Milwaukee County’s lack of competitive bidding for a disadvantaged business education program created an opportunity, the county’s director of audits testified Friday, for a former county employee to funnel federal grant money to a favored colleague.
Jerome Heer, who has 34 years of auditing experience and has overseen all Milwaukee County audits since late 1995, told the jury there were multiple red flags that should have raised concern with the way the county’s Office of Community Business Development Partners administered its Capacity Building Program.
The program, which was run using grant money from the U.S. Department of Housing and Urban Development, offered seminars for the owners of disadvantaged business enterprises on such topics as marketing and accounting.
Homer Key, a Milwaukee contractor who is the subject of the ongoing trial, is accused of stealing at least $40,000 of the grant money available to run the Capacity Building Program from 2005 through 2011. He is charged with two counts of theft by fraud, one count of forgery and one count of conspiracy to commit the crime of having a private interest in a public contract, all of which are felonies. Key faces a maximum of $70,000 in fines and 29 ½ years in prison. He pleaded not guilty in September.
Heer said the Milwaukee County Office of the District Attorney asked him in August 2012 to audit the Capacity Building Program. He reviewed files seized from Key’s home and from the office of Freida Webb, who ran the CBDP office and hired Key to run the Capacity Building Program. Heer said he also reviewed bank records from both Key and Webb, emails from Webb’s work account, summaries of interviews conducted by the district attorney’s office of Key and other witnesses, and a forensic analysis of a computer seized from Key’s home.
Heer on Friday walked the jury through the paper trail of invoices and payments from 2006 and 2007, and is expected to testify about the other years on Monday. Key’s attorneys did not have a chance to question Heer on Friday.
The first red flag, Heer said, was the county’s failure to abide by federal regulations to seek competitive bids from people interested in running the education program.
“We didn’t find any records that there was any competition or solicitation at all,” he said.
Rather, he said, Key submitted a proposal to run the program for $25,000 in 2006, but Webb approved a contract with a $40,000 payment cap.
Despite his original estimate, Heer said, Key submitted invoices for $40,003.16 to run the program in 2006. Key was paid the full $40,000 available from HUD. The discrepancy between the proposed amount and the paid amount, he said, was another red flag.
At least one charge in 2006, a partial payment of about $2,600 for website design services related to the program, appears fabricated, Heer said. Key submitted an invoice for roughly half of the website design services costs in December 2006, Heer said, and then submitted an invoice for the full amount in January 2007. Both were paid.
“The use of an overpayment on the website development,” Heer told the jury, “would be one way to get the contract billing up to the full amount available.”
That process seems to have been repeated in 2007, he said. Again, Webb had $40,000 available in federal grant money, did not seek competitive bidding and approved a contract proposal from Key. That year, Heer said, Key proposed he would do the job for $32,823.
But Webb later amended the contract to pay Key the full $40,000 available.
Heer said it also appears that Key tracked how much he had been paid and submitted one final invoice to collect the last remaining dollars near the end of the year. On Nov. 7, 2007, Key submitted a final invoice for the year, billing the county for $3,276.54 for classroom instruction, preparation and materials.
“It’s exactly, exactly equal to the amount that was left available,” Heer said. Follow @bkevit