HomeMy WebLinkAboutMarcum Airport Forensic Audit Report_201401221339207916
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warranty, express or implied, is made by Marcum LLP as to the accuracy or completeness of the information included and relied upon in this assessment.
Independent Review of:
THE TOWN OF NANTUCKET MEMORIAL AIRPORT
Prepared for:
The Town of Nantucket
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TABLE OF CONTENTS
Introduction and Scope of Work ....................................................................................................................................... 3
Methodology ............................................................................................................................................................................... 4
Executive Summary of Findings: ......................................................................................................................................... 5
Audit FY2010 12/30 Runway Paving Project .............................................................................................................. 7
Audit of the Restaurant Renovation Project and Subsequent Lease ................................................................ 12
Review of Various other Nantucket Airport Projects or Issues ......................................................................... 22
Review of Airport Administrative Processes and Practices, Both of the Administration and the
Commission ....................................................................................................................................................... 25
Conclusion ................................................................................................................................................................................. 38
EXHIBITS ................................................................................................................................................................................. 40
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INTRODUCTION AND SCOPE OF WORK
A subcommittee of the Nantucket Finance Committee was appointed in August 2010, to look into
questions raised regarding certain town paving contracts involving the Nantucket Memorial Airport. In
June 2011, a report of the subcommittee was presented and raised additional questions. A unanimous vote
of the Finance Committee requested “The Board of Selectmen to engage an outside auditor to conduct an
independent departmental review of the Airport and its operations…..” Simultaneous to this, significant
media and Massachusetts Office of Attorney General inquiries culminated in the issuance of a Request for
Proposal (“RFP”), to which Marcum LLP submitted and was awarded a contract in November 2011.
Specifically, the contract required Marcum to conduct a forensic audit/operational management review of
the Nantucket Memorial Airport to include the following components:
• Audit FY2010 12/30 Runway Paving Project.
• Audit the Restaurant renovation project and subsequent lease.
• Audit 3-5 other specific Nantucket Airport projects from FY2010 and FY2011 to examine
compliance with procurement and other applicable Mass General Law(s).
• Review and evaluate Airport administrative processes and practices, both of the administration
and the commission, and recommend improvements in same.
• Review and evaluate departmental reporting, contract scope and negotiation as related to Airport
procurements.
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METHODOLOGY
The process of this forensic audit comprised of interviewing individuals/employees, both internal and
external to the Town of Nantucket, and reviewing a multitude of records, documents and reports. During
the course of the audit, where possible, the investigators have attempted to obtain corroboration of certain
facts from multiple sources.
During the course of our review, over 45 individuals were interviewed, most of whom were interviewed
on multiple occasions. In an effort to maintain confidentiality, we have chosen not to identify specific
individuals or attribute information received to specific individuals. However, the individuals interviewed
were from the following groups:
• Past and Present members of the Airport Commission
• Past and Present Airport Managers
• Past and Present employees of the Airport
• Past and Present members of the various Town Departments
• Office of the Attorney General
• Department of Revenue
• MassDOT
• Past and Present Town Counsel
• Contractors and Subcontractors that performed work at the airport
• Town Manager
• Members of the Boards of Selectmen, Finance and Audit Committees
In an effort to ensure that all relevant information was received, we attempted to interview members of
the media that had previously reported on the issues. Our requests for interview were refused.
Additionally, we obtained and reviewed a substantial number of documents, emails, financial records and
reports. Attached as Exhibit 1 is a listing of files containing documents reviewed.
Lastly, a confidential email address was obtained and communicated to the General Public. This email,
NantucketAirportInquiry@gmail.com was monitored solely by Marcum and information received came
directly to the Marcum team.
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EXECUTIVE SUMMARY OF FINDINGS:
As part of the catalyst for this review, the Massachusetts Office of the Attorney General’s had previously
conducted a preliminary investigation into the Airport procurement practices. The general findings
included:
• Failure to require proper prevailing wage documentation on certain Airport construction projects;
• A closed system of bidding;
• Repeated instances of possible bid splitting;
• Lack of written contracts or specifications for work;
• The possibility of inappropriate bartering exchanges with vendors;
• Renovations to restaurant space in the Airport terminal without compliance with designer
selection law and public bidding construction laws; and
• Misapplication of the exemption from bidding for aviation uses.
The results of our review, which will be discussed in more detail through this report, confirm the Attorney
General’s findings. We did not however, find evidence of fraud nor intention to split certain bids. Instead
the violations appear to be a result of inappropriate and poor decisions by Airport Management and
ultimately, the Airport Commission.
The circumstances surrounding the Airport that gave rise to this review were aggravated by a combination
of several interrelated factors to wit:
• The Airport operated as an Enterprise Fund;
• Massachusetts General Laws require appointment of an Airport Commission to manage a
municipal airport;
• The Nantucket Home Rule Charter specifically excludes the Airport from Town Administration;
and
• There were no definitive rules, regulations or defined procedures promulgated by management
specific to the operations of the Airport
Standing alone, none of these factors should have contributed to the current circumstances. However, the
apparent result of the totality of these contributing factors is that the Airport has been viewed and allowed
to operate as a completely independent entity. Oversight of the Airport Commission was often times non-
existent on many projects. Whether appropriate or not, at least since 2004, complete deference was
apparently given to two individuals for interpretation of operating rules and implementation of processes.
Those individuals were the former Airport Manager Mr. Alfred Peterson, and the long serving Airport
Commission Chairman, Foley Vaughan.
To be perfectly clear, this deference had a number of positive results. The Airport Manager, as the
aviation professional, was oftentimes in the best position to make daily management decisions. In most
instances, having the experience of a Chairman with over 20 years experience on the Commission and
former Town Counsel for Nantucket was a desired attribute and benefit. In fact, from 2005-2011 over 53
capital projects were begun and/or completed.
These projects that were completed were professionally sound and have resulted in the apparent
betterment of the Nantucket Memorial Airport. During our interviews, we were told that Mr. Peterson was
a stickler for holding contractors accountable.
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Over the past several years, there were many positive and also “‘not so positive” achievements
concerning the Airport. Throughout our review, we found that the results of the operations at the airport
were primarily the responsibility of the actions of the Airport Manager and ultimately, the Chair of the
Airport Commission for the oversight or in certain circumstances, lack thereof.
A review of projects and processes shows that there was a focus on getting jobs completed, often without
regard to procurement processes. A very liberal definition of aviation use and emergency purchase
provided the rationale for completing jobs without regard to procurement rules, particularly when
unplanned issues arose. We found that many items that were deemed to be time sensitive were the
apparent result of management inadequacies and/or poor planning. Beginning in 2010, when questions
were raised regarding spending on airport projects, incomplete and conflicting responses were often
provided by Mr. Peterson, creating more suspicion and further aggravating the situation.
However, at least in several circumstances other members of Town Departments cannot escape scrutiny
for their lack of involvement. While not directly responsible for oversight of these projects, members of
the Town Finance and the Boards of Selectmen had opportunities to raise questions regarding some
activities and failed to do so in a timely manner.
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AUDIT FY2010 12/30 RUNWAY PAVING PROJECT
The first project we were asked to review was the repaving of Runway 12-30 in 2010. There has been
concern over this project due to the use of Victor Brandon Corporation to perform the work, because the
project was not included in the 2010 project plan and because the final fees grossly exceeded the initial
estimate. A review of this project reveals that the maximum dollar amount written into the Town’s
contract with Victor Brandon was exceeded without proper notice and approval. This project stands as an
example of the lack of coordination between airport management and town departments. All parties
involved, including the Airport, the contractor and the Town Departments should have known that any
additional work would have and/or did exceed the maximum annual amount of the annual contract.
Before discussing our findings, it will be helpful to provide a brief summary of events to help understand
the circumstances surrounding the paving project. To gain an understanding of the totality and timing of
circumstances, we have prepared a detailed timeline of events. This timeline is our compilation based
upon information gleaned from interviews, documents, emails and official meeting minutes.
Time Line
DATE DESCRIPTION
July 8, 2009
Annual Town Contract for Surfacing, Resurfacing, Patching and Furnishing of
Asphalt Roadway Paving Products Town Contract with Victor‐Brandon
Corporation; Maximum project amount was $488,732 (contract historically used
for DP roadwork)
Fall, 2009 MassDOT announces extra funds available to the Airport due to delayed Pittsfield
Airport project
December, 2009 Al contacts Victor Petkauskos for estimate to pave runway 12‐30
December 23, 2009 Memo from Mr. Peterson to Airport Commission proposing runway 12‐30
resurfacing, estimate is $400,000
January 6, 2010 Pre‐Application submitted to MassDOT for 12‐30 project, total cost estimate of
$400,000
January 12, 2010 Airport Commission Meeting: 12‐30 paving estimate discussed
February 12, 2010 Victor Brandon submits written estimate of $395,978 at Town contracted rate of
$179 per ton
March 12, 2010 MassDOT letter approving funding for 12‐30 project at $400,000, of which
$80,000 is Airport responsibility.
April 12, 2010 –
April 21, 2010
Jacobs daily inspection reports show dates work is performed; project total is
3,405.5 tons = $609,584.50.
April 14, 2010
Application to MassDOT for 12‐30 project; project estimate is $585,000, 80% state
share of which is $468,000 and local share is $117,000; Grant for $468,000
subsequently approved
April 22, 2010 Airport Commission votes to accept grant offer of $320,000, with Airport funding
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DATE DESCRIPTION
responsibility of $80,000.
April 22, 2010 Invoice from Victor Brandon for $609,586.29 for 3,405.5 tons at $179 per ton
April 23, 2010 Invoice from Victor Brandon for $11,433.00 for installation of runway and taxiway
pavement markings.
April 29, 2010 Invoice from Victor Brandon for $15,000.00 for installation of loam and rake
shoulders on Runway 12‐30
May 6, 2010 Request for Payment submitted to MassDOT for $673,083.29; request to MassDOT
for additional funding is denied, overrun is to be covered by airport
May 11, 2010 Al tells Commission over budget
August 13, 2010 –
June 23, 2011 Town Finance Subcommittee review of 12‐30 paving project
November 21, 2011 Airport Capital improvement plan has 2013 scheduled for remainder of 12‐30
work, estimate still includes paving
Finding: It was allowable, and in fact preferable, to use Victor Brandon to perform paving
at the airport; however, exceeding the contract amount without an amendment was an
oversight by all involved.
Victor Brandon Corporation had a contract with the Town to do paving for the fiscal year 2009-2010; the
company had won the contract as the low cost bidder. The contract was based on the Town DPW’s
estimate of paving needs for the year and included a maximum project amount of $488,732. See Exhibit
2 (Victor Brandon Contract) Before moving forward with using this contract, Mr. Peterson contacted
the Town’s Chief Procurement Officer to ensure he was able to do so. He also discussed the use of the
Town’s contract with the Town’s attorney, the Attorney General’s office and MassDOT. It was confirmed
by all that using the Town contract was acceptable. He was provided with a copy of the contract.
We believe the use of town resources is usually a preferable way to conduct business at the airport. The
Town has already vetted the vendor, has established that this is a low cost provider, and has entered into a
contract with the vendor.
