in Houston, Texas

Houston ISD officials pledge changes, more details on how companies are picked, following audit of procurement process

Monday, Apr 02, 2012, 10:05AM CST
By Mike Cronin
hisd

Houston schools Superintendent Terry Grier says the district will implement reforms recommended by an independent audit that questioned the level of transparency in the way the district buys goods and services.

Auditors suggested a range of reforms, including disclosure when trustees receive gifts of travel or have financial ties to vendors, and more readily available information about how companies are chosen by district staff for contracts.

“My staff and I plan to spend time reviewing the audit report and will implement its recommendations,” Grier said via e-mail Friday. “We plan to present the board with regular updates of our progress and will make those updates available to the press once they have been shared with the board.”

Houston schools leaders began discussing changes at a Thursday presentation to the school board by the Houston accounting firm, Null-Lairson, which undertook a four-month audit of HISD’s procurement process. The audit followed heavy criticism and media attention from Texas Watchdog and others over how the district has done business in recent years.

“The way it’s done now, it’s like starting the football season without stating how they’re going to choose which teams make the playoffs,” Houston Independent School District board President Mike Lunceford said. “Then, at the end, instead of selecting the teams with the most wins, it depends on how many fans were in the stands or what the weather was like.”

In an effort to combat that opacity, district officials say they will begin making available more detailed explanations of why district staff members have recommended certain companies for contracts, and if the recommendation changes, why.

“We're going to have a whole new way of providing the board with information and proposals that are on board agendas,” said HISD’s Chief Financial Officer Melinda Garrett.

Null-Lairson auditors found that HISD had “transparency questions” in how district officials disseminated information about bids for work with the district among the public, board members and its own staff, according to a draft report released Thursday afternoon. The report noted that transparency issues also arose due to a lack of “defined procedures” outlining when and how board members and vendors may contact one another.

That finding echoed an October audit conducted by the Washington-based nonprofit Council of the Great City Schools, which found that the ways the district does business “lead to a perception of manipulation of and distrust in the procurement process.”

In its review, Null-Lairson auditors found these issues:

  • No written procedures for procuring a contract.
  • No central list of district staff who are authorized to make purchases.
  • Lack of training for staff in charge of procurement. For one project, the auditors found that a contract had not been executed a year-and-a-half  following board approval and execution of the work. The staff person indicated that “she did not execute the contracts because she did not know how to create the contract specs.”
  • A contract was awarded to a painting vendor, even though the company had not submitted required financial statements.

The lack of a paper trail as to why certain companies were recommended by district staff leaves the public “to speculate on contract awards and board influence,” the draft report said.

Texas Watchdog found precisely those types of questions in a groundskeeping contract HISD awarded last year.

Procurement experts in Texas and at other school districts throughout the country, such as the Miami Dade County Public Schools, reviewed documents for that award provided to Texas Watchdog by HISD. Some did not see documentation that explained why the winning companies obtained the contracts.

But Null-Lairson disagreed: “The evaluations used, subsequent to establishing the short list, were accurate and documentation existed to show the rationale for awarding Southwest Wholesale and Houston Grotech Services for the South and North Regions, respectively,” auditors wrote.

Auditors did question the lack of documentation for how nine vendors were placed on a short list for consideration, and said a company that was not on the short list got business, anyway. Five Woods LLC was chosen to do landscaping and irrigation work, even though another vendor offered a better price, auditors wrote.

Texas Watchdog also has reported on accusations in a civil lawsuit that Trustee Larry Marshall accepted bribes in 2009 when he was school board president to award a contract to Fort Bend Mechanical, a Stafford-based company, instead of the Houston-based Gil Ramirez Group. The suit brought by the Gil Ramirez Group also alleges that officials from the Houston-based company, RHJ-JOC, paid about $185,000 to Marshall's campaign treasurer. Marshall, Fort Bend Mechanical, RHJ-JOC and RHJ owner Eva Jackson have denied the claims, and Marshall has called the suit baseless.

