September 04, 2019 News » Cover Story

A tale woven with bogus billings, a borrowed logo and even what officials believe is a phantom 

The Waterhouse files

  • Graphic Illustration by Elena Trapp

A tangled web of deceit unfolded over years in El Paso County government — a tale woven with bogus billings, a borrowed logo and even what officials believe is a phantom business owner.

When county officials rifled through former electrical supervisor Kevin Waterhouse’s office in April 2018 after he left his job, they found a trove of paperwork that opened their eyes to manipulation of purchasing procedures that ultimately led to criminal charges.

Waterhouse allegedly created what a county official called an “alter ego,” or phantom identity to set up and run a company the county paid $320,000 over a 61/2-year period, and which officials now suspect didn’t perform all the work it was hired to do.

click to enlarge County Commission Chair Mark Waller. - COURTESY MARK WALLER
  • Courtesy Mark Waller
  • County Commission Chair Mark Waller.

Commercial Facility Maintenance (CFM) was controlled by Waterhouse, who authorities allege requisitioned work on CFM’s behalf, submitted purchase orders and vouched for the completed work. He then endorsed the county’s checks and deposited them into bank accounts he was associated with, according to a police affidavit.

That not only violates county purchasing policies, it’s against the law if the work isn’t actually performed and the money is pocketed under false pretenses. At least that’s how county officials and police see it.

Now, Waterhouse, 56, faces a charge of felony theft in a scheme that led the county to issue 150 checks to CFM for energy efficiency improvements, electrical work, backup generator testing and other tasks — apparently all without realizing Waterhouse had a connection to CFM.

When the county uncovered details of the alleged contrivance, it served as a wakeup call.

County Commission Chair Mark Waller issued a statement to the Independent, saying the county takes the situation “very seriously” and has implemented “anti-fraud training” for employees.

“By openly working on solutions to prevent this from happening in the future,” Waller says, “we hope to send a strong message that this behavior will not be tolerated.”

County spokesperson Ryan Parsell notes the taxpayers are the victims, adding, “That’s why we would love to see justice.”

Waterhouse’s alleged illegal activities involved a person nobody can locate and paperwork left behind that links Waterhouse to accounts into which CFM’s checks were deposited.

“The County began looking into some issues related to Mr. Waterhouse in April of last year,” Parsell explains in a statement. “The review was completed in November of last year, and senior staff was briefed in December.”

After that, staff contacted the El Paso County Sheriff’s Office and met with the 4th Judicial District DA’s office and Colorado Springs Police Department, he says.

That inquiry led the county and police to CFM’s articles of incorporation, filed with the Colorado Secretary of State’s Office on Feb. 24, 2011. That document contained a post office box address for CFM that’s since been linked to Waterhouse — P.O. Box 88311 — and an address — 3536 Austin Bluffs Parkway — that doesn’t exist, according to Pikes Peak Regional Building Department.

The filing lists CFM’s registered agent as Mark Wills, who the county says signed county contracts but now can’t be found.

CSPD Detective B.K. Steckler wrote in an arrest affidavit that Wills “had never physically been seen.”

Moreover, Dan Davis, the county’s compliance officer, wrote in a Dec. 4, 2018, investigative report, “There is a good [chance] that Kevin Waterhouse is using the name Mark Wills as an alter ego to disguise the true ownership” of CFM.

The El Paso County Clerk and Recorder’s Office tells the Independent there’s no voter registration for Mark Wills, and a search of social media could not locate him.

CSPD declined to discuss the ongoing investigation, but the police affidavit and Davis’ report shed light on what happened.

The county’s contract with CFM for “on-call electrical services” began in 2011.

From June 30, 2011, to Dec. 31, 2014, CFM submitted 104 invoices to the county. Of those, 82 bore invoice numbers in sequence. Between June 4, 2015, and Dec. 21, 2017, 45 of 46 of CFM’s invoices paid by the county lined up in sequence.

“This indicates that El Paso County is the only client of CFM from 2011 to 2017,” Davis says in his report, noting CFM documents submitted to the county bore Mark Wills’ signature.

Those documents included invoices to which Waterhouse, in his county role, attached the county’s purchase orders, police and Davis’ reports say; both were then submitted for payment. A county official, who’s not named in the affidavit or Davis’ report, then approved them for payment and sent checks written to CFM to P.O. Box 88311, Colorado Springs, CO 80908.

After Waterhouse left his job in April 2018, county workers went through his office and found various documents tying him to CFM, the affidavit says.

“It was then believed Mr. Waterhouse was the owner of CFM,” the affidavit says. “Mr. Waterhouse used the same address: PO Box 88311 on his 2015 tax paperwork. Other documents were found with Mr. Waterhouse’s information and the same PO Box address on it.”

