Auditor: Agency of Ed failed to seek competitive bids for federal money

The Agency of Education didn’t properly engage in the competitive bidding process when awarding some federal Race to the Top – Early Learning Challenge grants in fiscal year 2015, according to the state auditor.

Auditor Douglas Hoffer said the State of Vermont’s policy requires an open and competitive procurement process, but instead, “the Agency of Education engaged in procurement practices under Race to the Top – Early Learning Challenge that were overwhelmingly non-competitive.”

Hoffer also raised conflict of interest concerns and took issue with the agency’s use of authorized expenditures to pay for contract work that should have been employed positions, according to federal rules.

“I’m not suggesting bad intent, but if you don’t go out to bid you will never know if the entity you hired is the best at the best price,” Hoffer said. He wants the agency to adopt his recommendations and will be checking in next year to see what has been done. “I think they are taking it seriously,” Hoffer said.

Last summer, the State Auditor’s Office announced that it was going to conduct a special investigation into contracting practices at the Agency of Education, Agency of Human Services, Department of Vermont Health Access, Department for Children and Families and the Department of Buildings and General Services.

Hoffer’s office released audits of the five agencies last week, including two of AOE.

AOE was selected because whistleblowers complained about the contracting practices around Race to the Top – Early Learning Challenge. The auditor would be investigating “sole source” contracts and whether the agencies were following the rule book when awarding them.

Anytime a contract is worth more than $15,000 the state requires competitive bidding. This is meant to give vendors an equal opportunity to access contracts as well as to spur cost savings throughout government.

In 2013, Vermont was awarded a $36.9 million four-year grant by the Department of Education for the Race to the Top – Early Learning Challenge programs, which are meant to improve early learning and close the achievement gap for high needs children by increasing access to high quality day care and pre-K programs. The money can also be used by states to design and put in place an “integrated system” of high quality early learning programs and services.

AOE has allocated about $9 million of the grant to projects it will manage and intends to use about half of the allocated Race to the Top – Early Learning Challenge funds to hire contractors, according to the audit.

Of the 11 contracts AOE awarded for funds of $15,000 or more in April, 10 were offered as sole source instead of through a competitive bidding process. Of these, the auditor found that only two met Bulletin 3.5’s requirements.

“Eight of them did not meet the extraordinary circumstances criteria. They weren’t in compliance with the guidelines,” Hoffer said.

Bulletin 3.5 allows for a contract to be granted as sole source instead of going through the competitive bidding process when there are extraordinary circumstances, such as urgency or there is only one candidate that can perform the work needed. In these 10 cases, AOE invoked Bulletin 3.5 and the secretary of the Agency of Administration (AOA) agreed with AOE’s proposals and authorized the sole source contracts.

William Talbott
William Talbott, deputy commissioner of the Agency of Education. File photo by Amy Ash Nixon/VTDigger

“It is their policy [Bulletin 3.5] and we believed they had the latitude to interpret it,” said Bill Talbott, chief financial officer at the Agency of Education. “If you understand our request, most of them had good reasons, but they weren’t reasons that complied with the specific criteria of sole source requests.”

The Agency of Administration, Hoffer said, “facilitated AOE’s over-use of sole source procurement by approving sole source requests that did not meet the requirements of Bulletin 3.5.”

Talbott said that in a couple of cases they applied to the Agency of Administration under Bulletin 3.5 because they were in a time crunch.

The auditor said AOE created the urgent situation by not putting the contract out to bid sooner.

It took AOE awhile to get geared up to start grant making under the federal program. “It was new work that landed on us,” said Talbott. “We were trying to ramp up to get the work done. By the time we got around to doing it, it became urgent. It was just earnest people trying to do their job well in a tight time frame.”

When asked if the dwindling staffing situation at AOE played a part in this, Talbot replied: “Staffing is always an issue and always will be, but we have to be able to operate with the staff that we have.

The audit also shed light on an AOE employee that was involved in deciding to award a sole source contract to a vendor that she worked for.

