State Auditor John Keel's report saidJack Stick, while leading the state's Medicaid fraud division, misled the federal Centers for Medicare and Medicaid Services as he and other officials asked for money for a $20 million deal with the company in 2012 and a pending $90 million extension, which was canceled in December.
The report confirms the findings of an American-Statesman investigation, which revealed problems with the way the contract was handled, and prompted state and federal criminal investigations into the matter, as well as the state audit.
At the time 21CT landed its Texas deal — despite having no experience with Medicaid — Stick worked for the Office of Inspector General of the Health and Human Services Commission. He resigned on the same day the state canceled the contract.
"The (Office of Inspector General) predetermined that 21CT would be the vendor, and neither the commission nor the (Office of Inspector General) conducted required planning activities" to help ensure the state would benefit from 21CT's software, the audit found.
Most of the approved project used federal money, which requires a competitive bidding process, but the audit found that assurances of competitive bidding by Stick and other officials were "not supported by their records."
The 12-page report states that the Office of Inspector General, which spearheaded the technology effort, and the Health and Human Services Commission, which approved it, made numerous missteps while sealing the deals. Among them:Stick, who led the procurement process, didn't meet the statutorily required experience necessary to approve payments to vendors.The state had no evidence that 21CT could analyze Medicaid fraud data and only asked the company to provide several demonstrations without Medicaid data.The state paid the company $19.9 million for a 21CT product that the inspector general is not using "due to unresolved legal issues."The state paid the company on a payment plan rather than for the goods and services provided.Stick communicated with the company and received procurement documentation using a personal email account."Although the State Auditor's report concerns Mr. Stick, it failed to ask him a single question or give him the opportunity to explain or defend his perspective of the events in question or in any way comment on his own or others' conduct, which is the subject of the investigation," Stick's lawyer, Brian Roark, said in a statement. "Mr. Stick looks forward to doing so at the appropriate time."
The audit also was critical of the state Department of Information Resources, which keeps a list of preapproved vendors that can sell to state agencies without bidding. The commission misused that program, the audit said, which lacked controls and oversight.
The audit came three days after a so-called strike force assembled by Gov. Greg Abbott lambasted the commission's leadershipover the 21CT scandal and delivers another blow to Executive Commissioner Kyle Janek, whom some lawmakers have asked to resign.
State Sen. John Whitmire, D-Houston, called the report "shocking" and said it indicates "the worst example of obvious theft that I've seen in my 42 years" in state government.
Whitmire was an early critic of irregularities in the 21CT deals, quickly demanding the resignations of both Stick and former Inspector General Doug Wilson, who also resigned in December. Whitmire continues to push for Janek's removal.
Abbott's office declined to comment on the audit.
Janek, who approved the 21CT contract and the pending contract extension, has said thatStick misled him about how much money 21CThad identified as potential fraud. Whitmire doesn't believe that, saying that the executive commissioner couldn't have been in the dark because of the number of irregularities surrounding the deals and the fact that his chief of staff was Erica Stick, Jack Stick's wife.
"It certainly appears like people used the commission for their own personal gain, and it was not a minor thing," Whitmire said. "It was a significant amount of money."
Particularly galling to him was the fact that 21CT was on a payment plan instead of being paid upon proof of their services. Two days after the inspector general's office signed a purchase order for the company's services, 21CT billed the state $2.3 million. Less than two weeks later, it issued another invoice for $3.7 million.
That unusual arrangement indicates a cozy relationship between 21CT and state officials, Whitmire said.
"That's what friends do," he said. "That's how illegal gains are arranged."
(The Statesman first reported in November that Jack Stick was a former business partner with James Frinzi, 21CT's former lobbyist. 21CT fired Frinzi after the state canceled the pending contract extension in December. Frinzi then told the Statesman that Stick was working to grow the company and had plans to become a 21CT executive. Both Stick and the company's CEO, Irene Williams, have denied those allegations.)
It's not the only time 21CT has quickly billed and been paid for services not yet provided to the state. In September, the company invoiced the Department of Family and Protective Services for $452,000 — the full amount of a contract to work on a child protection project — one day after the agency signed a purchase order for the company's work. The department paid it in full.
That contract also was canceled in December, after the 21CT deals came under scrutiny.
A Health and Human Services Commission spokeswoman said, "The SAO report notes that the former OIG deputy inspector general for enforcement directed the procurement. The matter is still the subject of a criminal investigation so we cannot comment further."
Mike Rosen, a 21CT spokesman, said, that 21CT followed all contracting and procurement protocols as directed by state officials.
"At the close of the contract in December, and since that time, we have offered to provide information and support to OIG, free of charge, regarding the hundreds of millions of dollars in actionable findings, software and resources purchased, delivered and still at their disposal, to ensure they are independently utilized moving forward," he said.
©2015 Austin American-Statesman, Texas. Distributed by Tribune Content Agency, LLC
