in Houston, Texas

Gift-giving culture flourished at HISD; vendors lavished cash, dinners and tickets on employees

Houston taxpayers birthday wish: Please spend my money wisely...
Tuesday, Jul 20, 2010, 04:40PM CST
By Lynn Walsh

 

A private birthday party at an upscale steakhouse, Houston Rockets playoff tickets, checks totaling $30,000 and the offer of a personal loan for an undisclosed sum were given to Houston Independent School District employees by private companies seeking millions of dollars’ worth of technology contracts with the school system, public records show.

The gift-giving stretched all the way to the schools' top office -- then-Superintendent Abelardo Saavedra and his wife saw three Rockets playoff games in a vendor's luxury suite at the Toyota Center in 2005. The gifts were said to have begun as early as that year and as late as 2008, according to a memo from an outside law firm hired by the school district.
 
The frequency of the gifts suggests a culture where vendors extended the type of largesse -- including personal loans and just plain cash to help with family problems -- that some people would be embarrassed to seek from close friends and family. Vendors schmoozed with school officials and the district's top technology officers on a private yacht and may have paid for one school system worker to go to Las Vegas twice, the records allege; one firm with a $45 million tech contract with the school system paid for cellphones for 26 school system workers at various times during the given period.
 
Such practices brought federal sanctions, costing the district around $1 million in direct costs --- that’s about how much the district may spend to rehabilitate Lee High School in northwest Houston --- and the loss of another $105 million federal technology funding.

But the practices did not yield any criminal charges for anyone involved with HISD, even though some of the allegations look similar to those in the case that sent a Dallas Independent School District employee to federal prison in a bribery and money laundering scandal. The gifts given to the HISD workers involve the very same federal tech program, called E-Rate, as the one in the DISD case, and they even involve some of the same players, such as Frankie Wong, a Houston businessman who entertained both DISD's chief tech officer as well as two of HISD's top tech officers on his yacht. The DISD official is now in a federal prison in Fort Worth, and Wong is being held at a federal facility in Bastrop.
 
Two of the employees named in the memo continued to receive pay raises and promotions while allegedly violating HISD E-Rate ethics policies, records show.

The revelation of the depth of the gift-giving also sheds new light on public, but vague, comments made recently by Saavedra's replacement, new HISD Superintendent Terry Grier, suggesting Grier may have concerns about how vendors and contractors are chosen by the school system. Grier described seeing names of private firms being put on, and then removed, from lists of potential school system vendors with "no rhyme or reason except, quite frankly, influence where influence has no business coming from."

Grier’s comments came right before HISD trustees approved minor construction and repair contracts in May. In his comments Grier called into question the entire contract approval process at HISD, but in the last two months Grier has declined to elaborate.

Except for trinkets like gift bags and drink holders, such gifts had been banned under HISD’s policies dating back to 2004, according to the Sept. 3, 2008, memo from two Bracewell & Giuliani lawyers to officials with the Federal Communications Commission and the Universal Service Administrative Co.

A new policy adopted by HISD trustees in March of this year banned gifts and limited campaign contributions from E-Rate vendors. The policy is aimed at squelching any improper relationships between HISD employees and vendors in the E-Rate program, which could bring HISD close to $90 million.

Grier “is comfortable with the progress that has been made,” he said via E-Rate compliance officer Richard Patton. “He thinks the past is behind us.”

Federal officials were scrutinizing the district as early as 2006, and that year shut down funding that benefited the vendors under the E-Rate program and sued the district.
The gifts

 
According to the memorandum, Saavedra “and a guest attended three Houston Rockets playoff games in the Analytical Computer Services Inc. ('ACS') suite in 2005.” The district contracted with Analytical Computer Services for more than $45 million between July 2005 and June 2009, a contracts database shows.
Houston Rockets shirt

The Rockets played three home games at Toyota Center in the 2005 NBA playoffs -- games 3, 4 and 6 against the Dallas Mavericks in the playoffs’ first round. The Mavericks took the 7-game series, 4 games to 3, and were eliminated in the conference semifinals.

