HISD Null-Lairson Performance Audit on Procurement Process

8/2/2019 HISD Null-Lairson Performance Audit on Procurement Process

1/28

3411 Richmond | Suite 500 | Houston, TX 77046 | (P) 713.621.1515 | (F) 713.621.1570www.null-lairson.com

March 29, 2012

Board of Education and Board Audit Committee,Houston Independent School District4400 West 18th StreetHouston, TX 77092

This report reflects the results of our performance audit related to Houston Independent School Districts (HISD) contract recommendation awardsprocess. The objective of our performance audit was to assess adherence to policies, established procurement control processes, and all statutoryprocurement requirements regarding HISDs contract recommendation awards process for the period from July 1, 2010 through September 16,2011. Our performance audit was conducted in accordance with the standards for performance audits contained in Government AuditingStandards, issued by the Comptroller General of the United States. Complete report requirements are contained in the Appendix to this report.

KEY FINDINGS AND RECOMMENDATIONS

Board Policy Issues

Most board members indicated that they did not totally understand all the requirements of conflict of interest and ethics policies. Werecommend that steps be taken to provide expanded discussion and training on existing conflict of interest and related procurement policiesaffecting board members to board members on at least an annual basis.

Existing board policies on conflict of interest and related procurement policies affecting board members are quite stringent and makecompliance for board members very difficult. As a result, HISD staff spends quite a bit of time in monitoring these policy requirements. Werecommend that steps be taken to simplify these policies, including internal staff policies related to monitoring and activities of procurementevaluation staff.


2/28

Houston Independent School District Performance audit related to Houston ISDs contract recommendation awards process

Null Lairson, P.C. 2

Procurement compliance issues

HISD procurement activities are decentralized and subject to different levels of control within the organization. As a result, there areinconsistencies in procurement handling and especially procurement file documentation. We recommend that internal initiatives that began in thelate fall of 2011 continue and that Procurement be involved on all purchases in some manner, even those that are being handled in other functionalareas.

HISD lacks procedures or policies to allow it to determine if there is a benefit of interest rather than a conflict . This is especially thecase when board members are working specifically within their district. We recommend that board members communicate the extent of this typeof assistance from existing vendors to the superintendent and that Procurement evaluate exposing these services to market competition.

All of our findings are enumerated in the body of our report following. We appreciate the opportunity to work with Houston ISD on this projectand wish to extend our thanks for the cooperation and assistance provided by district board members, former superintendents, and staff during thecourse of the project.

Sincerely,

Null Lairson, P.C.


3/28



Table of ContentsSection Page Number

Background and Objectives 4

Key Work Steps 9

Findings and Recommendations 9

Appendix - Government Auditing Standards report information 23


4/28



BACKGROUND AND OBJECTIVES

HISD is the seventh largest school district in the country and the largest in Texas with over 203,000 students and over 300 campuses,encompassing 301 square miles within greater Houston. As such, HISD is a large Houston employer and user of services and goods. HISDemploys over 32,500 full and part-time staff, with budgeted spending of over $1,360 million in pay and benefits for these positions. HISDbudgeted spending for non-personnel costs is over $870 million.

Hispanic and African American students make up over 88 percent of HISDs student population, shown below.

HISD

Students by Ethnicity2011-12Ethnicity # of Students % of all Students

American Indian/Alaskan Native 476 0.3African American 51,015 26.5Asian 6,665 2.9Hispanic 126,707 61.7Native Hawaiian/Other Islander 228 0.2Two or More 1,522 0.6

White 16,453 7.8Total 203,066 100.0Source: Texas Education Agency, PEIMS information for 2011-12

Over 40 percent of HISD students are in elementary grades, shown below.

