State senator, developer failed to keep promises on ball-field project, draft audit shows

Posted: October 29, 2017 at 4:30 a.m.
Updated: October 29, 2017 at 4:16 a.m.

The unfinished River Valley Sports Complex at Chaffee Crossing in Fort Smith sits deteriorating and surrounded by weeds. An audit found the project’s developers failed to live up to promises and assurances to city directors.

FORT SMITH -- Two men developing the River Valley Sports Complex failed to keep promises and assurances they made when city directors allowed them to start building a multifield baseball/softball complex on city land, according to a draft audit released by the city.

The draft audit, dated Sept. 28, included 32 material findings in the project at Chaffee Crossing by developers Lee Webb and state Sen. Jake Files, R-Fort Smith.

Material findings indicate "significant errors or risks" in a company's financial information, according to Internet site Bizfluent.com.

City directors had asked for the audit in January before voting in February to terminate the city's three-year relationship with Files and Webb as developers of the River Valley Sports Complex after they failed to meet three deadlines to complete what they said would be a tournament-quality eight-field site.

The report by the city's Internal Audit Department also included 12 recommendations for city directors to follow when considering approval of such projects in the future.

Mayor Sandy Sanders said the sports complex situation was a learning experience for city directors and the recommendations will help the board better deal with similar matters in the future.

The recommendations will be taken seriously, given how the project turned out, City Director Mike Lorenz said, although he added that the complex was a unique situation "that ended up being horribly mismanaged at all levels."

City internal auditor Tracey Shockley did not respond to requests last week for comment on the audit.

In a statement released Friday, Files and Webb said, "The 'draft' audit is full of inconclusive information and many inaccuracies. There has been little or no effort from the city staff to reach the truth, and we have not been contacted by them at all. Similar to the recycling fiasco and consistent mismanagement of departments, [City Admnistrator Carl Geffken] and his staff have presented details that were not accurate to both the Board of Directors and the citizens of Fort Smith. With the pending and possibly future litigation, we are not at liberty to comment further, but we do believe there is a concerted effort to both discredit and malign both this project and us as individuals."

"Furthermore, we kept the board and city staff informed of both our progress and every penny spent by giving them current bank statements with copies of every transaction and progress reports regularly," they said.

Webb and Files had pitched the complex as an economic engine that would draw tournaments to the area.

Since February, the 70-acre complex site has sat idle and the city has put up a gate and barriers to block access. The once smooth and level infields have become obscured by weeds growing high on the fields and surrounding two unfinished brick concession buildings.

Inquiries about efforts to revive the project have been made to private individuals and private organizations, Sanders said, but no agreements have been made. He said there is no timeline for getting the sports complex back on track.

Sanders said he wasn't surprised at the number and type of material findings in the audit, but that he was disappointed how two men who appeared to be professional and well-respected handled the project.

Lorenz, one of three city directors on the seven-member Audit Committee, said he also was disappointed that Files and Webb allowed the project to fall behind schedule and experience "significant failures of nearly every piece of this project."

"There is no excuse for the failures noted in the findings regarding quality, procedures and especially substandard work or work that wasn't performed at all," he said.

Lorenz said it was obvious last year there were problems with the project, which is why the board requested the audit. It revealed more findings than he expected.

Lorenz and Sanders noted that the audit report was a draft and there could be additions, deletions or changes in the final report.

The seven-page draft audit concluded with a statement that the department had not received all the information requested. Additional work and documents could lead to the identification of other significant problems, including possible violations of law.

"However, since federal law enforcement agencies are now involved in investigating the project, there would appear to be little or no benefit from [Internal Audit] expending additional time on this project," the audit said.

City directors agreed in March 2014 to give Files and Webb $1.6 million for the project. Files and Webb assured the board that they could complete the project, estimated to cost $4 million to $6 million, with donations and in-kind contributions of labor and materials.

Geffken said earlier this year that the city paid out $1.08 million of the promised $1.6 million to Webb and Files as milestones on the project were met.

One in-kind contribution was $1.2 million worth of dirt work by the A̶r̶k̶a̶n̶s̶a̶s̶ ̶N̶a̶t̶i̶o̶n̶a̶l̶ ̶G̶u̶a̶rd U.S. Army Reserve* that it did for free as a training exercise.

The audit noted, though, that Grimes Dozer Service Inc. of Greenwood was paid $469,842 for dirt work performed in 2014, 2015 and 2016.

"Other than the National Guard [sic] item, there is no line item on the Financial Assurance statement [submitted by Webb and Files] that can be associated with a large dollar volume of dozer work," the audit said.

