Cleaning Up the Attorney General’s Office: Collections Work

As documented by the Dayton Daily News, the collections work of the Attorney General’s Office has become a cesspool of pay to play politics and lobbying. Collections and special counsel firms are prioritized based on political contributions they make to politicians and the party. Qualified firms have been dropped, while inexperienced firms get large amounts of work because they contribute. The 2012 bid process was blatantly rigged to favor a donor, and now there is no scoring process whatsoever.

Leading firms doing work for the office are instructed to pay a high-priced, well-connected lobbyist. In the end, performance and merit are far less important than political connections and donations. In prior administrations, collections increased at a steady pace for ten straight years. But since 2011, collections have fallen two straight years. State taxpayers are out tens or hundreds of millions of dollars due to the dramatic reversal in collections effectiveness.

Pepper Solution:

Pepper will take common sense steps to clean up the office

• Professional management: The top collections official managing this process for the AG’s office should not be a political person who works with fundraisers and lobbyists. Instead, he or she must be an experienced collections professional who is able to measure and evaluate the performance of those doing and seeking this work. Pepper will make this change immediately.

• Data/performance driven decisions: Allocating work for collections must be driven by data and performance, not politics. This will make the system work for taxpayers again. Selection of special counsel and third party vendors, along with the allocation of work volume, will be based on clear and transparent performance criteria, such as liquidation rates of accounts. Pepper will bring in best practices from the private sector to stoke competition among vendors to get the best results—such as an ongoing champion/challenger strategies among active and new vendors.

• Transparency: Lack of transparency is the fuel that allows pay-to-play and corruption to take place. Pepper will require that all special counsel firms and third party vendors be transparently listed on the Attorney General’s website. Taxpayers should know who has received the privilege of working on behalf of Ohioans, and who is earning revenue as a result of that work.

• Blackout Period: Pepper will impose a blackout on all fundraising activity—soliciting or receiving—within two months before and after the RFP window.

• No Inappropriate Meetings: Installing a merit based system will make the role of the lobbyist irrelevant in the selection process. No collections firm bidding for work will be required to use a lobbyist, and no one associated with the Attorney General or the office will suggest that one be used. Moreover, no lobbyist or political fundraiser will be permitted to lobby the staff overseeing decisions during or around the time of any bid period. This change alone will save collections firms tens or hundred of thousands in fees they currently are required to pay each year to hire lobbyists close to DeWine.

 

Exhibit E

Friends –

This Saturday, the Columbus Dispatch revealed a contribution to Attorney General DeWine that is all too typical.

Earlier this year, Mr DeWine’s office filed a garnishment action against a business for $137,477 in unpaid taxes.

Last month, the head of that business contributed—and Mike DeWine accepted—a $12,100 donation.  There is no record that this individual had ever before contributed to a political campaign. But suddenly, he was motivated to help Attorney General DeWine…even when he owes the state almost $140,000? Fishy.

What would ever give him the impression that sending a contribution would affect the outcome of an active case?

Let’s just say three years of records and decision making would at least get his hopes up…way up.

1. In the area of securities litigation, firms have given thousands of dollars in contributions right around the time they were bidding to be selected, and have (with only one exception—the firm had run into its own legal troubles) been selected.  A number of firms sent their checks on the very day they sent in their proposals.

2. In the area of collections, firms have given more than $500,000 in the middle of the last four annual bid processes. They’ve figured out two things…they’re supposed to do so, and those contributions matter.

Why do they think they’re supposed to contribute during the bid process? One subtle hint: Mike DeWine scheduled a fundraiser right in the middle of the 2013 bid process.

Myhal Invite

And why do they know giving at that time matters?  Another subtle hint: the host of that fundraiser was the same person who reviewed the formal list of bidders with Mike DeWine in the middle of the 2012 bid process, right before final decisions were announced.

No surprise, all but one of the collections firms who gave during the bid window were selected. (The only firm rejected contributed more generously later, and was selected the next year).