Those other documents included paperwork from Colorado Springs Utilities, and, for shipping purposes, Cheapcycleparts.com and T-Mobile, Davis’ report said.

The search also turned up TCF Bank deposit slips with the same dollar amounts as three invoices paid by the county to CFM, totaling $16,200, the affidavit says. Steckler executed search warrants on TCF Bank, “and the accounts included deposits matching the amounts paid for by El Paso County for work on the generators.” Steckler also found that “Waterhouse was tied to the TCF Bank accounts by his information and signatures.”

“Cancelled checks paid to CFM were all hand endorsed,” Davis’ report notes. “The hand writing of the endorsements on the cancelled checks is very similar to the hand writing of Mr. Waterhouse.... It appears that Kevin Waterhouse is the owner of Commercial Facility Maintenance, LLC (CFM).”

The El Paso County Procurement Policies Manual prohibits the county from doing business with a company owned by an employee.

Specifically, it states, “El Paso County shall not contract for goods or services for any department or office if the contract is with an employee of that department/office.”

Waterhouse served as an electrical supervisor in the Facilities Department.

The policy allows contracting with an employee or an employee’s immediate family, or a company owned in whole or in part by an employee or a member of his or her family if:

• The Contracts and Procurement Division is notified immediately in writing of an ownership or financial interest.
• The employee-owned business has no advantage over other competitors.
• The employee does not spend normal duty hours soliciting county business.
• Purchases or contracts involving an employee-owned business are completed by the Contracts and Procurement Division.

None of that happened in the Waterhouse case, obviously.

County policies grant authority for designated department liaisons to the procurement division to obtain quotes and purchase up to $5,000 in goods or services on a “minor purchase order” or an established contract, if that spending has been approved in the county budget.

In addition, employees with certain types of authority can obtain price quotes for work up to $50,000.

The largest single amount charged by CFM totaled $11,820 and was dated April 5, 2012. Most billings ranged from $1,000 to $4,000.

Davis acknowledges in his report that Waterhouse held a supervisory position empowered with soliciting work from independent contractors, receiving bids, reviewing bids, selecting contractors and issuing purchase orders.

click to enlarge NIGP CEO Rick Grimm - COURTESY NIGP
  • Courtesy NIGP
  • NIGP CEO Rick Grimm

Rick Grimm, CEO of the National Institute for Governmental Purchasing, says each task in the procurement chain — requisition of goods and services, preparation of purchase orders and verification of receipt of what’s been paid for — should be handled by different individuals.

“The best practice is to separate those functions, so you have adequate checks and balances, so you’re going to minimize fraud and waste,” he says.

Without those controls, he notes, an employee could requisition for 100 chairs, sign for 100 chairs and receive 100 chairs, but there never were any chairs, because the employee was bilking the agency.

“In a perfect world,” Grimm says, “you would separate those functions because of checks and balances, credibility and transparency of the system.”

Waller said in a statement those departments with a purchasing chain of command that mirrors the Waterhouse situation have adopted more oversight procedures for invoices and expense reports. “We are looking at the opportunity to expand that practice to the entire county,” he says.

The county apparently became suspicious of Waterhouse, because he was placed on administrative leave in February 2018. He left the job on April 13, 2018.

“We cannot comment further at this time on the terms of Mr. Waterhouse’s employment separation from the County,” Parsell says. But he did confirm Waterhouse left without a severance agreement.

Only after his departure did the scope of his activities become more clear when county officials discovered paperwork linking him to CFM. That led to a search for records to establish the generators had, in fact, been tested, but no documentation could be found, despite the county paying CFM for those tests, the county and police say.

Steckler talked with five county employees with keys to the generators, who reported the tests require use of heavy equipment and cause alarms to go off that must be deactivated by a person in the buildings. None could verify the work had been done, the affidavit says.

Steckler’s affidavit says the county found several generators in need of repairs, which “would have been discovered if the maintenance had been conducted by CFM.”

After perusing bank records, Steckler concluded the county paid CFM $32,203 for work that wasn’t done, though “the total could increase....,” the affidavit says.

Records obtained by the Indy show the county paid CFM $53,453 for “generator service” from August 2015 to December 2017, the goal being to guarantee generators would kick in during a power outage.

The generators in question serve Centennial Hall where commissioner offices are located, technical services, the busy Citizens Service Center, Office of Emergency Management, Department of Public Works and the jail, which houses more than 1,500 inmates. (While the jail relies on electronic door locks on wards and cells, power for those locks has battery backup, meaning if the generator failed, they would still function, county officials say.)