However, in this case the issue of the contract maximum was clearly ignored by all those involved in the
process. It was clear from the original estimate by Victor-Brandon that doing this project would result in
going over the maximum contract amount. The original portion of Victor Brandon’s estimate was
$350,000, while the contract was for a maximum of $488,732. That is 71% of the contract amount. In
setting the annual maximum amount, a list of scheduled Town projects for the year are budgeted and
compiled to set the contract price. For 2009-2010, the scheduled projects only included paving of the
following roads: Surfside Road; Orange Street from Plum Lane to Union Street; and Meader Street.
Unless the Town did not plan to do some of the projects, the maximum would easily be exceeded.
The primary responsibility to check that the maximum contract amount was not exceeded fell first on
Victor Petkauskos, President of Victor Brandon. The contract states:
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4.4 This project may be subject to budgetary restrictions which may limit the total amount of
funds available for the work. Accordingly, unless otherwise stated in Exhibit B, the TOWN will
not be obligated to pay any amount in excess of the maximum project amount without the express
written approval of the TOWN.
By doing work in excess of the town contract, Victor Brandon ran the risk of not getting paid. Victor
Petkauskos certainly knew that this project would exceed what was already planned. The company should
have asked for an amendment to the contract immediately. However, Mr. Peterson also had a copy of the
contract and should have raised the issue as well. He had a responsibility to monitor the work he
requested. In concept, any additional paving that was not on the Master Contract would have exceeded the
maximum amount.
Other Town employees had opportunities to at least communicate a potential problem of the contract
being overrun. That multiple parties did not raise this potential problem points to a lack of coordination
between the town and airport. In his responses, Mr. Peterson claimed that the contract overrun is a Town,
not an Airport issue. This is one of the examples of the Airport attempting to have the best of both worlds,
where they can take advantage of Town resources yet deny responsibility for their decisions.
Finding: The decision to go forward with the project was reasonable given excess funding
at the state level, despite not being planned for in 2010.
One rumor we have heard repeatedly is that Mr. Peterson had an inside track to state funding and was able
to get projects done that others would not have. Mr. Peterson was able to take advantage of the airport’s
favorable financial situation compared to other airports in the State, its backlog of shovel ready projects
and his tendency of pushing projects along quickly.
The airport’s capital improvement plan in 2009 had work on runway 12-30 scheduled for 2015. The FAA
works with the airport to prioritize items on the capital improvement plan, lining up projects in order of
priority as funding from the FAA becomes available. The 12-30 project had been pushed back repeatedly
in prior years, as the FAA juggled the order of projects it would fund.
In the fall of 2009, MassDOT announced extra funding would be available for state airport projects due to
the delay of a large project in Pittsfield. The money was already available and needed to be used by June
of 2010 or it would be lost to Massachusetts. All Massachusetts airports were notified of these funds at a
meeting. Few airports in Massachusetts have cash available to fund a large project, even with the state
funding 80%. Nantucket has historically been in the favorable position of being financially successful,
particularly in comparison to other small airports in Massachusetts.
The 12-30 project was particularly appealing to begin in 2010 due to upcoming renovations on runway
33, which would necessitate the use of 12-30 for overflow. As 12-30 had not been repaved in well over 32
years, the timing was right to move forward. MassDOT therefore considered this project worthy of
expediting and the airport was able to take advantage of money that had not previously been available to
them.
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Finding: The project was pushed through quickly and as a result exceeded the initial
estimate.
An original estimate of $400,000 was provided to the Airport Commission in January of 2010 to complete
the project. The estimate was established by a quick calculation of runway length times width, at a
thickness of 2 inches. See Exhibit 3 – (Memo Regarding Runway 12-30 Resurfacing)
By the end of the project, the cost totaled $681,668, of which $468,000 was reimbursed by the state. The
difference of $213,668 was therefore the responsibility of the airport. The airport did attempt to get
additional reimbursement from the state but was denied.
The excess project cost was due to multiple factors. The estimated area to be paved was increased with
the addition of the taxiway areas, in addition, extra sealing and leveling was included. Jacobs
Engineering was consulted on the project to help ensure it was done correctly, and once started, Jacobs
provided daily monitoring of the project as it was performed. However, it appears likely that had Jacobs
been involved from the outset, as is typical in FAA projects, the original estimate would have been more
in line with the final cost.
Mr. Peterson was well known for pushing projects through quickly in an attempt to save money, and this
appears to be an example of good intentions without adequate planning. FAA reimbursed projects must
follow very strict guidelines and are done with the involvement of Jacobs Engineering to monitor that all
aspects of the project are performed correctly.
The 12-30 project, which included replacing the safety area alongside the runway as well as the repaving
work, has been on the airport’s capital improvement plan as far back as 2001. In 2009 the capital
improvement plan indicated the 12-30 project was planned for 2015, at a total cost of $1.5 million at 90%
FAA reimbursement. As of the 2011 plan, the 12-30 project was planned for 2013, at an estimated cost of
$1.54 million. The estimate of $1.54 million appears to still include the paving work that was done in
2010, with the remainder of the project estimated at $500,000 to $800,000. In a memo, he wrote in
defense of the 12-30 project, Mr. Peterson claimed he had saved the airport over $1 million by pushing
through the project in 2010. This claim appears to ring false, as there is still work to be done and it
appears the total cost will still be in the $1.5 million range. However, the estimated FAA reimbursement
for the project is 90%, the state reimbursement estimate is 50% of the remainder, making the airport’s
estimated cost 5% of the total project. The implication is that had the airport waited to do this project with
FAA funding, the amount paid by the airport could have been much less than it was in 2010.
Finding: Even though information was well known by Airport officials, it was not publicity
disclosed that the project would be over budget until well after completion.
In August of 2010, the Town’s Finance Committee performed a review of the 12-30 project because the
total cost grossly exceeded the initial estimate. This appears to be one of the first attempts by the Town to
investigate airport proceedings.
The ensuing interaction between the Town and Airport during the investigation reveals many of the
behaviors that resulted in the present state of the Airport situation. The Subcommittee tasked to
investigate the 12-30 project invited Mr. Peterson to a meeting in September of 2010 to review the project
requesting that he bring relevant files to the meeting. It has been reported that Mr. Peterson arrived at the
meeting with no paperwork and acted in a defiant manner to questioning. While it is understandable that
he may have been uncomfortable at the questioning, Mr. Peterson was already known for believing the
airport was under no authority from the Town. Cooperation between the Town and the Airport is vital to
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the success of both, and as mentioned previously, the acrimonious relationship between the Town and the
Airport is at the root of many of the problems, coming to a head today.
The Airport Commission met on April 22, 2010, and again on May 11, 2010. At the April 22 meeting, the
initial grant approval for 80% of $400,000 was accepted. However, as of April 22, work had already been
completed on the project, meaning the additional aspects of the project such as length and grading would
have been known. See Exhibits 4 and 5 (Daily inspections from Jacobs Exhibit 4 and invoices from
Victor – Exhibit 5). In addition, an application for $585,000, signed by Al Peterson and Foley Vaughan,
had been submitted to MassDOT as of April 14. See Exhibit 6 (Application to MassDOT) Why a vote
was taken to accept the initial grant amount without discussion of the additional monies is suspicious.
According to meeting minutes, it was not until the May 11 meeting that the full Commission, and
therefore the public, was informed the project was above the initial $400,000 estimate. See Exhibit 7
(Airport Commission Minutes)
The omission of an overrun of nearly $300,000, the result of which $213,668 was the responsibility of the
Airport, is an example of keeping outsiders, including Town officials and taxpayers, uninformed.
Finding: The Airport had a barter deal with Victor Brandon
One item that came to light during the proposal and investigation of the 12-30 runway paving project was
a barter deal that the airport had with Victor Brandon Corporation. The airport had worked out a deal to
allow Victor Brandon to store materials for road paving on some Bunker property in return for them
giving material ground off the road to the Airport. The material was later used for the airport’s perimeter
road, reportedly saving a very large amount of money. This barter arrangement, however, had nothing to
do with the 12-30 Runway project. (See Exhibit 3 – (Memo Regarding Runway 12-30 Resurfacing))
Barter deals are expressly prohibited by Massachusetts Procurement rules as they are unfair to other
potential bidders. That the Airport would highlight this deal is another example of either lack of
understanding or a blatant disregard for rules.
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AUDIT OF THE RESTAURANT RENOVATION PROJECT AND
SUBSEQUENT LEASE
The second project that we were asked to look into was the complete renovation of the airport restaurant
which took place in the first half of 2007. Total fees paid to renovate the facility were approximately
$1.29 million, of which the airport paid nearly $1.05 million. We have found no evidence of fraud despite
the high cost of the project, but the project does highlight multiple problems that should never have
occurred.
Procurement laws were clearly violated during this project as the renovations were never put out to bid,
nor were they properly budgeted. However, the Airport Commission allowed the situation to proceed. The
restaurant renovation and later adjustment to rental rates for the space provide examples of the
independent attitude by airport management, a general disregard at the airport for rules and regulations,
and a lack of oversight by officials. This was a large, highly visible project that was never budgeted, not
planned for, but openly discussed at various times.
It is noted that during the six months of construction, no Town or Airport official questioned the work or,
more importantly, how it was being paid for during the six months of construction.
Time Line
Before discussing our findings, it will be helpful to provide a brief summary of events to help understand
the circumstances surrounding the restaurant. To gain an understanding of the totality and timing of
circumstances, we have prepared a detailed timeline of events. This timeline is our compilation based
upon information gleaned from interviews, documents, emails and official meeting minutes. In some
instances, findings were determined by the most probable, as determined by the information.
DATE DESCRIPTION
April 11, 2006 Hutchinson announces he will leave at end of year, rent at the time was $7,589 per
month, $91,073 per year
August 17, 2006 Request for Proposal for restaurant lease posted in newspaper
September 15, 2006 Proposal submitted by NRG, $114,382.50 per year rent offered
October 17, 2006 Airport Commission meeting: discussion of restaurant RFP and awards to
Nantucket Restaurant Group
October 18, 2006 Nantucket Restaurant Group, LLC informed they are awarded lease, letter sent by
Mr. Peterson
December 18, 2006 Walk through by Health Inspector with Mr. Peterson
December 18, 2006
Airport Commission meeting: discussion of restaurant and visit by health
inspector; Mr. Peterson states it is the airport’s responsibility to deliver a
restaurant that is up to code and there may be downtime to bring the restaurant to
code for which rent may be reduced
January 1, 2007 Lease executed with NRG for $114,382.50 per year, for ten year term
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DATE DESCRIPTION
January 2, 2007
Letter from (Nantucket Architecture Group – Castle Group) to Mr. Peterson stating
agreement to do the renovation and addition to the restaurant wing of the airport;
work charged to airport will be that needed to bring restaurant to code according
to the general building code as well as provision of construction labor and
materials for the addition
January 7, 2007
Letter and contract from Nantucket Architecture Group to Mr. Peterson for
architectural services for the renovations and additions to the Restaurant, contract
signed by Mr. Peterson
January 17, 2007
Airport Commission meeting: discussion that Nantucket Restaurant Group has
hired Castle Group as their contractor and Nantucket Architecture Group as their
architect; changes have been approved by HDC, airport should be responsible for
framing and code work
February 6, 2007 Food Establishment Permit Application by Nantucket Restaurant Group to
Nantucket Health Department
February 13, 2007 Airport Commission meeting: Mr. Peterson reports adding a basement will cost
$4,000 and would be beneficial; renovations should be completed in March
June 6, 2007 MAC Reimbursement Request Form including $127,548 invoice from The Castle
Group for renovations to the restaurant, subsequently approved
July 11, 2007 Restaurant opens
September 14, 2007 Email from Nantucket Health Department stating renovations to restaurant were
NOT due to changes required by health department
January 18, 2008 Receipt of estimate from Skanska of $1.9 million cost to do renovations to
restaurant
November 20, 2008 Airport Commission meeting: Restaurant requests rent abatement, nothing voted
on
January 1, 2009 Effective date of transfer of lease to Nantucket Regal Group, LLC
February 3, 2009 Airport Commission meeting: restaurant legal issues mentioned
February 21, 2009
Agreement between Nantucket Restaurant Group (Seller) and Nantucket Regal
Group, LLC (Purchaser, owned by Chris Skehel) to sell business of Alice’s
Restaurant including all furniture fixtures and equipment for release of debt by
NRG of $160,000 to Nantucket Restaurant Group to Nantucket Regal Group
March 10, 2009
Airport Commission Executive Session – Chris Skehel will take over restaurant,
rent is $120,000 per year. Mr. Skehel would like to pay $6,000 a month for 12
months ($72,000) which would be retroactive from the first of the year. The
Commission agreed and will revisit again in December of 2009.