3. So these firms have figured out that their well-timed contributions matter.  Which explains why the amount they are giving during the bid window has grown every year—and has more than doubled in four years:

Contributions Graph

So while collections revenue to the Attorney General’s Office fell in 2012 and 2013 for only the second time in 40 years, fundraising revenue to Mike DeWine’s and his Party’s campaign accounts has skyrocketed during the bidding window, reaching its highest level just a few months ago.

As they say, timing is everything. In the current Attorney General’s office, good timing of contributions is everything for those seeking work from the Attorney General’s Office…not to mention for the campaign coffers of AG DeWine himself.

Let’s clean this mess up.

David

PS – I have proposed a blackout period to halt fundraising anytime during these bid windows. No surprise…AG DeWine has rejected the idea.

 

The High Cost of Pay to Play

Since the Dayton Daily News exposed rampant pay-to-play in the handing out of collections work a few weeks back, the Attorney General’s Office has been desperately defending what are clear misdeeds. As the Toledo Blade said, their practices do not pass the “smell test.”

Their latest? Proclaiming that their deeply tainted process is justified by “record” revenue from collections. Never mind that even stellar results would not justify rigging bids to enrich friends, here are the facts.

Image 1

1. 2001-2011: GROWTH EVERY YEAR: From 2001 to 2011, collections revenue rose each and every year…like clockwork, through recessions and growth years. To use the Attorney General’s current spin, every year was a “record,” and each of the past four Attorneys General—two from each party—set “records” every year they were in office.

2. 2011-2012: PAY TO PLAY: The 2011 “record” year was the final year of the group of firms that Richard Cordray had used to do collections. In mid-2011 and 2012, AG DeWine replaced some of the experienced firms that helped set that record with his new set of firms, doing so through the deeply tainted process uncovered by the Dayton Daily News. This included replacing very successful firms with a new group, including one firm that a DeWine donor created just two days before the 2012 bid went out.

3. 2012: DECLINE: After these changes, collections fell in 2012. This was the first year collections went down in more than a decade. DeWine became the first Attorney General in the past five to suffer a down year.

4. 2013: DECLINE: Collections fell further in 2013. This marked only the second time in 40 years that collections fell for two straight years.

5. LOSING $100M+: These losses cost taxpayers and state agencies an enormous amount of funds. Collections grew from 2001 to 2011 at an annual rate of 13.8%. If revenues had simply continued at that pace in 2012 and 2013, Ohio would have collected $200M more in revenues than the depressed numbers generated by DeWine’s handpicked firms. Even if 2014 collections ultimately rise again (hopefully some of the new firms are finally learning how to get the job done!), that increase will never make up for the dollars lost from two straight years of declines in 2012 and 2013.

AG COLLECTIONS REVENUES

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Collection Revenues of 2001-2013

The Cost of Pay to Play

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The Cost of Pay to Play

Make no mistake, the greatest cost of pay to play is that it damages the credibility of the Attorney General to do the job. But also be clear: the pay to play in the collections area has cost the state a whopping amount of revenues.

Let’s clean up the mess.

Exhibit C

Two days.

In April 2012, two days before the announcement of a public bid to do collections work for the Attorney General’s Office, a long-time friend and supporter of Mike DeWine filed the articles of incorporation of a new company called CELCO, Ltd.

CELCO

Only a month later, this brand new company would celebrate an enormous victory…it secured a highly lucrative opportunity of doing collections work for the Attorney General’s Office.

Despite having no clients, no financials, scant collection experience, no licenses to conduct collections, and almost no staff, CELCO pulled off the upset of the century…beating out some of the best firms from around the country with decades of experience.

What explains this underdog victory?  A few bidding documents tell the story.

Under the “contractor profile” component of the scoring—supposed to reflect ”[Attorney General/government] experience, number of years of operation, public debt collection experience”—CELCO managed to score a “23”—later bumped to a “24”—out of 25 points, even though it had exactly none of those attributes and, according to the scorer, “no accounts at the time.”