Parsell says he doesn’t know how much repairs of those generators subsequently cost the county but notes no outages occurred during the time CFM was hired.

During CFM’s relationship with the county — from June 30, 2011, to Dec. 21, 2017 — the county paid the company $320,067 for “electrical supplies,” “energy efficiency improvements,” to “install a new transformer,” “machinery & equipment rental,” “electrical work” and the like.

Brian Olson, executive director of the county’s Facilities and Strategic Infrastructure Management, tells the Indy the passage of time has hindered the county’s ability to discern which services and goods were actually provided to the county by CFM. “What we can prove at this point is the generators,” Olson says.

When county officials rummaged through Waterhouse’s office starting on April 20, 2018, a day after Waterhouse himself reportedly cleaned out his office, some very strange things shook out. They found timesheets for eight CFM employees dating from 2011 to 2017. (No timesheet was found for Mark Wills, however.) Parsell says none of those individuals worked for the county.

The Indy was able to reach only one of them. Dave Hagemeier says he was hired for temporary work several years ago via a Craigslist ad. His job involved security system work at the jail and lighting at other facilities.

But getting paid posed a problem, he says. At first, he was compensated through a temporary agency. Later, he was paid via email; then he didn’t get paid for weeks, leading him to quit. He was later compensated after complaining to Waterhouse.

“I never met the individual who paid me,” Hagemeier says, referring to Mark Wills. “I never met the guy.”

Among papers found by county officials in Waterhouse’s office were two CFM paychecks issued to Hagemeier in 2014 totaling $1,825, along with various personnel paperwork, such as a Colorado journeyman electrician license.

County officials also found:

• An Internal Revenue Service W-9 form required of independent contractors in the name of Commercial Facility Maintenance LLC, which was labeled an “S corporation,” meaning it had elected to pass corporate income, losses, deductions and credits to shareholders for federal tax purposes.
• CFM invoices with a logo that matches a logo used by the International Facility Management Association.
• Emails regarding the invoicing app, Invoice2go, and a payroll app, On-Core Info, from 2011.
• Three bank deposit slips for eight CFM invoices dated 2011 and totaling $17,214.

While CFM churned out invoices and the county paid them over the years, Waterhouse was doing quite well in his day job.

During his tenure — from April 5, 2010, to April 13, 2018 — he routinely received outstanding job reviews that came with seven pay raises, three based on merit, records obtained by the Indy show.

click to enlarge County electrician Greg Hamby checks one of the county’s generators. - COURTESY EL PASO COUNTY
  • Courtesy El Paso County
  • County electrician Greg Hamby checks one of the county’s generators.

He started with an annual salary of $61,900 and was paid $79,590 a year when he left. Waterhouse’s supervisors, who were not named in the job evaluation records, scored him as “meeting standards” the first year and “exceeds standards” for the following seven years running.

In a strange twist, on Nov. 19, 2018 — seven months after Waterhouse left the county — Mark Wills sent county facilities employee Dan Shackelford an email and attached four CFM invoices dated Aug. 31, 2018, Davis’ report says.

Wills asked Shackelford for work orders or purchase orders “for the generator testing” and noted that he’d been unsuccessful in reaching Waterhouse. The invoices’ numbers fell into sequence with previous CFM invoices, “indicating that no invoices have been issued by CFM since the last invoice El Paso County received dated November 17, 2017,” Davis’ report says. Wills’ email also said he had other unpaid invoices to send as well.

According to Davis’ report, Olson claimed that no one from the county had contacted CFM for generator testing during 2018 and “that CFM could not have possibly completed any testing or maintenance on the generators without having access to the generators, which require a key and access would have to be under the direct supervision of a county employee.”

Nevertheless, Wills sent additional emails to the county on Nov. 29 and again on Dec. 4. Wills sent the latter message to county employee Gilbert Archuleta, asking him to follow up with Shackelford.

Olson told Davis that Wills “would not have known Mr. Archuleta and the email to Mr. Archuleta makes it appear as if they know one another.”

Asked if those emails actually came from Waterhouse, Parsell says, “That will come out at trial.”

Police arrested Waterhouse on Aug. 8, and he posted $3,000 bond for his release from jail the following day.

He’s charged with theft of $20,000 to $100,000, a Class 4 felony, punishable with a prison term of two to six years and a fine of $2,000 to $500,000, and embezzlement of public property, a Class 5 felony, punishable with a prison term of one to three years and a fine of $1,000 to $100,000.

Waterhouse is scheduled to enter a plea on Oct. 28 and is represented by Christian Samuelson, who told the Indy to contact his office but didn’t respond to several calls seeking comment.


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