Newcastle city officials said yesterday they are working to fix serious accounting problems discovered last month in city contracts with...

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Newcastle city officials said yesterday they are working to fix serious accounting problems discovered last month in city contracts with an outside utility district.

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For several years, the city has paid the Coal Creek Utility District, located half a mile from City Hall, for services such as road work, snow removal and stormwater maintenance, said City Manager John Starbard, who started work in December. But in the past five years, he said, the city has hired the district for some projects without going through formal bidding.

The city paid the district about $898,000 for its work from 2001 to 2004.

When Starbard suggested in January that the city look at how much it spends on outside vendors, he found that the contract with the utility district had expired in 2000 and had never been renewed, he said.

“In the spirit of neighborliness, we used [Coal Creek] for almost all of our maintenance services,” Starbard said. “But we didn’t do it in a procedurally correct way. Some of the things that were done violated some pretty important rules and laws that we need to abide by.”

The city has contacted the state Auditor’s Office, which plans to start a full audit this fall. The last state audit did not find any wrongdoing, said Auditor Brian Sontag’s spokeswoman, Mindy Chambers.

Although the City Council and the utility district’s board of commissioners were aware of the work being done and signed off on it, the city staff didn’t do the proper paperwork, Starbard said.

“I don’t think there was any malice involved,” Starbard said. But, he added, “we’re using taxpayer money, and we have to be responsible with that.”

Meanwhile, the city has temporarily stopped doing business with the district, has hired a private accounting firm and has met with the utility-district staff to look for other potential oversights, Starbard said.

Starbard expects to update the City Council and the public at the next council meeting Tuesday.

Tom Peadon, general manager of the utility district, said the district and the city have had a long-standing relationship, “based on good faith,” that has benefited residents because it resulted in prompt service.

“When the city comes in and says, ‘We got a load of corn where a truck flipped over on Coal Creek Parkway; can you come in and clean it up?’ We say, ‘Yeah, sure. No problem,’ ” Peadon said.

But Peadon acknowledged that the friendly relationship may have resulted in the city’s lapse in strict accounting.

“I’m not going to sit here and say that everything was done perfectly and to the letter of the law, but it’s not like things were done under the table,” Peadon said.

“There were some administrative things that were done, probably, sloppy. But this was not just a totally good-neighbor handshake.”

Sonia Krishnan: 206-515-5546 or skrishnan@seattletimes.com