Following Insider Louisville’s investigation into possible fraud in the Metropolitan Sewer District’s supplier diversity program, MSD Executive Director Greg Heitzman indicated in a letter to IL on Monday that he has ordered an audit of that program and the companies implicated in our story.
IL reported last week that Bancroft Group, LLC — a local concrete supplier — gained five contracts totaling over $6 million on MSD projects since 2010 due to being a certified Minority Business Enterprise (MBE). However, records gathered from MSD and the transportation departments of Kentucky and Indiana suggest Bancroft merely served as a pass-through for a majority-owned business, Advance Ready Mix, who provided the trucks, workers and supplies for their past projects.
Before the story ran, Heitzman told IL he was unaware of such allegations — as well as a Kentucky Transportation Cabinet investigation in 2012 that resulted in the removal of Bancroft’s Disadvantaged Business Enterprise (DBE) certification for the same reasons — and whistleblower complaints to MSD on the Bancroft/Advance relationship in 2010. Records of a 2011 audit by MSD of Bancroft were withheld from IL’s open records request because they were deemed “preliminary,” but Heitzman told IL that he would immediately look into the matter to determine if an internal audit was needed.
According to Heitzman’s letter to IL on Monday, he has already initiated that internal audit of Bancroft and MSD’s Supplier Diversity Program, with the help of their external auditor:
As a result of your claim, however, and the fact that Bancroft is providing concrete services on two projects (Chenoweth Interceptor and Logan Street) in addition to the Derek Guthrie WQTC Project, I have initiated an audit review of Bancroft, LLC for compliance with MSD’s Supplier Diversity Program. The audit will be conducted by our Supplier Diversity Manager with the assistance of and oversight by our external auditor, Crowe Horwath. The audit review will include a review of all work performed by Bancroft over the past five years as a subcontractor on MSD projects. This includes ownership, employees, payroll, invoices, equipment and material supplies used in providing subcontracting services on the projects you identified. We will determine if Bancroft, LLC is providing the services as bid by the general contractor and in accordance with contract documents. If they are not, appropriate action will be taken to assure compliance is met, which may involve Advance Ready Mix and general contractors, and their certification will not be recognized as meeting MSD’s goal for supplier diversity. The audit review is expected to take 5 to 8 weeks, and upon completion we will provide you a copy of our conclusions and investigation.
Heitzman’s letter acknowledged that MSD staff did review Bancroft’s participation in the Guthrie project in 2011 to determine evidence of fraud, but “due to inadequate information, however, the review was not completed. Only preliminary findings were made with respect to whether Bancroft, Advance Ready Mix and Whittenberg Construction were collectively conspiring to commit fraud against MSD.” He also said that at the time of the review, Bancroft was certified as an MBE by the Tri-State Minority Supplier Development Council, and they “documented that it was leasing trucks from Advance, and there was evidence that Bancroft had provided materials for the project.”
Heitzman also wrote that no MSD staff were aware of the removal of Bancroft’s DBE certification by the state transportation departments of Kentucky and Indiana in 2012 for being completely dependent on Advance for trucks, labor and supplies, but said that ineligibility from the states’ DBE program “may not automatically qualify or disqualify a business for another program (i.e. MBE).”
The current owners of Advance and Bancroft have not responded to inquiries from IL on this matter. Curtis Warfield — the founder of Bancroft who says he sold the company in 2011, though he is still listed as an officer of the company on the Kentucky Secretary of State’s database — told IL that MSD performed multiple audits of his company and found there was nothing wrong with its business arrangement with Advance, and that other MBE’s recognized by MSD had a similar business relationship with majority-owned businesses.
Heitzman’s full letter to IL on Monday can be read below.