Scant justification for flurry of personal services contracts at NC DHHS

jneff@newsobserver.comNovember 30, 2013 

  • What the rules say

    The DHHS policy manual says that the file on personal-service contracts, among other things, “should contain at least the following items:”

    •  Personal Services Contract Approval Form

    The contract approval forms acts as the base document/requisition for the contract or contract amendment including basic data about the contract; as well as, all required approval signatures.

    •  Contract Justification Memorandum or Amendment Justification

    The information listed on justification memorandum and amendment justification memorandum provides a comprehensive outline of the contract or contract amendment as well as answers to the basic questions as to why the contract should be entered into or is being amended. All questions must be responded to as they pertain to the contract.

In most major departments in state government, officials must explain in writing when they want to hire an individual with a contract for services.

But at the Department of Health and Human Services, where Secretary Aldona Wos has awarded at least seven such deals, those rules are not being followed in most cases.

Wos, an appointee of Republican Gov. Pat McCrory, has awarded a number of high-dollar contracts, including one worth $312,000 a year to former State Auditor Les Merritt and another worth $310,000 to a vice president from the company owned by Wos’ husband. But in both of those cases, and in at least four others, the department says it can’t locate any memos written to justify the contracts.

Department policy requires a justification memo for sole-source and personal-services contracts. Under state law, the documents would be public records.

“No justification memorandum was located by agency personnel,” DHHS attorney Kevin Howell wrote in response to a public records request.

Howell was asked several times if anyone at the department had completed the justification memos. He repeatedly gave the same reply: “No justification memorandum was located by agency personnel.”

Howell said the department’s policy did not apply to the secretary.

“The intent of the justification memorandum is for the divisions within DHHS to justify the need for personal services contracts to the Office of the Secretary,” Howell wrote. “Since these personal service contracts were for the Office of the Secretary, no such justification was needed.”

Howell failed to respond when asked to provide the policy or regulation that exempted the secretary from complying with her departmental contracting policy. The agency’s purchasing manual does not provide an exception for the Office of the Secretary.

Wos declined to be interviewed.

Clues for auditors

DHHS has been a lightning rod for critics since McCrory and Wos took office in January. Wos has sought to remake the department, which the McCrory administration says was fraught with financial and management problems, by hiring a higher number of employees loyal to the governor and by hiring contractors.

Wos is also trying to overhaul the state’s administration of Medicaid, including plans to privatize the $13 billion health care program for the poor and disabled.

The rules on sole-source and personal-service contracts exist to provide a record for unusual or extraordinary spending. State Chief Purchasing Officer Sam Byassee said every personal-services contract should be accompanied by a justification memo.

“A broad reading of the purchasing and contract rules requires them to have one,” Byassee said. “Plus, you really need them for someone coming in later, such as an auditor looking for documentation that justifies the award.”

The department did obtain justification memos for a $100,000 six-month sole-source contract awarded to the Menges Group, a Virginia consulting firm.

Carol Steckel, the former Medicaid director, wrote that Wos “has a pressing need to engage a contractor to assist with Medicaid transformation.”

“The proposed contractor, the Menges Group, is exceptionally well qualified, has no engagements with any vested parties that could create any bias, has offered very reasonable pricing, and is ready to start work immediately upon execution of a contract,” Steckel wrote. “There is no other firm that has all these attributes.”

Steckel declined to answer any questions, even though she no longer works for the department.

“I’m sorry, that’s the policy,” Steckel said. “All communications have to go through Ricky.”

Missing memos

Steckel was referring to Ricky Diaz, one of two young McCrory campaign aides hired for high-level full-time jobs. Diaz, chief DHHS spokesman, is paid $85,000, and chief policy adviser Matt McKillip makes $87,500. Wos has said they were worth even more for the work they do.

The department also provided a justification memo for Susan Young, who was awarded two one-month contracts worth $45,300 to assess the risks of the new computer system to process food stamps and other social-service programs. Young spent two decades auditing computer systems for Bank of America and NationsBank in Charlottte.

DHHS has provided the details of the contracts. But the department said it could not locate justification memos for:

• Joe Hauck, who came to to DHHS from New Breed Logistics, where Wos’ husband is CEO. Hauck is vice president of marketing and communications and is on leave from the company. Wos was a campaign fundraiser for Gov. Pat McCrory, and New Breed employees were prime contributors. Hauck gave $6,500 to McCrory’s campaign in 2011 and 2012. His contract pays up to $310,000 a year.

• Merritt, a prominent Republican who served as state auditor from 2005 to 2009, who is contracted to provide financial expertise to the Department’s Division of Mental Health. His yearlong contract, which expires in May, is capped at $312,000. The contract includes two one-year renewal options. According to state regulations, personal-service contracts are used to provide temporary or occasional services.

• Robert Atlas, an independent adviser on Medicaid reform, who has a contract worth up to $224,000 a year.

• Jerry Johnson, who is coordinating the hiring process for the department’s Office of Internal Auditing, has a contract worth $215,800 on an annual basis.

• Carol Ransone, a management consultant from Charlotte, who was paid $118,753 on a contract from Feb. 27 through July 31 for work on the Medicaid payment system.

• Dennis Barry, former president and CEO of Moses Cone Health System, who was brought in on a two-month, $18,000 contract to evaluate the department’s human resource operations and other programs.

Howell, the DHHS lawyer, said the contracts were “an effort to address severe operational and management deficiencies discovered upon Secretary Wos’ arrival in January 2013.”

David Womble, the director of purchasing and contract at DHHS, did not return phone calls or emails.

Neff: 919-829-4516

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