UPDATED: Motion fails to hire firm Crestwood once sued

Sime recommended approval of pact with Hochschild, Bloom & Co.

By Mike Anthony

A Crestwood alderman’s motion to conduct a first reading of an ordinance approving an agreement for financial support services with a company the city once sued for alleged professional negligence and breach of contract failed for lack of a second Tuesday night.

Ward 4 Alderman Michael Vincent’s motion for the first reading of the ordinance to have Hochschild, Bloom & Co. serve as a consultant for financial support services for the city’s Finance Department did not receive a second.

City Administrator Mark Sime recommended aldermen approve the agreement. The board had been scheduled to consider the agreement May 13, but Sime pulled the issue from the agenda after learning about the lawsuit, which the city filed in 2003 and Hochschild, Bloom & Co. settled in 2006.

Look for complete coverage in the June 5 print edition of the Call.

Crestwood City Administrator Mark Sime is recommending the Board of Aldermen approve an agreement for financial support services with a company the city once sued for alleged professional negligence and breach of contract.

Aldermen were scheduled to consider Sime’s recommendation Tuesday night — after the Call went to press.

The agreement calls for Hochschild, Bloom & Co. to serve as a consultant for financial support services for the city’s Finance Department. The board had been scheduled to consider the agreement May 13, but Sime pulled the issue from the agenda after learning about the lawsuit, which the city filed in 2003 and Hochschild, Bloom & Co. settled in 2006.

In a memo recommending the Board of Aldermen approve the agreement, Sime wrote, “… The case was settled, and pursuant to the settlement agreement, Hochschild, Bloom (&) Co. paid the city $170,000 to resolve the dispute and avoid further legal expenses. Hochschild, Bloom (&) Co. admitted no wrongdoing …”

Last August, aldermen approved a separation agreement with former Finance Officer Greg Kremer, who resigned effective Aug. 15. Kremer was paid $62,100 annually.

Kremer’s predecessor, Douglas Brewer, originally was hired as an accountant at a salary of $52,000. He later was promoted to finance officer with a salary of $62,200.

Former Director of Finance Diana Madrid, who resigned in 2006, was paid $70,430.

In response to a request for proposals, or RFP, for financial support services, the city received four submissions, with Chesterfield-based Hochschild, Bloom & Co.’s proposal the lowest at $6,400 per month, or $76,800 annually.

Also responding to the city’s RFP were Swink, Fiehler & Co., $12,000 per month, or $144,000 annually; Schmersahl Treloar & Co., $195,000 annually; and Brown Smith Wallace, $17,000 per month, or $204,000 annually.

The four proposals involved “different levels of service for the costs involved,” Sime wrote in his memo to Mayor Gregg Roby and the board.

“I weighed this against the course of action which was in place for many years in the city — internal finance officer and accountants. The factors I considered were cost, benefit to the city and expandability if/when required,” he wrote.

Regarding cost, Sime wrote, “… If you look at the cost of each proposal and what services will be received, all proposals need to be equated. When you break it down to dollar/hour, three firms are about the same and Hochschild, Bloom (&) Co. is 33 percent higher. When you then factor in the use of city employees to bring the hours worked to the same point during the week, you will see that the costs incurred by the city by using Hochschild, Bloom (&) Co. is only 75 percent of the next-closest proposal.”

As for benefit to the city, Sime wrote, “Using a contractor to provide the city with professional finance support services will ensure the city has the expertise we can rely on daily. The contract firm will have the expertise to cover any potential subject in the finance area which we do not have now and potentially would not with only city employees … The contractor will provide the high-level expertise which the city must pay more to obtain internally.”

Regarding expandability, Sime wrote, “By hiring a contractor and maintaining a core of city employees, we maintain a knowledge base from which to expand when the city services must expand due to the development … As I evaluated the Hochschild, Bloom (&) Co. plan against the total takeover by any of the other three proposals, I think the city will come out ahead, both in dollars and in maintaining capability to expand financial services as the city develops and expands.”

As the Call reported in November 2003, Crestwood sued former City Administrator Kent Leichliter and former Finance Officer Robert Wuebbels, alleging the two breached their fiduciary duties by manipulating financial records to misrepresent the city’s true financial condition. Hochschild, Bloom & Co. served as the city’s independent auditing firm from 1998 to 2002.

The lawsuit alleged that as a direct result of Hochschild, Bloom & Co.’s professional negligence and breach of contract, “the city of Crestwood sustained damages in excess of $100,000 as well as the fees paid to Hochschild, Bloom for the negligently performed work.”

The suit sought a judgment in excess of $100,000 against the auditing firm, “plus the amount of fees paid to defendant Hochschild, Bloom for performance of the city’s independent audit and preparation of the city’s Comprehensive Annual Financial Reports for fiscal years 1998 through 2002.”

The lawsuit alleged that during its audit of the city’s fiscal 2002 records, Hochschild, Bloom & Co. “identified questionable entries made by defendant Wuebbels,” yet the company’s “only attempt to verify the questionable entries was by questioning defendant Wuebbels.”

Hochschild, Bloom & Co. “did not expand its audit testing to review additional journal entries in order to discover whether or not there were other questionable transactions. In fact, a properly conducted audit would have revealed over 100 improper, unauthorized and illegal journal entries made by defendant Wuebbels in the city’s general ledger,” the lawsuit alleged.

Leichliter countersued in January 2004 on the grounds that the city breached an agreement to pay salary and benefits to him after his 2002 retirement.

The city paid $100,000 to Leichliter and $150,000 to his attorney, Tim Kellett, to drop all litigation, according to the terms of a settlement agreement approved during an April 2006 closed session by aldermen.

City officials said at the time that the settlements with Leichliter and Hochschild, Bloom & Co., also ended the city’s differences with Wuebbels.

In his memo, Sime wrote, “I did talk with the attorney for the city of Crestwood for this case about the facts surrounding Hochschild, Bloom (&) Co.’s involvement in the case. He said that in a decision to hire Hochschild, Bloom in any capacity, he would not base the decision on that case.

“Also note that none of the principals in the current proposal were involved in representing the city prior to the lawsuit.”

In his memo, Sime noted that the city of Fenton hired Hochschild, Bloom & Co. roughly a year ago in the same capacity as what the company proposes for Crestwood.

Fenton officials “found they needed to maintain an accountant-level employee to help out with the daily tasks. They found that this is a more cost-effective alternative to hiring the contractor to take over all of the accountant-level tasks,” Sime wrote. “The city of Fenton is very pleased with the results.”

Sime also wrote, “In the best interest of the city, I am looking forward to future city financial growth and feel the best course of action is to hire Hochschild, Bloom (&) Co. while still maintaining some capability on staff, if/as needed …”