Some construction audits late, reviewed by Diamantis himself

It took the state 12 years — the same amount of time a student can pass from first grade to college — to conclude that the town of Manchester owed it nearly $5 million due to “ineligible costs” in a state-financed reconstruction of its middle school, Bennet Academy.

The good news for Manchester is that the auditors worked for the Office of School Construction Grants & Review, the same office that initially signed off on the spending. After an appeal to the office’s director, Kostantinos “Kosta” Diamantis, he agreed to waive the debt.

“Luckily, Kosta agreed with our argument,” said Kimberly Lord, the town’s finance director, who said the state’s initial finding didn’t take into account special legislation that altered the reimbursement rate.

The Manchester case, one of 80 reviewed by the Connecticut Mirror, exposes some of the issues now being reviewed by forensic audits commissioned by the administration of Gov. Ned Lamont: audits were woefully late, and the decision to waive some of the overpayments to towns essentially rested with one man — Diamantis.

The audits, obtained by CT Mirror through a Freedom of Information request, were completed between 2018-2020 and will be part of the forensic audit initiated by the state after the federal government launched an investigation of school construction grants overseen by Diamantis.

The federal investigation began last October, shortly before Diamantis was fired from his position as deputy secretary of the Office of Policy and Management and simultaneously retired from his job as head of OSCG&R. The Lamont administration then moved the school construction grant program, which was transferred to OPM when Diamantis was appointed deputy secretary, back to the Department of Administrative Services.

DAS Commissioner Michelle Gilman and Deputy Commissioner Noel Petra announced last month that the agency is hiring an outside firm to “audit the auditors” who were on Diamantis’ school grants team.

Hunting for old records

The CT Mirror’s review of the audits reveals a dysfunctional system for examining and managing billions of dollars in school construction projects.

The records show OSCG&R was years behind in auditing school projects, mainly because municipalities weren’t submitting the proper form, called an “ED049F,” to close out their construction projects and auditors weren’t properly tracking the projects.

The review also found 15 projects, including the Bennet Academy job, in which auditors determined the municipality owed the state money. While a few paid the bill, some municipalities got the costs waived and at least one town inquired how to pay back the state but never got a response from OSCG&R, the audits show.

Many of those audits were conducted at least a decade after projects were completed, requiring local officials to hunt for old records to prove they spent the state’s money correctly.

“We had to go back and try to retrace everything and we discovered there had been special legislation passed that altered what the reimbursement rate should have been,” said Lord.

The Manchester middle school cost about $14 million to build, but auditors determined the state should only cover about $9 million and that the rest were “ineligible costs.” Lord said the special legislation should have negated the auditors’ findings.

Nine months after getting the bill, Manchester officials presented their case to Diamantis.

In a January 2020 e-mail to Manchester officials, Michelle Dixon, an education consultant on Diamantis’ 15-member school construction grant team, wrote that the state would “grant an ineligible costs waiver that effectively reduces ineligible construction costs typically due projects of this type with Director (Diamantis’) approval.”

In an interview Tuesday, Diamantis said that, as director, he had the ability to issue an “ineligible cost waiver” during the audit process.

“I get recommendations from my team and if they agree we should waive a cost then I can do that,” Diamantis said.

While most of the audits were directed to the DAS commissioner, Diamantis and other members of his team, three audits were sent directly to Diamantis and not to the commissioner. One of those three was for the Birch Grove Primary School project in Tolland, which is part of the federal investigation into how OSCG&R and Diamantis, in particular, may have influenced school building contracts.

The federal grand jury has subpoenaed not only Tolland officials for documents related to their communication with Diamantis about that project, but also the general contractor, D’Amato Construction of Bristol, and the construction manager, Construction Advocacy Professionals (CAP) — both of which were hired through no-bid contracts.

Diamantis said the Birch Grove audit may have come directly to him because it was only for the portion of the project that was 100% funded by the state. There were other parts of the project that the state funded 89%, he said.

“That would have just been a desk audit because the project was fully funded so there really was nothing to audit or review,” Diamantis said.

In a written response last week to questions from the CT Mirror, DAS spokeswoman Lora Rae Anderson confirmed that when OSCG&R was moved to OPM, the audit unit reported directly to Diamantis. She said that “structure was changed when OSCG&R moved back to DAS in late October 2021.”

“The school construction audit division has a separate reporting chain through the DAS Business Office and not to the Director of OSCG&R,” Anderson said. “This change was meant to separate out the audit function from grants and plan review program.”

At a press conference in early March to discuss the agency’s legislative priorities, Petra said changing the auditing process was a clear priority when they began reviewing the program last October.

“One of the first things we did when OSCG&R came back to DAS was to remove the internal auditors from that team and put them at an arm’s length distance over in the business office,” Petra said. “And then we followed up with a meeting where I made it very clear to them that they no longer had any reporting to me or the director of OSCG&R at all.”

Petra added that he told audit team that “… if any problems come up, if there was any question that made them concerned or raised any concerns at all, they were to go directly to the commissioner.”

But Diamantis disputed that the auditors reported to him directly and said he welcomed the state’s forensic audits.

Mostly formulaic

The state received a federal grand jury subpoena seeking all emails, text messages and attachments involving Diamantis and a broad range of construction projects on Oct. 20, eight days before he was fired from his OPM position and retired from his job as school construction grants director.

A second request for documents containing certain “search” words made it clear federal authorities were investigating Diamantis’ oversight of the OSCG&R program and how it doled out state funding for school projects.

Diamantis’ team included at least four auditors and a supervisor, Robert Ficeto, who was copied on every audit, as were Diamantis and Dixon, the education consultant on the team, according to the Memorandum of Understanding created when Diamantis moved to OPM.

At the time the MOU was signed by then-DAS Commissioner Josh Geballe and then-Secretary of OPM Melissa McCaw, there were three vacancies on the audit team, which some municipal officials believe delayed the grants team from completing the audits on a more timely basis.

The audits were usually addressed to the DAS commissioner, which was initially Melody Currey but then shifted to Geballe after he assumed leadership of the agency in 2019.

However, a few were addressed directly to Diamantis. None were addressed to McCaw even though she oversaw Diamantis and the grant program until he was fired.

The audits are mostly formulaic – five- or six-page documents that list ineligible costs for every project – but in many cases give little detail as to their findings.

Some audits reference municipalities not giving contracts to the lowest bidder, but there is no indication of how the state responded, if at all, to that finding.

For example, a March 22, 2019 audit of the New Haven Amistad High School project noted that the Local Education Authority (LEA) didn’t utilize the lowest possible bidder without specifying who the contractor was or how much they were paid.

But a Feb. 1, 2019 audit of multiple Bridgeport school projects found that a $24,000 contract with an architectural firm was not properly bid and the state wouldn’t pay the bill.

About a quarter of the audits indicated that bid documents were missing, some of which exceeded the state’s $50,000 no-bid threshold. And more than half of the audits listed “unsubstantiated change orders,” meaning that state officials did not approve the change order and therefore the municipality must cover the costs.

Anderson, the DAS spokeswoman, said once a local school board certifies a project has been completed, it has one year to file a report with OSCG&R, kick-starting the audit process.

A preliminary audit is then completed by OSCG&R and sent to the municipality for review.