HISDStudents by Grade Level2011-12Grade Level # of Students % of all StudentsKindergarten & Earlier 33,659 16.58Elementary 1-5 82,163 40.46Middle School 6-8 38,830 19.12High School 9-12 48,414 23.84Total 203,066 100.00Source: Texas Education Agency, PEIMS information for 2011-12


5/28


6/28



HISDContract Selection Stratification

Strata

Contract SelectionsPlanned

ScopeActual

Selections VarianceGreater than $100,000 7 8 1$50,000 - $100,000 5 5 0Less than $50,000 3 2 (1)Source: Null Lairson P.C.

Contracts selected for detailed review included the following. The first five contracts were selected by the audit committee and the remainder wereselected on a risk-based approach by auditors and ultimately approved as a selection by the audit committee.

HISDContracts Selected for TestingNo. Stratum Final Projects/Contracts Selected

1 >$100K Job Order Contract Program Project No. 10-01-05

Jamail & Smith

Fort Bend MechanicalKBR, Kellogg, Brown and Root

RHJ

2 >$100K Annual Building Envelope Maintenance/Repair Project No. 08-03-04

Charter Roofing Company, Inc

State Roofing Company, Inc.

Aztec Roofing and Sheetmetal Corporation

3 >$100K Minor General Contract Services Under $25,000 Project 10-07-13 DKC

HRE - Healthy Resources Enterprises

BD &W

Hallmark Construction

Sparks Construction

Westco Ventures, LLC


7/28



ITL - International Leading Technologies

4 >$100K Supplemental Bus Transportation Project No. 11-01-09 AFC Transportation

Coach USA

Goodman Bus Company

Huerta Bus Services

5 >$100K Supplemental Painting Services $5 Million (over all contract)

Pat F. Corte DBA Corte Enterprises

Milam Company Painting, Inc.

Westco Ventures, LLC

Zuriel Enterprises Services

6 >$100K Project Grad

7 >$100K Southwest Wholesale Nursery

8 >$100K Community Education Partners, Inc.

9 $50K to $100K Space Center Houston

10 $50K to $100K Stanley Security Solutions, Inc.

11 $50K to $100K Cecilia Edwards

12 $50K to $100K Stanbury Uniforms

13 $50K to $100K Little Green Apples, Inc

14


8/28


9/28



KEY WORK STEPS

In order to address the objectives of the audit, we undertook the following key work steps in accordance with specified scope:

Reviewed key written documentation regarding the purchasing function, including, but not limited to, board policy, organization charts,procedures memos, and procurement file information.

Conducted interviews with senior staff and staff in Procurement, Finance, and Construction and Facility Services. Interviewed all board members related to the audit objectives. Interviewed current and prior HISD superintendents.

Performed detailed walkthroughs for each contract selection from the issuance of the procurement request through contract execution. Conducted comparison analyses on like entity procurement policy requirements. Verified factual data from compliance findings with HISD senior staff. Finalized and presented our report.


10/28



FINDINGS AND RECOMMENDATIONS

Board Policy Issues

Finding 1

Most board members indicated that they did not totally understand the requirements of conflict of interest and ethics policies. Policies can be evenharder to understand due to the recent infusion of new policies for E-Rate purchases based on a federal compliance settlement.

Three of these policies were covered at the recent board retreat: Policy CAA (Local) Fiscal Management Goals and Objectives; Policy BBFA(Local) Conflict of Interest Disclosures; and Policy BBF (Local) Ethics. There are also other policies as referenced in Policy CAA (Local)regarding conflicts of interest, ethics, and financial oversight:

Code of ethics for employeesDH Financial conflicts of interest for all employees - DBD Financial conflicts involving federal funds - CBB Systems for monitoring the Districts investment program - CDA Budget planning and evaluation - CE Compliance with accounting regulations - CFC Activity fund management - CFD Criminal history record information for employees - DC Disciplinary action for fraud by employees - DCD, DCE, and DF series

All of these policies are available on HISDs web site at http://pol.tasb.org/Home/Index/592 .