Under the “management summary” element of the scoring—reflecting a “summary of management experience and resources”—CELCO managed to score a “19” out of “20”—even though “the overall years of collection experience was limited.”

And when its score of “94” wasn’t quite good enough, incredibly, someone from the Attorney General’s Office scribbled it out and replaced it with a “95.”  And presto, by that single point margin, this brand new company won the bid over companies with decades of experience and strong track records.

Folks, this is what a rigged bid looks like.  And this is how a major donor and close friend of Attorney General DeWine—having formed his company only two days before the bid was announced— won a contract he had no business winning.

Let’s clean this mess up.

Documents Expose Yet Another DeWine Claim About Rigged Bid Process to be False

COLUMBUS – Today, David Pepper’s campaign responded to yet another false excuse being made by Attorney General Mike DeWine about his growing pay-to-play and bid rigging scandal.

On Sunday, the Dayton Daily News revealed that a 2012 collections bid process was rigged to favor CELCO, a company formed two days prior to the bid process being announced. CELCO beat out numerous highly experienced vendors to do collections work for the Attorney General’s Office. The investigation found that CELCO’s score sheet had been altered. Its initial score was crossed out and revised upward to allow it to win the bid. CELCO’s founder is a major GOP donor who met with DeWine numerous times prior to the bid.

Confronted with the altered score sheet, DeWine’s official spokesman claimed it was simply the notes of a single staff member, and not a score sheet that determined the outcome.

Documents obtained of all the score sheets and an official tally of those score sheets show that this claim is flatly untrue (see attached).

As these documents show, the handwritten score sheets of every firm seeking collection work in 2012 all displayed a numeric score at the bottom. The numbers from the sheets correspond precisely with the numbers used on the formal tally sheet, where every bidder with a “96” or higher secured Attorney General work, and where CELCO’s “95”—switched from its original “94”—allowed it to secure work, above all other firms ranked “95” or below. Handwritten score sheets were the basis of the ultimate ranking.

Peter Koltak, Pepper’s Communications Director made the following statement:

“There is overwhelming evidence that Mike DeWine has run a corrupt bidding process, despite his spokesman’s attempts to mislead Ohioans. David Pepper will reform this process, so that we never again see official score sheets altered to award contracts to big donors.”

Click here to see score sheets for all vendors, including rigged sheet for DeWine donor CELCO

Despite Denial, Investigation Shows DeWine Fundraiser Reviewed Vendors in Official Meeting with DeWine

COLUMBUS – Today, David Pepper’s campaign responded to misleading comments by Mike DeWine’s official spokesman regarding DeWine’s growing pay-to-play scandal. DeWine’s spokesman claimed the office does not take campaign contributions into account when considering bids for contracts, saying: “We don’t call the Republican Party and say, ‘Hey, we’re looking at hiring this person. Did they donate to you?’ But documents show that DeWine’s 2010 campaign fundraiser, David Myhal, met with DeWine in his office to discuss debt collections work on more than one occasion. Myhal continued to fundraise for DeWine after the 2010 campaign. The Daily News also revealed that while 2012 collections bids were being considered, DeWine met with Myhal and reviewed lists of vendors for debt collections contracts. Myhal also hosted at least one fundraiser for DeWine during an open bid window. Peter Koltak, Pepper Communications Director, made the following statement. “DeWine’s staff didn’t need to call the Ohio GOP to check donation records because Mike DeWine’s chief fundraiser sat with DeWine in his office and discussed bidders for state contracts. It’s not a coincidence that those who are giving DeWine and the GOP the most money are making the most money off of DeWine’s pay-to-play operation.” A major investigation by the Dayton Daily News revealed that Mike DeWine and the Ohio GOP received $1.38 million in donations from attorneys and vendors doing debt collection work for the Attorney General’s Office. Many of those donations were given during the bidding window or immediately before or after. To read more about this meeting, click here. 

