Audit: State contractors can't account for 234 seized vehicles

Martin Edwards & Associates, the Cumberland County-based contractor for the state's eastern half, was responsible for all but 13 of those vehicles and "actively hindered" the inquiry, the audit states. At one point, someone from the company threw a subpoena at an auditor trying to serve it, it states.

It's unclear what happened to the unaccounted for vehicles. State Auditor Beth Wood's office relied on paperwork – and the contractors' lack of it – to make its report and forwarded the case to the state Division of Motor Vehicles' License and Theft Bureau for more investigation and possible criminal charges. The contractors were supposed to split proceeds from auctioned seized vehicles with local school systems, and auditors concluded that "there is a risk that contractors inappropriately benefited from the contract."

"There's absolutely the potential for criminal activity here," Wood said. "There's absolutely a probability that money that should have gone to schools didn't go to schools."

The contractors disputed the findings and expressed frustration that they weren't allowed to review or respond to the audit before it was released publicly.

This is the same towing contract saved two years ago by some legislative wrangling from House Rules Chairman David Lewis. Lewis, R-Harnett, dropped language into a budget technical corrections bill, reversing permission the General Assembly was about to give the state Department of Administration to run this program without the contractors.

The move followed a $5,000 campaign contribution to Lewis from Martin Edwards President Rickie Day. According to The News & Observer, It was Day's first ever contribution to Lewis, and it was logged the day before Lewis had the bill in question referred to his committee. The fallout led one of Lewis' Republican colleagues to file an ethics complaint against him.

Lewis said at the time the donation didn't motivate him, that he didn't believe government could run the program as well as private companies and that the Department of Administration didn't have a business plan for the changeover.

Lewis did not return messages seeking comment Thursday, and neither did Day.

The state Department of Public Instruction had oversight for the program for all but four months of the years auditors reviewed and "never allocated the proper amount of time and resources" to it, the audit states.

"The towing, the storing, the selling, the dispensing of the cars, they just never monitored what was going on for years," Wood said of DPI.

Had the department reconciled DMV seizure records and monthly contractor reports, it would have seen discrepancies, according to the audit.

"For example, DPI would have noticed that a 2007 Mercedes SLK 350 went missing and was unaccounted for," auditors wrote.

The Mercedes was listed on Martin Edwards' October 2015 inventory report, the audit states, but not its November 2015 report. There was also no record of the vehicle being sold, the report states.

Out of 4,772 vehicles seized by Martin Edwards over the years auditors reviewed, the company couldn't document what happened to 221 of them, the report states. Eastway Wrecker Service of Charlotte, which handles seizures in the western part of the state, couldn't document 13 vehicles out of 4,018 seized, the report states.

Eastway owner Karen Williams took issue with the findings Thursday, saying auditors spent two weeks talking to her company but never mentioned 13 missing cars.

"It's 13 that we didn't have or we didn't tow," said Williams, adding that her company can't sell a vehicle without the state releasing a hold on the title first.

"We could have settled all that out if they'd asked me prior," Williams said. "We have done a great job with this program. ... It's totally incorrect what they're saying."

Similarly, Sandy Sands, an attorney for Martin Edwards, said the contractor provided thousands of pages of records to auditors that likely accounted for most of the vehicles deemed missing.

"In the case of these vehicles, it appears that they were either returned to owners, auctioned, released prior to pick-up by Martin Edwards, or are still on the lot pending auction," Sands said in a statement. "This issue is one of record keeping and a significant file review. Martin Edwards & Associates has been diligently fulfilling its contract for the state and vehemently denies the implication of any wrongdoing."

Brad Young, a spokesman for the State Auditor's Office, said Martin Edwards still hasn't provided the agency with more than 400 requested documents.

The contractors weren't supposed to see the audit before it was released, Young said, because DPI and the Department of Administration were the ones being audited.

"The relationship is state agency to state agency," he said, adding that the State Auditor's Office stands behind the audit's findings.

"We're not accusing either organization of fraud or a felony of any sort, he said. "Our point is that we looked for this, and there are gaps in documentation. ... We've passed the baton on this."

The missing cars' total value, based on DMV estimates, is $633,950. In 2015, The News & Observer reported that the two contractors made nearly $1.1 million combined on their contracts while the program provided about $746,000 to school systems and another $19,000 to the state's general fund.

State law allows police to seize vehicles if a driver is charged with DWI while also driving without insurance or without a valid driver's license, or if they're charged with felony speeding to elude arrest. Oversight of the program transferred from DPI to the Department of Administration in March 2016, and post-audit, the department said it's doing a daily reconciliation of DMV and contractor data, as well as sending someone to monitor all auctions.

The department said it actually rebid this contract last year, but Martin Edwards and Eastway were the only two companies that bid on the job. State law has "a limiting effect on the pool of potential bidders" because of how long vehicles must be stored, the department said in its audit response.