Report #16.20

Andres Alcantar, Chairman Commissioner Representing

the Public

Ruth R. Hughs

Commissioner Representing

Employers

Julian Alvarez Commissioner Representing

Labor

Larry E. Temple Executive Director

101 E. 15th Street • Austin, Texas 78778-0001 • (512) 463-2222 • Relay Texas: 800-735-2989 (TDD) 800-735-2988 (Voice) • www.texasworkforce.org

Equal Opportunity Employer / Program

Report #16.20.0002 October 19, 2016

Mr. Rudy D. Garza, Chair

Workforce Solutions Alamo

P.O. Box 1771

San Antonio, Texas 78296

Dear Mr. Garza:

We have completed the special review held in response to complaints received by a Texas

Workforce Commission (TWC) official, and the Texas State Auditor’s Office. The review of the

procurement processes at Workforce Solutions Alamo was conducted by the Subrecipient

Monitoring Department under TWC’s Regulatory Integrity Division.

During the course of this review, systemic failures in the Board’s procurement processes and

procedures were discovered. The findings are summarized and your responses are included in

the enclosed report. TWC Audit Resolution will contact you directly to resolve outstanding

findings identified in the report. A copy of this report will be provided to the Texas State

Auditor’s Office.

Thank you again for your cooperation and assistance. Should you have any further questions

concerning the review, please contact me at (512) 463-1875.

Sincerely,

Charles E. Ross, Jr., Deputy Director

Regulatory Integrity Division

Attachment

cc: Gail L. Hathaway, Executive Director, Workforce Solutions Alamo

Susan Ashmore, Deputy Executive Director, Workforce Solutions Alamo

Prepared by the

Subrecipient Monitoring Department

Texas Workforce Commission

October 2016

A Monitoring Report on

Workforce Solutions Alamo

Report No. 16.20.0002

Monitoring Report No. 16.20.0002

Workforce Solutions Alamo 2 October 2016

Executive Summary

Monitoring Report on Workforce Solutions Alamo Procurements Overview Allegations of procurement improprieties were made to a Texas Workforce Commission (TWC) official and to the Texas State Auditor’s Office. In response to those complaints, an on-site review of Workforce Solutions Alamo’s procurement processes and procedures was conducted by the Subrecipient Monitoring Department of TWC’s Regulatory Integrity Division. The review included these procurements:

an executive search firm to hire the Alamo Board’s deputy executive director;

a strategic planning firm; and

locations of Workforce Solutions career centers. While on-site for the Board’s annual monitoring review, monitors became aware of potential issues with a procurement of the Board’s executive office location; it was added to the scope of the review. Alamo Board staff were interviewed regarding the procurement and contracting process. Those interviews revealed that the Alamo Board relies on letters of intent in lieu of timely signed contracts. This was identified as a finding and included in the report. Findings Executive Search Firm Procurement The following findings were noted regarding this procurement:

services were rendered and invoiced prior to a formal procurement;

solicitation of bids from other search firms were requested by the Alamo Board after an invoice had been submitted by the hired executive search firm.

This procurement contravenes TWC’s Financial Management Guide for Grants and Contracts (FMGC), Chapter 14, Procurements, Full and Open Competition. Substantiated FMGC violations would lead to questioned costs of $28,750.00 related to this procurement. Strategic Planning Firm Procurement The following findings were noted regarding this procurement:

a Request for Quotations (RFQ) to obtain the services of a strategic planner and consultant to work with the staff and Alamo Board members was created and issued by the Alamo Board.

the RFQ was subsequently converted to a small purchase the lowest bidder was eliminated due to an incomplete response the second highest bidder was selected.

Two of the three proposals did not have documentation to indicate when they were received.

Initial evaluations were superseded by management without any documented justification. This procurement contravenes TWC’s FMGC, Chapter 14, Procurements, Full and Open Competition.

Use of ‘Letters of Intent’ in lieu of Timely Executed Contracts The following findings were noted regarding the extensive use of ‘letters of intent’ by the Alamo Board:



the Alamo Board regularly issues expiring letters of intent in lieu of contracts being signed timely; and

unilateral contract amendments are executed which contain budget increases and changes to statements of work.

