An Audit Report on the Telecommunications Managed Services Contract at the Health and Human Services Commission
December 2014
Report Number 15-017
Overall Conclusion
The Health and Human Services Commission (Commission) did not fully comply with state requirements to manage and monitor the Telecommunications Managed Services (TMS) contract audited to help ensure that the contractor performed according to the terms of the contract and contractor billings were valid and supported.
The Commission awarded the TMS contract to AT&T Global Services (AT&T) for an initial term of August 29, 2008, through August 29, 2013, with the option to renew it for up to four more years. The initial total cost of the contract was $47,948,920. On September 1, 2011, the Commission amended the contract's cost to $80,633,059. In September 2013, the Commission extended the contract's term through August 31, 2015, and increased the contract's cost to $105,000,000 effective September 1, 2013.
The Commission did not adequately monitor and enforce the terms of the contract or adequately review payments. In addition, the Commission did not adequately estimate the contract's cost during planning or ensure that employees adequately completed conflict of interest forms. However, the Commission generally complied with the majority of contract planning and procurement requirements that auditors reviewed, and it ensured that the contract contained all required essential contract terms.
There were deficiencies in the Commission's payment processes.
The Commission did not adequately review payments to verify that they were supported, were for items within the scope of the contract, and were for the appropriate amounts. That resulted in payments to the contractor for items that were out of scope and incorrect payment amounts. In addition, the Commission did not review contractor invoices to determine whether discounts due to the Commission were applied according to the contract terms.
The Commission cannot determine the total amount expended for the TMS contract.
In addition, the Commission did not adequately track transactions related to the TMS contract. Inconsistent processing of purchase orders and not entering key data into the Commission's accounting system, such as the contract number and/or purchase order number, limits the Commission's ability to determine whether certain expenditures are related to the TMS contract. In addition, financial information in the Commission's contract tracking system for the TMS contract is not complete, largely because information is missing from the Commission's accounting system. As a result, the Commission cannot provide a supportable total amount spent on the TMS contract because there may be unidentified transactions related to the contract.
Using data provided by two divisions within the Commission, auditors calculated that the Commission spent at least $72,514,646 on the TMS contract from August 29, 2008, through June 30, 2014. However, the actual total may be higher than that amount because of the weaknesses discussed above.
The Commission did not verify the accuracy of contractor-provided information. The Commission did not verify the accuracy of contractor-provided monitoring reports. For example, the contractor reported that it met the performance standard for responding to and completing repairs and help desk tickets for all 12 months tested. However, auditors determined that the contractor did not meet that performance standard for any of the 12 months tested. In addition:
- The Commission did not adequately monitor or verify the contractor's calculations of labor hours and use of credits to ensure that they were accurate and complied with contract terms. Incorrect calculations could subject the Commission to a potential liability.
- The Commission did not adequately monitor contract deliverables to ensure that they are received and reviewed.
The Commission did not adequately determine the contract's cost.
The Commission did not develop a contract cost model to determine the original contract cost. In documentation submitted to the State's Contract Advisory Team in June 2007, the Commission reported an initial cost estimate for the TMS contract of $1,000,000. However, the contract was executed on August 29, 2008, with a total cost of $47,948,920. The Commission has subsequently approved contract amendments increasing the contract's price. The most recent amendment increased the contract's price to $105,000,000 effective September 1, 2013.
The Commission did not ensure that employees adequately completed conflict of interest forms.
Thirteen (68 percent) of 19 Commission employees signed conflict of interest forms. One employee had a clear conflict of interest, but that employee, who was a member of the evaluation team, did not disclose that conflict on the signed form. That employee also served as the initial contract manager and had previously worked for the contractor. In addition, the Commission's contract manager during fiscal year 2014 also was a former employee of the contractor and was responsible for approving payments to the contractor.
The Commission generally complied with the majority of planning requirements that auditors reviewed.
The Commission had adequate policies and procedures for contract planning. It also developed a communication plan for internal and external stakeholders. In addition, Commission management properly approved the posting of the procurement and solicitation documents related to the contract.
The Commission selected a procurement method—issuing a request for proposal (RFP)—that complied with the State of Texas Contract Management Guide.
In addition, the Commission provided the RFP to the Contract Advisory Team as required. The Commission conducted a vendor conference and complied with requirements to advertise its solicitations, required vendor conflict of interest disclosures, and required vendors to submit Historically Underutilized Businesses (HUB) subcontracting plans.
Auditors communicated other, less significant issues related to contract documentation and information technology to the Commission separately in writing.