Policy BBFA (Local) Conflict of Interest Disclosures is particularly onerous related to board member pecuniary interest by prohibiting an entitywith family ties to a board member from doing business with HISD:

the District shall not contract with a business entity in which a Trustee or anyone related to the Trustee in the first degree of consanguinity (blood) or affinity (marriage) as determined under Chapter 573, Government Code, has any pecuniary interest

Policy CAA (Local) Fiscal Management Goals and Objectives includes the following topics:


11/28



HISDPolicy CAA (Local) Topics

Section/AreasGeneral Provisions page 21. Summary of related financial ethics governance documentsFraud and Financial Impropriety pages 2-51. Definition2. Financial controls and oversight3. Fraud prevention4. Fraud investigations

E-Rate Compliance Policy pages 5-111. Definitions2. E-Rate goods and services3. Disclosure of interest4. Code of silence period5. Monitoring and compliance review6. Education and trainingStandard Bidding and Contracting - pages 11-14

1. Code of silence2. Procurement methods3. Time period4. Violation5. Formal ComplaintsSource: HISD Policy Online Policy CAA (Local)

Of particular interest in this audit was the section of Policy CAA (Local) pertaining to the Code of Silence during the procurement process. Atpresent, this is further complicated by the dual E-Rate compliance policy provisions. The policy prohibits contact with vendors during the processof procurement. The policy states:

Code of Silence shall mean a prohibition on any communication regarding any RFP, bid, or other competitive solicitation (as defined in theprocurement methods above) between:

1. Any person who seeks an award from the District or its affiliated entities (including, but not limited to, the HISD Foundation and theHISD Public Facility Corporation), including a potential vendor or vendors representative; and


12/28



2. Board member, the Superintendent, senior staff member, principal, department head, director, manager, or other District representativewho has influence in the evaluation or selection process

Furthermore, campaign contributions, gifts, donations, and any other items of value are prohibited between the parties defined above for anyknown contract under consideration during the Code of Silence period. Also, candidates who have filed for election to the Board of Educationare subject to these limitations after the date on which the candidate has filed for office. HISD will review historical Campaign Finance reportsto identify campaign contributions for the applicable period and hold newly elected board members accountable as existing board membersduring the Code of Silence period.

HISDs Office of Inspector General and the E-Rate compliance officer monitor board member campaign finance reports as a way to ensurecompliance with the policy. Our review of these reports showed that individuals with contracted entities did give campaign contributions to boardmembers periodically, however, Procurement file information on this aspect was not sufficient to determine actual compliance with campaigncontributions during the Code of Silence period.

We recommend that steps be taken to provide expanded discussion and training on existing conflict of interest and related procurement policiesaffecting board members to board members on at least an annual basis. This involves a specific expanded workshop devoted to these policiesannually to ensure that board members have a better understanding of policy requirements.


13/28



Finding 2

Existing board policies on conflict of interest and related procurement policies affecting board members are quite stringent and make compliancefor board members very difficult. As a result, HISD staff spends quite a bit of time in monitoring these policy requirements.

We recommend that steps be taken to simplify these policies, including internal staff policies related to monitoring and activities of procurementevaluation staff.

We recommend that at minimum, policies include the following:

Board members should disclose any financial relationships, including governance responsibilities that exist with vendors. Evaluate the need for policies 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 board packet 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 the board packet.

Finding 3

HISD does not currently require board members to disclose travel, food, lodging, or entertainment accepted as a guest by contractors or lobbyists.It has established a $50 threshold for reporting, but only for gifts. Per discussions with HISD staff and board members, some board members havetravelled to other countries or states with potential or current vendors. These trips are not currently required to be disclosed. The team notes thatHISD board members cannot accept any gifts other than de minimus trinkets from E-Rate vendors, per the HISD Agreement with the federalgovernment.

To ensure transparency and accountability, we recommend that HISD board members document all travel, lodging, or entertainment received byboard members.