May 12, 2009 Airport Commission is said to have voted on assignment of lease to Nantucket
Regal Group, however the topic of the restaurant and the vote is not mentioned in
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DATE DESCRIPTION
the meeting minutes
July 14, 2009
Assignment and Assumption of Lease and Notice of Assignment of Lease to
Nantucket Regal Group: Gary Simanson signed and notarized; lease is stated to be
assumed as of January 1, 2009; a vote on May 12, 2009 by the Airport Commission
is referenced
January 12, 2010
Airport Executive Session: Commission agrees to Chris Skehel’s request with a
decrease in rent to $7,000 from the lease rate of $12,000, no end date is
determined but Chairman Vaughan requests accountant to look at Crosswinds
books after March 31.
February 2, 2010
Memo to Tina Smith from Janine Torres to adjust Nantucket Regal Group monthly
lease to $7,000 per month until further notice and Commission has requested
audit to be performed by the airport’s accountant after March 31, 2010
March 23, 2010
Assignment and Assumption of Lease and Notice of Assignment of Lease
Agreement to Nantucket Regal Group signed by Foley Vaughan and signature
notarized, referencing a May 12th vote.
Finding: The restaurant construction project violated Massachusetts Procurement laws,
was not authorized through the proper Town channels, was not budgeted and was not
appropriately monitored.
The catalyst for the restaurant project was longtime Hutch’s restaurant lessee William Hutchinson’s
announcement in 2006 that he would be leaving at the end of the year, before construction on the terminal
renovation started. In July, based upon existing Procurement regulations, it was properly determined an
RFP would be needed to find a new tenant, and after receiving four of proposals, the RFP was awarded to
Nantucket Restaurant Group, LLC (“NRG”) in October of 2006.
The RFP specifications offered a ten year lease for the restaurant space, which at the time was 2,109
square feet on the first floor and 156 square feet of basement storage space. The lessee would be required
to pay as additional rent 3% of gross in excess of annual rent and rent would be adjusted annually based
on the CPI-W. Improvements proposed to the lease space were listed as 20% of the evaluation criteria;
however, nowhere in the RFP did it describe whose responsibility it was to pay for renovations. The RFP
did state that terminal renovation would take place during the time of the lease and disruption of service
as well as relocation may occur. See Exhibit 8 (RFP)
The airport received four proposals and these proposals were reviewed and rated by the Airport
Commission. Nantucket Restaurant Group was given the highest scores in the evaluation process,
particularly in the categories of improvements proposed for lease space and price per square foot. In his
application, Gary Simanson of NRG proposed a rental rate of $50.50 per square foot, which at the time
would have been $114,383 per year. The proposed executive chef, Simanson’s brother in law, had
extensive experience as executive chef at a number of high end establishments and was the driving factor
seeking to make the airport restaurant a quality destination restaurant with local produce and seafood. See
Exhibit 9 (Simanson proposal)
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We have been told that the renovations to the restaurant have been attributed to requirements by the
Nantucket Health Department. We have not been presented with any information that corroborates this
account. In fact, officials at the Health Department claim that upon its original inspection, performed
upon change of ownership, it found only three minimal violations:
“The restaurant was code compliant with exception of a 20x10 back store room. The
floor had chipped paint and worn areas and needed to be repainted. The walls and
ceilings were CDX plywood with holes, knots and gaps that needed to be made smooth
and easily cleanable. There were 5-6 pieces of residential refrigeration in this back store
room that needed to be removed, and if replaced, replaced with NSF approved
equipment. This is all that needed to be done for the 2007 license to be issued.” See
Exhibit 10 (Ray Email)
Had these problems been addressed, at an estimated time to fix of three days, the restaurant could have
opened immediately. Nantucket building inspectors performed annual reviews of the restaurant, reviews
which included inspections of the ceilings, and would have noticed large problems such as structural
deficiencies.
This is supported by an email exchange between Mr. Peterson and Gary Simanson on December 18,
2006, in which Al states the restaurant can open in about a week due to minimal changes required by the
Health Department.
Gary,
We met with Art Crowley from the Health Dept. and addressed the back room. He
indicated that the reason for the floor drain was Richard’s thought of moving the dish
washing into that room. If it is used for storage and non water related activities there is no
drain required. We can redo the walls and floor.
Would you please send us a sketch of what you have planned so that we can show them
and pin down the moving targets? They seem to be understanding but he was concerned
about what actually will take place vs. what is there now. If it stays pretty much as is-we
can fix the back room and get you going in about a week.
Thanks.
Al
In their earlier proposal, NRG proposed a two part plan for renovations to the restaurant in conjunction
with terminal renovations as follows:
Pre-Airport Renovation Period:
Initially, NRG will seek to operate the Restaurant with few, but significant, changes.
The initial and immediate changes would be with respect to the Restaurant's general
appearance (provide new paint, ceiling tiles, art work, window treatments, carpeting and
either a deep clean of the existing FF&E or replacement thereof. Plus, the addition of a
full-bar area.
The goal would be to utilize the existing operation as much as possible in order to limit
the disruption to the customer and the Airport and concentrate on designing, in close
16 | Page
consultation with the Airport Commission, the new Restaurant facility, theme and menu
as part of the overall Airport Renovations.
Despite the limited changes initially proposed by NRG, there are multiple indications as early as
December of 2006 and January of 2007 that this project would be a large scale renovation. In fact, the
email exchanges between Mr. Peterson and Gary Simanson are evidence that the Restaurant was intended
to be renovated, not just a new operating lease arrangement. See Exhibit 11 (Peterson Emails)
The email exchange between Mr. Peterson and Mr. Simanson lists changes desired by Nantucket
Restaurant Group, including moving a dishwasher to a back room, putting a bar in the area of the Hutch’s
office and extending the lunch counter. The dishwasher being moved would require an additional drain by
the Health Inspector. The replacement of refrigerators was a problem for Nantucket Restaurant Group’s
immediate opening because they would have to wait for a walk in to be installed. However, the lease
clearly states that all equipment is the responsibility of the tenant. A delay caused by refrigeration units or
by the tenant’s desire to reorganize the space, should not have required a lease abatement or the extensive
work that later occurred.
It is clear that the Airport Commission knew that the work would be a major construction project. Airport
Commission minutes in December of 2006 mention that the restaurant may be closed during renovations
and rent reduction may be needed during this time. See Exhibit 12 (Meeting Minutes). Given the Health
Inspector estimate of 3 days of work to complete the required changes, it is surprising that this was
considered necessary. In January, due to the proposed renovations, letters from Castle Group and
Nantucket Architecture Group to Mr. Peterson also mention work to include an addition. See Exhibit 13
(Castle Group Agreement). These letters also make it clear that the Airport is the contracting authority,
not Gary Simanson as had been reported. However, minutes from the Airport Commission meetings do
not indicate the scope of the renovations, nor any votes on whether to proceed with such work. In
January, it is stated in a Commission meeting that the airport should be responsible for framing and code
work; in February it is mentioned that adding a basement would be beneficial. Despite plans drawn up by
Nantucket Architecture Group, no budget was created for this project and no evidence of votes or
discussions as to whether to proceed with such major renovations has been provided.
The renovation to the entire restaurant that subsequently took place required many additional
remediations to comply with health, building and plumbing code specifications due to the additional
scope of work. The renovations included the addition of 443 square feet of space in the back of the
restaurant, movement of office space, as well as the addition of the bar. The total cost came to
$1,292,820, of which $1,048,464 was paid by airport. The difference of $244,355 was the responsibility
of Nantucket Restaurant Group and was for cosmetic improvements. Al Peterson was responsible for
performing a review of all invoices to ensure the airport did not pay for cosmetic improvements. See
Exhibit 14 (Restaurant Expenses Spreadsheet).
The first invoice from Castle Group to the airport, dated February 23, 2007, was for $188,192. At this
point, early in the project, the scope of the project was clearly large; however, the project is not discussed
again in the Commission minutes until an update in April, with no mention as to cost, and finally an
update as to near completion in June, again with no mention of cost.
An email from Mr. Peterson after the project was completed regarding the reasons behind the escalation
of the project contradicts reports from the health inspector regarding the severity of the initial problems
and attempts to justify the escalation in costs.
17 | Page
“Due to the change of ownership it was discovered that the restaurant was woefully
lacking in code issues based on inspections by the health department, who closed it down.
Simonson (sic) hired Castle Group who was also working on his house. He also got
involved with NAG. As the project evolved it was discovered that there were no drains
in the slab behind the counter and in the kitchen. There is also a NTM article prohibiting
the expansion of the restaurant. To accommodate a better layout required moving what
Hutch had for an office and storage area. The uncovering of the walls revealed rot, a
tangle of electrical wires from the days when it was a CAB weather station and engineers
found the roof structure to not meet code. The architects NAG recommended reinforcing
the roof and in order to meet structural code and to install drains we excavated to be able
to achieve needed slope, this evolved into a full basement. Our agreement with Simonson
(sic) was to handle the structural components but no interior aesthetics, to provide him
with the necessary code compliant structure.”
Despite this explanation, it appears that lack of planning and lack of oversight were the primary causes of
a project spun out of control.
Finding: Procurement procedures were violated during the restaurant project.
Gary Simanson had recently used the Castle Group to perform renovations on his personal residence and
wanted Castle Group to handle the minimal renovations described in the RFP proposal. However, a letter
dated January 2, 2007, from Castle Group to Mr. Peterson clearly states that work would be charged to
the airport, to include work to bring the restaurant to code as well as construction labor and materials for
the addition. See Exhibit 13 (Castle Group Agreement)
Massachusetts procurement procedures require that for building construction work over $100,000, sealed
bids be received, advertising must be posted in a newspaper, a bid deposit of 5% of the value of the total
bid must be issued, a payment bond and a performance bond of 100% of the project must be issued, a
contractor evaluation must occur and prevailing wages must be paid. None of these requirements were
adhered to.
We have requested, on numerous occasions, information about the invoices submitted from Chris Skehel,
President of the Castle Group and current operator of the Restaurant regarding subcontractors in an
attempt to verify prevailing wage rates and names. While these files should be readily available, they have
not been provided, raising questions that indicate potential issues. No time sheets or prevailing wage
documentation were submitted to the airport by Castle Group.