In another example in the audit, the Fort Chaffee Redevelopment Authority offered to donate shale but records showed the developers paid $7,000 to Don Shoemake for shale and took none of the free shale.

The audit said the Internal Audit Department did substantial work on the transaction in which Fort Smith paid $26,945 from a General Improvement Fund grant to contractor Dianna Gonzalez for installation of a waterline at the complex.

An FBI search warrant affidavit filed in August said Files submitted three fictitious bids for the waterline work so Fort Smith could receive $46,500 in General Improvement Fund money authorized by Files as state senator for District 8. Gonzalez, an employee of Files' FFH Construction LLC, was the low of the three bidders and was awarded the job.

The audit said Files admitted he prepared and submitted all three bids for the waterline work and later asked if he could get legitimate bids and resubmit them.

According to the affidavit, Gonzalez told the FBI that Files told her to open a bank account so the city could send $26,945 of the General Improvement Fund grant to her account. At Files' instruction, the affidavit said, Gonzalez wrote two cashier's checks on the account to FFH Construction totaling $25,931.91.

Gonzalez told the FBI she watched as Files counted out $4,805 as payment to employees, gave Gonzalez a $1,978.42 "reimbursement" and a $1,500 "Christmas bonus."

Gonzalez told officials she saw Files put the rest of the money in his pocket, according to the affidavit.

Work on the waterline was never done, the audit said.

"To date, as requested by the city, Ms. Gonzalez has not returned any of the monies advanced to her," the audit said.

In addition to the waterline, the audit said Gonzalez was paid for concession stand and masonry work.

"According to outside engineers, the masonry work and materials used are of poor quality, workmanship and poor visual quality, or not done to the developers' plans and considered a major concern," the audit said.

Some bricks were crumbling, the audit said, cracks existed in the concrete slab and the external pillars were bowing because the trusses were extended beyond their original design.

Two men identified as contractors who worked on the concession stands said they worked for Files at FFH Construction and that Files sent them to work at the sports complex, according to the audit. On returning to work at FFH Construction, they turned in their time and later received checks from the sports complex.

When the Internal Audit Department questioned them about the invoices they submitted for their work at the sports complex, they said they did not submit invoices and didn't know how much was charged. When informed of the amounts on the invoices, they said the amounts were more than they would have charged, the audit said.

The audit said Webb and Files purchased salvaged storm drainpipes from the government. They had "significant damage" caused by previous use, removal and transportation that left them in unacceptable condition.

The clay/dirt used to cover the fields was unacceptable, according to engineers consulted for the audit, because of large rocks found in the soil. The dirt would have to be replaced after erosion and the sprouting of weeds.

More excavation work would have to be done on the fields, engineers told the audit department. The fields were not leveled correctly and were too high.

"The rain will drain down to and possibly into the concession stands," the audit said.

The audit also said Files and Webb did not obtain the required storm, fire and casualty insurance on the property or builder's risk insurance. There was no evidence that contractors who worked on the complex had the required insurance and documentation, and not all contractors who worked on the project had city contractor/subcontractor licenses.

The city signed the agreement with River Valley Sports Complex in March 2014 with a completion date of June 2015. The audit said the architectural plans were not submitted and approved until March 2015, a year after the agreement was signed and just four months before the completion deadline.

Multiple engineers were used for architectural plans and were not paid in full for their services, the audit said.

No construction manager was designated to oversee the sports complex construction.

Among the 12 recommendations the Internal Audit Department included in the draft audit were that city directors should always follow city policies and procedures.

It also said city directors should listen more to research and advice from city employees responsible for the city's operations and transactions.

The audit noted a memo in August 2013 from the city's attorneys at the Daily and Woods law firm that construction bid information on the project suggested the $1.6 million from the city would not be enough to design and build the complex.

It also noted memos from city staff in September 2013 that expressed concerns about Webb and Files' revenue and expense estimates, and the risks to the city if something went wrong and postponed or stopped the project.

The memos also stated that such projects around the country rarely are self-supporting and need infusions of tax money to break even.

Other recommendations included:

• Insist on performance and payment bonds. City directors allowed Webb and Lee to proceed without a performance bond;

• Use a city employee versed in construction to monitor the project and verify work performed;

• Require all contractors to provide proof of insurance;

• Require the project manager to report monthly to the city board;

• Require contractors to abide by the state's competitive-bidding laws.

Sen. Jake Files, R-Fort Smith, is shown in this file photo.

A Section on 10/29/2017

*CORRECTION: The U.S. Army Reserve performed dirt work at the site of the River Valley Sports Complex in Fort Smith. Because of incorrect information contained in a draft audit released by the city of Fort Smith, a previous version of this article incorrectly identified the group that handled the dirt work at the site.