LINCOLN, Neb. (AP) -- Nebraska officials have canceled a contract with a Lincoln-based recycling firm after auditors found the state failed to collect more than $60,000 that the company owed for thousands of tons of used office paper.
The state sent a 30-day cancellation notice last week to Shredding Solutions, Inc., and The Associated Press obtained a copy of that letter Monday. Auditor Mike Foley said the contract requires the company to pay a market rate for the paper that it collects from state offices, shreds and sells at a profit for other uses.
Shredding Solutions has to pay a monthly fee based on the per-pound rate set for the Chicago market. Instead, Foley said company officials paid a flat $25 per ton under a "verbal agreement" when market rates ranged from $55 to more than $100 per ton.
Auditors also found that, over time, the company's monthly payments became increasingly late and sporadic. Foley said the state Department of Administrative Services didn't try to collect until his office raised the issue, and then disputed his interpretation of the contract.
"I think it was just lax oversight by DAS, and the contractor taking advantage of the lax oversight," Foley said.
A woman who answered the phone at Shredding Solutions Inc. said the company had no comment.
Shredding Solutions, Inc. collects paper from government buildings in Lincoln, including the Capitol, and from state offices in Kearney, Norfolk and other cities. The state has contracted with Shredding Solutions since June 2003, and the agreement has been renewed and extended multiple times. About 400 tons of discarded paper are collected, shredded and sold each year.
Foley's office launched a review in November 2012 that stretched back to May 2010, prompting an internal review in the Department of Administrative Services, which oversees recycling in state offices. Since then, the company has repaid more than $27,000, but Foley said Shredding Solutions Inc. still owes the state $33,000.
Bo Botelho, administrator of Nebraska's Materiel Division, said his office reviewed the contract after the auditor's findings were released and concluded that the state should end its agreement and put out new bids. The contract allows the state to cancel its agreement for any reason, with 30 days' notice.
"We wouldn't terminate the contract if it wasn't in the state's best interest," Botelho said.
Botelho said the new contract will not require company reimbursement to the state. Instead, the contract will go to the lowest responsible bidder that agrees to recycle the paper or dispose of it in an environmentally sound way.
Botelho said the state has collected an additional $5,000 from Shredding Solutions since the auditor's findings were released in March.