TEA failed to catch conflict of interest in $4.4M no-bid contract award, Texas auditor's office finds

TEA FAILED TO CATCH CONFLICT OF INTEREST IN $4.4M NO-BID CONTRACT AWARD, TEXAS AUDITOR'S OFFICE FINDS

Robert T. Garrett
The Dallas Morning News
September 5, 2018

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AUSTIN -- The Texas Education Agency lacked safeguards to identify a potential conflict of interest between a top official and an acquaintance who became a subcontractor on a multimillion-dollar, no-bid contract to collect data about special education students, an audit has found.

The official had a prior professional relationship with Georgia-based SPEDx Inc.’s subcontractor, who had been her professional development coach.

But the state agency “did not ensure that its staff and SPEDx completed required conflict of interest and other disclosures,” such as a list of part owners and a statement that it hadn’t offered gifts or future employment to win the contract, according to the State Auditor’s Office.

“The agency did not have an adequate control environment to protect the integrity” of use of taxpayer dollars, the auditor’s report said. In November, Education Commissioner Mike Morath canceled the $4.4 million SPEDx deal amid an outcry by parents of disabled students over allegations his agency was pressuring school districts to deny necessary services to thousands of students.

The top agency official, identified in the report only as the agency’s chief deputy commissioner of academics, was Penny Schwinn. She is a former school leader in Delaware and California. Morath brought Schwinn into his senior leadership team in April 2016.

In a written statement late Tuesday, he sidestepped questions about whether Schwinn should have been disciplined for actions the auditor’s office strongly criticized.

“Our program staff have consistently followed what they believed were appropriate procedures,” Morath said. But he agrees with the auditor’s office that his agency’s old methods “would not adequately guide staff when exercising due diligence in the contracting process,” and they’re being changed, he said. 

The State Auditor's Office on Tuesday criticized the Texas Education Agency's handling of two multi-million-dollar contracts -- one, affecting special education students. Commissioner Mike Morath, center, shown during a May roundtable on school safety at the Texas Capitol, said he's launched a "a top-to-bottom review of contract processes.
(Ana Ramirez/AP)

Pre-contract emails criticized

Schwinn, former assistant secretary for the Delaware Department of Education and founder of a Sacramento charter school, told auditors that while she knew in advance that her former coach would be hired as a subcontractor, she didn’t direct or influence SPEDx’s decision.

In an email Tuesday, agency spokesman Gene Acuña noted the audit says that on another sole-source deal, Schwinn “received guidance to contact the vendor during an ongoing procurement.” Communicating with SPEDx via email during negotiations was not forbidden, he said. Acuña was repeating something the audit said. However, the audit strongly chastised Schwinn for including her former coach on the negotiation emails with a SPEDx executive.

Penny Schwinn, left, the Texas Education Agency's chief deputy commissioner of academics, is shown at an April hearing on special education in Richardson. A state audit on Tuesday said she had a prior professional relationship with a person who became a subcontractor in the controversial, no-bid SPEDx contract she oversaw.  (Staff Photographer/Ron Baselice)

Last fall, disability advocates criticized the agency’s selection of SPEDx, saying the vendor lacked qualifications.

The auditor’s report criticizes virtually every action the schools agency took: It didn’t obtain the required approval of the comptroller’s office before dispensing with competition and proceeding with a sole source.

It also did a poor job of assessing need and cost, the report says.

“While the agency had previously identified a need to collect and analyze special education data, it did not perform a needs assessment specific to the SPEDx procurement,” it says. “Instead, the agency identified SPEDx as a potential vendor, discussed potential services that SPEDx could provide, and then entered into a sole source contract with SPEDx.”

Agency shake-up

In his statement, Morath stressed that since November the agency has overhauled, contracting with “a massive set of process changes, personnel actions, and steps to address proper documentation,” he said.

Early this year, the agency removed its contracts division director. It has added lawyers with state government procurement experience who have put in stronger controls, the agency wrote in a response to auditors.

Schwinn is still at the agency.

Contracting snafus have proliferated during Gov. Greg Abbott’s first term. At the sprawling Health and Human Services Commission, which runs the Medicaid program, the budget’s second-biggest expenditure behind schools, six officials have stepped down since early April.

In the spring, Abbott called revelations of sloppiness and mistakes in the commission’s scoring of bids “unacceptable.” At the time, Abbott, who is up for re-election, noted that there had not been any suggestion of "malfeasance," such as purposeful preferences for some bidders over others. But an internal commission audit warned that trust in its impartiality in big-money decisions could be eroded because “controls to ensure the integrity of the procurement process are lacking.”

At the Texas Education Agency, officials who planned and carried out two recent contracting deals committed some mysterious overrides of policy safeguards, said the State Auditor’s Office. 

Paying before delivery

The office is an arm of the Legislature, and it has repeatedly criticized the schools agency in past audits. They included wrist slaps for TEA’s not verifying that “deliverables” have been produced before it paid vendors -- once again, an issue with SPEDx. Also, the agency did not complete required steps, such as needs assessments and cost estimates, before issuing bid solicitations.

The office, currently run by First Assistant State Auditor Lisa Collier, blistered TEA for “significant weaknesses that affected the award outcomes” on two recent contracts.

In the SPEDx deal, the state agency received “deliverables” -- three training sessions -- worth only $150,000, even though it paid the Atlanta company $2.5 million, the auditor’s report says.

It also criticized TEA’s award in January of a $2.9 million contract to Tembo Inc., a Philadelphia-based business management consultant.

Tembo was hired to add video, interactive tools and other user-friendly information to the state’s TXschools.org, which helps parents, educators and taxpayers find out about how a campus or school district is performing. However, the agency ignored problems with Tembo’s bid and made scoring errors as it weighed bids, the auditor’s report says.

In addition, though the company did not submit a required plan for including women and minorities among subcontractors it would use, “agency management subsequently and incorrectly requalified Tembo’s proposal,” it said. That put the firm back into contention. The agency’s academics division then incorrectly advanced Tembo’s bid to a final round of evaluation, even though it ranked fifth and the fourth-highest scoring bidder didn’t advance, the report says.

The plot thickened. For web pages called “the Performance Reporting program area,” Tembo and an unnamed bidder “earned equal high scores,” the auditors found. But there was no rationale for selecting Tembo over the other vendor in a memo approving Tembo’s bid, the report says.

Morath, Schwinn and two other top officials approved the memo. But “multiple agency staff and management involved in the procurement process provided conflicting information about who ultimately selected Tembo,” it says.

On the SPEDx deal, the audit does not name the subcontractor, Schwinn’s former coach at an unnamed, nonprofit academy. Nor does it identify the chief executive of SPEDx. The coach introduced Schwinn to the executive, it says. While a Texas Education Agency code of ethics prohibits staff from discussing with people outside the agency an ongoing procurement, the policy was silent about staff communications with vendors and potential subcontractors in noncompetitive deals, the audit says.

“However, the coach was included on email communications between the primary decision maker and the SPEDx CEO discussing the pending contract, including contract language,” says the audit. “Individuals who are not directly involved with a procurement should not be included in communications about the contract.”

Morath said he wants “an agency culture of efficient compliance. ... We are committed in all we do to improving student outcomes and getting the best value for taxpayers.”

Audit of Texas Education Agency selected contracts by Mede Nix on Scribd

Article available at The Dallas Morning News online HERE.

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