LR5 could be owed money on project that went 50% over budget with ‘fraud red flag,’ audit says

The Lexington-Richland 5 school district has released a report into what school officials identify as spending irregularities related to construction of an elementary school.

The report questions several spending decisions made by the project’s general contractor, Contract Construction Inc. during the building of Piney Woods Elementary School, which opened near Chapin in the fall of 2021.

The report alleges Contract Construction made unauthorized changes to billing for work done on the Piney Woods site, and questions the legitimacy of some of the spending decisions made by the company.

The president of Contract Construction, Greg Hughes, said the report is “false.”

“Unfortunately, the Report issued yesterday completely misstates the facts and is less an independent audit report than a publicly-funded, malicious attack on persons and entities while certain investigations by the State Ethics Commission are pending,” Hughes said.

The school district in July released a summary report about how the Lexington-Richland 5 school district has spent taxpayer money, flagging the potential misspending or unauthorized spending of millions of dollars between 2016 and 2021 that may have violated school district procedures or even the law.

But the short summary of the report released by the school district in July was short on details. The longer report by the Jaramillo Accounting Group released late Tuesday includes the first detailed allegations of misspending during those years released to the public.

While the ongoing audit is examining several spending decisions made following the district’s 2008 bond referendum, the 40-page document posted to the Lexington-Richland 5 website focuses almost exclusively on the controversial Piney Woods project.

The auditors flag the project as significant because it finished some $10 million over the district’s initial estimates, going from $20 million to $30 million.

“With inflation at that time roughly 5%, the significant increase during the project and even comparing to other District projects ... does not make sense,” the report says.

It goes on to allege Contract Construction charged “high rates and unrealistic hours” to the school district, including for staff and actions not included in the original bid.

One charge highlighted in the report went to an “unusual vendor,” Owens Cleaning Service, which the report alleges is owned by the sister of a Contract Construction superintendent, who worked on the Piney Woods project. The report found that the cleaning service was registered three months before Contract Construction was awarded the Piney Woods contract, and the cleaning service used a residential home address.

Auditors said they could find no website associated with the cleaning service or an indication it was a “valid business,” which it calls a “fraud ‘red flag.’” The invoices from the cleaning service were missing necessary information and included a logo that “appears to be pasted into Word.”

The cleaning service ended up being paid $315,855, including overtime for which the report says the company did not receive prior approval. “It appears any amount over 40 hours billed should be returned,” the report says.

The State was unable to contact Owens Cleaning Service before publication. The report quotes a contract manager on the job as saying, “We hire cleaning crews for general housekeeping and collection of unidentifiable scrap. All subcontractors are responsible for cleaning their work areas and identifiable scrap.”

School board vice chair Ken Loveless, a longtime critic of the Piney Woods project, touted the report’s findings.

“I pushed for this audit because it’s been clear for some time that there have been serious problems with our construction practices,” Loveless said in a statement. “Unfortunately, when I and others tried to address these shortcomings, some — including former school board members — were more concerned with keeping them under wraps and shooting the messenger. This report confirms that there were major problems, and makes plain that there was a concerted effort to silence those trying to bring them to light.”

As the audit report itself notes, Loveless is currently facing pending ethics charges before the S.C. Ethics Commission around his company’s relationship with Contract Construction. Loveless Commercial Contracting was awarded a separate contract to work with Contract Construction on a project outside the school district.

The Ethics Commission accuses Loveless of inquiring about Contract Construction’s work on Piney Woods Elementary School in a letter on March 24, 2020, even though Loveless’ company had been awarded a more than $1 million contract with the company for another job. Loveless is also accused of improperly participating in board discussions of Piney Woods on June 15 and Sept. 14 of that year. Loveless also visited Piney Woods in June 2020 to review Contract Construction’s work.

SC Ethics Commission won’t rule on Loveless ethics issue until after November election

In a statement before Monday’s board meeting, school board chairwoman Jan Hammond highlighted that the audit was meant to answer questions from constituents about conduct that she made clear took place under previous boards and district administration.

“I want to make it clear this audit covers a period of time before Dr. (Akil) Ross became superintendent and a period of time in which no current board members served as officers,” she said. “Until this newly elected Board of 2020 took office, no former board officers had seen a need for a procurement audit.

“The people deserve to know if past board members and superintendents were as vigilant and accountable in their oversight of taxpayer dollars as they should have been,” Hammond said.

Ross became superintendent in 2021.

In a statement to The State, Hughes, the Contract Construction president, said the allegations in the report are “false and without merit.”

“During the entire bidding and construction process, the Board was represented by professional and capable Chief Financial Officers, architects, engineers, and experienced construction staff, employed by the district, who all reviewed every stage of completion and approved every pay application,” Hughes said. “At the end of the project, the Board’s representatives confirmed that all approved payments and applications balanced to the penny.”

During the construction process, the company worked to keep the district and school board fully informed by attending school board meetings, answering questions and “fully cooperating with requests from the Superintendent and anyone else acting on behalf of the Board,” Hughes said He said the company even returned $369,467 in savings to the district at the end of the project.

The Lexington-Richland 5 board voted unanimously Monday to forward the report to the S.C. Attorney General’s office and the inspector general’s office for “anti-competitive practices” in the awarding of contracts. Under a recently passed state law, the inspector general has already been asked to look into other issues in other Midlands school districts.

The board also asked its chief financial officer to review its relationship with the vendors identified in the report, and to request reimbursement for any excessive costs the district believes it incurred.