Nantucket Architecture Group was brought into the project as of January 7, 2007. According to their letter
to Mr. Peterson, they would act as part of an on-going sub-consultant of Earth Tech working on the
renovation and addition to the airport. Their scope would be to design the new kitchen addition and
renovation to the interior space to meet current building codes. The contract also states Nantucket
Architecture Group will assist the airport in determining a contractor-bidding list. We note that this
project is falsely considered here to be part of the airport renovations, and Nantucket Architecture Group,
by stating it was acting as a consultant to Earth Tech, appears to be positioning its involvement to not
require a separate RFP for this project. See Exhibit 15 (Proposal from Nantucket Architecture
Group)
18 | Page
Finding: The restaurant construction project was not budgeted and was paid for out of
apparent unrelated funds.
As we reviewed circumstances surrounding the restaurant renovations, it became apparent that the project
was not budgeted or planned for. A review of airport Commission minutes does not show any votes or
approvals on the restaurant.
A review of the payment vouchers show that the restaurant project was charged to the Airport’s Capital
account 55482 96075 A14/2006 Airport Terminal. See Exhibit 16 (Stamped Invoices for Castle
Group)
A review of the aforementioned warrant article does not identify any discussion of business or restaurant
improvements. In fact, the warrant specifically mandates that “no further expansions of business
concessions or any other non security related areas are included.” See Exhibit 17 (Warrant A14) In
June of 2007, a reimbursement request form for the terminal project was submitted to MassDOT. This
form included $127,548 for an invoice paid to Castle Group for the restaurant renovations. This
reimbursement was at 100% and was subsequently approved for structural/code compliance reasons. This
was the sole reimbursement for the restaurant renovations sought by the airport. The restaurant work was
not reimbursable under FAA guidelines as it is not part of aviation use. That no subsequent invoices were
submitted to MassDOT is telling.
In late 2007, questions were raised regarding the scope of the project. Mr. Peterson attempted to justify
the work as necessary due to the Health Department; however, the Health Department strongly disagreed
with this in an email to the Town Manager. Al Peterson then requested that Skanska, the general
contractor performing the terminal renovations, perform an analysis on what it would have cost had
Skanska done the renovation work performed by Castle Group.
Skanska provided a 25 page detailed proposal in which they estimated the fee would have been
approximately $1.9 million combined for both tenant and landlord costs, based upon drawings, photos
and discussions. It appears that Skanska’s estimate included many items that were not included in the fees
paid to Castle Group, including landscaping and fence costs of $19,539 (island factor of 30% markup
included), none of which were included in the work Castle Group performed. Skanska’s estimate also
included $236,126 (30% markup included) of food service equipment, none of which was supplied by
Castle Group or paid for by the airport. Construction management fees for Skanska totaled $232,159.
Castle Group billed $175,396 for general contractor’s fees.
While this estimate appears high, it further proves that this was a large scale renovation project that
should have been budgeted, with an RFP process and submitted for public vote as a capital project.
Skanska provided an estimate based upon drawings by Nantucket Architecture Group. These drawings
were completed in January 2007, before renovations were started.
Finding: The assignment of the restaurant lease in 2009 was valid; however, subsequent
rent reductions may have violated Procurement laws.
In late 2008, Gary Simanson and Nantucket Restaurant Group were looking to exit the restaurant lease
due to poor financial performance and due to internal personnel issues. According to our interviews,
former Town Counsel was consulted on the situation and provided the airport with multiple options on
how to handle the lease termination. One alternative was to assign the lease to Chris Skehel’s company,
19 | Page
the newly formed Nantucket Regal Group1. No subleases were allowed in the original lease. The original
lease had gone out to bid with the RFP and was a ten year term, making an assignment without an
additional RFP a viable option, as long as the assignment held to the terms of the original lease
agreement. See Exhibit 18 (Notice of Lease Assignment)
Nantucket Restaurant Group owed Castle Group $160,000 for work reportedly done to the restaurant
and/or other sites. Gary Simanson of Nantucket Restaurant Group came to an agreement with Chris
Skehel of Nantucket Regal Group to sell the restaurant’s operations and the restaurant’s equipment to
Nantucket Regal Group in return for a release of the $160,000 debt outstanding. See Exhibit 19
(Purchase and Sale of Restaurant Equipment).
The original lease signed by Nantucket Restaurant Group in 2007 contained the following provisions:
7. Rent. Lessee shall pay to the Lessor, during the term hereof, the sum of fifty (50) dollars and
fifty (50) cents per square foot or $114,382.50 as base rent, in addition to the annual business fee.
The Lessor and Lessee do hereby mutually agree that the rent shall be subject to annual review
and adjusted by the CPI-W rate on the anniversary date. The base rent will be paid in twelve (12)
equal installments, due on the first day of the month, commencing on January 1, 2007. Any
monthly installment of rent which is not paid within ten (10) days after receipt of notice, shall be
subject to interest charges at twelve percent (12%) per annum or part thereof.
In 2009 base rent had increased to $122,050.69.
However, at an executive session in March 2009, the Airport Commission agreed to reduce the rent for
2009, retroactive from the first of the year, to $6,000 per month, per a request from Chris Skehel. The
effect was a reduction in rent to $72,000 annually. The Commission decided to revisit this again in
December of 2009. See Exhibit 20 (Meeting Minutes – March 10, 2009)
The topic arises again at an executive session in January of 2010. The Commission then agreed to Chris
Skehel’s request to raise the rent to $7,000 monthly rather than $12,000 per month, though Foley
Vaughan stated he would like the airport’s accountant to review the restaurant’s financial statements after
March 31 and to revisit the situation. See Exhibit 21 (Meeting Minutes – January 12, 2010) The
accountant review did not occur. There are no discussions of amending the terms on the written lease
contract.
It should be noted that no votes were taken on these items during open meetings and that there is no
mention of as to the legality of lowering the rent without issuing another RFP. By cutting a deal in
private, the airport denied other businesses the ability to propose on the restaurant at the newly reduced
rental rates and stopped potentially higher bids. At the time of the lease reassignment, we were informed
that at least four other parties had expressed interest in the restaurant.
Finding: Rental income from the restaurant has been significantly lower than what is
required in the signed lease.
We have performed an analysis of rental payments received by the airport from the three tenants in
occupancy from 2005 through 2011. Nantucket Restaurant Group ceased paying regular rent in August
1 We note the name similarity of Nantucket Restaurant Group and Nantucket Regal Group. NRG is referenced in
various documents as the operator of the Restaurant.
20 | Page
2008 but made up for the remaining 2008 payments in June of 2009. Both Nantucket Restaurant Group
and Bill Hutchinson paid their required payments of rent.
Monthly rental payments by Chris Skehel and Nantucket Regal Group began in June of 2009. Rent
payments have been inconsistent, with months missed and paid late. Despite the late payments, no interest
charges have been requested or paid. As of yearend 2011, Nantucket Regal Group was still paying $7,000
per month. It should be noted that at the time of his leaving in 2006, William Hutchinson was paying
monthly rent of $7,589.46 – a significantly higher rate for a smaller and lower quality space than is
presently available. The total difference between what Nantucket Regal Group had paid in rent at the end
of 2011 and what should have been paid per the original rental agreement is over $140,000. See below
table for actual rent due at the actual rates versus paid through December 2011.
Payment Due Dates
Payments Due At
CPI‐W Adjusted
Rate Pay Dates
Amount Paid by
Nantucket Regal
Group Difference
Security deposit $12,000.00 4/30/2009 $12,000.00 $0.00
Apr‐09 10,170.89 10,170.89
May‐09 10,170.89 10,170.89
Jun‐09 10,170.89 6/18/2009 6,000.00 4,170.89
6/18/2009 1,525.00 (1,525.00)
Jul‐09 10,170.89 7/9/2009 6,000.00 4,170.89
Annual Fee 1,500.00 1,500.00
7/30/2009 6,000.00 (6,000.00)
Aug‐09 10,170.89 8/13/2009 6,000.00 4,170.89
Sep‐09 10,170.89 9/4/2009 5,550.00 4,620.89
9/30/2009 1,395.00 (1,395.00)
Oct‐09 10,170.89 10/8/2009 6,000.00 4,170.89
Nov‐09 10,170.89 11/12/2009 6,000.00 4,170.89
Dec‐09 10,170.89 12/10/2009 6,000.00 4,170.89
Jan‐10 10,364.14 10,364.14
Feb‐10 10,364.14 2/25/2010 6,000.00 4,364.14
Mar‐10 10,364.14 3/31/2010 7,000.00 3,364.14
Apr‐10 10,364.14 10,364.14
May‐10 10,364.14 10,364.14
Jun‐10 10,364.14 6/10/2010 10,000.00 364.14
Jul‐10 10,364.14 7/22/2010 10,098.85 265.29
Annual Fee 1,500.00 1,500.00
8/2/2010 7,000.00 (7,000.00)
Aug‐10 10,364.14 8/13/2010 14,000.00 (3,635.86)
Sep‐10 10,364.14 9/23/2010 4,000.00 6,364.14
Oct‐10 10,364.14 10/28/2010 8,500.00 1,864.14
Nov‐10 10,364.14 10,364.14
Dec‐10 10,364.14 10,364.14
Jan‐11 10,695.79 1/20/2011 7,000.00 3,695.79
Feb‐11 10,695.79 10,695.79
Mar‐11 10,695.79 3/3/2011 6,415.00 4,280.79
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Apr‐11 10,695.79 4/7/2011 4,675.13 6,020.66
4/7/2011 7,000.00 (7,000.00)
4/28/2011 7,000.00 (7,000.00)
May‐11 10,695.79 10,695.79
Jun‐11 10,695.79 6/9/2011 6,673.65 4,022.14
6/23/2011 6,354.00 (6,354.00)
6/30/2011 7,000.00 (7,000.00)
Jul‐11 10,695.79 7/21/2011 8,500.00 2,195.79
Annual Fee 1,500.00 1,500.00
Aug‐11 10,695.79 8/4/2011 7,000.00 3,695.79
8/25/2011 7,000.00 (7,000.00)
Sep‐11 10,695.79 10,695.79
Oct‐11 10,695.79 10/6/2011 7,000.00 3,695.79
10/20/2011 7,000.00 (7,000.00)
Nov‐11 10,695.79 10,695.79
Dec‐11 10,695.79 10,695.79
Total $360,757.15 $217,686.63 $143,070.52
As part of our inquiry, we reviewed submitted financial statements for the restaurant. Based upon the
information submitted, the restaurant’s net profits have been increasing each year since 2009. See Exhibit
22 (Financial Statements of Crosswinds)
22 | Page
REVIEW OF VARIOUS OTHER NANTUCKET AIRPORT PROJECTS OR
ISSUES
As noted earlier, we have reviewed numerous projects and issues at the Airport. Several are discussed
below:
Tenant Rates
The Airport leases space inside the terminal to airlines and vendors, including the restaurant, gift shop,
auto rental agencies and for ATMs. Hangars are rented for private airplane storage as well as for a
number of businesses; tenants include a flight school, lumber company, UPS, and others. In addition,
outlying space on airport property is leased to various companies for storage of materials such as asphalt,
equipment and propane.
