Point Austin: All EARRS
Stage Two of the Hodge Affair less than meets the eye
Responding to media requests, the city made available several years of accounting records for the Convention Center Department's equipment, acquisition, replacement, and repair, aka EARR, fund. Department director Robert Hodge, fired April 1 by City Manager Toby Futrell, managed the EARR account, generated from a percentage of the income of Convention Center caterers Aramark Inc. After employee allegations that Hodge was mishandling the fund, and after city auditors said they couldn't justify his accounting, the district attorney was called in to review the matter. According to a search affidavit filed by investigators, Assistant City Auditor Susan Wynne told them that "out of the $1.07 million EARR fund expenditures for fiscal years 2004-2006, over $600,000 of the expenditures appeared to be for non-catering-related and non-Aramark expenses, contrary to the contract" between the city and Aramark. That is, according to the auditor, Hodge appears to have used the EARR funds for apparently legitimate departmental expenses not strictly allowed for those funds under the Aramark contract.
I'm no auditor, by a long shot, but I reviewed the available EARR documents (several hundred pages of invoice and payment records dating back to 2001) and was frankly underwhelmed by their potential to serve as criminally smoking guns. Much has been made of the fact that, for example, Hodge authorized the spending of EARR funds to host receptions and parties for major clients of the Convention Center, with special heavy breathing devoted to parties for the May 2006 World Conference on Information Technology ($140,000), the South by Southwest Festival ($12,500), the Austin Toros ($12,500), and a few other soirees. (Disclosure: The SXSW Festival is owned in part by the same folks who own this newspaper. For the record, I wasn't invited.) The suddenly notorious Any Baby Can charity buffet (December 2005) served 900 guests for the whopping sum of $12,960, or about $14.50 apiece. Should we call Homeland Security?
Umm, just what business do the reporters think the Convention Center is in? The five-day WCIT hosted 2,000 delegates (I don't have the figures on what they paid the city or spent in Austin individually and collectively, but I'm sure somebody does), and among the itemized costs to the EARR fund is $6,700 Aramark laid out over several days for something called the "press room." In the interest of bookkeeping purity, do the reporters want to refund the coffee and crudités?
Leave 'Em Happy
One problem is the name of the fund, which implies hard goods (e.g., refrigerators) only, leading reporters to shorthand it misleadingly as the "equipment fund." In fact, the contract explicitly anticipates that the fund is for either catering-equipment repair and purchase "or the promotion of concessions and catering products and services" (emphasis added). The fund is as much for the benefit of Aramark as for the center, and when money was spent on wining and dining conventioneers, generally at the inception of a convention, both caterers and Hodge obviously believed it was money well spent for official institutional benefit. There are numerous omnibus invoices from Aramark to Hodge or his subordinates collating months of expenses for miscellaneous entertainment items, very few of which are "equipment." If the caterer thought Hodge was misusing the EARR fund against its interests, it was certainly free to complain. Instead, it filed without comment for reimbursement from the EARR fund.
I asked Assistant City Manager Rudy Garza if, based on his initial review, he had found any of the major expenses accounted in these documents or reported in the media as inappropriate for the EARR fund. He emphasized that he has not completed a full review and that the city is effectively staying out of the way of the DA's investigation. But thus far, he said, only the June 2006 retirement party for his predecessor Joe Canales struck him as possibly crossing a line. "I think [the party] was an appropriate event," Garza said, "but it's possible it should have been paid for out of the department's operating budget and not the EARR fund." Canales was stepping down after 27 years with the city, and the $11,097 spent on his farewell reception entertained perhaps 1,000 guests, most of them city employees, at about 12 bucks a head. A bigger scandal would have been if they hadn't thrown Canales a party.
Garza also emphasized the competitive nature of the convention business, for which constant promotion of all kinds is a central element, and making conventioneers happy enough to return is the name of the game. Judging from the Convention Center's receipts in recent years, Hodge was good at it.
Hodge was not fired for the unconfirmed EARR fund misappropriations but for reportedly fudging the conventioneer surveys upon which departmental bonuses were partly based. If he did that, it was a firing offense on its face, and it may turn out to be criminal alteration of official documents although basing the annual bonuses on the department's one-page "satisfaction" survey of departing conventioneers (I'm sure you've seen such a survey) is frankly a bureaucrat's notion of pseudo-science. In the private companies I've worked for, if the company has a good year, the customers are presumed to have voted with their dollars, and at bonus time, all employees are presumed to have contributed to that success. Bad year, no bonus. (If the Chronicle instead based bonuses on averaging the praise and blame in our "Postmarks" letters, we'd all be broke.)
The auditors certainly had many more documents and much more knowledge than I do, and it may well be that the backup documents for these invoices set off accounting alarms much too high for me to hear. I'm no lawyer, either, but reviewing these expenditures, I'm betting that "the promotion of concessions and catering products and services" can be readily interpreted to cover a multitude of supposed sins, and perhaps rightly so. And nothing I see in these documents as yet suggests that Hodge's EARR fund management had anything to do with personal enrichment.
We've yet to get much detail on the more serious allegations: of alleged self-dealing by Hodge, the favored use of personally friendly contractors, and unauthorized use of "sole-source" contracts. If the DA finds hard evidence of that kind of deeper and wider corruption, there will be much more to say about the Hodge Affair.
In the meantime, I'm all ears.
Correction: In "Point Austin" last week, because of a confusion in my notes, I mistakenly attributed to Mark Yznaga the recommendation that the city auditor be an elected position. That recommendation came from another source, and I apologize for the error.