14/28


15/28


16/28



Procurement compliance issues

Finding 9

HISD procurement activities are decentralized and subject to different levels of control within the organization. Some procurement is handled atschools, some through Finance, Construction and Facility Services, as well as through the Procurement office. As a result, there are inconsistenciesin procurement handling and especially procurement file documentation. Had this documentation been available for selected contracts, it is likelythat perceptions about board influences on contract awards could have been explained by HISD senior or Procurement staff on an immediate basis.

The detailed compliance review noted the following items. This review indicated the inconsistencies in processes that need to be addressed byHISD Procurement.

1. Grounds Maintenance Services Project #10-12-06: Nine vendors were selected for oral presentations. These vendors are as follows:

Houston Grotech Services

SRB Landscaping

Von Yonder Landscaping

GCA Services Group, Inc.

Maldonado Nursery

Silversand Services

Groundstar Landscape Management

Southwest Wholesale

Green Works Land Care.

One vendor, Groundstar Landscape Management, declined the oral presentation. There is lack of documentation indicating how the nine vendorsabove were placed on the short list. We found a ranking of all 19 vendors for both the South and North Regions. Per our review of the procurementfile, we found that one vendors score, Von Younger Landscaping, did not fall in the top nine vendors. In fact, Von Younger Landscaping ranked


17/28


18/28


19/28


20/28


21/28



Sparks Construction and Westco Ventures LLC on November 17, 2010 and on November 22, 2010 the vendors were given a Best and Final Offer(BAFO) by the Procurement Manager indicating that if the vendor accepted the terms noted in the BAFO, the vendors would be added to the

award. On January 13, 2011 Hallmark Capital Group, LLC, Sparks Construction, and Westco Ventures, LLC were added to the Board Item andwere awarded contracts for Minor General Contracting Services for Projects less than $25,000.

E-mails supporting correspondences associated with the addition of the three (3) vendors were not included in the procurement file, nor wasdocumentation maintained in the file regarding the rationale for the best and final offer and the rational to add additional vendors.

Discussions with senior staff indicated that initiatives had begun in the late fall of 2011 to provide for consistencies in procurementdocumentation, especially in staff evaluation and file documentation related to actual contract recommendations to the board. We recommend thatthese initiatives continue.

We also recommend that Procurement be involved on all purchases in some manner, even those that are being handled in other functional areas.The key here is to make certain that there is a bridge between the procurement files and evaluation committee recommendations in procurementfile documentation and board information submitted for contract award vote. Without this type of documentation on file, the public is left tospeculate on contract awards and board influence.


22/28



Finding 10

HISD lacks procedures or policies to allow it to determine if there is a benefit of interest rather than a conflict. This is especially the casewhen board members are working specifically within their district.

We recommend that HISD implement procedures to investigate whether the transaction represents a conflict of interest or a Benefit of interest.Transactions found to be in the best interest of HISD should be allowed to proceed. However, HISD should require an external opinion of thesetransactions (for example, requesting a review from the OIG or Attorney) rather than relying on Procurement staffs determination of whether thisis a beneficial transaction. Common safeguards should be as follows:

Establish a conflict of interest policy all board members sign, that requires disclosure of membership on the boards of otherorganizations.

Publish the information on the rostesr of board members to encourage others to turn such relationships into benefits for theorganization and to understand where conflicts can occur.

Establish disclosure as a normal practice.

If major purchases are involved, obtain competitive written bids to ensure prices and products are comparable if a boardmember stands to benefit from the decision.

We recommend that board members communicate the extent of this type of assistance from existing vendors to the superintendent and thatProcurement evaluate exposing these services to market competition. This will also alleviate the perceptions associated with board memberinfluence on certain contracts. The key here is for the board members to hand over procurement issues to HISD staff on all purchases, includingdonated services to ensure that services or contributions of this type are really the best value for HISD.


23/28



Finding 11

In analyzing the vendor lists provided for the period under audit, we noted several vendors that had two or more vendor numbers. Below is thedetail of our analysis:

We recommend Procurement review vendor listings and pure duplicate vendors be removed from the list. Some of the vendors require more thanone record and some of the pure duplicates have been marked inactive in the system.