“You can’t have somebody making a decision about a contract with an entity with whom they work,” said Hoffer. “That employee did some contracting work for X while working at the Agency so that individual should not have made a decision about that company … there needs to be a separation.”

The employee’s relationship with the vendor wasn’t something AOE was immediately aware of, according to Talbott. He also said that the contract wasn’t directly related to the contract work she was doing for the vendor. “It wasn’t a serious conflict,” he said of the employee who no longer works at AOE. “We got wind of it and took steps to stop it,” he added.

Because a number of employees might have outside endeavors that conflict with AOE, such as serving on a school board, the agency is checking with all of its employees to gather information about conflicts of interest so that they can better track such relationships in the future.

The audit suggested that AOE’s initial failure to identify conflicts could be because the AOE’s contract manual doesn’t provide guidance on what constitutes a conflict of interest.

Talbott said the manual had not been in use for some time and had been pulled from the internal website.

Hoffer countered that on multiple occasions multiple employees told the auditor’s office that “that manual was in use.”

“At least two employees told my audit staff that they relied on that manual,” Hoffer said.

Several years ago, employees who handled contracts put together a manual and when they retired the agency was not able to refill their positions due to budget constraints, according to Talbot.

“We are busy and sometimes we get work we weren’t anticipating and people scramble and then we get caught up and make adjustments to get it right,” Talbott said. “It is a learning curve for us. We have had lots of turnover and we need to work harder at making sure everyone understands. We don’t want to make excuses, we want to come in closer compliance.”

The audit also took issue with AOE’s use of expense authorizations to pay for contract workers. Ten of the 15 contracts worth $57,250 in spending were for services that AOE employees also performed. Expense authorizations are meant for short term hires and must be less than $7,500.

Talbott said that AOE often uses such funds to bring in teachers during the summer to develop and or review standards. They are reimbursed for mileage, meals and given a daily stipend using this payment category.

This is a concern because some companies have used contractors to avoid federal withholding taxes. It is also important that the contractors are independent and not being directed by the employer.

Hoffer said that expense authorizations are not part of Bulletin 3.5, it was an arrangement the Agency of Education made with the Agency of Administration. “If you make up this new category and view it with some authority then you should stick to it and they didn’t,” he said.

AOE spent grant money to contract with four people to help with training in the agency over a couple years. The contractors weren’t short term, according to Hoffer.

“I don’t believe there is any way these people who were trained and supervised by the agency would be anything but employees. We aren’t talking about a lot of money, but it isn’t best practice,” he said.

Talbott said agency officials will look closely at the use of contractors. “The last thing we want to do is be against federal regulations,” said Talbott.

Currently, the Agency of Administration is in the final stages of rewriting and tightening Bulletin 3.5 to address issues recent audits have revealed.

The Shumlin administration is expected to issue the revised bulletin in January. Talbott said that AOE is reviewing its own practices and will reissue its manual after the new standards are published.

“We are anxious for the new bulletin to come out,” Talbott said. “It will be the cornerstone of the agency’s new manual.”

The auditor’s report cited AOE’s lack of experience in contracting as a possible reason for some of the problems that were identified.

Rebecca Holcombe, the secretary of education, has made it clear that the agency is taking the audit seriously, according to Talbott. “We will do everything we can to follow the new bulletin. We will do a much better job vetting internally sole source requests before we send them to AOA.”

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Tiffany Danitz Pache

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  • Kim Fried

    Again and again and again, hey it’s just tax dollars. This is the out come when you hire friends and donors rather the best trained and capable. Being inside this administration is a pass on all procedures. I hope Mr. Hoffer gets a peak at the ANR, DPS and the PSD, bet there are managers and Commissioners scrambling. Do you think anyone will be held responsible?. Again and again…………….