These practices contravene TWC’s FMGC Chapter 8, Cost Principles and Pre-Award Costs and Chapter 15, Contracts. The Board must ensure the following:

contracts are executed and signed in a timely manner;

unilateral amendments are not used for significant budget and statement-of-work modifications; and

controls for contract negotiations are substantially strengthened. Lax Management Approach to Procurement and Financial Controls Based on allegations reviewed, interviews with Board staff, and field work conducted, TWC’s Subrecipient Monitoring Department observed systemic failures related to the Alamo Board’s procurement processes and practices and financial controls. Issues include:

insufficient documentation;

unfair competitive advantage;

restricted competition;

complete disregard of, and failure to follow TWC procurement rules;

operating under letters of intent without signed contracts; and

invoices received before purchase orders are issued. The Alamo Board must strengthen procurement and fiscal controls. In addition, the Board must immediately comply with TWC procurement and fiscal requirements, which are derived from Federal and State law. Observations Appropriate Management Oversight Much of the feedback obtained through staff interviews spoke to human resources-related issues which were beyond the limited scope of the review. In general, however, we noted significant failures in collaboration among departments primarily due to staff conflicts and a lack of formalized policies and procedures. Finally, many of the interviews alluded to a culture of fear, suspicion, and retaliation.

In the six months since the monitoring visit, two senior Board staff interviewed by TWC monitors in relation to this review have been discharged by the Executive Director, one of whom has reportedly filed an EEOC charge alleging retaliation.

FMGC, Chapter 2, Internal Controls states the importance of internal controls based on Committee of Sponsoring Organizations of the Treadway Commission (COSO) principles. According to COSO, “The control environment is the set of standards, processes, and structures that provide the basis for carrying out internal control across the organization. The board of directors and senior management establish the tone at the top regarding the importance of internal controls including expected standards of conduct. Management reinforces expectations at the various levels of the organization. (emphasis added)” Lease Space Procurements The following was noted regarding the Alamo Board executive office procurement:

During the week of February 16, 2016, while on-site for the Alamo Board’s annual review, Senior Alamo Board staff informed TWC Subrecipient Monitoring monitors that the Board offices would be relocating to a specific building.

Interviews with staff revealed that the Alamo Board’s Deputy Executive Director had floor plans of the pre-selected building and was making office location assignments to staff.



The RFP for the Board’s new executive offices was issued on March 2, 2016. Points of contact for the RFP were attorneys, leading to ambiguity regarding who was actually involved in the development of the RFP.

This procurement would have contravened TWC’s FMGC Chapter 13, Property, Leases, and Chapter 14, Procurements, Full and Open Competition since the Alamo Board’s new corporate offices had been pre-selected before an RFP had been released and all bids reviewed and scored. When the Board was presented with this information, the procurement was canceled and re-issued. The following was noted with regard to the Workforce Solutions career center lease space procurements:

cost-benefit analyses for lease space procurements of the Hondo and Pleasanton Workforce Solutions career centers were not conducted in a timely manner; and

there is an appearance that both lease spaces were pre-selected. Though the new Hondo and Pleasanton offices may be a better value compared to the previous office spaces, failure to follow the requirements of TWC’s FMGC Chapter 13, Property, Leases, and Chapter 14, Procurements, Full and Open Competition leads to the appearance of pre-selection and demonstrates a lack of thorough planning and compliance with Federal and State procurement requirements. A copy of this report will be provided to the Texas State Auditor’s Office.



Table of Contents

Executive Summary

2

Board Findings

Ensure Competitive Procurements are Properly Conducted (Executive Search Firm)

6

Ensure Competitive Procurements are Properly Conducted (Strategic Planning Consultant)

8

Strengthen Board Contracting Controls

11

Strengthen Procurement and Fiscal Controls 13

Observations 15

Appendices

A. Abbreviations and Terms B. Review Objectives, Scope and Methodology

C. Report Distribution List

19

20

21

Note: The Board included additional documentation with the detailed response. While that information is not included in the final report, it is maintained in the file and used during the resolution process as necessary.



Board Findings

Ensure Competitive Procurements are Properly Conducted (Executive Search Firm)

The executive search firm, previously procured by the Board for the Executive Director hiring, was not procured properly for the hiring of the Deputy Executive Director. Services were rendered and invoiced by the hired search firm prior to a formal procurement. In addition, solicitation of bids from other search firms were requested by the Board after an invoice had been submitted by the hired executive search firm. Substantiated procurement failures would lead to questioned costs of $28,750.00.

FMGC, Chapter 14, Procurements, Written Procedures states: “Written procedures shall include…providing for a review of proposed procurements to avoid purchase of unnecessary or duplicative items.”