A little less than a month after the May 5, 2005, game 6 playoff match, Saavedra sent a check for $300 to Frank Trifilio “as reimbursement,” the memorandum says. Frank H. Trifilio is listed as the owner of ACS in the settlement agreement between HISD and the federal government that ended the controversy.

In an interview Wednesday, the former superintendent said he attended basketball games with his wife “in a suite at the invitation of one or two board members” and said it was probably in 2005. When asked which board members invited him, Saavedra said he did not recall but remembered “two or three board members” being there. The former superintendent, who left HISD in August, now works as a consultant and plans to teach at Texas A&M this fall.

According to HISD trustee conflict disclosure forms none of the trustees accepted any gifts, meals or tickets worth more than $50 throughout all of 2005. In fact, in all of the trustee conflict disclosure forms from 2005 to January of this year, board chairman Larry Marshall was the only trustee who reported accepting anything over $50 during that time period.

Back in 2009, Marshall reported receiving game tickets to both an Astros game and two Houston Texans NFL games. During an interview with Texas Watchdog last year, Marshall said, "I can't say that there's a high degree of frequency, but invitations flow. Invitations flow, and you're constantly being invited to something."

The ethics loophole exempts board members from having to report meals, gifts and entertainment from a vendor if the vendor is present. The loophole --
which results in a lower ethical standard than the one imposed on district employees -- is in state law and applies to other local officials.

“I did not realize it was a suite of a vendor,” Saavedra said.

Saavedra said once he realized it was a vendor’s suite, he knew he had to reimburse the firm for the tickets.

“I did not know the value of the tickets, so I sent a check for $300 along with a letter explaining them to inform me if the check did not cover the cost,” he said.

Saavedra said he is not sure if the check was ever cashed, and said he did not know attending the Rockets game with his wife was against E-Rate rules.

“I knew some of the trustees and some of the staff members were attending, and I believe the (HISD) head of technology was there as well, but I did not know it was against the policy or a violation,” Saavedra said.

The policies in place in 2005 did not say whether employees can accept tickets, meals, etc. and then pay for them later. But the policy in 2005 explicitly banned “game tickets (i.e. football, basketball, baseball, soccer, and other sporting events)...” That policy specifically referenced “district employees” and did not make reference to HISD trustees or the superintendent - something Saavedra pointed out to Texas Watchdog during the interview Wednesday.

“If a full reimbursement is made by such recipient in a timely manner, the item ends up not being a ‘gift,’” Patton said by e-mail in response to a question from Texas Watchdog. Reimbursement is “probably not the best method to limit the appearance of a conflict. ... But, the policy does not specifically disallow the practice.”

Saavedra is not the only HISD employee named in the memorandum, which was from Bracewell & Giuliani lawyers   George Foote and Kristin Berkland. Steve Kim, one of three former HISD technology employees at the center of the federal E-Rate investigation, “may have taken” trips to Las Vegas on the dime of vendor Hewlett-Packard in May 2005 and Frankie Wong in February 2005, according to the memorandum. 

     HISD documents show that “an unidentified district employee” registered for a conference in May 2005 at Mandalay Bay Resort and Casino, the memo says. But HISD is “unable to confirm that Mr. Kim accepted a trip to Las Vegas from HP on any of these dates,” the memo says.     

Kim worked as a manager of network operations in the networking department and as of 2006 he earned more than $89,000 annually. Kim was terminated by HISD in April of 2007 via a letter of resignation effective April 10, 2007. He had worked for HISD since 1997. 

Texas Watchdog was unable to reach Kim at a phone number listed for a Steve Kim in Sugar Land.
  

Wong was at the center of another scandal in Dallas, and was sentenced to prison after being found guilty of conspiracy to commit bribery, conspiracy to launder money, and eight counts of bribery concerning programs receiving federal funds.


