Water company still has FEMA contract, despite audit findings

| 6/15/2007

Pentagon auditors say the feds have overpaid a Georgia company more than $8 million for delivering bottled water to disaster areas.

Not only did the company fail to provide required documentation, but the Army Corps of Engineers dropped the ball and failed to demand the documents, basically obscuring the transparency of the transactions as required by federal law, the auditors said.

In a semiannual report issued by the Defense Department’s inspector general last week, auditors said that Lipsey Mountain Spring Water of Norcross, GA, over-charged the government in a variety of ways.

The family-owned business is the federal government’s sole supplier of emergency bottled water via its exclusive contract with the Federal Emergency Management Agency. The Army Corps oversees the contract on behalf of FEMA and was therefore examined in the audit.

The report issued this past week is not the first time that the feds have criticized how Lipsey does business. Federal auditors have been questioning the company’s record-keeping practices and billing since at least August 2006, following the devastating 2005 hurricane season that required so much water to be delivered to Hurricane Katrina victims.

Then, in February this year, another report from the Defense Department’s inspector general raised more questions about Lipsey’s operations.

But in April the federal government renewed Lipsey’s exclusive contract for another three years.

Problems cited in the semiannual report issued last week by the Defense Department auditors include:

  • Lipsey billed the government $6.5 million for air transport costs and then paid a subcontractor $4.9 million during the 2004 hurricane relief efforts. The Pentagon auditors said that amounted to a 26 percent profit and that the profit was “excessive.”
  • Lipsey was paid $778,000 for air cargo, but never supplied manifests to back up those charges.
  • Lipsey received drayage fees totaling nearly $150,000 for the services of 16 trucks and then passed along only $72,000 to the subcontractors who owned the trucks. The auditors said that amounted to an “excessive” profit of 52 percent.
  • Lipsey sought reimbursement – and received it – on the “same truck multiple times” during a temporary halt to water deliveries during the hurricane Katrina relief efforts. There were 58 instances of paying for the same truck more than once and 21 instances of trucks and trailers being paid for even though there was no proper documentation. These incidents totaled $881,000, according to the auditors.

In the report issued in February this year, the auditors stated that:

  • “Lipsey did not consistently meet the time performance requirements set forth in the contract. Specifically, Lipsey did not always deliver emergency water supplies within the time limits specified in the contract ...”
  • “We feel that millions of people could be affected in a time of need and left without water if the Lipsey Mountain Spring Water Co. were to default on the contract. In addition, significant damage could be done to the United States Army Corps of Engineers’ reputation, which could affect future disaster operations.”
  • “In addition, (the government should) notify the Lipsey Mountain Spring Water Co. not to use the United States Army Corps of Engineers logo on its commercial business-to-business website without prior Government approval.”

– By Coral Beach, staff editor