FMGC, Chapter 14, Procurements, Full and Open Competition states: “The procurement of all goods and services shall be conducted, to the maximum extent practical, in a manner providing full and open competition consistent with the standards of Office of Management and Budget Circulars, the Grant Management Common Rule, Uniform Grant Management Standards, and this Manual.

Practices that may eliminate or restrict full and open competition include, but are not limited to:

Placing unreasonable requirements on firms in order for them to qualify to do business

Requiring unnecessary experience and excessive bonding

Noncompetitive pricing practices between firms or between affiliated companies

Noncompetitive awards to consultants that are on retainer contracts (or allowing entities that develop or draft specifications, requirements, statements of work, invitations for bids and/or requests for proposals to compete for such procurements)

Organizational conflicts of interest

Specifying a brand name product instead of allowing an equal product to be offered

Any arbitrary action in the procurement process…”

Recommendation

The Board must ensure that services procured are necessary and reasonable for the operation of the organization prior to procuring. The Board should work with TWC Audit Resolution on the questioned cost of $28,750.00 attributable to the procurement errors.

Board Response The Board does not concur with the recommendation.

Response Details

Issue 1: Was the search firm properly procured?



The findings outlined in a September 6, 2016, email from the Deputy Director, Regulatory Integrity division, of the Texas Workforce Commission (‘TWC email’) indicate that procurement failures are substantiated in two ways: 1) services rendered and invoiced prior to a formal procurement, and 2) solicitation of bids from other firms were requested after invoices had been submitted by the hired executive search firm. The TWC email goes on to further cite two separate chapters of the FMGC to support their position of improper procurement. First, the email cites Chapter 8 of the FMGC, Cost Principles, where a cost must meet the general criteria of being necessary and reasonable for proper and efficient performance and administration of an award. Regarding the necessity and reasonableness of the costs incurred by this vendor, please see the attached memo from the Board Executive Director. WSA believes that this memo sufficiently details the requirements of necessary and reasonable under FMGC Chapter 8. [The Board provided a memo that is not included in this report.] Next, the TWC email cites Chapter 14 of the FMGC, Procurements, Full and Open Competition, where a procurement must be conducted to the maximum extent practical in a manner providing full and open competition. On May 28th, 2015, the Executive Director sent an email to the Board’s Director of Contracting and Procurement, in which the Director of Contracting and Procurement acknowledged that no agreement had been consummated between WSA and the vendor, and asked to be informed about any additional information needed to proceed. Upon learning that a re-procurement was necessary, the Board Executive Director emailed the vendor to inform them that at least one more bid was necessary. Subsequently, on June 1, 2015, the Director of Contracting and Procurement proceeded to solicit information through an informal procurement process to obtain quotes from at least two vendors. Accordingly, it is the position of WSA that the procurement was conducted in a manner providing full and open competition. Firstly, two separate bids to conduct a search were accepted and considered. Ultimately, WSA made the determination to award the contract to this particular vendor based on the same written procurement policies and procedures used under all other procurements. Having answered general allegations of improper procurement under Chapter 8 and Chapter 14 of the FMGC, WSA will now address the specific instances cited in the findings of TWC. Issue 2: Do services rendered and invoices for service constitute procurement? Invoices do not make a procurement active, nor are they self-sufficient to show evidence of a consummated procurement. Nowhere in the FMGC regulations is a Board required to review a vendor’s invoicing procedures or ensure that their invoicing is in compliance with the same standards required of a Board. Because no procurement had been made, WSA considers the invoices sent by the vendor before the procurement to be erroneous. Specifically, Section 14.10 of the FMGC specifies that defective cost or pricing data may occur before the price agreement. In accordance with FMGC and Federal Acquisition Regulation (FAR) policy, WSA contacted the proposer to correct the error. 48 CFR §15.407-1(a), which specifies procedures to apply when a defect is identified before an agreement is made, requires the contracting officer to consider new data submitted to correct the deficiency. The vendor was notified that a procurement had not



been made, and WSA proceeded to solicit bids and conduct a proper procurement of services, considering the totality of new data submitted by proposing vendors.

Thus, since defective pricing may occur before an agreement, and WSA remedied the situation according to FMGC, FAR, and CFR regulations, WSA does not believe that the invoices identified by the TWC email are sufficient to constitute a procurement.

