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Monday, December 9, 2024 - 06:07 AM

INDEPENDENT CONSERVATIVE VOICE OF UPSTATE SOUTH CAROLINA

First Published in 1994

INDEPENDENT CONSERVATIVE VOICE OF
UPSTATE SOUTH CAROLINA

Low bidders bypassed for state contract to probe mystery 1 8B

A global consulting firm hired by the state to investigate the mystery $1.8 billion and related financial questions was not the low bidder for the “potential” $3 million contract, records obtained by The Nerve show.

But under state law, procurement officials don’t have to accept the lowest bid but instead can use other purchasing procedures depending on the situation, including issuing a “request for proposals,” which was done by the S.C. Department of Administration in awarding a contract in July to New York-based AlixPartners in connection with the investigation of the $1.8 billion.

On top of that, lawmakers included a special provision in this fiscal year’s state budget which, among things, exempted the department, in awarding the contract, from using purchasing procedures under the law.

In June, the department on its website called for proposals for “an independent forensic accounting firm” to “conduct a forensic accounting review of all cash and investments held in the State Treasury.”

Forensic accountants can work in criminal or civil investigations, using “accounting, auditing and investigative skills when conducting an investigation,” according to the Institute of Certified Forensic Accountants.

“The State does not have an understanding at this time that any criminal and/or unauthorized activity occurred,” the Department of Administration said in its  call for proposals, though adding, “It is possible that the forensic services performed by the firm could identify information suggesting conclusions contrary to the current understanding.”

As The Nerve previously revealed, the S.C. Attorney General’s Office in January hired an international law firm – at a taxpayer cost that could run at least $1.8 million – to defend the state in a federal Securities and Exchange Commission (SEC) investigation in connection with the disputed $1.8 billion.

The Nerve’s latest review of records provided by the Department of Administration under the S.C. Freedom of Information Act found that 10 accounting or consulting firms, including at least three with South Carolina offices, submitted proposals for the contract that ultimately was awarded to AlixPartners, which, according to its website, has 25 offices worldwide.

S.C. lawmakers appropriated $3 million to the department for this fiscal year, which started July 1, for the forensic auditing contract. In its submitted request for proposal (RFP), AlixPartners listed a $2.6 million “low range” to a $2.8 million “high range” in fees for an eight-person team assigned to the project, including two firm partners.

Under the July 17 award with the firm’s Washington, D.C., office, the state agreed to an amended total estimated fee of $2,796,444.

Four members of the AlixPartners team, including primary contact Susan Markel, a listed partner and managing director who was the chief accountant in the SEC’s Division of Enforcement from 2003-2009, remotely attended a meeting last month of a special task force created by Gov. Henry McMaster to investigate the $1.8 billion, records show.

The lowest-listed total bid in records provided to The Nerve was a $2.3 million estimate from an Ohio-based accounting firm – nearly $500,000 lower than the amended estimate in the contract with AlixPartners. An Alabama-based firm with a South Carolina office submitted a nearly $2.5 million proposal, while a London-headquartered firm through its Washington, D.C. office listed an estimate ranging from $2.44 million to $2.88 million.

No total bids were listed in the other six submitted proposals, including at least two with South Carolina offices, though as with the other four RFPs provided to The Nerve, pages typically were partly or fully redacted.

For example, eight pages of AlixPartners’ 20-page RFP were completely blacked out, with the remainder partly redacted. And two of the four pages of the “Record of Negotiations and Award” for the contract were partially redacted.

As The Nerve previously has pointed out, the $1.8 billion equates to more than $300 for every man, woman and child in South Carolina; or, according to the South Carolina Policy Council – The Nerve’s parent organization – up to $1,440 per taxpayer, based on a formula similar to the one used for state taxpayer rebates in 2022.

The  Policy Council in April recommended rebating the full amount to taxpayers if no state agencies claimed the money by June 30 of this year or if agencies couldn’t provide evidence by then of their share of the funds.

No state agency has claimed its share of the $1.8 billion, a Department of Administration spokeswoman repeatedly has told The Nerve in written responses.

‘Best option’

Under state law, all state contracts must be awarded by "competitive sealed bidding,” though there are 15 specific exceptions, including a section dealing with requests for proposals.

By law, a request for proposal is a “written or published solicitation issued by an authorized procurement officer for proposals to provide supplies, services, information technology, or construction,” which results in a contract “determined to be most advantageous to the State.”

In contrast, an “invitation for bids” contains similar language as the RFP definition, except that a contract is awarded to the “responsible bidder making the lowest responsive bid.” 

With regard to the contract awarded to AlixPartners, Department of Administration spokeswoman Brooke Bailey in a written response to The Nerve said instead of using the lowest-bidder process, a panel made up of representatives from the department, S.C. Attorney General’s Office and state Auditor’s Office collectively decided on a “solicitation for proposals” that incorporated “multiple factors with price/cost relative to qualifications and ability to perform being only one of the factors.”