All airlines pay the same rate per square foot of space inside the terminal. However, many specialized
deals with tenants, including abatement of the annual fee or CPI-W increase, are still in evidence in the
leases for outlying space, the gift shop and the restaurant. Both the restaurant and the gift shop were
leased though an RFP process. Therefore, rent abatements which have occurred for both tenants, appear to
be a violation of procurement rules. An abatement given to a current tenant that won the lease through a
process designed to award to the highest bidder clearly places applicants that bid lower and did not have
a chance to ask for an abatement at a disadvantage. Differing deals for outlying tenants also place tenants
that don’t ask for special treatment at a disadvantage.
Mr. Peterson has made an attempt in recent years to standardize leases and rental rates. As leases for
outlying space expire they are replaced with a standard lease that includes extra fees based on
profitability. Unfortunately, many of the leases are long term, for 20 to 30 years, and they will continue to
expire into years 2020-2030. The interim current Airport Manager was made aware of some of these
problems, including rumors that some tenants were subleasing when the leases prevented this, and has
been attempting to remedy the situation. See Exhibit 23 (Tenant Rate Schedule)
Purchase of Televisions by Employees
During the terminal renovation work and as part of their contract, Skanska purchased two 32 inch
televisions for $1,000 each which were reimbursed by the Airport. These were used by Skanska
employees while on the Island; once the work was completed Skanska turned the televisions over to the
Airport after nearly two years of use. These were sold to two employees, Tina Smith and Janine Torres, at
a price of $200 each. We have been provided with copies of the cancelled checks as proof of
reimbursement. The cash went to the Airport’s miscellaneous fund. See Exhibit 24 (Invoices for
Purchase of Television and Check Reimbursements).
The purchase of the televisions by two employees in the inner circle at the airport is another lapse
regarding fair treatment of employees, a theme we heard consistently in our interviews. According to
Massachusetts Procurement Act, Chapter 30B, Section 15 Tangible Supply disposition ”For a supply with
an estimated net value of less than $5,000, the procurement officer shall dispose of such supply using
written procedures approved by the governmental body.”
According to the Code of the Town of Nantucket, under Part I, Administrative Legislation, the proper
procedure is to put surplus equipment out to bid. Chapter 38, Article II states that
23 | Page
The Selectmen are authorized to dispose of obsolete or surplus Town equipment worth
more than $500 by putting it up for bid without the necessity of a Town Meeting vote.
Obsolete or surplus equipment with a value of less than $500 shall be disposed of by
advertisement and sale on a "first come" basis, yard sale or delivery to the Town sanitary
solid waste facility, as the Town Administrator deems appropriate. Surplus equipment
worth more than $25,000 shall require a Town Meeting vote for disposal.
Clearly Town rules were violated selling the televisions to employees in-the-know rather than offering
others the ability to purchase them.
Mr. Peterson Housing Stipend and Benefits
While serving as Airport Manager, Mr. Peterson received a number of perks by the Airport Commission.
This was clearly within their purview. The Commission has statutory authority to compensate the
Manager through Massachusetts General Laws, Chapter 90, Section 51E, which reads, in pertinent part:
Subject to appropriation, said commission shall appoint such other officers and
employees as its work may require and shall fix the salaries of all officers and employees
appointed or employed by it.
However, records of the votes are sparse and many of his perks appear to have been approved outside of
public session.
In February of 2005, Mr. Peterson was awarded a bonus of $15,000, referenced in a letter from Foley
Vaughan. The letter states that the bonus was decided on at the Airport Commission meeting on February
8. However, neither the Commission minutes nor the Executive Session minutes mention a vote on this
item. See Exhibit 25 (Meeting Minutes – February 2005)
In February of 2006, Mr. Peterson was awarded a bonus of $20,000 and it was also decided that the
Airport would also pay for his aircraft insurance, a cost of $4,500 per year. This was apparently decided
at an Executive Session of the Airport Commission on February 21, 2006, however, these minutes have
not been found. The insurance payment was not included in Mr. Peterson’s 2010 employment contract.
See Exhibit 26 (Letter from Foley Dated February 22, 2006)
Mr. Peterson began receiving a housing allowance of $3,000 per month in 2006, voted on and approved
by the Commission, with one vote of Nay, on November 28, 2006, in Executive Session. See Exhibit 27
(Meeting Minutes – November 28, 2006 and Letter from Foley Vaughan).
That the approval came during executive session meant that it was not publicly reported. The first two
payments of this allowance were included in Mr. Peterson’s paycheck and reported on his W-2. However,
subsequent payments were paid monthly and reported for tax purposes via a 1099, the form for reporting
income to independent contractors. The format for reporting taxes does not affect his responsibility to
pay taxes and it has been reported that the reason for the change in reporting of income may have been
due to ease of administering a monthly payment.
However, we note that by not including the stipend in his base earnings, the stipend was not included in
the Town’s report of salaries for Town officials. The result is that Mr. Peterson’s actual pay and his status
as highest paid Town employee was not publicly reported. The housing stipend was included in Mr.
Peterson’s 2010 employment contract.
24 | Page
Mr. Peterson also received free hangar space to store his plane while he was the Airport Manager. Other
lease agreements show that this may be a benefit of up to $600 per month; however, we can find no
evidence that this income was reported as compensation. We also have not seen this topic raised or
approved in any Commission minutes.
Jeff Marks, another Airport employee also received the benefit of hangar space at no charge. We note that
prior to Mr. Peterson’s tenure, Jeff Marks was paying for his hangar space. It was reported to us that Mr.
Peterson told him to stop making payments.
It was also discovered that all hangar tenants at the Airport received a discount on the purchase of fuel.
This discount was equally applied to all tenants of hangars. However, the practice did not distinguish
between paying and non paying tenants. As a result, both Mr. Peterson and Mr. Marks received fuel
purchase discounts for their aircraft.
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REVIEW OF AIRPORT ADMINISTRATIVE PROCESSES AND
PRACTICES, BOTH OF THE ADMINISTRATION AND THE
COMMISSION
Finding: The procedures surrounding the hiring of the Airport Manager in 2004-2005
appeared to favor Mr. Peterson.
The Airport Commission had an opening for the position of Airport Manager in December 2004, as the
current manager had accepted early retirement. The Airport began soliciting applications for the position.
During this time period, Jeff Marks was appointed acting manager. Applications were submitted during
November and December 2004. The initial review of the applications was performed by the retiring
Airport Manager Fred Jaeger, who ranked each of the applicants based on the qualifications noted on the
resume. The results were reported to the Commission with each applicant graded A-F.
Mr. Peterson was a member of the Airport Commission at this time and initially did not submit an
application. However, after he reviewed the analysis by former manager Jaeger, Mr. Peterson submitted
his interest for the position. See Exhibit 28 (Peterson Letter)
We could not find an official deadline for submittal of application but note that Peterson’s application was
the last in, after review of applications began.
In January 2004, Mr. Peterson resigned from the Airport Commission and shortly thereafter was named
Acting Airport Manager, replacing Jeff Marks, who had also applied for the permanent position. We were
not presented with the job responsibilities for Airport Manager from the 2004 posting; however, the most
recent search qualifications included, but were not limited to, the following:
‐ Managing all aspects of staffing, facilities, budgets, security, safety and tenant, user and
community relations;
‐ Overseeing and implementing programs to ensure effective operation and safety of the airfield;
‐ Directing all maintenance and construction;
‐ Responsibility for preparation of operating and capital budgets and for performance against
budget;
‐ Managing the collection and audit of all revenues;
‐ Assisting the Commission in planning and formulating overall airfield policy;
‐ Overseeing compliance with applicable rules and regulations, Commission policies and priorities,
and airport procedures;
‐ Responsibility for day-to-day working relationships with the FAA, MassDOT Aeronautical
Division, airline and general aviation customers, tenants, users, service contractors, etc.;
Minimum qualifications included, but were not limited to, the following:
‐ Degree in aviation management or a related field.
‐ 5-7 years airport management-related experience.
‐ Extensive knowledge of aircraft and airport operations, airport certification requirements,
as well as procurement law and grant assurance procedures.
26 | Page
We note as significant the deviation in the search process, at least in allowing a Commission member to
apply, after all other applications were in and after a preliminary review had occurred. During the search
process, Al Peterson was named Acting Manager, replacing Jeff Marks.
It was reported that the work group consisting of Chairman Foley Vaughan and Commissioner Finn
Murphy, recommended the Acting Airport Manager Peterson for the position, stating that having
someone local would be “the way to go”. The applications were narrowed down to three finalists. In May
2004, Mr. Peterson was named permanent Airport Manager. See Exhibit 29 (Meeting Minutes – May
21, 2004)
Finding: The Nantucket Airport Commission has been allowed to operate independently
with little to no oversight throughout the years. There has been an apparent reluctance to
intrude or question the airport’s operations.
Throughout the years, the Airport has operated almost entirely independent from the Town of Nantucket.
One of the main catalysts for this is the Nantucket Home Rule Charter which reads, in part:
Section 4.4 – Town Administration Departments [Amended 4-10-2002 ATM by Art. 46,
Approved 4-1-2003 ATE]
(a) The Town Administration shall include the Building, Finance, Fire, Health, Island
Home, Marine and Coastal Resources, Police, Public Works, and Visitors Services
departments; provided, however, that nothing in this Charter mandates the continued
existence of any such Town Administration department or continuance of a department
name or function.
(b) The Town Administration shall not include the Airport, the Park and Recreation, the
School and the Water departments.
Coupled with several other contributing factors, there was an opinion, mainly put forward from the
Airport Manager and Commission Members, that complete autonomy was required and/or existed. Other
factors that contributed were the Enterprise Fund and Massachusetts General Laws Chapters 90 and 30.
Enterprise Funds
The Airport has been an enterprise fund for many years. An enterprise fund is defined
under Massachusetts Law Chapter 44 and is used to establish a separate accounting and
financial reporting mechanism for municipal services for which a fee is charged in
exchange for goods or services. Under enterprise accounting, the revenues and
expenditures of the service are segregated into a separate fund with its own financial
statements, rather than commingled with the revenues and expenses of other
governmental activities. Once certified, retained earnings may be appropriated only for
expenditures relating to the enterprise fund. Conversely, if during the year, the enterprise
fund incurs an operating loss, the loss must be raised in the subsequent year’s budget.
The benefits of an enterprise fund include the segregation of total cost for providing a service separate
from other services, in this case allowing the public the ability to see the total cost of operating the
Airport. In addition, an enterprise fund makes sense for an Airport due to the reliance on revenues from
the FAA which has strict rules regarding usage of funds for aviation purposes only. Many airports in
Massachusetts are accounted for as enterprise funds.
27 | Page
However, it is important to note that an enterprise fund is not a separate or autonomous entity from the
municipal government operation. Like every other department, a budget is prepared that is reviewed and
analyzed by the Finance Committee. The budget, as well as any transfers among the enterprise fund’s line
item appropriations, requires action by the council or town meeting. The municipal department operating
the enterprise service continues to fulfill financial and managerial reporting requirements.
Airport Commission
Massachusetts Law Chapter 90 Motor Vehicles and Aircraft provides the regulations that establish the
Airport Commission and its appointment by the Board of Selectmen.
