. $71,275 was spent on audits that did not directly benefit a specific transportation project. As a result, the department said the costs incurred are a “normal cost of doing business” and therefore ineligible.

The next finding revealed the county spent $212,843 of Penny Tax revenue to purchase “computer software, Columbia sportswear, media ads, vehicles (three Ford Escapes and a Ford Explorer), cell phones, employee training (including meals and travel), and office supplies. The report said because the costs do not directly benefit a transportation project, they are ineligible.

The county was also found to have spent $260,000 on the mentor-mentee program fees. According to the report, revenue from the Penny Tax program cannot be used to fund the program. Further, it states the state Supreme Court deemed them duplicative costs, as the county pays both the mentor and the mentee for the same tasks. The report found, again, because the costs do not benefit a transportation project, they are ineligible.

The audit also found the county spent $498,241 of revenue to pay attorneys’ fees during the litigation between the county and the Department of Revenue. The county also spent $334,655 on “other legal fees related to a contract protest and a request for qualifications.”

In July 2014, the audit found the county executed a “Limited Notice to Proceed” contract with PDT, agreeing to pay start-up costs and other routine office expenses. Included in the audit are, “Coffee supplies, cups, lids, postage, tables, chairs, software, napkins engineering supplies, office supplies, plumbing/toilet services, plants, cars (GMC Arcadia and Chevy Silverado), insurance, Google Apps for Business, a Nikon Camera, an icemaker, an office lease and a protection plan for a refrigerator and microwave. Those costs totaled $1,813,297 of ineligible expenses.

Further, the audit reveals, the county paid for recurring and miscellaneous costs including “bookshelves, kitchen supplies, break room supplies, business cards, cell phones, carpet cleaning, custodial service, light bulbs, coffee, coasters, computers, computer allowances, computer stipends, electricity, and office chairs.”

The audit also found the county paid the PDT’s garbage services, HVAC repair, security cameras, intern program breakfasts, logo and decals, termite and pest control, recycling, plumbing, door lock repair, internet/telephone, vehicle allowances, and subscription to The State newspaper. Those costs totaled $1,018,844 in eligible costs, according to the department.

The county was found to have spent $993,868 of Penny Tax revenue on public relations costs. According to the audit, this includes “$648,292 paid to Dennis Corporation, an entity separate from the PDT, to provide public relations services for the Dirt Road Paving Program.”

The department said public relations costs are a normal cost of doing business and therefore cannot be categorized as a “capital cost.” Additionally, it cited the 2018 South Carolina Supreme Court ruling that “specifically identified paying additional public relations firms - when a fully operational public information office exists within the county - as “dubious expenditures” of penny tax money.”

Furthermore, the audit claims the public relations efforts taken on by the Dennis Corporation were duplicative of public relations work that was contractually outlined to be completed by the PDT.

The report goes on to allege Richland County used $1,219,830 in penny tax revenue to fund the Small and Local Business Enterprise, a government agency unrelated to the Penny Tax program.

The county is accused of using revenue to purchase the Mill Creek property and mitigation credits from a mitigation bank. The department states the county’s share of the purchase price, $6,673,654, and the cost of all mitigation credits not applied to penny tax projects must be refunded into the program.

A $7,014,129 local road resurfacing program does not meet the guidelines of eligible spending within the program, according to the department, as it said routine maintenance and repair is not a capital cost.

The largest chunk of money within the alleged $41 million of ineligible spending comes from the PDT Program Management Fees, the audit found. Much of the ineligible spending of $19,855,110 comes from salaries the Department of Revenue said cannot be paid for using the Penny Tax. It also found several duplicative salaries.

Lastly, the audit accuses COMET of misspending $1,470,990. In November, COMET Chairman Ron Anderson told WIS his company disagrees with parts of the findings and is disputing those areas of the audit. However, COMET buses will be able to reclassify the money that the report says was misspent and continue running.

“We are fortunate that we have other streams of money, such as bus fare, that is unrestricted income and state and federal dollars that have restrictions and we will be able to reclassify if it’s ruled ineligible to be able to say it came from the federal or state pot,” Anderson said.

The report concludes the total amount of money misspent in each category “must be reimbursed from the county’s general fund.”

Richland County Administrator Leonardo Brown read this prepared statement on Friday during a brief press conference:

“I understand that there are many questions that are being asked concerning the preliminary findings of an audit that was recently conducted by the South Carolina Department of Revenue that have been released to the media. The purpose of the prepared statement that I will give today is to address what Richland County is actively doing to address the issues outlined in the preliminary report issued by the South Carolina Department of Revenue. Richland County is continuing to review and present information to the South Carolina Department of Revenue in an effort to resolve questions that have been raised concerning the Penny program.

As the reported findings are preliminary in nature, we have no conclusory statements to make about the report at this time. We are committed to establishing, fostering and maintaining our identity as an open government and will make every effort to be transparent throughout this process. It is important to note that this audit is part of an ongoing pending-litigation matter between Richland County and the South Carolina Department of Revenue. Therefore, it would not be appropriate at this time to give any further comments, as this matter is pending litigation.

I will conclude this prepared statement by making two announcements. First, anyone present who would like to receive a copy of this prepared statement may do so by speaking with our public information officer, Ms. Beverly Harris. Second, Richland County Council Chair Paul Livingston will follow up with a more detailed response at a later date.”

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