In conclusion, WSA believes that this email sufficiently responds to the finding in the TWC email and disproves any and all allegations of substantiated procurement failures. Specifically, it is the opinion of WSA that the procurement was conducted in a full and open manner, and that the costs incurred were reasonable and necessary. Furthermore, WSA believes that because a proper procurement was made, the vendor invoices sent before a price agreement were sent in error. These erroneous invoices were handled in accordance with all applicable regulations.

Monitor Follow-up Response

We carefully reviewed the Board’s response to the draft report along with the documentation submitted. For clarification, the reasonableness or the necessity of the services is not being raised in this report as a separate issue because the procurement was already in question. The procurement was deficient because services were rendered and invoiced on May 29, 2015, before obtaining quotes from at least two vendors, starting June 1, 2015, as stated in your response. This is substantiated by a May 28, 2015, e-mail in which the Executive Director stated that the executive search firm “already has 1 or 2 candidates he’s actively working.” Based on this and other emails and documentation, the Board was already working with the executive search firm before the procurement activities were even begun. Because substantial work with the vendor had already begun – including submission of the candidate who was ultimately selected – the subsequent solicitation of two additional bids through an informal process does not promote fair and open competition.

Ensure Competitive Procurements are Properly Conducted (Strategic Planning Consultant)

The Board created and issued a RFQ for a strategic planner and consultant to work with the staff and Board members. The RFQ was converted to a small purchase procurement due to discrepancies in the process. Evaluators created an informal scoring document. The evaluators’ input was not included in the decision, the scoring sheets were given to Board management, and the management made the selection. It appears the scoring sheets were not considered in the decision, the lowest bidder was eliminated due to an incomplete response and the second highest bidder was selected. Two of the three proposals did not have documentation to indicate when they were received.

Procurements for consulting services must follow the FMGC and any future procurements that deviate from TWC rules and regulations may result in questioned costs.

FMGC, Chapter 14, Procurements, Full and Open Competition states:



“The procurement of all goods and services shall be conducted, to the maximum extent practical, in a manner providing full and open competition consistent with the standards of Office of Management and Budget Circulars, the Grant Management Common Rule, Uniform Grant Management Standards, and this Manual.









FMGC, Chapter 14, Procurements, Professional & Consulting Services states:

“…Selection must be based on demonstrated competence, knowledge, qualifications, and on the reasonableness of the proposed fee for the services. If other considerations are equal, preference must be given to a consultant whose principle place of business is in the state, or who will manage the consulting contract wholly from an office in the state.

A consulting contract, including renewals, amendments, and extensions, may not be divided into more than one contract to avoid procurement requirements. Consulting services do not fall within the definition of professional services procurement and must be competitively procured…”

Recommendation

The Board must strengthen its competitive procurement process and ensure it follows the FMGC.

Board Response The Board does not concur with the recommendation.

Response Details

The initial request for qualifications was not intended for consulting services and is specified as such in the published solicitation. It was intended for facilitation services to be provided to Board and key staff and guidance through a strategic planning process. WSA received three responses prior to the submission deadline of November 30, 2015. WSA acknowledges the initial evaluations were not reviewed by internal staff with subject matter expertise. However, before any selection was made, scoring was performed by the Executive Director on December 16, 2015 and Deputy Executive Director on December 15, 2015. This demonstrates scoring sheets were completed and consideration was given to all proposals prior to awarding the contract.



The selected proposal outlines strategic planning, board development, leadership development and coaching sessions, which WSA does not believe falls within the definition of consulting services. Consulting services, as defined by Appendix A of the TWC FMGC, states “the service of studying or advising a state agency under a contract that does not involve the traditional relationship of employer or employee.” In addition, 48 CFR 31.205-53 states consultant services are rendered by members of a particular profession or possess a special skill. It also outlines specific services, none of which are being rendered by the contractor. The services provided do not involve any of the listed consultant services as differentiated within the Support Center for Nonprofit Management. As such, WSA is of the opinion that Board coaching services do not fall within the definition of consulting services, which are required to be competitively procured. Therefore, the small purchase method is the appropriate procurement manner which WSA followed. During the development of the contract the term “Consultant Services” was used generically to describe the proposed services, when it should have been facilitation/coaching. WSA’s internal process was not followed prior to obtaining the Contractor and Executive Director’s signature and execution of the contract. Since WSA in good faith followed small purchase requirements based on the understanding that Board/Executive facilitation/coaching is not the same as consulting. WSA does not concur with the assessed disallowed costs of $44,000.