Chapter 90 Section 51E. In any city or town in which an airport is established under
section fifty-one D, or under any other provision of law, there shall be established a board
consisting of an odd number of members not less than three nor more than eleven in
number, to be called the airport commission, which shall have the custody, care and
management of the municipal airport of said city or town. Of the members appointed at
least one shall be a person having experience in aeronautics. An airport commission may
be established as herein provided in any city or town for the purpose of establishing an
airport therein. Except as provided otherwise in any special law, enacted prior to January
first, nineteen hundred and forty-seven, relating to an airport commission in any city or
town, the members of the airport commission shall be appointed, in cities, by the mayor
with the approval of the city council, and in towns by the selectmen. In the initial
appointment of the members of such an airport commission, their terms shall be so
arranged that one third of the members, as nearly as possible, will expire each year; and
thereafter when the term of any member expires his successor shall be appointed to serve
for the term of three years and, in each instance, until the qualification of his successor.
Vacancies in the commission shall be filled for the unexpired term by the appointing
authority. The members of said airport commission shall annually choose one of their
members as chairman. The airport commission may appoint an airport manager who shall
be qualified by general management experience and aeronautical knowledge and shall be
the executive officer of said commission, and may also appoint an assistant airport
manager who shall be qualified as aforesaid. Neither the airport manager nor the assistant
airport manager shall be subject to chapter thirty-one. The assistant airport manager shall
act in place of the airport manager at such times and under such conditions as the airport
commission may direct. The airport manager, and the assistant airport manager when
acting in place of the airport manager under the direction of the airport commission, shall
be responsible to said commission for the proper maintenance and operation of such
airport and of all facilities under his supervision. Subject to appropriation, said
commission shall appoint such other officers and employees as its work may require and
shall fix the salaries of all officers and employees appointed or employed by it.
Further confusing the independence issue are requirements of Grant Assurances by the Massachusetts
Aeronautics Commission, which reads, in pertinent part:
Certification of the Selectmen of the Town of Nantucket.
Notwithstanding any powers that may be granted to the Selectmen of Nantucket, the Town agrees not
to attempt to reorganize the Airport Commission, or in any way to interfere with the autonomy and
authority of the Airport Commission as created un Chapter 90, Section 51E of the General Laws,
without the express approval of the Aeronautics Commission. See Exhibit 30 (Grant Assurances)
These factors all had a role in the perception that the Airport is required to have complete autonomy.
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These factors all had a role in the perception that the Airport is required to have complete autonomy. Our
review found a number of instances where Town finance personnel either questioned a process or
requested additional information. However, it was often responded to with aggressive pushback by Mr.
Peterson, further discussed later in this report.
In the current structure, the Board of Selectmen is the controlling authority over the Airport Commission.
During our interviews, we were told of reluctance on the part of the Selectmen to question the Airport’s
operations. Due to the long serving Chairman Foley Vaughan’s stature and experience, we were informed
that deference was often given to his decisions.
An email exchange from July 2010 is particularly revealing about the Airport and identifies, at least the
perception that the Airport is independent of the Town and should be left alone: Former Finance Director
Connie Voges, discussion in an email on recommendations from Financial Consultant Mark Abrahams:
“The BOS level issue is: whether the Airport is part of the TON, and whether the policies
and procedures that apply to the TON also apply to the Airport. There are other
operations which are reviewed by other agencies: e.g., the schools, Our Island Home, etc.
The underlying procedure question is whether Mark’s report is going to be followed, as
written, or whether allowances can /should/will be made for different controls that are in
place at other town locations. As written, there was no room in the Abrahams’ report for
‘other controls in place’ – at the airport or elsewhere. Rick Atherton weighed in on this at
Audit Committee meeting, with respect to the Airport receivables: his sentiment was
basically, IF the Airport has controls in place that work, why do we need to repeat what
they do – if we’ve reviewed the controls and found them to be sufficient.”
But – that’s a different approach from the Abrahams’ report. It’s not an entirely
unreasonable approach, but it’s not the one that has been on the front burner for the last 2
years.” See Exhibit 31 (Email Exchange)
No changes were made at the time.
Finding: Often times, the business of the airport was conducted, discussed and apparent
decisions made in violation of open meeting requirements.
A review of email communications, before and after July 2010 reveals information that indicates potential
violations of open meeting law requirements. We were told that members often stopped by Mr.
Peterson’s office, both unannounced and by request to discuss issues and/or get updates. We suspect
that in those instances where no formal vote is found in minutes of official Commission meetings,
decisions were made to proceed via alternate communications. Some areas where violations appear to
have occurred:
• Emails are expressly included in definition of “deliberation,” which is prohibited outside of open
session; but distribution of agendas, scheduling information or reports to be discussed at next
meeting is permitted.
• Minutes must contain more detailed information; in addition to “date, place, time and matters
discussed,” shall include summaries of matters discussed, list of documents used, all decisions
made/votes taken.
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• Documents and other exhibits, such as photographs, recordings or maps, used by the body at an
open or executive session shall, along with the minutes, be part of the official record of the
session.
• Chairs required periodically reviewing executive session minutes and determining if they should
be released, or if purpose for executive session is still ongoing to keep minutes confidential.
Our review of Airport Commission minutes revealed a number of missing dates, incomplete information,
and more importantly, no discussion of public votes taken on expenditures that were eventually approved.
The awarding of Al Peterson’s final contract in June 2011is a recent example. On June 21, 2011, on the
eve of appointment of new commission members, the existing Airport Commission voted unanimously in
Executive Session to award a contract to Al Peterson. Surprisingly, the existence of a written contract was
denied two days after the vote. No public acknowledgement or vote was conducted. See Exhibit 32 (June
21, 2011 – Executive Session Minutes and Emails)
The circumstances surrounding the restaurant renovations and subsequent lease are another example of
potential open meeting law violations. We have discussed many of the issues in the previous sections. A
further review shows that the signed documents assigning the lease from Gary Simanson to Chris Skehel
in 2009. The effective date of the assignment is January 1, 2009. However, Gary Simanson does not sign
the document until July 2009. Chris Skehel signature is undated. Then surprisingly, Foley Vaughan does
not sign the document until March 2010. His signature references a May 12, 2009, vote at the Airport
Commission meetings. There is no record of this vote. See Exhibit 18 (Notice of Lease Assignment)
Finding: When not mandated by FAA requirements, Massachusetts’ Procurement Laws
were avoided. There was an apparent liberal definition of aviation use and/or emergency
process by the Airport Manager that was not questioned. Many items that were deemed to
be time sensitive were the apparent cause of management inadequacies.
The Uniform Procurement Act, which is based on Chapter 30B of the Massachusetts General Laws,
illustrates bidding requirements and other regulations that are intended to promote transparency, open
competition, gain public confidence and avoid favoritism in awarding public money. This applies to every
contract for the procurement of supplies, services or real property and for disposing of supplies or real
property by a governmental body.
Procurement of a supply or service in the amount of $5,000 or greater, but less than
$25,000, is to require written or oral quotations from no fewer than three suppliers or
vendors. The responsible official that is requesting quotations (the Procurement Officer)
shall record the names and addresses of all persons from whom quotations were sought,
the names of the persons submitting quotations and the date and amount of each
quotation. The contract is awarded to the vendor offering the supply or service at the
lowest quote. There is no such requirement for procurements less than $5,000 (See
Section 4 of Chapter 30B).
Procurements in excess of $25,000 require sealed bidding procedures, which the
Procurement Officer shall issue an invitation to bid. The invitation will be of public
notice, with a reasonable time prior to the date for opening of bids, and include all items
discussed in Exhibit 25 under Section 5(c). The Procurement Officer shall evaluate a bid
based solely on the requirements and criteria set forth in the invitation for bids. Such
standards include the quality, workmanship, results of inspections and tests, and
suitability for a particular purpose. The Procurement Officer shall unconditionally accept
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a bid without alteration or correction, and shall award the contract to the lowest
responsible and responsive bidder (See Section 5 of Chapter 30B).
Our review found that all projects that were reimbursed by the FAA were managed and overseen through
Jacobs Engineering. As such, the process and record keeping appear to be pristine. Attached as an exhibit
is one such project. (See Exhibit 33 Sample Project From Jacobs)
However, there were other non FAA projects where corners appear to have been cut. Several of those
projects have been discussed in this report. We were told that Mr. Peterson was known for wanting
projects to be started and completed as quickly as possible. This is evident from the projects we have
reviewed. We were told that he often considered a delay to be an emergency project. Unfortunately, in the
public sector, very few projects are considered to be a true emergency. A true emergency in terms of
procurement law is defined in Chapter 30B, Section 8 as:
Whenever the time required complying with a requirement of this chapter would endanger the
health or safety of the people or their property a procurement officer may make an emergency
procurement without following that requirement. An emergency procurement shall be limited to
only supplies or services necessary to meet the emergency and shall conform to the requirements
of this chapter to the extent practicable under the circumstances.
A delay in opening a restaurant cannot be considered an emergency, nor can a delay in construction due
to electrical problems. However, Mr. Peterson believed these situations allowed him the discretion to
hire contractors outside of procurement regulations.
Mr. Peterson has responded publicly to many of these issues and has provided his justifications for some
issues.
Mr. Peterson’s Responses
1. Champoux Landscape – no contract for work in excess of $370,000. This was put out as a
Request for Proposals. It consisted of a design concept and a separate sealed price
component. We awarded it to Champoux conceptually but also as the low bidder. We did
not have an actual contract with him. At the time, 2008-09 we did not believe OSAH
applied since it was landscaping and not vertical construction and since it was a separate
contract from the terminal I do not believe that Jacobs’s who was our Project manger
confirmed prevailing wage. Under our current system we would have a contract
following the award.
2. Bernard Walsh – no contract for work on phone system “and other work” at airport since
August 2008 for over $250,000. 25 separate payments to Walsh with “no competitive
bidding or written contract. 15 invoices exceeded $5,000. Bernie Walsh was the phone
support guy here when I took over and had always done the day to day maintenance. The
system had been a conglomeration of changes that were a complete mystery due to years
of patches. He became involved with the terminal project without bidding when we found
that the architects assumed that this was covered by the security contract. It was not and
the electrical contractor brought it to our attention and we asked Walsh to install the
wiring and the electrical contractor to do all the conduit work. This occurred as the wall
boarding was getting ready to go up. We had the option of including it in Skanska’s or
the electrical contractor paying him directly. We opted to do the latter to avoid additional
overhead and profit. This was not covered by a contract and under normal circumstances
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would have been either added to the contracts of Annese or Skansk as an add or put out to
bid if time allowed.
3. Robert W. King – no bidding and no contract for electrical contracting work on two
projects for over $47,000 past three years. Once contract was signed more than a month
after the work was completed. This was for work that was performed for several
unrelated projects. The first was the wiring for the trailers that made up the temporary
terminal for the terminal project. He also worked on disconnecting at the annex building
and last assisted with the moving of the fuel farm controls from the old
ARFF/Administration building to the temporary shed that is next to the fuel farm. The
2011 projects were at the rate of the Town’s electrical contract of $75.00/hour. I do not
believe the Town had an electric contract under which we qualified in 2008. In any event
I believe that this falls under the aviation exclusion of chapter 30B.
4. Per Diane O’Neil – regarding the Champoux work, “…no prevailing wages were paid, no
proof of a bond, no proof of insurance and no OSHA cards were available upon request:”
I cannot say if this is true or not and I am not sure whether she can make that statement.
This was landscaping not construction; for sure OSHA does not apply.
