- Associated Press - Monday, June 30, 2014

IOWA CITY, Iowa (AP) - There was a conflict of interest when dozens of no-bid state contracts were improperly awarded to a construction company owned by a state purchasing official and her husband, Iowa’s state auditor determined in a report released Monday.

State Auditor Mary Mosiman’s report questioned $375,000 in contracts awarded to BluePrint Homes, a construction company co-owned by Department of Administrative Services employee Lois Schmitz, whose job responsibilities include training others about the rules regarding the awarding of state contracts.

The department fired Schmitz last year after her new boss discovered the state payments to her business and accused her of having a conflict of interest. But an arbitrator reinstated Schmitz in January with $108,000 in back compensation after finding that her termination wasn’t justified and noting that her previous bosses determined in 2010 that she didn’t have a conflict because she wasn’t involved in awarding contracts.

In the new report, Mosiman criticizes the 2010 determination and faults the department for lax oversight. Schmitz’s duties, which included the handling of inquiries about a Targeted Small Business program from which BluePrint Homes benefited, created a conflict that Schmitz and the department didn’t manage, the report concludes. Because of her stake in the business run by her husband, Schmitz benefited financially when state officials violated purchasing rules that she helped enforce.

Schmitz’s attorney, Tom Duff, said his client had at most an appearance of a conflict. He said she played no role in the decision by Woodward Resource Center officials to split up contracts to avoid competitive bidding, and that Schmitz, who has worked for DAS since 1999, had the right to rely on the earlier opinion that she didn’t have a conflict.

“If that opinion is wrong, then it’s wrong,” he said. “But you need to let her know that and say, ‘don’t do it again’.”

Some payments to BluePrint Homes shouldn’t have been allowed under a law that prohibits employees from receiving state contracts of more than $2,000 without competition, the audit found. Schmitz also should have disclosed payments to the Iowa Ethics and Campaign Disclosure Board, the audit found. The board has been waiting for the audit findings before deciding how to act on a complaint filed against Schmitz last year, and is now expected to proceed.

Duff said it remains unclear whether those laws apply to Schmitz.

DAS spokesman Lon Anderson didn’t rule out the possibility of seeking a second termination of Schmitz, saying human resources officials would discuss her future “in light of this new report.”

He said the department had taken steps to prevent similar problems. Since April 1, purchasing employees have had to sign forms attesting that they are aware of ethics laws and must disclose conflicts. Auditors have also increased oversight of Targeted Small Business contracts, he said.

“I think it’s wrong what occurred there,” Gov. Terry Branstad told reporters.

The report focuses on contracts awarded by Woodward Resource Center, a campus for people with disabilities, between 2009 and 2010. BluePrint Homes performed 11 projects at Woodward that were improperly split into 54 separate contracts worth less than $10,000 apiece to avoid competitive bidding, the audit found.

BluePrint Homes could receive contracts up to $10,000 without competition since it qualified in 2009 for the state’s Targeted Small Business program, which encourages agencies to buy goods and services from disadvantaged businesses. The company cited John Schmitz’s disabilities and Lois Schmitz’s gender.

Former Woodward Resource Center plant operations manager Doug Monahan, who was responsible for giving work to BluePrint Homes, was fired in 2010 for reasons that aren’t clear, the report said. Monahan has said he split the contracts to avoid red tape and expedite repairs.

The audit noted the apparent conflict with Schmitz’s job. In 2010, she e-mailed her boss to volunteer to handle all questions about contracts for the Targeted Small Business program in 2010 and wrote an article for an internal newsletter telling agencies about the program.

Once, she helped respond to an email that her husband sent to the Iowa Department of Economic Development seeking faster payments and asking whether projects can be split up to avoid competitive bidding. After the email was forwarded to her, Schmitz answered one question and didn’t disclose their relationship.

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Follow Ryan J. Foley on Twitter at https://www.twitter.com/rjfoley

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