We carefully reviewed the Board’s response to the draft report along with the additional documentation submitted. We found that the subsequent documentation conflicts with what was originally provided to monitors during the on-site visit. At the beginning of the initial on-site visit, the Board was not able to provide supporting documentation or background material for this procurement. Monitors requested any and all documentation associated with this procurement. In response to this request, the Board provided an explanatory note and the initial set of evaluation sheets regarding the procurement. We found that the initial evaluation sheets did not support the selection of the successful bidder in the explanatory note. A second set of evaluation sheets was provided in response to this monitoring report. They show that the Executive Director and Deputy Executive Director scored the three bidders differently than the initial evaluators. In the first round of scoring, the successful bidder scored the lowest of the three bidders. In the second set of evaluation sheets, the successful bidder scored the highest of the three bidders. No documentation was provided which spoke to the need for a second evaluation while on-site. The question of consulting services and competitive procurement as opposed to a small purchase is not at issue here. Under either procurement process, the documentation related to the selection of the bidder is contradictory and insufficient to clearly demonstrate fair and open competition and the appearance of preselection remains.

The Board must still strengthen its competitive procurement process to ensure it follows the FMGC. However, after further review, the questioned cost of $44,000.00 will not be pursued since the services which were ultimately provided were reasonable and a procurement process, despite its obvious deficiencies, was conducted before services began.



Strengthen Board Contracting Controls

The Board issues letters of intent in lieu of contracts being signed in a timely manner. In addition, the Board executes unilateral contract amendments with budget increases and changes to statements of work, instead of both contracting parties signing the amendment. C2 Global Services The C2 Global Services contract with the Board was signed and dated on December 18, 2015, but the contract period started October 1, 2015. Letters of intent for workforce services with the Board started on September 1, 2015. In addition, the C2 Global Services contract contains budget amendments (one increase of $62,000) and amendments to the statement of work that are unilateral agreements. The contract budget total is $11,049,383.00. Dynamic Workforce Solutions The contract between the Board and Dynamic Workforce Solutions for urban career centers was not signed until December 16, 2015, after the contract period of February 22, 2015, through September 30, 2015. The Contractor operated under letters of intent throughout the contract period and the total contract budget amount was for $5,806,714.00. The WIOA Youth Services contract with Dynamic Workforce Solutions had also operated under letters of intent, without a signed amendment. Alamo Community College District Classes for the Local Innovation Partnership Grant with Alamo Community College District commenced in January 2016 and the grant has been operating through a Letter of Intent dated December 1, 2015. The contract was not signed until May 12, 2016. In addition, the Letter of Intent with Alamo Community College District for Child Care Career Pathways (contract amount $730,000.00) expired on February 8, 2016. The contract was signed on April 20, 2016, and the service period for the contract has a retroactive start date of December 9, 2015. Christine H. Nguyen Fiscal monitoring services are operating under a letter of intent that is dated December 17, 2015, but the services began on July 1, 2015. Letters of intent should only be used in limited situations. The RFP should be detailed enough that the contract negotiation is efficient and the contract is signed in a timely manner. Costs incurred before the signed contract may lead to questioned costs.

FMGC, Chapter 8, Cost Principles states: “In order to be allowable under a federal or state award, a cost must meet the general allowability criteria established by the Office of Management and Budget Circulars, and/or the Uniform Grant Management Standards, as applicable.

A cost must meet the following general criteria in order to be allowable under a federal or state award:

Be necessary and reasonable for proper and efficient performance and administration of the award… Be adequately documented. Documentation required may include, but is not limited to, travel records, time sheets, invoices, contracts, mileage records, billing records,

http://www.twc.state.tx.us/business/fmgc/financial-manual-grants-contracts-appendix-a-glossary.html#headerR



telephone bills and other documentation that verifies the expenditure amount and appropriateness to the grant…” FMGC, Chapter 8, Cost Principles, Pre-Award Costs (Pre-agreement Costs) states: “Pre-award costs are allowable only to the extent that they would have been allowable if incurred after the date of the award and only with the written approval of the awarding agency.”

FMGC, Chapter 15, Contracts, Introduction states:

“Supreme Court decisions have upheld the validity of four essential components of a contract, as published by the American Law Institute. These four elements are: 1) manifestation of mutual assent, 2) consideration, 3) legality of object, and 4) capacity of the parties. Though not specifically required by federal regulations, each of these components must be present for the existence of a valid contract.”

Recommendation

The Board must ensure that contracts are executed and signed in a timely manner. In addition, the Board is strongly encouraged to strengthen controls for contract negotiations. Lastly, unilateral amendments should not be used for significant budget and statement of work modifications.