5. Bid splitting – no detail. This was never conceived nor intended. We started these
projects with goals of completing the work as soon as possible. They were task specific
i.e. disconnect the electrical components from the annex and ARFF building or wire this
trailer for use once it was in place. When we started the projects most were considered to
be less than $5000.00. The relocation of the controls for the fuel farm turned into a much
bigger project due to not having any as built drawings and problems with the conduits
through which the wires were run. The relocation was challenging since much of the
wiring was very unorganized. Again, this preceded the town having an electrical contract,
but all work following the establishment of the contract was required to be done at the
same rate $75.00/hour.
6. March 2009 – RFP – no mention of a gazebo in the RFP. Five responses and Champoux
chosen for $256,070. Story asserts that an invitation to bid rather than an RFP was the
correct way to go. Also asserts that a public works construction project involving any
horizontal building requires an IFB. We thought we had done this properly. The original
landscaping package was in the AECOM presentation. They had a Boston Landscape
firm on their team. After one meeting with them it was decided to remove the
landscaping from the overall contract and to keep it as a separate local project. The
bidding was advertised and we requested conceptual presentations from all submissions
with prices being submitted separately. Champoux was chosen for this concept but was
also the low bidder. The Commission subcommittee and airport management reviewed
these presentations.
7. No formal vote by the commissions to add a gazebo to the March 2009 RFP. The plans
were reviewed at a commission meeting and I believed we had a consensus of the
commission before we proceeded with it. It further went through about six HDC meetings
for revisions and compliance issues about handicap accessibility that required us to lower
the building and modify the landscaping to conform to the lower height.
8. $2,000 rental of Walsh house for one week. Las year we were expecting to get housing
for the ACE Camp from either the High School or the Hospital. Jack Wheeler found the
neither place had availability at the last minute for all personnel. We had one dwelling
but needed additional bedrooms. In his discussions with Bernie Walsh on phone issues he
found that Bernie had a rental house available. He quoted $2,000 and I ok’d it since it
was relatively cheap and we were without time to shop.
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9. Three “phone bids” for electrical work with the work going to Robert King, 19 invoices
for over $22,000.00. The contract signed with King a month after the fact showed that he
did not have a required errors and omissions policy. This was a discussion between
Janine and Diane O’Neil that went on for a couple of weeks deciding whether or not
one was needed. By the time it was decided to write one work was well underway.
We noted that fact on the contract and had King sign it. This was not major contract
work nor did it exceed the $25,000.00 level.
10. Paul Torres paid $16,692 since October 2008. Paul is one of two electricians who are
badged for access to the secure ramp. He wired the three double wide trailers during the
terminal project. This saved us from having to tie up one of our people to escort him on
the secure ramp. He further assisted in the breaking down of the trailers during the
decommissioning phase. We also used him to wire the new pilot flight planning trailer
and he assisted King on the fuel farm, providing escort and electrical help. All work in
2011 was at the Town contract rate of $75.00/hr. $20,000 bonuses over the last 3 years to
non-union employees as well as contractor who worked on recent projects. We have had
plenty of discussions for these. Two went to Paul Letendre as part of his contract. The
others were administrative personnel who carried the bulk of the added work on the
terminal and ADFF building projects, as well as Leisa who handled the art program for
the terminal.
As Airport Manager, Mr. Peterson had discretion to reasonably apply the “airport use” exemption based
upon his airport expertise. Generally, no building construction services or land disturbance activities will
qualify as an “aviation use.” Based upon a review of certain projects and Mr. Peterson’s explanations,
there appears to be violations of procurement laws.
We found that the explanations are further proof of Mr. Peterson’s liberal use of the exceptions to
Procurement regulations and/or deviations to open meeting law requirements. A review of these projects
suggest inadequate planning was responsible as opposed to viable exceptions. We were informed by
various commission members that decisions of this type were left solely to Mr. Peterson. At a minimum,
some oversight or discussion by the Airport Commission regarding these issues would have provided a
better analysis or the required checks and balances for decisions of this type. We did not find any
relevant meeting minutes on many of these topics.
Finding: Significant reconciliation differences between the Nantucket Airport and the
Town of Nantucket resulted in long-running accounting problems and a recent deficit in
retained earnings of approximately $3.3 million
Accounting problems between the Town and the Airport have been ongoing for years. This stems from
differences in accounting systems, the Town operating on the Municipal Uniform Information System
(MUNIS) and the Airport operating on Microsoft Dynamics (formerly Great Plains). Airport capital
projects were being completed without the proper borrowing, or use of authorized but unused borrowing
from previous capital projects to complete other projects that were not approved by the capital committee.
The Town’s annual financial audit by Powers & Sullivan, LLC during the years of 2008 through 2012
indicated multiple management letter comments and material weaknesses, including failure to comply
with procurement laws and regulations as summarized above. See Exhibits 34 (Management letters).
The Town operates the Airport as an enterprise fund, meaning its revenue and expenses are separated
from the general fund and other municipal departments. The Airport, unlike many other enterprise funds,
has historically been able to operate without subsidy from the General Fund. Enterprise funds that do not
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generate enough revenue to cover expenses, such as the Solid Waste and Sewer Enterprise funds, by law
require annual cash infusions from the Town’s general fund to fund operations.
In the early 2000’s, the Airport hired former acting Town Finance Director and former member of a prior
Town independent auditor Peter Lamb to aid in the monthly close process. Peter was not involved in
monitoring or reviewing budgets, rather he was more of a reviewer to make sure that accounts within the
Airport are reconciled. Cash accounts carried on the Airport and Town financial systems were reconciled
with the “Due to/From” accounts, which were used to monitor inter-fund receivables and payables. The
balances of these accounts are intended to represent cash that has not been transferred between funds.
Prior to 2011, the Town’s record-keeping over the Airport was not strong. Much reliance was placed on
the records prepared and provided by Airport Finance Director Tina Smith, with the review of Peter
Lamb. Tina Smith prepared schedules summarizing what expenses were paid, reimbursements that were
made from the Town from grant receipts and other borrowing funds that were received from the Town
and used to pay Airport expenses. At the end of each year, the Town would make an adjusting journal
entry forcing an adjustment to tie to the Airport’s schedules.
During 2011, the issuance of a report prepared by the Abrahams Group, and the continued management
letter comments and qualified audit opinion on the 2007 year-end audit issued by Town auditors Powers
& Sullivan, LLC, forced Town officials to begin to address these reconciliation differences. The
Abrahams Report, first issued in September 2008, provided an organizational review of the Town Finance
Department. The review was in response to management letter comments for the years 2005 through 2007
by Powers & Sullivan, LLC, which included, among other things:
‐ warrants were issued but not transferred into enterprise cash accounts upon time of issuance;
‐ the Town’s inability to reconcile cash and due to/from accounts;
‐ the Town’s inability to provide support for general ledger balances;
‐ the Town does not have internal procedure manuals clearly defining the responsibilities of each
position with the finance department; and
‐ segregation of duties issues throughout multiple areas.
2009 management letter comments from Powers & Sullivan, LLC also revealed that there were payments
made at the request of Mr. Peterson, without supporting documentation, but just a signed remittance form,
with which the Town payables clerk processed the payment. The 2009 audit revealed that there was no
supporting documentation for several Airport transactions, which is a direct breakdown of the Town’s
system of internal controls. At that time, the policies and procedures for payment at the Town level did
not provide for much discretion for review, after the Department Head approved:
1. The department head signed the invoice stamp and indicates the account number to charge the
expense.
2. The department head or the designated staff in the department enters the invoice into the town
accounting system for payment.
3. The Airport Commissioners then sign to approve the accounts payable warrant and forward to the
town finance department for payment.
4. After all the accounts payable requests are turned in by all town, school, and enterprise
departments, the final accounts payable warrant is signed by the town accountant or assistant
town account and a majority of the board of selectmen.
5. Once all the approvals have been obtained, the checks are released by the town finance
department.
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The Town began performing detail reconciliations of all fund balances, including the enterprise funds. At
the end of fiscal year ended June 30, 2011, reconciliation was performed between Town and Airport
schedules, and concluded that the Airport schedules contained inaccuracies. This posed the question of
how far back were the Airport reconciliations inaccurate.
Miscellaneous income accounts were used to track reimbursements and other deposits that were outside
of the normal course of business. The Airport has a general ledger account setup for miscellaneous
receipts, account number 65482-48405, “MISC INC.”, which is utilized to record deposits received
outside of the normal course of business or one-time events. The following is a summary of
miscellaneous income activity during the years ended June 30, 2005 through 2011:
YEAR ACTIVITY
2005 $7,295
2006 $15,305
2007 $4,091
2008 $123,683
2009 $27,410
2010 $28,217
2011 $32,116
The nature of the miscellaneous deposits include, but are not limited to the following:
- Rental income received by the Town of Nantucket related to the cottage, and reimbursed to
the Airport.
- Miscellaneous utility and vender credits, including “Going Green” refunds in 2010.
- Employee reimbursements, including the receipt for the sale of televisions (See Exhibit 25)
in the amount of $766.12 during 2010.
- Registration fees paid for the ACE Camp.
- Miscellaneous parking and shuttle income.
- Terminal plan fees made by contractors purchasing plan and specification documents related
to the Terminal Project.
- Fixed Base Operation revenues (2011).
Finding: American express cards were given out to four Airport employees, and were used
primarily for business purposes. Expenses were not signed off, indicating that a review was
not performed.
Four American Express corporate credit card numbers were assigned to the Airport Manager,
Administrative Assistant, and Finance Director (who had two of the account numbers). The Finance
Director had an administrator account number, which is the administrative account number used to
manage the account. The remaining account numbers represent cards issued for the aforementioned three
employees. The use of the cards was for business travel for conferences, paying for airline tickets, meals
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and travel. Any purchases made that related to personal expense were either paid directly to American
Express or reimbursed directly to the Airport. There were a few instances that Mr. Peterson traveled with
his wife and purchased airline tickets for both of them using the American Express card2. Subsequently,
Mr. Peterson cut a check to American Express for the portion of the expense related to his wife. Other
employees that utilized the American Express cards and had personal expenses reimbursed the Airport
directly, which was recorded as miscellaneous income on the Airport’s general ledger system. Based on
our review of the American Express statements, it appears that the cards were used primarily for business
use, and any personal expenses were reimbursed. See Exhibits 32 (Reimbursements).
Finding: Bonuses, evaluations, and salary increases do not appear to be uniformly
measured for every Airport employee.
Massachusetts Law Chapter 90 Section 51E provides that “Subject to appropriation, said (“Airport”)
commission shall appoint such other officers and employees as its work may require and shall fix the
salaries of all officers and employees appointed or employed by it.”
The Airport paid a total of $20,500 in bonus payments since November 2009 to five non-union
employees. It was discussed in an interview with Mr. Peterson that these bonuses were for “exceptional
performance” as a result of the “extra workload” from capital expenditures related to the Terminal
Renovation Project. The bonuses were paid out of the fund’s personnel operating budget, which was
derived by airport revenues. This created a future problem as at the time these bonuses were given, the
Airport was running on an apparently unknown deficit, which resulted from paying for capital
expenditures with operating or unborrowed money.
No other town departments received cash bonuses. However, we were told that the Finance Department
reviewed the payment of the bonuses and determined that, due to the existing organizational structure, the
Town could not prevent the Airport from giving the bonuses. See Exhibit 35 (Personnel Spreadsheets)
Evaluations were provided to Airport employees by Mr. Peterson. When an evaluation was performed
with a minimum grade of “Satisfactory”, a minimum raise of 5 percent was given to the employee.
