MSD Corruption Detailed in Audit; Schardein Out

No local government organization involves more money and more accusations of mismanagement than the Metropolitan Sewer District.

And now Mayor Greg Fischer, in receipt of a scathing audit about MSD business practices, has given director Bud Schardein the boot and is making sweeping changes. Here’s the official release from Metro:

Citing significant management problems at the Metropolitan Sewer District ranging from conflicts of interest to questionable business practices, Mayor Greg Fischer today appointed a director to lead the agency on an interim basis. Fischer also announced that he will create a task force to examine the possibility for shared services and cost reductions among MSD, the Louisville Water Company and the City’s Public Works Department.

Greg Heitzman, Water Company president, will also assume the title of executive director of MSD starting immediately. Heitzman will be a loaned executive to help lead MSD during its transition toward compliance with the audit findings as well as a possible new business structure. Current executive director Bud Schardein, a 28 year MSD veteran, announced today that he will retire in the spring but will remain with the agency in an advisory role until then to help ensure a smooth transition.

Fischer stated that the task force will determine if MSD, the Water Company, and the city’s Public Works Department could share resources to reduce costs and create greater efficiencies. In other cities — from Indianapolis to Nashville and Atlanta to Boston — it is common for the sewer agency and water utility to partner. Fischer plans to have the task force members named by early January and expects a four to five month review process.

Fischer stressed that the employees at MSD have been doing good work managing the sewer system and protecting the city from flooding, but that the audit shows that upper management operated with inadequate board oversight and, at times, had a disregard for the agency’s own policies and procedures.

“After reviewing the report released today by State Auditor Crit Luallen, it is clear there are significant problems at MSD that will erode the public’s trust in the agency if immediate changes are not made,” Fischer said. “The changes that I am announcing will begin a new era at MSD.”

Fischer also announced that three long-serving board members — chairman Arnold Celentano, Doyle Stacy and Jerome Clark — will shortly retire from the board as soon as replacements are found. Fischer asked them to stay until replacements can be appointed to maintain a level of institutional knowledge during the interim. There are eight board members, four of whom have been appointed by Fischer and have served fewer than six months.

He thanked Schardein and the board members for their service and their recognition that change needs to be made at MSD. “These men have helped build a solid sewer district. I appreciate their willingness to help with a smooth transition,” Fischer said.

One MSD board member comes from each of the city’s eight state Senate districts. MSD board members are paid $75 per meeting with a maximum of $1,800 per year. The Board currently meets twice per month.

The state audit report, requested by Fischer in July, found numerous conflicts of interest, including contracts that were being given to board members and friends of MSD leaders. It also discovered that MSD has not negotiated or advertised for bids for its legal services since 1984, giving all the work to one firm.

“Contracting with this attorney’s firm since 1984 for the majority of all other external legal services appears to be a conflict and waiving procurement requirements for the contract should not be acceptable,” the audit concluded.

The audit also discovered that MSD’s investment advisor received fees from the investments he recommended. The audit further revealed management compensation benefits “that could be considered excessive for a public entity,” the audit stated.