Audit criticizes state contract that swelled to $105M

AUSTIN (AP) — State auditors this week criticized a Texas agency’s contract with AT&T that was initially listed as costing $1 million and then swelled to $105 million over the course of seven years.

A report released Tuesday by the State Auditor’s Office also found the Health and Human Services Commission contract involved agency employees who previously worked for AT&T, representing a conflict of interest.

The initial four-year contract with AT&T for telephone services was signed in 2008 and cost nearly $48 million. Three years later it was amended to nearly $81 million, but then later increased to $105 million.

“The commission did not adequately monitor and enforce the terms of the contract or adequately review payments,” auditors wrote in the 59-page report. “In addition, the commission did not adequately estimate the contract’s cost during planning or ensure that employees adequately completed conflict of interest forms.”

Because contract managers did not adequately track transactions, the state does not know how much it has paid AT&T, although auditors estimated payments of at least $72.5 million from August 2008 to June, the audit said.

Additionally, contract managers failed to verify performance claims, including how quickly AT&T responded to issues and completed repairs, the auditors said. The company claimed to have met its targets in each of the 12 months auditors examined, but the search found it didn’t meet any.

HHS Executive Commissioner Kyle Janek said the $1 million figure was included in early paperwork as an estimate on the cost of the contract bidding process.

“We have new policies and procedures in place that take a very strict stance on disclosure of potential conflicts of interest and increase oversight and transparency,” Janek said, noting the commission — which has a $33 billion annual budget — is “a big agency with a lot of high-dollar contracts.”

The auditor’s office launched its review in February after the commission reported potentially improper relationships between the company and two state employees, agency spokeswoman Linda Edwards Gockel said. An AT&T spokeswoman said the company will cooperate with the ongoing review.

The telecommunications giant was contracted to provide services not only for HHS but also the agencies it oversees, such as the Department of State Health Services and the Department of Aging and Disability Services.

In response to the findings, the commission said it will re-bid the contract and install new contract-monitoring protections.

The audit follows a recent controversy involving another state contract. Two high-level state employees quit under pressure in December after newspapers reported state officials skirted procurement laws to steer a $20 million Medicaid anti-fraud contract to Austin cybersecurity company 21CT.

The commission’s former chief counsel, Jack Stick, who was instrumental in orchestrating the 21CT contract, resigned Dec. 12. That same day, the state canceled a pending $90 million contract extension with 21CT. One week later the commission’s inspector general, Doug Wilson, whose office signed the deal, resigned.

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