However, an evaluation had to be completed for a raise to be given. Certain employees have complained
that the evaluation process was not consistent, as Mr. Peterson avoided giving evaluations to certain
employees to avoid giving raises to them. Additionally, during this time period, the Mr. Peterson had
given substantial raises to certain employees, including the Airport Finance Director and Administrative
Assistant that some considered excessive.
POTENTIAL ETHICS ISSUES
Use of Red Sox Tickets
It was reported that in 2009, Mr. Peterson received the use of a Boston Red Sox luxury suite. This suite
was given to him by an Airport contractor. We were informed that Peterson used this for employees as a
team building activity. After the use was made public and questioned, Mr. Peterson was requested to
reimburse the contractor.
2 We were told that Mr. Peterson did not have to get pre-approval for any business travel. He was given discretion to
travel to business conferences and meetings as he deemed appropriate.
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We spoke with the president of the contracting firm who provided the suite. We were told that he
provided the suite as a courtesy, as his firm was not able to use it on that date and the suite would have
gone unattended. He further stated that his work was completed at the airport and he was not bidding on
any new work. He stated that the gesture was not intended as anything other than a courtesy.
The contractor stated that he did not ask for reimbursement but received two personal checks from Mr.
Peterson for the full value of the suite. See Exhibit 36 (Peterson Reimbursement Letters for Tickets).
Travel
We were informed of business being conducted by the Airport with an Airport Commission member,
Sheila Eagan O’Brien. Ms. O’Brien’s company, Swain’s Travel reportedly acted as the travel agent for
airport employees and received commission fees. It was also reported that airplane ticket commuter books
were sold by Swain’s Travel to the Airport.
We have confirmed that Swain’s Travel did receive commission fees per booked travel. It was reported to
be a thirty dollar fee per transaction. We were informed that this process has been discontinued.
Use of Relatives as Subcontractors
There were at least two instances of the husbands of airport employees, Janine Torres and Tina Smith that
were hired to do work at the airport.
As previously reported, procurement violations may have occurred. In both instances, an existing Town
contract was in place regarding the applicable services. As with the paving contract, the Airport could
have engaged the services under the existing Town contract. The relatives of the employees would not
have been hired.
Finding: Mr. Peterson’s managerial style contributed to a breakdown in communications
and review between the Town and the airport.
One theme consistently heard throughout our interviews, reports and the documents we reviewed was that
Mr. Peterson’s management style and personality played a large role in the stressed relationship between
the Town and the Airport as well as the Airport’s lack of abidance of rules. Some of the conflict appears
to be a natural occurrence arising from cultural conflicts between a person from the private sector
interacting with public sector politics and rules. Mr. Peterson’s experience in private industry did not
necessarily prepare him for the rules and regulations rampant in public service. While these rules and
regulations are there to serve a purpose, they can often seem unnecessarily binding to a person with the
best of intentions desirous to get projects completed quickly.
As we have noted, we have not found evidence of fraud or personal gain by Mr. Peterson or others at the
Airport. Rather, we believe, as do many others we have spoken with, that Mr. Peterson desired to act in
the best intentions of the Airport by pushing for and completing numerous projects. In fact, Airport
Commission members that we spoke to held Mr. Peterson in very high regard. Officials at MassDOT also
had great praise for Mr. Peterson and thought of him as an effective Airport Manager. We were told in
several interviews that Mr. Peterson stated that he wanted the improvements he was able to complete
during his time in service, such as completion of a beautiful new terminal, to be his legacy. Unfortunately,
the public sector does not look kindly on deviations from rules, even if for the good of the public. Rules
and regulations such as procurement laws are in place to prevent mismanagement of funds and to ensure
that projects are properly monitored. That these rules were so easily circumvented points to a greater
problem of lack of oversight.
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On the one hand, Mr. Peterson did get many new projects done at the Airport and some claim that he
pushed more through than prior Managers. He was also very involved in local and national airport
organizations and used these resources to educate himself on how to effectively work with the FAA and
act as an active Manager. Involvement and the related expense of membership and travel to conferences
with these organizations is on the whole beneficial to the Airport and point to Mr. Peterson’s proactive
approach.
However, there are a number of examples of behavior throughout his tenure that are not consistent with
cooperation. An excerpt from an email that Mr. Peterson sent in response to a member of the Town’s
finance department attempt to question an expense is as follows:
“I hope you review this objectively and observe the ridiculousness on your comments. If
you do not recognize them I would be surprised. These are paid from the Airport
enterprise account and have been reviewed and authorized. I do not expect you are an
expert on flag pole height so why waste everyone’s time. Are clothes pins and pepper
shakers an area of your expertise?” See Exhibit 37 (Email to Finance)
In addition, after being instructed on various procurement issues by the newly appointed Town’s
Attorney, Mr. Peterson responded to an email with:
“Thank you for the dissertation on Purchasing. I hope this is on the Town’s nickel.” See
Exhibit 38 (Email)
As we noted previously, Mr. Peterson’s attitude toward the Finance Subcommittee during questions about
the 12-30 paving project was also inappropriate and a catalyst for this review.
These examples of not only uncooperative but arrogant behavior show how little Mr. Peterson did to help
the crumbling situation. We were told on numerous occasions that had the Airport Commission imposed
restrictions on his behavior, or had Mr. Peterson been more inclined to cooperate, the relationships
between the Town and the Airport may have been better and a forensic audit may not have been deemed
necessary.
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CONCLUSION
During the course of our review, we were provided access to a multitude of records concerning the
Airport. As noted, we have not found any indication of fraudulent activity or malicious intent, other than a
desire, both by Mr. Peterson and the Airport Commission, to get things done quickly and remain
independent from the Town. The aforementioned procurement and open meeting law deviations are
serious offenses. Poor planning, lack of coordination and significant reconciliation differences between
the Nantucket Airport and the Town of Nantucket resulted in long-running accounting problems and a
recent deficit in retained earnings of approximately $3.3 million. Mr. Peterson, as Airport Manager, was
primarily responsible for the how the Airport was managed and was the face of the Airport to the Town.
The Airport Commission, either by vote or by acquiescence, placed him in this position, approved his
actions and made decisions as to what should be publicly recognized. While the majority of blame for the
Airport’s actions should be placed on the shoulders of the Airport Commission and Mr. Peterson, we also
acknowledge the Town’s responsibility for managing the overall finances of Nantucket and for
implementing proper checks and balances. All parties, including the Board of Selectmen, Board of
Finance, and Town Administration could have done more to avoid the present situation.
We have referenced the Town Charter, Enterprise Funds and statutory requirements of the Airport
Commission as contributing factors in the circumstances under review. The result of the totality of these
contributing factors is that the Airport has been viewed and allowed to operate as a completely
independent entity, thus creating the proverbial “Silo Effect”. By design, particularly from Airport
Management, the core of the Airport’s business was understood by too few people and there was a
disconnect, at least in non FAA reimbursed projects, between the project management and the finance and
administration groups of the Town. At times, the Airport had the benefit of utilizing Town resources
without having to take responsibility for monitoring compliance. Town Administration felt powerless to
oversee the financial condition of the Airport or, in certain circumstances, relied on the Charter to “look
the other way.”
However, we also note that these factors have been in place under previous administrations and for
numerous years. The current financial and procedural issues were not at issue during that time.
The current Nantucket Charter specifically excludes the Airport from the Town Administration. This
provision has been in place for many years. However, solutions to the aforementioned issues do not
necessarily mandate a change in the Charter. The problems at the Airport were not caused by not knowing
what to do or with organizational structure but in enforcement of the proper actions on how to conduct
business. As evidenced by FAA funded projects and prior Airport administration, the current operating
environment in place works, if processes are adhered to.
Removing political infighting, enforcing financial controls from the Town to the Airport, and improving
interdepartmental communication will correct previous deficiencies and have no impact on any regulatory
autonomy that the Airport is required to have. The recently signed Memorandum of Understanding on
Procurement is an example of a workable and viable initiative.
During the past few years, there have been several financial consultant reports and Audit management
letters identifying issues and suggesting recommendations for correction, albeit focused primarily at the
Town level and not the Airport. We have reviewed those recommendations and believe many of them to
be sound. In addition, a detailed set of operational policies, procedures and rules must be developed and
implemented for the Airport. These should be consistent with and not in conflict with existing Town
policies and procedures.
39 | Page
Progress has been made in the implementation of recommendations. Some of the corrective initiatives
that have been already put in place will go a long way towards preventing future problems and forging
coordination. Centralized procurement and transition to the MUNIS financial system will help Airport
management ensure reconciliation of accounts and compliance with regulations.
We recommend an audit of the new processes in a few months to gauge their effectiveness and the Town
and Airport’s compliance with the new procedures.
40 | Page
EXHIBITS
1. Exhibit 1 – Document Inventory List
2. Exhibit 2 – Victor Brandon Contract
3. Exhibit 3 – Memo Regarding Runway 12-30 Resurfacing
4. Exhibit 4 – Daily Inspections form Jacobs Engineering
5. Exhibit 5 – Invoices From Victor Brandon
6. Exhibit 6 – Application to MassDOT
7. Exhibit 7 – Airport Commission Minutes
8. Exhibit 8 – RFP
9. Exhibit 9 – Simanson Proposal
10. Exhibit 10 – Ray Email
11. Exhibit 11 – Peterson Emails
12. Exhibit 12 – Meeting Minutes – December 2006
13. Exhibit 13 – Castle Group Agreement
14. Exhibit 14 – Restaurant Expenses Spreadsheet
15. Exhibit 15 – Proposal from Nantucket Architecture Group
16. Exhibit 16 – Stamped Invoices for Castle Group
17. Exhibit 17 – Warrant A14
18. Exhibit 18 – Notice of Lease Assignment
19. Exhibit 19 – Purchase and Sale of Restaurant Equipment
20. Exhibit 20 – Meeting Minutes – March 2009
21. Exhibit 21 – Meeting Minutes – January 2010
22. Exhibit 22 – Financial Statements of Crosswinds
23. Exhibit 23 – Tenant Rate Schedule
24. Exhibit 24 – Invoices for Purchase of TV and Check Reimbursements
25. Exhibit 25 – Meeting Minutes – February 2005
26. Exhibit 26 – Letter from Foley dated February 22, 2006
27. Exhibit 27 – Meeting Minutes – November 28, 2006 and Letter from Foley Vaughan
28. Exhibit 28 – Peterson Letter
29. Exhibit 29 – Meeting Minutes – May 2004
30. Exhibit 30 – Grant Assurances
31. Exhibit 31 – Email Exchange
32. Exhibit 32 – Executive Session Minutes and Emails
33. Exhibit 33 – Sample Project from Jacobs
34. Exhibit 34 – Management Letters
35. Exhibit 35 – Personnel Spreadsheets
36. Exhibit 36 – Peterson Reimbursement Letters for Tickets
37. Exhibit 37 – Email to Finance
38. Exhibit 38 – Email Exchange
Town and County of Nantucket June 11, 2012
1" = 70 ft
Property Information
Property ID 4231 11.1
Location 17 S WATER ST
Owner NANTUCKET DREAMLAND FOUND
MAP FOR REFERENCE ONLY
NOT A LEGAL DOCUMENT
The Town makes no claims and no warranties,
expressed or implied, concerning the validity or
accuracy of the GIS data presented on this map.
Parcels updated January 1, 2011