“AlixPartners was determined by the panel to be the best option taking all of the factors into consideration,” Bailey said, adding that the firm agreed to “cap total fees” at $3 million and to “endeavor to complete the work required at the lowest possible fee.”

Asked why it was necessary to bypass the lowest-bidder process, Bailey said a state budget proviso for this fiscal year “called for an open-ended scope of review,” and that “according to the proviso, some of the components of the review could not be set unless and until the engaged accounting firm determined that such was possible.”

“This type of engagement is not conducive to soliciting a fixed price bid since the level of services could not be fixed at the outset,” she said.

The last line of the related budget proviso says that Department of Administration procurements related to the contract are “exempt from the purchasing procedures” under the state procurement code.

The following three weighted categories, with the maximum possible score in parentheses, were used to evaluate the proposals, according to Bailey:

  • Qualifications and experience (40)
  • Ability to accomplish scope of work (40)
  • Fee structure (20).

As to why no total bids were listed in redacted records provided to The Nerve for six of the 10 submitted proposals, Bailey said each firm agreed to be paid “on an hourly basis for as many hours as it would take to perform the scope of work,” and that “some of the firms did not include an estimated total as part of their proposal.”

“None of the initial offers that included an estimate, however, contemplated being contractually bound by their estimates to complete the entire scope of work,” she added.

Hourly fees were redacted in several proposals provided to The Nerve. Bailey said state law allows vendors to exempt “what they consider privileged and confidential information.”

As part of its contract, AlixPartners was required to provide the Department of Administration with an interim report by Monday of this week, with a final report due by Dec. 16.

In its submitted RFP, AlixPartners said it understood the “urgency of this matter for the State of Carolina,” though the rest of the paragraph was blacked out in the document provided by the department to The Nerve.

Asked for specifics about the “urgency,” Bailey cited the “importance of the engagement as well as the deadline for completing the engagement,” based on the state budget proviso and RFP, though she provided no further details.

The Nerve sought comment from the other nine firms that submitted proposals but received no written responses.

Secret meetings, no public answers

It’s unclear whether the $1.8 billion actually exists, though S.C. Treasurer Curtis Loftis on the agency’s website says the money is “not missing or recently discovered,” and that his office has been “fully transparent about the matter.”

His office, however, declined The Nerve’s Freedom of Information Act request for related bank records, noting in a July written response that the records, “to the extent they exist,” related to the $1.8 billion are exempt under the open-records law as an “attorney work product of the Governor’s Working Group.”

McMaster on April 11 created a task force made up of representatives from six state agencies, including the Governor’s Office and Treasurer’s Office, to investigate the $1.8 billion and gave the panel a July 1 deadline  - which has long since passed –  to find answers.

The “working group” typically had been meeting weekly since April, though their meetings were held in secret, and meeting notes released by the Department of Administration to The Nerve gave no specifics of what was discussed.

The most recently released notes were from the Aug. 6 meeting, which Bailey said was the last time the group met. She didn’t respond to a follow-up question about whether the panel planned any future meetings.

The $1.8 billion was the subject of a critical 116-page interim report released in April following an investigation by a Senate Finance subcommittee chaired by Sen. Larry Grooms, R-Berkeley. The report accused Loftis of failing to disclose the funds for seven years “despite his explicit statutory duty to do so.”

After S.C. Comptroller General Brian Gaines in an October 2023 letter asked Loftis to investigate a related cash balance, the Senate Finance Committee researched the matter and determined the fund had a balance of about $1.8 billion, according to the subcommittee's report.

That discovery followed a separate subcommittee investigation in 2022 into a $3.5 billion accounting error, which, according to the report, stemmed from an earlier conversion to a different state accounting system and occurred during the tenure of ex-Comptroller General Richard Eckstrom, a Republican who resigned in April 2023 after 20 years in office.

In seeking written proposals this year for forensic accounting services, the Department of Administration in its June online post said the $1.8 billion “issue” was identified as “part of the $3.5B restatement.”

According to the Senate Finance subcommittee's report, Loftis claimed during sworn testimony in April that the $1.8 billion fund earned $225 million in interest that was spent by the General Assembly.

When The Nerve recently asked his agency for details about investment income from the $1.8 billion, the office in a written response said it couldn't provide that information, noting it invests in “pooled investment portfolios.”

Grooms has said publicly that Loftis, a Republican who was first elected in 2010, should resign. Loftis has denied all allegations, publishing a lengthy defense on his agency’s website.

Meanwhile, as The Nerve revealed in July, the Comptroller General’s Office hired two law firms to represent the agency in the related U.S. Securities and Exchange Commission investigation, which, according to records obtained from the office under the Freedom of Information Act, has been ongoing since at least last summer. A “current” maximum total of $330,000 is designated for the two firms, according to an agency spokeswoman.

The SEC in a written response to The Nerve declined to say whether it was conducting an investigation.

Brundrett is the news editor of The Nerve (www.thenerve.org). Contact him at 803-394-8273 or This email address is being protected from spambots. You need JavaScript enabled to view it.. Follow The Nerve on Facebook, Instagram and X (formerlyTwitter) @thenervesc.