Auditors Say Government Should Recoup $8.2 Million from Georgia Water Contractor

WASHINGTON — The U.S. Army Corps of Engineers paid a Norcross, Ga., company nearly $8.2 million too much for delivering bottled water to disaster areas going back to 2003, Pentagon auditors have concluded.

Lipsey Mountain Spring Water, a small family-owned firm that has a contract as the federal government's sole supplier of emergency bottled water, was cited this week in the semi-annual report of the Defense Department's inspector general.

Auditors blamed the overpayments on mismanagement by the Army Corps of Engineers, which oversees the emergency water contract on behalf of the Federal Emergency Management Agency.

Under its sole-source contract, Lipsey uses a network of subcontractors – water bottlers and shipping companies – to deliver supplies to disaster sites.

Among the criticisms by the Pentagon's inspector general:

– Lipsey billed the government $6.5 million for air transport costs and then paid a subcontractor $4.9 million for the same work during a 2004 hurricane relief effort. Auditors called the 26 percent profit "excessive."

– The bottled water company was paid $778,000 for air cargo for which no manifests were supplied to back up the charge.

– Lipsey received usage, or "drayage," fees totaling nearly $150,000 for 16 trucks' services and then passed along just $72,000 to the subcontractors who owned the trucks, for an "excessive" profit margin of 52 percent.

– During a temporary halt in water deliveries in the Hurricane Katrina region in 2005, Lipsey sought reimbursement for the delay and was paid for the "same truck multiple times" in 58 instances and also for 21 trucks and trailers for which there was no proper verification. The cost was $881,000.

The inspector general last February recommended that the Army Corps seek a refund on payments for services that could not be verified.

So far, no funds have been recouped, said Joseph Lipsey III, the company's president. He said his accounting firm reviewed the records and determined that "out of the thousands of missions" from the Katrina disaster period, only 1.5 percent of the payments needed adjustment.

He said Lipsey has credited the government in some cases and sent new bills in other instances. "Essentially, the result was a virtual wash," he said.

Lipsey confirmed that the Army has sought a $778,000 refund. He said the company "is working with its subcontractors to provide the documents" to back up the payment.

The Army Corps, in comments included in the inspector general's audit last February, rejected several of the inspector general's recommendations, which are not necessarily binding on an agency.

Despite auditors' criticisms going back to August of 2006, the Army Corps of Engineers in April renewed the Lipsey water contract for three years. Lipsey has also won a federal contract for providing emergency ice.

Gary Comerford, spokesman for the inspector general, said Friday that the Army Corps filed comments Thursday night on the Lipsey matter that would be reviewed and made public soon. He added that if the inspector general is dissatisfied with Army's response, any dispute could go to mediation within the Defense Department.