Perdue: ‘Enron-like accounting’ at DOT

The state Department of Transportation’s former treasurer abused his authority by making DOT’s books show that the agency had more money on hand than it actually did, the state inspector general said Monday.

And in a special report released at the same time, the state auditor found the misstatements indicated “possible financial statement fraud.”

Gov. Sonny Perdue, a longtime critic of financial operations at DOT, condemned the “Enron-like accounting” at the agency and said the reports showed the public, the DOT board and the government had been deceived. “I strongly encourage the attorney general to ... take appropriate action,” Perdue said in a statement.

The accusations against Earl Mahfuz, who was demoted to assistant treasurer in 2008, go back to the time during and before the tenure of Gena Evans as commissioner. In May or June 2008, as the fiscal year was about to end, Mahfuz, then the treasurer, told his staff to stop entering a group of additional charges into its accounting system, the inspector general’s report said.

The charges for that fiscal year — change orders and executed contracts — totaled $153.4 million. Leaving them out mistakenly boosted DOT’s operating budget for the year, the report said.

“As GDOT Treasurer ... he should have known the ramifications of giving such a directive and the impact it would have,” the inspector general’s report said. It added that the timing, right before the fiscal year-end closeout, and the fact Mahfuz was on notice to inform auditors of things that could affect the deficit, “suggests a purposeful intent to hide the true state of GDOT’s finances.”

The inspector general’s report states that Mahfuz “wavered between denying that he instructed his staff to stop entering contracts to stating that he asked his staff to place the contracts temporarily on the ‘back burner’ in order to pay contractors.”

Mahfuz did not respond to an e-mail on Monday or a query through the DOT.

DOT board member David Doss noted that the audit said Mahfuz “emphatically denied” telling his staff to stop entering the change orders and contracts. Doss said he had not yet finished reading the reports, but based on what he had read so far and his experience on the board, “I think Earl, his actions, from what I have read, have been misinterpreted and mischaracterized.”

Neither report specifically recommended action against Mahfuz. The DOT board demoted Mahfuz in 2008, following preliminary findings by the auditor of accounting missteps.

His replacement, Kate Pfirman, has been implementing state auditors’ previous recommendations.

The inspector general’s office said it would give its report to the attorney general.

The reports represent the lingering embers in a war waged within DOT under former Commissioner Evans, who was backed by Perdue. Evans and representatives of the attorney general and the state auditor spent months arguing with backers of Mahfuz about what was a proper accounting maneuver and what wasn’t.

According to the state auditor, when DOT signs a multiyear contract for a big project, it must have the entire sum of money for the contract banked, rather than having some money to start and relying on future income for future payments. DOT stopped doing that, the auditor said.

Following the auditors’ recommendations meant setting aside huge sums of money, an event that squeezed DOT’s road spending to a trickle and caused a budget crisis separate from the recession.

DOT’s new commissioner, Vance Smith, released a statement Monday noting that DOT was working with its new treasurer to comply with the audit’s recommendations and strengthen internal controls, and would continue working with the office of the attorney general.