The charges and convictions stem from business Wong, then president of Micro Systems Enterprises, conducted with Dallas Independent School District as an E-Rate vendor more than five years ago, according to an article in the Dallas Morning News. Micro Systems Enterprises also did business as Micro Systems Engineering.

In the settlement agreement between HISD and the federal government, Analytical Computer Services is listed as being a “joint venture or associated company” with Micro Systems. A company called Micro System Enterprises received more than $7 million through contracts with HISD from July 2005 to June of last year, according to a contracts database obtained by Texas Watchdog under the Texas Public Information Act.

The investigation appears to have been triggered, or at least helped along, by an e-mail sent anonymously from a whistleblower inside HISD.

The e-mail begins by accusing Kim of “taking cash and gifts and trips from ACS who also operates as MSE.” The e-mail, addressed to the school board, also names Laura Palmer, another of the three former employees accused of accepting gifts and meals from E-Rate vendors. Palmer was an assistant superintendent for technology and information systems as of September 2006, and had retired as of October 2007, public records show. Texas Watchdog left messages at a home number listed for a Laura Palmer in Houston since last week, but did not receive return calls.

“There are a lot of great people here that will get affected and more importantly HISD does not need to suffer any more negative media,” the whistleblower writes. ... “I care about where I work and don’t want to work in a department that is led by a shady manager.”

“The only document we ever found was an anonymous e-mail,” Chris Gilbert, a partner at the Houston-based Thompson and Horton firm, told Texas Watchdog. Thompson and Horton provides legal services to HISD. “To this day we still don’t know who the author of the e-mail was.”

In February 2006, according to the memorandum, a birthday party for Palmer was held at Truluck’s restaurant. “Approximately 15 people were in attendance and Mr. Bill Froechtenicht of MSE (Micro Systems Enterprises) paid for dinner.” The Truluck’s seafood and steak chain has multiple locations around the country, according to its website, and it’s unclear which one was the location of the birthday dinner.

Payments and gits to Palmer did not stop there. The memorandum relays comments from HISD’s inspector general, who said employee William Edwards told him that Palmer accepted personal checks and a boat ride from vendors:

checkbook
 
“In or around the summer of 2007, Mr. Larry Lehmann [managing partner and owner of Acclaim Professional Services] wrote checks in the total amount of approximately $30,000 to Ms. Palmer to help her with her son’s personal issues. Mr. Edwards reported that he saw Ms. Palmer accept some of the checks. Ms. Palmer reportedly cashed some, but not all, of the checks and repaid the amounts she received shortly after receiving the money.”
The memo does not elaborate on the nature of the personal issues.

Edwards, a former assistant superintendent of HISD’s Technology and Information Systems department, is the third former HISD employee accused of accepting gifts and meals from E-Rate vendors.

The memorandum links both Edwards and Palmer to accepting a ride on Wong’s fishing boat, the “Sir Veza” --- the same name of a $305,000, 46-foot yacht connected to the E-Rate scandal in Dallas. Wong had created a company, Statewide Marketing LLC, which together with Micro Systems Engineering kept up the boat and made it available for the Dallas ISD’s technology chief, Ruben B. Bohuchot, who was also found guilty in the bribery and money laundering scheme, according to the Justice Department.

According to the memorandum, Edwards was offered a loan from Lehmann sometime between Jan. 1, 2005 and Dec. 31, 2008, to repair Edwards’ airplane. Edwards declined the loan, and the document doesn’t describe the amount of the loan.

Edwards earned more than $132,000 as of 2004, salary records show. He was hired in 1993 and was terminated by HISD via a resignation letter in March of 2005. No working phone number could be located for Edwards. 