Board Response The Board concurs with the recommendation. Corrective action was implemented September 16, 2016. Venessa Miller, Director of Contracts and Procurement, is responsible for implementation.

Response Details

While WSA recognizes the need to strengthen contracting processes and that WSA failed to follow them due to extraordinary circumstances. WSA transitioned legal counsel on July 1, 2015. New rule changes warranted the creation of new contract boilerplates. Due to time constraints in developing these contracts, and the need to provide workforce services to our community, WSA utilized Letters of Intent, as allowed by FAR 16.603.2. A Letter Contract serves as a binding commitment between WSA and in fulfillment of the Contractor’s approved proposal for work (including performance obligations), in order that work can start immediately while negotiating a definitive contract. In order to prevent the disruption of workforce services to our customers, WSA adopted the use of the Letters of Intent to regulate these services until final contract drafting and execution. WSA believes that TWC regulations allow the use of Letters of Intent in limited circumstances when there are delays in negotiating contracts. WSA does not concur with the issue cited regarding the Youth Services contract operated on a Letter of Intent without a signed amendment. The term of the contact is 4/1/14 – 9/30/16. WSA signed the contract on 9/3/14; and the Contractor signed the contract on 9/4/14. This contract was previously reviewed during an annual monitoring visit with no issues noted. WSA will review internal procedures and develop a contract planning and implementation team to ensure contracts are executed on or before the contract start date. WSA will ensure all future contract amendments involving significant budget and statement of work modifications will be signed by both parties and the letters of intent practices will be reviewed going forward to ensure compliance with state approved practices.

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Strengthen Procurement and Fiscal Controls

TWC monitors investigated allegations received and found systemic failures related to procurement processes and practices and fiscal controls. Through interviews with Board staff and field work conducted, we noted issues including:

Insufficient documentation

Unfair competitive advantage

Restricted competition

Disregard and failure to follow TWC procurement rules

Operating under letters of intent without signed contracts

Invoices received before purchase orders issued

Incomplete contracts (supply costs for janitorial services)

FMGC, Chapter 14, Procurements, Administrative Responsibility states: “Contractors are responsible, in accordance with good administrative practices and sound business judgment, for the settlement and satisfaction of all administrative and contractual issues arising out of the Contractor’s procurements, including micro-purchases.” FMGC, Chapter 14, Procurements, Full and Open Competition states: “The procurement of all goods and services shall be conducted, to the maximum extent practical, in a manner providing full and open competition consistent with the standards of Office of Management and Budget Circulars, the Grant Management Common Rule, Uniform Grant Management Standards, and this Manual.









2 CFR § 200.302 Financial Management, states: “…(b) The financial management system of each non-Federal entity must provide for the following…(3) Records that identify adequately the source and application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation.”

Recommendation

The Board must strengthen procurement and fiscal controls. In addition, the Board must immediately comply with TWC procurement and fiscal requirements.



Board Response The Board concurs with the recommendation. Corrective action was implemented September 16, 2016. Venessa Miller, Director of Contracts and Procurement, is responsible for implementation.

Response Details

Four of the seven concerns noted have already been addressed by WSA’s previous response and attached documentation. WSA will review internal procedures and develop an internal procurement file checklist that corresponds with the requirements of the FMGC.



Observations

Appropriate Management Oversight As part of this special monitoring review, TWC monitors interviewed Board staff. Much of the feedback obtained related to human resources-related issues which were beyond the limited scope of the review. In general, however, we noted that various departments within the Board are not collaborating cohesively primarily due to staff conflicts and a lack of formalized policies and procedures. Finally, many of the interviews alluded to a culture of fear, suspicion, and retaliation.

The Committee of Sponsoring Organizations of the Treadway Commission (COSO), a joint initiative of five private sector accounting and financial management organizations, provides thought leadership through the development of frameworks and guidance on enterprise risk management, internal control, and fraud deterrence. FMGC, Chapter 2, Internal Controls states the importance of internal controls based on COSO. According to COSO, “The control environment is the set of standards, processes, and structures that provide the basis for carrying out internal control across the organization. The board of directors and senior management establish the tone at the top regarding the importance of internal control including expected standards of conduct. Management reinforces expectations at the various levels of the organization. (emphasis added)”