The draft report does not mention the suit, but auditors reviewed a contract process involving those three companies. Even though staff evaluators originally selected RHJ-JOC and the Houston-based KBR -- also known as  Kellogg Brown and Root -- for the contract, a different slate of five companies was presented to the board for approval, the draft report said. That slate included KBR, Fort Bend Mechanical and the Gil Ramirez Group, but RHJ didn’t make the list.

Board members ultimately will decide whether to pass new policies based on the report, and some trustees seemed ready to do so.

Lunceford identified two top priorities after reading Null-Lairson’s draft report: To ensure district officials develop policies to guide trustees on when they can vote on contracts with vendors who also are campaign contributors, and to ensure no board members interfere with the procurement process.

Lunceford praised Garrett for her willingness to draw up a new policy that would explain vendor recommendations in contract awards to the board in more detail.

“It’s not always about the best price. It’s about the best value for the district,” Lunceford said. “But if it’s not going to be the lowest price, tell us why.”

Garrett told HISD trustees during Thursday’s meeting that the district’s evaluation process, including how HISD staff members scored each vendor and determined which companies to recommend, would be available to board members and the public.

In response to a request from Trustee Harvin Moore, Garrett said it “should not be a problem” for all HISD vendors to begin disclosing who owns their respective companies and who sits on their boards of directors.

Moore said during the meeting that way the public knows what relationships exist.

“Perhaps we should add a reminder that nondisclosure would forfeit their ability for a contract,” Moore said.

Among other findings, auditors found that:

  • HISD trustees “did not totally understand all the requirements of the (district’s) conflict of interest and ethics policies”
  • HISD trustees are not currently required to disclose travel, food, lodging or entertainment from contractors or lobbyists. They are required to disclose other gifts over $50. (Texas Watchdog reported on this ethics loophole in 2009, then again in September. Marshall exploited that loophole when he took two all-expenses-paid trips to Costa Rica in 2010 with a school district vendor.)
  • HISD officials are out of line with Internal Revenue Service recommendations and policies at other school districts throughout the nation that require trustee disclosure of “conflicts of loyalty,” such as serving as officers or board members for organizations that have a stake in a district contract.
  • “HISD has conflicting requirements related to board members voting on contracts with vendors making campaign contributions.”
  • HISD does not have sanctions for vendors that attempt to obtain board influence over contracts, while other school districts do.

The Los Angeles Unified School District and Miami Dade County Public Schools are among other school districts Null-Lairson auditors reviewed for their report.

Auditors wrote that, at a minimum, HISD officials should adopt the following policies:

  • Board members should disclose any financial relationships, including governance responsibilities that exist with vendors.
  • Evaluate the need for procedures that exclude vendor work at HISD related to financial relationships, including governance responsibilities board members may have with vendors.
  • Board members should abstain from contract votes for those vendors where there are disclosed financial relationships or governance responsibilities.
  • Policy should include provisions prohibiting board member involvement in anything other than votes on contract awards.
  • Board members having an interest in a vendor should communicate with only the superintendent on it and should not be involved in vendor discussions with HISD staff or be involved with vendor meetings with staff.
  • (The paperwork board members receive) on contract awards should include documented staff evaluation committee recommendations, and any differences between board recommended contracts and staff committee evaluations should be included in (that paperwork).

Null-Lairson analyzed 15 contracts, ranging from less than $50,000 to greater than $100,000, a certified public accountant with the firm, Charles “Chuck” Yaple, said Thursday. Those contracts were awarded from July 1, 2010, through September 16, 2011, according to the draft audit report.

Null-Lairson conducted the audit along with MGT of America, a consulting firm based in Tallahassee, Fla.; and Mariga CPA in Houston.

***
Contact Mike Cronin at mike@texaswatchdog.org or 713-228-2850. Follow him on Twitter at @michaelccronin or @texaswatchdog.

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Photo of HISD trustees meeting by flickr user Mike McGuff, used via a Creative Commons license.

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Comments
Mark
Wednesday, 04/04/2012 - 10:05PM

Are they clowns for real? Didn't understand that giving "friends and family" bids over other vendors isn't wrong! Houston we have a problem!?!?!?

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