  • Scott Woodward

    This kind of issue is pervasive throughout Vermont government, including local town government where large amounts of tax payer money is spent on expensive capital equipment without going through a competitive bidding process. The main arguments I often hear against going through competitive bidding is that it is too cumbersome for small local governments and that highway foremen and fire departments know what specific equipment is needed anyway. Neither argument justifies not going through the bidding process and taking it seriously. This is the nature of government procurement – it is time consuming and more complex than a hand-shake, but that assurance that government has done its due diligence is paramount for public confidence. As more and more public dollars are spent, there’s a reciprocal obligation to be held accountable.

  • Keith Stern

    The people responsible for awarding the no bid contracts should be fired immediately, no excuses allowed. That is what responsible leadership would do.
    In an aside, I really appreciate Doug Hoffer. I believe we have the right person at his position.

    • Randy Jorgensen

      “In an aside, I really appreciate Doug Hoffer. I believe we have the right person at his position.”

      Agree 100%, he is an asset to Vermont for sure.

  • Katherine Silta

    Tip of the iceburg and doubt there will be consequences for their actions. Once again, we should not be at all surprised as the blatant disregard for taxpayers is just business as usual to these people.

  • Ted Hobson

    What a fluff piece! Why does the story not mention that this $37 million grant, cames with its own, very substantial funds for administration? So how can giving contracts in violation of several laws be caused by Legislative cuts? Why does the story not mention that the whistleblower as to non-compliance was fired?

  • Chuck Shannon

    Last week they were complaining that they needed more money and staff..WTH? It is clear that the only thing our Education System cares about is itself. I am sure that this is just the tip of the iceberg. The big losers here are our kids and the people paying horrendous tax bills.

  • William Geller

    This situation develops because of the backround and experience of decision makers in governmental type agencies. These folks are project oriented as against a profitable goal, this kind of thinking removes the incentive to keep costs to a minimum. They do not have the experience to watch every penny and come up with a false reasons that the expense is to small or one of the biggest I hear is we only got one quote . It is OPM not their own money. When you run any business almost the number one thing that shapes your judgement in any decision is are we going to have the cash flow to make PAYROLL. Most folks in town government, state and federal government are very far from that weekly responsibility thus that aspect of running an organization is way down in their thinking process.

  • Laurel Stanley

    I have been in a work situation with the state where something went out to bid. They took the lowest bidder. The person running the job was not happy but couldn’t change it. It was a disaster, the company went bankrupt while doing the job, it took many months longer and in the end it cost more than hiring the best company would have cost. Going out to bid doesn’t always produce a quality product. After receiving a grant for a nonprofit project, we put it out to bid as required. Fortunately we didn’t have to hire the lowest bidder which would have been a mess. We paid more and got it done right. When you need something done, fix your car, repair your roof, etc etc, you are able to hire the best for your money, not the cheapest. Going out to bid is a reasonable requirement, keeps cronyism down somewhat, but needs to be administered with care.

    • Keith Stern

      There is low risk of problems when a performance bond is posted which should be a requirement for every government contract.

  • There is a curious irony in most of the discussion here. Many folks feel that the behavior described in Ms Danitz’ article is “disregard for taxpayer dollars.” I have a different perception. Hyper vigilant AoE employees are trying to do too much, and protect taxpayer dollars – they’re hounded by abuse about how expensive education is in the State. As a result, oversight and compliance staff just don’t exist, and other open positions are very hard to fill. It is expensive, and ongoing to run an organization as complex and as a State Agency with such a broad mission and mandate. It’s not an activity that can work well with a bare bones budget. If we treat it that way, we’ll end up in the mess described by the audit.

    • Lori Be

      Very true…as is what Ms. Stanley said…you get what you pay for and sometimes getting to the lowest bid back fires, plus the work required to get those bids can cost a lot of money…taxpayer money!

  • Brin Hanbridge

    Please vote for Doug Hoffer for new State office next November: Health Care Guru/Administration Financial Manager/Money Man about town

  • Doug Hoffer, I am most impressed with your work audits….keep up the great work on being the watchdog for the taxpayers…you along with VTDigger and Seven Days make for a team to show the light on what is being done with the taxpayers money!