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Auditors slam state for oversight of program run by Kosta Diamantis

Noel Petra, interim director of the Office of School Construction Grants and Review, speaks during a press conference. Petra took over the school construction office following the exit of former deputy budget director Kosta Diamantis.
Noel Petra, interim director of the Office of School Construction Grants and Review, speaks during a press conference. Petra took over the school construction office following the exit of former deputy budget director Kosta Diamantis.

A newly-released report shows state officials mismanaged audits for Connecticut’s school construction program in recent years and failed to enforce price caps that are meant to hold down costs for local school building projects.

The 83-page report, which was produced by the state Auditors of Public Accounts, highlights significant flaws in the state’s oversight of the Office of School Construction Grants & Review at a time when that multibillion dollar program is already under federal investigation.

The findings echo some of the same issues uncovered by The Connecticut Mirror in its review of 80 audits obtained through a Freedom of Information request. In a story published Wednesday, the Mirror detailed how a dysfunctional system for examining and managing billions of dollars in school construction projects allowed, among other things, the former director of the program to review audits without any oversight.

Federal prosecutors subpoenaed Gov. Ned Lamont’s administration last fall for records related to the school grant program and its former director Kostantinos “Kosta” Diamantis. The U.S. Attorneys Office also filed similar requests with at least five municipalities that undertook school construction projects in recent years.

In response, Lamont, a Democrat, has promised significant reforms to the school building program, and he appointed new administrators to run the office, following Diamantis’ removal last October.

The new report, however, blamed some of the issues that were uncovered on decisions made by Lamont and other high-ranking officials in his administration.

The auditors cited the governor’s decision in 2019 to move the school construction program from the Department of Administrative Services to the Office of Policy and Management, arguing the change placed too much power and authority into the hands of Diamantis, who also served as a deputy secretary at OPM.

The move from one agency to another altered the way OSCG&R managed the routine audits that are conducted for local school projects once construction is completed, and according to the report, potentially opened those audits up to undue influence.

While the school construction office was under DAS oversight, the various audits were provided to the commissioner of that agency, according to the report. But when former OPM Secretary Melissa McCaw transferred the school grant program over to her agency, the audits were delivered to Diamantis instead of his supervisors.

The new report argues that setup was problematic because it potentially exposed the auditing team to pressure from Diamantis and other leaders within the school construction office.

“This reorganization resulted in a structural threat to audit independence,” the report explained.

“The unit must be free from interference in determining the scope of internal
auditing, performing work, and communicating results,” the auditors added.

State officials at DAS agreed with those findings, according to the report. And the governor’s office pointed out that many of those flaws have already been resolved by the administration.

The governor returned the school construction program to DAS last year following Diamantis’s exit, and his administration recently moved the auditing unit for the school grant program outside OSCG&R to make it more independent.

The new leadership team Lamont appointed to run the grant program is also in the process of hiring an independent firm to review the school construction audits that were conducted in recent years.

“The Lamont administration has taken multiple steps to strengthen the school construction program, and the recent audit findings affirm those decisions,” Max Reiss, the governor’s spokesperson, said. “In recent months there has been a change in leadership in addition to augmenting accountability efforts in the form of additional independent audits to review previous work. Gov. Lamont made these proactive decisions to the benefit of Connecticut residents who rely on the state for their school buildings to be completed in a transparent and comprehensive fashion, in accordance with state law.”

Other accounting and oversight issues still need to be corrected, however, state auditors noted.

The auditors, for instance, found that Diamantis and other officials who oversaw the school construction office repeatedly failed to enforce price caps that were put in place to control costs for the multibillion dollar program.

According to the report, the state’s School Building Project Advisory Council set a maximum price of $365 per square foot for local school projects starting in 2019.

Yet most of the school renovations and new construction projects the auditors reviewed failed to meet that standard.

In fact, many of the school building projects that were analyzed by auditors surpassed that threshold, even after the auditors adjusted for inflation. Three other school construction projects that were reviewed didn’t even have an estimated cost available.

State officials are supposed to use those cost calculations to make sure the state doesn’t overpay for local school projects. If a project does go over that preset price, the municipalities are supposed to be on the hook for the extra cost.

But the report suggested those rules were not always followed by Diamantis, who had the authority to waive those requirements.

“By not enforcing cost limits, school project costs may become excessive, and districts are reimbursed for otherwise ineligible costs,” the auditors wrote.

Officials at DAS agreed with that assessment, and the agency informed the auditors that it is currently working to put better price controls in place.

The agency’s leadership said they would start by resetting the allowed cost per square foot. They are doing that to better account for the recent surge in construction costs and building materials that swelled during the pandemic.

The agency also emphasized that it is in the process of hiring a new director for OSCG&R, who would be charged with enforcing those new rules.

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