City of Seattle Wa. To Re-Examine Office Depot Contract

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Date: Tuesday January 10, 2012 07:53:44 am
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    City of Seattle Wa. To Re-Examine Office Depot Contract

    The city of Seattle will reopen an inquiry into whether it was overcharged by Office Depot in the wake of government audits across the country that have found millions in overbilling by the retail giant and led to investigations by several state attorneys general.The action comes as a former Office Depot employee turned whistle-blower, David Sherwin, said that based on audit findings from other government contracts, Seattle could be owed more than $1 million.

    The company has repeatedly denied any wrongdoing, even as it has settled claims including $4.25 million to San Francisco this year and $5.9 million to Florida in 2010. The company calls Sherwin a "disgruntled former employee" who was fired in 2008 from his job as a senior account manager."He’s made a lot of claims," said Office Depot spokesman Brian Levine. "We’re not aware of any issues brought to our attention with the city of Seattle."Sherwin agrees that he is a disgruntled former employee, but adds, "this is a disgruntled employee who’s uncovered millions in fraud."

    The city of Seattle purchasing office looked in to the overcharging allegations in 2010, and said a sampling of invoices showed no overpayments. But that audit examined only 12 purchases out of a five-year contract with Office Depot in which the city spent $3.5 million for office supplies.

    Seattle Purchasing Director Nancy Locke said that the particulars of Seattle’s contract with Office Depot appear different from those in other jurisdictions that have reported overcharging.Locke also said that in examining only a limited number of invoices, the city believed it was exercising due diligence while at the same time trying to determine how much time and resources it should devote to a potentially lengthy and complex audit."We tried to bring enough resources to see if there were any red flags. We didn’t find any," Locke said.Still, the city decided to not renew its contract with Office Depot in December 2010 and instead continue to use two local firms, Keeney’s and Complete Office, which also were under contract during the same period as Office Depot. Seattle spends about $2 million each year for office supplies.

    Conflict of interest?
    Seattle was one of hundreds of cities, states, school districts and other public agencies that entered into a contract with Office Depot. The contract was marketed nationally through U.S. Communities Government Purchasing Alliance, a coalition of governments that join together on contracts to take advantage of volume discounts, Locke said.

    When Sherwin’s first allegations of overcharging arose in 2008, U.S. Communities asked for an independent accountant’s report of the Office Depot contract. That analysis covered a random sampling of dozens of purchases made over three months by three counties, including Dallas County, Texas.The accountant’s report concluded that there were no differences between the cost guaranteed in the contract and what the counties actually paid.

    Seattle’s Locke has served on the U.S. Communities Advisory Board since 2004. She receives no compensation, but her expenses to attend its two-day annual meeting are paid by the organization.Sherwin, the Office Depot whistle-blower, said Locke had a conflict of interest when she accepted the conclusions of a report prepared at the request of an organization on which she served as an adviser.A U.S. Communities official said the organization helps more than 48,000 public agencies across the country save millions a year in reduced purchasing costs.

    "Unfortunately, critics of Office Depot have continued to make unfounded claims about that company that can be misleading. I suspect that may be the case in Seattle," said James Hamill, program manager for U.S. Communities, in an emailed statement.

    Locke said the favorable report, and a second done by the same accounting firm in 2010, were factors in her conclusion that the city was at low risk for overcharges. She also was aware of Sherwin’s reputation as a disgruntled former employee seemingly obsessed with exacting revenge on the company that had fired him.

    Locke said several city officials also were involved in the decision to examine only a limited number of purchases under the Office Depot contract, including former budget director Dwight Dively and current director of Finance and Administrative Services Fred Podesta.

    Taking "another look"
    While Seattle officials decided not to pursue a more thorough investigation, Dallas County officials said they weren’t satisfied by the U.S. Communities accounting report."It was not independent enough for us," said Diana Grafton, first assistant auditor of Dallas County. She noted that U.S. Communities got a percentage of the total sales to Office Depot under the 5-year contract, an amount Sherwin estimated at $40 million on more than $2 billion in sales.

    Grafton said her office went to other cities that had their own contracts with Office Depot that weren’t part of the U.S. Communities contract and then compared the prices Dallas County paid to those of the other jurisdictions. What they found, she said, were overcharges to Dallas County of about $1.8 million over the 5-year contract.

    She said the Dallas County District Attorney is now making a decision about whether to sue Office Depot."I’d guess we’re headed to court," Grafton said.

    Another agency that’s reexamining its Office Depot contract is the Washington Department of Enterprise Services, formerly the Department of General Administration. State Auditor Brian Sonntag in 2010 concluded that Office Depot overcharged the agency almost $300,000 during a 12-week period the previous year. The special investigation report concluded that the agency hadn’t adequately monitored the contract.

    Department officials disputed the findings, arguing that the contract was complicated and that the auditor was comparing apples and oranges when checking purchases against the company’s list prices.But this week Amy Emerson, a spokeswoman for the Department of Enterprise Services, said the department is in the final stages of an internal audit of the Office Depot contract and hopes to finish by early next year.Seattle officials now say they plan to re-examine the Office Depot contract and have had preliminary discussions with the city auditor. But they say they haven’t made a decision about the length or breadth of the inquiry.Said Locke: "We’re going to take another look."

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