Response Details

Commitments have been made by the WSA Board members, management and staff to implement a system wide change. We have identified certain areas that should be strengthened and developed as a whole. A three year strategic priority plan has been developed which supports WSA’s mission, vision and core values. The first phase is considered the year of retooling. As developed by an assigned strategic planning subcommittee we have distinguished between board, shared and operational initiatives. A meeting was held with management staff to discuss and brainstorm these initiatives. It has been made clear on several occasions that change is imminent. Maintaining proper employee relations does not always lend itself to full disclosure of change management processes. Therefore, it is expected that some staff may perceive changes in a negative light. Change can be very difficult for some but we are consistent in the message that the year of retooling will lead the agency to become “best in class”. Many of the steps we have already taken align us with the Committee of Sponsoring Organizations (COSO) internal control framework principles. We have established board committee agreements and clarified governance and operational rules and responsibilities. An organizational structure change will properly ensure appropriate reporting lines and maximize staff’s competencies. As part of the operational initiative we will focus upon process improvement. While analyzing processes the identification and assessment of risks relating to objectives will be determined. The maintaining of separation of duties will ensure internal controls are sound.




We carefully reviewed the Board’s response to the draft report. We appreciate the Board’s commitment to strengthening its internal controls, processes and procedures. We hope these efforts will reinforce integrity within the system overall as well as the workforce services the Board provides to its employers and jobseekers. We do note, however, that in the six months since the monitoring visit, two senior Board staff interviewed by TWC monitors in relation to this review have been discharged by the Executive Director, one of whom has reportedly filed an EEOC charge alleging retaliation. Additional interviews may be considered to follow up on these issues during the Fiscal Year 2017 Board annual review.

Lease Space Procurements An RFP was issued dated March 2, 2016, for Board office space. Board staff indicated to TWC monitors that an office space had already been selected before all bids had been reviewed and scored, or indeed, before the actual RFP was issued. Points of contact for the RFP were attorneys, leading to ambiguity regarding who was actually involved in the development of the RFP. In addition, the City of Hondo approached the Board on April 1, 2015, offering available lease space for a workforce center location. The Board looked at office comparables in Hondo from MLS printouts on May 14, 2015, and November 13, 2015. The previous lease was terminated on November 14, 2015, and written notice had been given on October 22, 2015, indicating that the property would be vacated within 90 days. However, a cost benefit analysis was not done until December 14, 2015, and the signed lease was dated December 17, 2015. For the Pleasanton office, Coastal Bend College invited the Board to share office space in Pleasanton. The Board looked at office space comparables from a MLS printout dated March 25, 2015. The previous lease was terminated on October 20, 2015, with a 90 day vacancy notice. A cost benefit analysis was done on December 10, 2015. The lease with Coastal Bend College for the Pleasanton office was dated January 27, 2016.

Though the new Hondo and Pleasanton offices may be a better value compared to the previous office spaces, the apparent pre-selection of the office space is another example of a lack of thorough planning and compliance with procurement requirements.

FMGC, Chapter 13, Property, Leases states: “Costs for leased or rental property must conform to applicable cost principles for rental costs. Such property must be procured in accordance with applicable procurement requirements.” FMGC, Chapter 14, Procurements, Full and Open Competition states: “The procurement of all goods and services shall be conducted, to the maximum extent practical, in a manner providing full and open competition consistent with the standards of Office of Management and Budget Circulars, the Grant Management Common Rule, Uniform Grant Management Standards, and this Manual.











Recommendation

The Board must issue a new RFP for Board office space. In addition, the Board should ensure that the procurement process provides full and open competition for lease space procurements.

Board Response

The Board does not concur with the recommendation. On May 6, 2016, WSA cancelled the Board office space RFP. A new RFP was issued on May 11, 2016 and distributed to 50 commercial real estate and facility management companies within the San Antonio district, and posted on the WSA website to ensure full and open competition. Venessa Miller, Director of Contracts and Procurement, is responsible for implementation.

