EXECUTIVE SUMMARY: File ID No. 2007100
On April 2, 2007, District 12 of the Ohio Department of Transportation ("ODOT") in Garfield Heights received an email that accused district Facilities Manager Dennis L. Kratochvil of accepting free Lake Erie fishing trips from Mark T. O'Donnell, owner of the North Shore Commercial Door Company ("North Shore Door") in Elyria. A subsequent investigation by the Office of the Inspector General ("OIG") determined that these outings were not fishing trips, but were annual daylong boating trips that included Kratochvil and District 12 Equipment Superintendent Terrence M. (Terry) Kosmata, ODOT vendors over whom Kratochvil and Kosmata had purchasing authority, and dancers from two Northeast Ohio strip clubs.
In the following months, as we began to review North Shore Door's business relationship with Kratochvil, we uncovered a massive, interlocking web of schemes in which Kratochvil and Kosmata - both of whom had worked for ODOT for more than 25 years - had criminalized the entire purchasing and procurement apparatus in District 12's Facilities and Equipment divisions. We found the two departments to be so riddled with fraud, corruption and depravity that few of the contract relationships the two men maintained with the dozens of vendors with whom they did business were arms-length or untainted by personal greed.
During this investigation, we issued 130 subpoenas to ODOT vendors, banking institutions, other businesses and individuals. We also assisted the Ohio State Highway Patrol ("Patrol") in its execution of search warrants in December 2007 and August 2008 at Kratochvil's and Kosmata's homes and at the homes and businesses of six ODOT vendors.
Supplemented by interviews our office and the Patrol did with more than 100 people, the investigation confirmed that Kratochvil, Kosmata and Kosmata's senior purchasing officer, Kevin M. Horrigan, had accepted a wide range of gifts and gratuities in exchange for steering contracts to preferred vendors. The gratuities included fishing and hunting trips in Ohio, Texas and Alaska; hotel accommodations and meals in Las Vegas and Cleveland; meals, drinks and lap dances at strip clubs; a membership at a private golf club; free or discounted garage door installations, electrical work, plumbing and other services; and cash. In the latter case, we learned that Kratochvil had accepted more than $34,000 in "commissions" from an ODOT vendor in North Royalton between 2000 and 2007, accepting wads of cash from the vendor until just a few days before Kratochvil was escorted from his office.
Kratochvil's greed was fueled by his infatuation with strippers, on whom he bestowed lavish gifts of jewelry, furniture, appliances and cash. He gave one stripper $4,000 for a breast augmentation; when she balked at going through with the surgery, he allowed her to keep $1,000 of the money as a birthday present. He also paid strippers for sexual liaisons, which took place during working hours at an Independence motel and in the back of his minivan inside the ODOT garage. One of the strippers has continued to receive money from Kratochvil by duping him into believing that he is the father of her 4-year-old daughter.
We found that in exchange for cash, trips and other gratuities, Kratochvil, Kosmata and Horrigan steered ODOT business to select vendors. They did so by altering bid documents, obtaining fraudulent bids and sharing bid information with preferred vendors. Kratochvil also oversaw a sham process in which he repeatedly circumvented ODOT's policy requiring purchasers to obtain competitive quotes for purchases above $1,000. Oneof the ways he did this was by soliciting bids from two vendors who were wholly reliant for their products on Mentor-based Traditional Building Systems Inc. ("TBS") because TBS had exclusive rights to sell the proprietary heating, ventilation and air-conditioning ("HVAC") system parts on which the two unsuccessful vendors were bidding. Those two vendors, Bauer Mechanical Inc. and Eichele International, were subcontractors of TBS, whose chief operating officer, James P. Hartory II, was a close personal friend and frequent strip club companion of Kratochvil's. We further learned that Kratochvil steered more than $71,000 in business to his nephew, Chet V. Pogonowski, the owner of Pogonowski Plumbing Inc. in Parma Heights.
A major component of this fraudulent enterprise was T.D. Sportfishing Charters, a Lake Erie charter fishing service that Kosmata operated out of his home in Garfield Heights. Invoices and calendars obtained from Kosmata via subpoena and during searches of his home, office and boat showed that customers of T.D. Sportfishing were almost exclusively ODOT vendors over whom Kosmata or Kratochvil had contract authority.
These records further showed that between 1998 and 2007, ODOT vendors booked nearly 500 fishing trips with T.D. Sportfishing, paying Kosmata a combined $227,000. The customers on many of those trips were public officials from cities and townships throughout Northeast Ohio with whom the ODOT vendors also were doing business. We also discovered that ODOT employees Horrigan and William P. Werman, a District 12 auto technician who worked for Kosmata, operated side businesses that did tens of thousands of dollars in business with ODOT. Horrigan's company, Landmark Contractor Services Inc. ("Landmark"), sold more than $43,000 in products and services to ODOT. That sum included $14,000 in fictitious sales of oil absorbents - sales in which ODOT paid Landmark but received no product. In the other transactions, Horrigan simply purchased items or services from other vendors, added a surcharge and resold them to ODOT.
So brazen was this scheme that Horrigan's sales to ODOT included powder coating - a process in which a dry powder is electrostatically applied to create a hard finish - of oil pans and other vehicle parts done by Werman's company, Custom Powder Coating Inc. ("Custom Powder") of Brooklyn. In each case, Horrigan added a surcharge, ranging from $20 to $120, to Custom Powder's work before billing ODOT. In all, Werman did more than $31,000 in powder coating for ODOT.
We found numerous instances in which Kratochvil, Kosmata or Horrigan steered contracts to preferred vendors by doctoring records, sharing bid information and submitting sham bids to District 12's Fiscal Office, which rarely questioned quotes or invoices and blithely processed the payments. Collusion and manipulation of contract specifications by Kosmata and Thomas C. Short, ODOT's former Purchasing Coordinator in Columbus, also enabled one of Kosmata's friends, Kent L. Winter, to land millions of dollars in contracts at the expense of Winter's only competitor. Kosmata conspired with another vendor to invoice ODOT for fictitious deliveries of oil absorbents to "cover" his expenses on a trip to Seward, Alaska, to fish in a salmon tournament.
We found that Kratochvil rewarded one of his closest friends, Hartory of TBS, by convincing his ODOT superiors to purchase a proprietary HVAC system that has cost ODOT more than $420,000. Kratochvil also ensured that TBS would be the low bidder on service and repairs of this HVAC system by seeking phony competitive quotes from TBS subcontractors. Those subcontractors willingly submitted high quotes to Kratochvil and shared those quotes with Hartory, thus driving up the cost to ODOT.
Our investigation documented approximately $390,000 in gratuities and other improper payments that were made to Kratochvil, Kosmata and Horrigan by nearly three dozen ODOT vendors. In addition, we have identified nearly $11 million in questionable or improper payments that were made to ODOT vendors as a result of bid-rigging or fraud, or due to the improper relationships that existed between ODOT purchasers and vendors.
As a result of this investigation, ODOT Director James Beasley has fired or accepted the resignations of seven employees, including Kratochvil, Kosmata and Horrigan. As a result of our findings, Director Beasley in March 2008 also launched a Purchasing Contract Administration Training program that has re-trained 1,200 employees, including all personnel who have purchasing authority and their supervisors. ODOT hosted 16 daylong seminars around the state, during which participants received training on the ethical principles of purchasing, contract administration and the use of ODOT credit cards. At ODOT's invitation, our office was a participant on all 16 panels.