Ohio on hook for $5.8M after firm can t pay bills

11/13/2003

COLUMBUS - The middleman seeking lower natural gas prices for the state and 119 local government agencies failed to pay its bills and left state taxpayers with a nearly $5.8 million tab, according to an audit released yesterday.

State Auditor Betty Montgomery said her office believes the findings against Cleveland-based IQ Solutions and its owner, Robert S. Kendall, are the largest ever seen in the office.

She placed part of the blame on the Ohio Department of Administrative Services for failing to properly scrutinize the performance of the company, which was awarded a three-year contract to administer the program in 1995 and received two renewals since.

“[IQ] was really robbing Peter to pay Paul,” she said. “This company, owned by Robert Kendall, had five other companies.... He had run into financial difficulties and was commingling his money and paying from crisis to crisis. IQ Solutions was hired to save the state money, and instead it never paid the bill and left Ohio obviously with the bag.”

Ohio Attorney General Jim Petro filed a lawsuit in Franklin County Common Pleas Court in May in hopes of recovering at least some of the money. The state, which awarded the contract, is obligated to make the suppliers whole. Local governments participating in the program should not be adversely affected.

IQ s job was to oversee the competitive-bidding process among natural gas suppliers for state agencies, local governments, universities, libraries, park systems, and sewer and water authorities, which pooled their buying power. The various agencies paid IQ, but the company started missing its own payments to suppliers in 2001.

IQ s attorney, Thomas J. Rosenberg, described a company teetering on bankruptcy.

“We are not in a position to write a check for $5.7 million today, but we re hoping for a resolution through the litigation process,” he said.

The audit noted that $32,000 in payments made directly out of the account went to Mr. Kendall and his wife, Linda. But Mr. Rosenberg insisted those monies came from related companies using the same account.

“Neither the company nor its principals made any money, profited, or took any money out personally,” he said. “Bob Kendall never took a single dollar out of IQ Solutions. We tried to make a go of this company.”

Among those participating in the program from northwest Ohio were the cities of Oregon, Perrysburg, and Lima; the counties of Wood and Erie; the villages of Ottawa Hills and Holland; the University of Toledo, and the Medical College of Ohio.

Ms. Montgomery said her office has been in contact with federal authorities because IQ was doing business in other states, including Michigan. She said Mr. Kimball cooperated with the audit, requested by the administrative services department.

E Group, a consulting subsidiary of Akron-based FirstEnergy, now performs IQ s administrative duties. FirstEnergy is due between $1.6 million and $3.7 million of the $5.77 million owed by IQ, the audit says.

FirstEnergy spokesman Ralph DiNicola said E Group submits bid information from suppliers to the state, which makes the final decision. Among those suppliers is another subsidiary, FirstEnergy Solutions.