Emails: DeWine’s Handpicked Vendor Still Unqualified Months After Selection

COLUMBUS – Emails released yesterday by David Pepper’s campaign show that Mike DeWine’s handpicked debt collections vendor, CELCO, was legally unable to collect debt in many states months after being selected over experienced national firms in a rigged bidding process.

According to the Dayton Daily News, CELCO was founded by a DeWine supporter and major GOP donor just two days before the 2012 bid window opened. Despite having no experience handling debt collections and no clients, CELCO was selected over national firms, including at least one that had worked for five previous attorneys general. The Dayton Daily News revealed that CELCO’s original bid score was scratched out and increased to allow it to beat out more experienced rivals.

DeWine’s office has claimed that CELCO founder Pete Spitalieri’s experience running government call centers qualified the company to handle complex debt collections cases.

But emails show that months after being selected by DeWine to handle debt collections, CELCO was forced to return out-of-state collections cases to the Attorney General because it did not have the necessary licenses to collect debt.

Peter Koltak, Pepper’s Communications Director, made the following statement:

“DeWine prioritized political donors over the best interests of Ohio’s taxpayers, and here we see the predictably poor results. Unsurprisingly, after DeWine’s rigged bidding process favored an unqualified and unlicensed friend, collections revenue began to drop for the first time in a decade.”

 CELCO Return Letter

Mike DeWine’s Pay-to-Play: Collections Special Counsel

On July 19, 2014, the Dayton Daily News reported that Attorney General Mike DeWine is engaged in a major pay-to-play scheme involving attorneys and vendors doing collections work on Ohio’s behalf.

The Dayton Daily News Revealed Numerous Details Demonstrating a Pattern of DeWine Awarding Millions of Dollars of State Collections Business to Political Friends and Donors:

  • Since 2010, attorneys handling debt collections, their firms, and close family have donated $1.36 million to DeWine and the Ohio Republican Party. For 30 attorneys who donated more than $10,000, the average annual earnings from collections work was $796,500.
  • In two months prior to DeWine’s most recent selections for debt collectors, attorneys and vendors seeking the work donated more than $215,000 to DeWine and the Ohio GOP. Much of it was donated while the bidding process was open or bids were under consideration. This same pattern occurred in 2011, 2012 and 2013.
  • DeWine met in his office with David Myhal, his campaign fundraiser, and Alex Arshinkoff, a registered lobbyist and Summit County GOP chair, to discuss collections. DeWine and Myhal reviewed lists of vendors and attorneys after those bidders submitted their proposals and just before final selections were made. Myhal hosted at least one fundraiser during an open bid window.
  • Since 2010, the Ohio GOP has donated $2.7 million to DeWine’s campaign and the Summit County GOP has donated over $400,000. Throughout DeWine’s term in office, he has paid himself back $1.7 million of a $2 million personal loan to his 2010 campaign.

CELCO – A Rigged Bid:

  • In 2012, DeWine awarded CELCO, a company formed two days before bids opened, a contract over experienced bidders, including a vendor who had worked for five previous attorneys general. At the time, CELCO did not have the required licenses to conduct collections in states beyond Ohio.
  • CELCO was founded by Peter Spitalieri, a DeWine friend. Spitalieri donated nearly $60,000 to the Ohio GOP, the Summit County GOP, and DeWine’s son Pat’s campaign account.
  • During the 2012 bid process, internal score sheets were changed to bump CELCO’s score and put it on par with firms that had extensive experience doing collections work. CELCO has made nearly $1 million in fees from its state contract.
  • After 2012, DeWine never used a scoring system to evaluate vendors and attorneys bidding for collections work, despite requiring the firms to submit long, formal bids each year.  The office has said a formal evaluation process is too time-consuming.

The Cost: For the first time in a decade, Attorney General collections fell in 2012.  They fell once again in 2013. Compared to the prior rate of growth, this decline represents $100Ms lost.