LITTLE ROCK — Arkansas Department of Human Services officials were on the hot seat Friday as members of a legislative panel questioned them about an audit report critical of the agency’s procurement practices.

LITTLE ROCK — Arkansas Department of Human Services officials were on the hot seat Friday as members of a legislative panel questioned them about an audit report critical of the agency’s procurement practices.


The audit by the state Division of Legislative Audit looked at three DHS projects and found that the agency did not adequately hold vendors accountable for contract fulfillment; used sole-source contracts improperly; did not always use cooperative agreements properly; did not keep the Legislature adequately informed; did not always comply with state purchasing laws and rules; and inadequately managed projects.


The first project auditors reviewed was one to develop software to serve as a universal system to help the Division of Aging and Adult Services assess clients’ needs and plan care. Auditors found that DHS entered into a contract with CH Mack that did not contain specific objectives and renewed the contract despite poor performance.


DHS terminated the contract in May 2014, by which time payments totaled $4.8 million.


Ten months before ending the contract with CH Mack, DHS entered into a contract with CoCentrix for a similar product. The agency improperly awarded the contract to CoCentrix as a sole-source contract, the audit found.


As of May 31, $9.24 million had been paid to CoCentrix, which is still developing and implementing the system.


The second project auditors reviewed was one to develop a computerized system for enrolling people in, and verifying their eligibility for, Medicaid and food stamp programs. Auditors found that DHS did not properly request proposals before selecting Noridian for the project.


Negotiations with Noridian failed. Instead of negotiating with the second highest-scoring bidder, Northrop Grumman, DHS improperly used a cooperative purchasing agreement to contract with Computer Aid Inc., or CAI, for staff augmentation services, which requires paying CAI a 6.9 percent markup on all invoices, according to the audit.


Under the agreement with CAI, various contractors have been paid to work on the project, including Northrop Grumman.


As of May 31, DHS had expended $106.1 million for the project, which ultimately is expected to cost between $180 million and $220 million, with the state expected to pay about $25 million and the federal government paying the rest. Fees to CAI account for $4.9 million of the money paid so far.


The third project auditors reviewed is the Arkansas Health Care Payment Improvement Initiative, which seeks to move the state from a fee-for-services health-care payment system to an episode-based payment strategy. DHS improperly awarded a contract to McKinsey and Company as a sole-source contract, according to the audit.


During the period of the audit, the total paid to McKinsey was $89.4 million.


During a meeting Friday of the Legislative Joint Auditing Committee, Sen. Bill Sample, R-Hot Springs, asked why DHS needed CAI to choose contractors for it.


DHS Deputy Director Mark White said the prevalent thinking now is that using CAI for staff augmentation services was not appropriate for the massive enrollment and eligibility project.


"The governor has directed us to move away from these types of time-and-materials contracts under these cooperative purchasing agreements and instead go to other agreements like sole-source or, ideally, competitive bid, where we can have much better contracts and not be paying that 6.9 percent to CAI," he said.


Sen. Bart Hester, R-Cave Springs, asked what DHS has received for the $4.8 million it paid to CH Mack.


Office of Program Management Director Tim Lampe said CH Mack agreed to a corrective action plan after DHS found problems with its performance, but he said that in March 2014 he recommended not renewing the contract because he had no confidence that the ultimate product would work.


"So the answer is we got nothing?" Hester asked.


"In my opinion, very little," Lampe said.


Hester said DHS has been wasting money while the state struggles to help needy and abused children.


"A couple of million dollars would change the lives of 521 kids in Arkansas right now. A couple of million bucks," he said. "We don’t have it. And this is being thrown down the drain."


DHS Director John Selig said a number of changes have been made as a result of what happened with the CH Mack Contract, including the replacement of the division’s director.


"We did not catch this soon enough. We should have," he said.