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Auditor says Agua SUD employment contracts were ‘unreasonable and unnecessary’

The Agua Special Utility District approved “unreasonable and unnecessary” employment contracts with two administrators last year, according to an independent audit — setting the stage for six-figure payouts.

Former Executive Director Oscar Cancino approved five-year employment contracts with Community Relations Coordinator Oscar “Coach” Salinas, the president of the La Joya school board, and utility Project Manager Armin Garza, the vice president of the La Joya school board, on May 1, 2017.

aguasudTwo months later, the utility district approved settlement agreements with Salinas and Garza that
included six-figure payouts.

“Government Auditing Standards define ‘abuse’ as ‘behavior that is deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary business practice given the facts and circumstances,’” according to the comprehensive annual financial report prepared by McAllen-based accounting firm Burton, McCumber and Longoria. “The District paid a settlement payment of $489,000 to two employees with whom the District entered into employment contracts. The act of entering into these employment contracts appears to fall within the definition of abuse.”

When the employment contracts were signed, the utility district knew a bill pending before the Texas Legislature might force Salinas and Garza to choose between working for the utility district and serving on the school board.

Designed to block elected officials from hiring each other, Senate Bill 814 posed a major problem for the utility district.

Four of the seven utility board members worked for the La Joya Independent School District. They employed Salinas and Garza, who served on the school board.

Senate Bill 814 passed the Texas Legislature on May 28, 2017 — less than a month after the utility district approved the employment contracts.

Salinas and Garza hired an attorney.

“Please be advised that my clients fully intend to enforce their current employment contracts with Agua SUD,” attorney Ben Castillo wrote to the utility district on June 19. “If there is any attempt by Agua SUD to interfere with my clients’ contractual rights, they are both prepared to file suit to ensure that Agua SUD fulfills its contractual obligations.”

The utility district settled the potential claims, paying $221,000 to Salinas and $268,000 to Garza.

Auditors questioned why the utility district approved long-term contracts with Salinas and Garza while the bill remained pending.

“The execution of these contracts and the terms contained therein are considered unreasonable and unnecessary, thus falling within the definition of abuse,” according to the report.

Concerns about the payouts also prompted an investigation by the Texas Rangers and the Hidalgo County District Attorney’s Office.

“I would agree with the auditor,” said utility board Director Homer Tijerina, who represents rural Hidalgo County customers. “He did a thorough job — a great job — with the audit.”

Tijerina said he planned to ask for more information about the findings.

“This is how we find out what’s going on,” Tijerina said, adding that utility district management and fellow board members keep him in the dark. “And the ratepayers, the customers have a right to know what’s happening within the district — and with their money.”

Auditors also flagged other problems, including a lack of documentation for the procurement of professional services and hiring irregularities.

“Procurement for professional services require a qualification based selection,” according to the report. “We noted 13 instances where documentation could not be provided as evidence procedures were followed.”

Professional services may include consultants, architects and engineers. The report doesn’t provide details about the professional services or name the people involved.
The utility district called a board meeting to approve the report on April 30, but canceled the meeting for lack of quorum. Only board President Roger Hernandez III bothered to attend.

They held another meeting on May 7, when the board approved the report without asking any questions. However, the utility district didn’t actually release the report until May 15, following a formal request from state Sen. Juan “Chuy” Hinojosa.

After reading the report, Hinojosa sent the utility district a scathing letter.

“It has been clear to me, which is why I filed SB 814 last session and now with the findings of this Audit, that the actions or lack thereof of the Agua SUD Board of Directors are beyond gross negligence,” Hinojosa wrote to Hernandez. “I demand immediate attention and action to resolve the issues identified in the 2017 Fiscal Audit.”

Asked about the letter, Hernandez released a statement.

“As a board, we have accepted the Comprehensive Annual Financial Report for the Year Ended December 31, 2017. During the audit process, Agua SUD management developed a Corrective Plan of Action and proposed timeline for completion in response to the findings related to the financial statements,” according to the statement. “As you may be aware, Agua SUD has now hired a General Manager who will lead the efforts, under the direction of the board, to do due diligence to ensure that the District addresses the issues and implements the recommendations as outlined in the Audit.”

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