The memorandum also lists these gifts:
  • ACS gave cellphones to approximately 26 district employees at one time or another from approximately August 2002 to February 2007.
  • ACS gave Palmer 100 fanny packs in and around February 2006.
fanny packs
  • In August 2006, Hewlett-Packard offered HISD two complimentary passes, worth more than $1,000 each, to the 2006 HP Technology Forum, which was held at the George R. Brown Convention Center in Houston. District employees Mark Landrum and Carl Bradley attended the event. Calls and e-mails to both Landrum and Bradley were not returned. A voicemail message left for Hewlett-Packard's media office was not returned.
  • Hewlett-Packard in April 2005 sent a computer and printer to HISD technology employees Ken Eaton and Wayne Franklin as a thank you for serving on a panel. The computers were supposed to be donated to an HISD school but remained at the school district’s west region office. Calls and e-mails to Eaton were not returned. Franklin is no longer employed at HISD, a district spokesman said. From July 2005 to June of last year Hewlett-Packard is listed as receiving close to $20,000 from contracts with HISD, according to a contract database Texas Watchdog obtained from the Houston school district. Hewlett-Packard banned ACS and Micro Systems Engineering from selling its equipment in late 2006, the Houston Chronicle reported.
Palmer, Kim and Edwards

During their employment at HISD, Palmer, Kim and Edwards all signed conflict of interest forms acknowledging they were aware of HISD’s policies against conflicts of interest. According to Patton, if an employee is “offered” a gift, “the recipient should report such action to my office so we can log the occurrence and educate the vendor about our policies.”

For years, Palmer and Kim did not disclose receiving any meal exceeding $50 per meal or $100 annually to the district. One of Palmer’s disclosures was signed and dated just days after the birthday dinner in her honor.

Edwards did not disclose “any gift, service, favor, loan or remuneration in excess of $25,” from any vendors associated with HISD. When asked on district forms to report any gifts, all three employees wrote, “none.”

Within months of the federal government's freezing of HISD's E-Rate funding in 2006, Palmer got a 45 percent pay increase and promotion, according to HISD personnel records. Palmer was listed as an assistant superintendent for technology and information systems as of February 2006, earning more than $122,000, a big boost over her previous salary of about $84,000 in 2005. She was earning more than $126,000 in fall 2007 and had worked with the district since 1994.

Texas Watchdog placed calls and e-mailed HISD’s current Chief Technology Officer Gregory Valdez to ask him if the culture of accepting gifts and meals from vendors has changed. Valdez did not return any phone calls or e-mails.

After the Federal Communications Commission filed a lawsuit against the district in 2006, funding under the E-Rate technology program was frozen, causing the district to lose $105 million in federal funding.

More than three years after the lawsuit was filed against HISD, the district paid $850,000 to settle the suit, and is once again receiving money under the federal program.

In Appendix A of the settlement agreement is a list of companies for which HISD submitted “false claims for payment” to the Federal Communication Commission for E-Rate projects; ACS and several associated companies are included in the list.

On top of signing a settlement agreement, HISD signed a subsequent compliance agreement that required HISD to hire an E-Rate compliance officer, who makes $150,000 annually. HISD hired Patton in February using a headhunting firm that reportedly charged $67,200.

Patton has spent hours training employees and board members on stricter ethics rules to avoid a repeat of the earlier problems. He has recommended HISD spend an additional $10,000 a year on monitoring software.

Texas Watchdog was unable to get in contact with ACS, Acclaim Professional Services or Micro Systems.

A contact number associated with ACS in an HISD contracts database was disconnected Monday, and the number associated with Micro Systems in the same database rang to a company voicemail for a different company. Texas Watchdog left a voicemail message that was not returned as of the deadline for this story. ACS no longer exists, according to Texas Secretary of State corporate filings. A phone number associated with a company called Acclaim Professional Services with the same address listed in the federal settlement for a company by the same name was disconnected.

Contact Lynn Walsh at 713-228-2850 or lynn@texaswatchdog.org. On Twitter, @lwalsh.

 

Comments
Marie
Wednesday, 07/28/2010 - 10:49AM

What message does this send the students? Under the student conduct levels, what level would these employee's be given? Perhaps they should all attend DAEP for 90 days.

Frank
Friday, 07/30/2010 - 09:25PM

Great journalism work. Thank you.

Frank
Friday, 07/30/2010 - 09:27PM

Wish I could use the disabled email icon button link for the story...?

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