VENDOR NO.

VENDOR NAME VARIATIONS

CITY OF HOUSTON TAX REINVESTMENT 15CITY OF HOUSTON 9UNIVERSITY OF HOUSTON 9COLLEGE BOARD THE 7COURT YARD BY MARRIOTT 7FAST SIGNS 7HOLIDAY INN 7JASONS DELI 7AT AND T 6CHICKFILA 6EMBASSY SUITES 6HAMPTON INN 6HERFF JONES INC 6HOMEWOOD SUITES 6RICE UNIVERSITY 6BAYLOR COLLEGE OF MEDICINE 5HOLIDAY INN EXPRESS 5HOLIDAY INN EXPRESS AND SUITES 5HOUSTON COMMUNITY COLLEGE 5LA QUINTA INN 5SCHOLASTIC INC 5

UNIVERSITY OF HOUSTON DOWNTOWN 5

UNIVERSITY OF TEXAS AT AUSTIN 5


24/28



Finding 12

HISD has no consistent process for evaluating continuing vendors at least annually. This process is performed in like districts reviewed and assistsin continuing assurances that HISD continues to receive the best value based on comprehensive vendor performance.

We recommend that HISD institute a process in Procurement whereby continuing vendors are evaluated on performance at least annually.

Finding 13

HISD lacks appropriate information and controls related to contract change orders. Currently, staff is not required to present contract amendmentsand change orders to the Board for review and approval.

We recommend that HISD adopt policies requiring staff to present change orders or contract amendments to the Board for ratification, and for pre-approval if the amendments exceed set thresholds (such as 10 percent of the original contract amount or $50,000, whichever is higher). The HISDboard should also consider requiring an independent cost and price analysis to accompany staff requests for changes to contracts. These could beperformed by the OIG or Procurement staff, but should not be performed by the staff or departments requesting the amendment (should have someindependence). The analyses should be done to ensure that the value to the district provided by the contract amendment or change order is stillmore beneficial than re-bidding the contract or requiring new competitive bidding for the additional work.


25/28



AppendixGovernment Auditing Standards report information


26/28



Null Lairson, P.C. conducted the performance audit in accordance with the standards for performance audits contained in Government Auditing

Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain sufficient,appropriate evidence to provide a reasonable basis for our findings and conclusions based on the audit objectives. We believe that the evidenceobtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Our findings and recommendations areincluded in the first part of this report. To fulfill our objectives, we performed audit steps given the requested general and specific scoperequirements of the audit request as detailed below:

General Scope Requirements Determined whether the HISDs procurement procedures are adequate such that the likelihood of vendor influence is excluded. This

portion of the review included, but not limited to, a review of interactions between board members, staff, vendors, and vendorrepresentatives related to selected contract awards.

Determined whether the committee evaluation process is adequate such that the points assigned to each component of the evaluationmatrix is not unduly influenced by any one committee member.

Reviewed and determined the adequacy of, the HISDs policy regarding the receipt of campaign contributions during a quiet period.Reviewed whether such policies should or should not be expanded to extend to specified periods immediately preceding or following aquiet period.

Reviewed existing board policies, state laws, and best practices, which relate to vote abstentions and/or disclosures, based upon personalor business affiliations, and determine the adequacy of board policies related thereto.

Reviewed the adequacy of the HISDs policies and procedures related to board approval of contract awards, including:

o Contract awards, which require prior board approval under current policy.

o Contract awards, which require subsequent board ratification.

Reviewed the processes and internal controls related to requests for board authorizations to negotiate and execute contracts.


27/28


28/28

Date post:	05-Apr-2018
Category:	Documents
Upload:	texas-watchdog
View:	228 times
Download:	0 times

HISD Null-Lairson Performance Audit on Procurement Process

Documents