The damning report is a major jolt to the authority and to its four-member joint powers authority — consisting of representatives from Apple Valley, Hesperia, Victorville and the county — which act as its governing board.
VICTORVILLE — The Victor Valley Wastewater Reclamation Authority did not properly manage nearly $32 million in FEMA grant funds for its major pipeline replacement project, an audit by the U.S. Department of Homeland Security's Office of the Inspector General (OIG) has found.
In determining that the authority did not comply with federal regulations in awarding or administering a total of $31.7 million in three contracts reviewed by the OIG pertaining to the Upper Narrows Pipeline Replacement Project, the report published Jan. 24 concluded that FEMA "had no assurance that these costs were reasonable or that the Authority selected the most qualified contractors."
Federal investigators are recommending that FEMA and the state of California should, as a result, disallow the $31.7 million as "ineligible costs" and seek to figure out whether the authority committed any other regulatory or ethical violations or acts of gross mismanagement.
The damning report is a major jolt to the authority and to its four-member joint powers authority — consisting of representatives from Apple Valley, Hesperia, Victorville and the county — which act as its governing board. But it also could strengthen the position long held by the city of Victorville, a JPA member, that the authority's spending and management had become too financially risky.
"VVWRA is disappointed by the current OIG's recommendations," spokesman David Wylie said in a statement Monday, "in part because the OIG seems to have issued its recommendations without reviewing VVWRA's response to previous comments and questions by the OIG almost a year ago."
Wylie said the authority had responded in detail, undertaken its own audit and provided "substantial legal authority and documentation" to make its case as to why the findings were inaccurate.
The $42-million pipeline replacement project in question was declared "functionally finished" in July. It permanently replaced a temporary pipeline installed after severe storms in December 2010 washed out and ruptured a portion of nearly 30-year-old sewer line in the Mojave River, spilling 42 million gallons of sewage into the river in the process.
Auditors found that VVWRA failed on several fronts with respect to emergency funds used on the project, an ambitious and complex effort that had been marred by delays and several change orders ultimately bumping up its hefty price tag.
VVWRA did not perform cost/price analyses of bid proposals; follow its own procurement policy; include all mandatory federal provisions in contracts documenting rights and responsibilities of parties; nor did it maintain records sufficient to detail the significant history of its procurements or appropriately account for contract costs, among other indiscretions, the audit found.
FEMA and state officials have agreed with the OIG's findings. The report focused on contracting and accounting practices, and a follow-up report is expected to target "misleading information the Authority provided to FEMA to develop the scope of work" for the project.
Wylie said that auditors only focused on a single engineer contract worth roughly $1.3 million, however, in drawing their conclusions. He added that VVWRA had regularly reported to the California Office of Emergency Services throughout the project's lifecycle.
"VVWRA is nevertheless prepared to keep working closely with FEMA and Cal OES," Wylie said, "in reviewing OIG's recommendations and addressing them."
But the audit would appear to give teeth to the city of Victorville's concerns that project spending had spiraled out of control. Councilman Jim Kennedy has said he routinely became the lone dissenter among JPA members on costly and frequent change orders. It's that argument that, in part, led the city to announce plans in April to entirely pull back from the JPA, a move that will ultimately take 30 years per terms of the agreement.
In a sign of dissatisfaction of its relationship with VVWRA, Victorville has been diverting millions of gallons of wastewater flow to its own plant for two years. The situation has seemingly deepened a rift over finances between the city, the authority and other JPA members.
Wylie has said that the city's diversion — roughly a million gallons a day since January 2015 — had cost the authority over $1.2 million by April 2016. He could not provide updated figures Monday.
He previously described any tumult as an issue between board members, declining to specifically comment on an advisory opinion issued last month by an appellate court judge that concluded Victorville's diversion was tantamount to a breach of contract.
"We are not at liberty to discuss these issues as member entities are working to resolve their differences," he said.
But city spokeswoman Sue Jones confirmed Monday that Victorville was "preparing to physically send all of our flows to VVWRA's regional plant," a reversal for now that would be in accordance with the advisory opinion sought by VVWRA and all JPA members.
Jones said the city disagreed with the opinion and was preparing follow-up questions to gain more clarity.
Its wastewater diversion, however, has been in direct response to bearing more than 70 percent of the authority's costs, Jones said, while maintaining equal decision-making power, effectively placing disproportionate burden on Victorville taxpayers for projects even outside the city.
County spokesman David Wert deferred questions to VVWRA, while the Town of Apple Valley did not provide comment.
But Hesperia city spokeswoman Rachel Molina, speaking generally, said the city has long believed that Victorville is in breach of contract and that other member entities feel similarly.
The diversion of flow and withholding of connection fees, which are paid to maintain and increase capacity at authority plants, has presented "a significant strain on the JPA's finances," Molina said, adding that further threats to the JPA's finances could affect planned openings of sub-regional recycled water facilities in Hesperia and Apple Valley.
Jones concluded that Victorville officials were "very hopeful" they could resolve issues with other JPA members, including negotiating an amicable solution that benefits the JPA, "but not at the expense of the residents of Victorville."
Shea Johnson can be reached at 760-955-5368 or SJohnson@VVDailyPress.com. Follow him on Twitter at@DP_Shea.