South Fork Utility District commissioner responds to comptroller’s investigation

BRISTOL, Tenn. (WJHL) — The head commissioner of the South Fork Utility District (SFUD) has issued a response to a state comptroller’s investigation into the utility district, saying SFUD’s mistakes noted in the investigation were made with the intent to rebuild services and better serve customers.

The response, sent by a PR company and signed by Board Chairman Jim Graham, says, “Any deficiencies found in the Comptrollers Report are being addressed, and there was nothing but the desired hope of making the district an efficient, good value opportunity for pure and plentiful water for our customers.”

The Tennessee Comptroller’s Office (TCO) investigation found “questionable payments” of nearly $1.7 million to the utility’s district manager, Garry Smith. It found payments to several companies owned or invested in by Smith, including more than $1 million in payments over four years for “most repair and maintenance services,” according to a comptroller’s report.

The SFUD was formed in 2020 when the Holston Utility District and South Bristol-Weaver Pike Utility District merged. The potential conflicts of interest date to before that merger, as Smith was the contracted district manager for the two predecessor utilities beginning in the spring of 2018.

Following the release of the comptroller’s report, Sullivan County Mayor Richard Venable called for the resignation of the utility district’s director and commissioners.

In his written response, Graham said the money spent on services provided by Smith’s company brought positive results.

“There was no criminal intent in our dealings,” Graham said in a news release. “Instead, mistakes were made to expediently rebuild district services to better serve our customers, with an antiquated and inefficient infrastructure that was losing 50 percent of its water because of leaks in the system.”

The reference to mistakes, if not to rebuilding of services, jives with comments made by management in the audit of the South Bristol-Weaver Pike Utility District (SBWPUD) audit for the year that ended Nov. 30, 2019. That audit wasn’t submitted until May 2021, but it found numerous deficiencies similar to those noted in the TCO investigation.

The auditor noted the board — chaired by Graham — paid “a substantial amount … to two companies owned by the individual contracted to manage the District.” It said there weren’t written contracts for that work to be performed, nor had the board used a competitive bid process before awarding the work to Smith’s companies.

In that audit, board members answered that they concurred with the finding but added that the utility faced “much-needed repairs to the system,” and that after hiring Smith they became aware there was more deferred maintenance than they had realized.

“We hired the same contractor for all this work since he had the employees, equipment and experience to get the work completed timely,” the board responded. “We now understand that this work should have been bid.”

Graham said that when he became commissioner, the district contracted with a third-party company that managed the district’s operations and other small utility districts in the county, but the district later terminated the contract due to inefficiencies in the company’s management. The 2017 audit lists Tipton Construction Company as the district’s manager.

After the management change, the release says, the district purchased new billing software, conducted a third-party audit of the contractor’s documentation, hired new employees for administrative duties, and began a modernization process.

SBWPUD annual audits on the state’s website show that Graham was a commissioner for that utility from at least 2009 through its dissolution. Until the 2019 fiscal year, auditors’ only consistent finding involved a lack of segregation of duties between the receipt of cash payments and service billing/payment postings.

That changed substantially with the 2019 audit, which noted multiple concerns beyond the lack of competitive bids and payments to Smith’s companies.

Despite the TCO investigation noting that awarding contracts to an employee’s company is a “potential conflict of interest,” Graham stood by the decision to use Smith’s companies even as the utilities were paying him a salary.

“Gary (sp.) Smith has an independent construction company with expertise in utility infrastructure,” the release said. “He has helped our district modernize our infrastructure, improving service to our customers and operational efficiencies.

“For example, new water lines were replaced that had been in the ground for 60 years, three large pumps were replaced, new remotely monitored water meters were installed to reduce labor costs and improve accuracy, and new telemetry equipment is being installed in storage tanks, assuring proper pressure levels in the district’s lines.”

Graham said in the release he was confident “that our operations will follow applicable laws and procedures. There was no criminal intent in our dealings. Instead, mistakes were made to expediently rebuild district services to better serve our customers, with an antiquated and inefficient infrastructure that was losing 50 percent of its water because of leaks in the system.”

Due to the improvements, the district had to increase rates by 5% to $23 a month and $9.45 per 1,000 gallons of water used, according to Graham. But since the 2019 audit, those rates for former SBWPUD customers have increased by much more than 5%.

The audit shows a base cost of $15.25, with the first 1,500 gallons free, and a cost of $7.30 per thousand gallons above that amount. For a typical usage of 4,000 gallons a month, that would have resulted in a bill of $37.15.

The current SFUD rate structure charges a $23 flat rate with cost per gallon beginning immediately. For 4,000 gallons, that would result in a bill of $60.80 — 64% higher than what SBWPUD customers were paying for the same amount of water in 2019.

“We have commissioned a rate study of regional water districts to assure that South Fork customers are paying rates commensurate to nearby systems,” Graham said.

“Any deficiencies found in the Comptrollers Report are being addressed, and there was nothing but the desired hope of making the district an efficient, good value opportunity for pure and plentiful water for our customers, our only desire,” Graham said. “I will work to assure continued, plentiful water for our customers and work with the State of Tennessee to assure that we comply with all applicable laws and regulations in the future to eliminate concerns and assure that we will continue to be a great asset for providing plentiful, clean water at a good value. Our board stands behind our decisions to improve the utility district and its service to our customers.”