Response Details

The small purchase method was followed for the procurement of both Hondo and Pleasanton as the total cost of the leases did not meet the simplified acquisition threshold. Bids and proposals were not required as the method permits the collection of price and rate quotations through informal means as defined in Section 14.8 of the FMGC. According to Section 14.16 of the FMGC, “Contractors must make independent estimates before receiving bids or proposals. Beyond that, the method and degree of cost analysis or price analysis may vary dependent on the facts surrounding each procurement situation.” The MLS listings for both Hondo and Pleasanton demonstrates WSA’s due diligence in comparing alternative space which supports full and open competition and contradicts the spaces were in any way pre-selected. WSA reviewed a total of three (3) different MLS listings for Hondo; and two (2) different MLS for Pleasanton. All listings were provided to TWC monitors; however, are not reflected within this report. In addition, TWC monitors were provided information regarding the former Pleasanton landlord and difficulties WSA experienced with the



leased space, which significantly contributed to the decision to not renew the lease but rather look for alternative space. Equally, this information is not reflected within this report. Further, Public Law 113-128, the Workforce Innovation and Opportunity Act (WIOA) Section 102, (2) Operational Planning Elements (B) (iv) states “how the State’s strategy will engage the State’s community colleges and area career and technical education schools as partners in the workforce development system and enable the State to leverage other Federal, State, and local investments that have enhanced access to workforce development programs at those institutions”. By co-locating our workforce centers with local community colleges, WSA is demonstrating our compliance with the provisions of WIOA and the spirit of the law. The attached sequence of events for Hondo and Pleasanton reflects that cost and/or price analysis began March 2015 with the review of MLS listings and the analysis and action concluded in December 2015 with approval by the WSA Board of Directors for both Hondo and Pleasanton workforce center locations prior to signing of the leases. WSA disagrees the cost-benefit analysis were not conducted in a timely manner, as they were done prior to being presented to the WSA Board of Directors. WSA believes that it substantially complied with small purchase regulations.


We carefully reviewed the Board’s response to the draft report with regard to lease space procurements. While this area still represents a significant procurement deficiency, this finding was amended to an observation. With regard to the procurement of the Board’s office space, when the deficiencies were provided to the Board, the original procurement was cancelled and a reprocurement was undertaken. As such, there is no finding for this procurement. However, this will be an area for evaluation during the next annual monitoring review of the Board. Concerning the Hondo and Pleasanton workforce center locations, documentation provided and reviewed does not demonstrate that sufficient and timely cost benefit analyses were conducted on these lease spaces. The Hondo and Pleasanton workforce center locations may be a better value compared to the previous office spaces, but the overall appearance of pre-selection remains. While we have determined this to be an observation rather than a finding, it speaks to lax planning and compliance with procurement requirements. Consistent with the Board’s responses to findings related procurement and fiscal controls, we anticipate that the Board will be able to demonstrate improvement in this area.



Appendix A

Abbreviations and Terms Board Workforce Solutions Alamo CFR Code of Federal Regulations COSO Committee of Sponsoring Organizations of the Treadway Commission EEOC Equal Employment Opportunity Commission FAR Federal Acquisition Regulation FMGC Financial Manual for Grants and Contracts MLS Multiple Listing Services PO Purchase Order RFP Request for Proposals RFQ Request for Quotations TWC Texas Workforce Commission WIOA Workforce Innovation and Opportunity Act WSA Workforce Solutions Alamo



Appendix B

Review Objectives

The purpose of our review was to provide reasonable assurance that Workforce Solutions Alamo uses TWC grant resources in accordance with state and federal requirements. We also sought to determine whether activities are conducted toward the goal of achieving program objectives while maintaining fiscal accountability.

Methodology

Monitoring reviewed the procurement processes at the Workforce Solutions Alamo. We conducted this review from April 5, 2016, to April 7, 2016. Our goal was to provide reasonable but not absolute assurance regarding compliance with TWC rules and regulations. While on-site, interviews were conducted with Board staff, documentation was gathered, and reviewed for procurements.



Appendix C Report Distribution List

Copies of the final report will be provided to the following parties:

Workforce Solutions Alamo The Honorable Nelson Wolff, Chief Elected Official

United States Department of Health and Human Services Mr. Larry D. McDowell, Program Specialist Ms. Gwen Jones, Program Specialist

United States Department of Labor Mr. Nicholas E. Lalpuis, Regional Administrator, Employment & Training Administration Mr. M. Frank Stluka, Regional Director, Office of State Systems, Employment & Training

Administration

Texas Workforce Commission Mr. Andres Alcantar, Chairman and Commissioner Representing the Public Ms. Ruth R. Hughs, Commissioner Representing Employers Mr. Julian Alvarez, III, Commissioner Representing Labor Mr. Larry E. Temple, Executive Director Ms. Reagan Miller, Deputy Director of Workforce Solutions Mr. Paul D. Carmona, Director of Regulatory Integrity Division Ms. Courtney Arbour, Director of Workforce Development Division Mr. Randy Townsend, Chief Financial Officer

Documents

Report #16.20