By Jennifer Bendery, GalleryWatch.com
Austin, TX –
Today's four-hour House Licensing and Administrative Procedures Committee hearing probably felt like four days to state lottery officials, who this afternoon faced intense scrutiny from committee members rattled by claims that Texas Lottery Commission (TLC) executives misled legislators about a $1.3 million emergency control center that doesn't work, discouraged open record requests and threatened employees into keeping their mouths buttoned shut.
At the heart of today's hearing were two controversial matters: an email sent last week to committee members from Shelton Charles, a recently fired TLC senior network analyst, alleging that the agency's disaster recovery site has never been operational; and a recent internal audit finding that several hundreds of thousands of dollars slipped by in prepayments for purchases never received by the agency.
Rep. Kino Flores (D-Mission), chair, began by stating that TLC executives have come before the committee three times in the last year and a half to discuss problems with management and contracting. The first time related to a contract dispute between the commission and a Las Vegas law firm, the second time involved inflated lottery jackpots and now it relates to mismanagement of state dollars allocated for a disaster recovery site. Speaking to TLC employees who agreed to testify before the committee today, Flores said he hopes what they say "will not cause them to lose their jobs."
Throughout the committee, each witness was required to speak under oath.
The first witness was TLC Chairman Thomas Clowe, Jr., whom Flores questioned about claims that the agency spent more than $1.3 million for a disaster recovery site that is not fully operational. Clowe said the allegations are not true and that the site has been operational since sometime between late 1998 and early 1999. When he said he couldn't remember exact dates, Flores said, "Good answer," to which Clowe replied, "It's the truthful answer."
Flores said he had a document stating that the disaster recovery site was still in its stages of development in 2004. When Clowe said he didn't know what development stages to which he was referring, Flores said they were outlined in the agency's business continuity plan for 2005-2007. "But you testify that it is up and running," said the chair. "You said in the beginning that you are complete, that you are done." The TLC chairman said he didn't say they were done because "it's a continuing process. It will always be ongoing."
The committee chair said he understands the need to regularly upgrade equipment but is concerned that the disaster relief site may be "a situation with a car without an engine." Clowe said it is his understanding that the site is 100 percent operational and "has an engine." Flores asked why Clowe's previous testimony indicated the site was up and running with no mention of upgrades and changes. "You all left the impression, in writing, that it's up and running," said Flores. Clowe replied, "I think I'm saying the same thing today I said then."
Rep. Delwin Jones (R-Lubbock) asked if a TLC employee had ever been fired after testifying before legislators or if testifying had ever been used as a basis for termination. "Absolutely not," replied Clowe.
Brian Rawson, Director of the Service Division at the Texas Department of Information Resources, clarified the difference between the data center and the disaster recovery strategy. The data center houses servers and mainframe computers that store information, he said, while the strategy protects information and applications. He handed out a chart that provides two views of a disaster recovery strategy. Based on tolerance for downtime, the diagram illustrates the potential impact on costs when implementing a tolerance versus no-tolerance disaster recovery strategy, said Rawson. A "hot" site is in a constant state of readiness whereas a "cold" site is significantly slower in its recovery of data, he said.
Most Texas agencies are at least "warm" sites, said Rawson, noting that "hot" sites tend to be agencies with "mission-critical applications," such as financial applications or programs that affect peoples' safety and health.
TLC executive in the hot seat
Gary Grief, Acting Executive Director for TLC, clarified the difference between the agency's disaster recovery plan, which is constantly changing and evolving, and the disaster recovery site, which he said has been operational since 1998 and receives information from TLC headquarters on a real-time basis. He said the commission is a "hot" site in terms of backing up critical functions such as financial information and gaming information from GTech, the company that operates the agency's gaming activities.
Regarding claims that the disaster relief site is not operational, Grief replied, "My understanding is that it is." He said he gets his information from people at the site on a day-to-day basis. "So there's not anything worry about then?" asked Flores. If he had a payroll question or a financial question, "You mirror up there what you do down here?" he asked. "Not 100 percent," replied the TLC executive. "Just critical business functions." Flores said that suggests the site is "not up and running. I've got a Chevy that runs but it's not quite there." Grief said agency leaders currently are working out whether it is cost-effective to have 100 percent of every system backed up at the site.
Rep. Corbin Van Arsdale (R-Houston) expressed frustration with agency executives for not knowing when the disaster relief site became operational. When Grief said he didn't know the date of the site's launch and that employees who would know were no longer with the agency, Van Arsdale asked, "Isn't some of this stuff written down?" Grief said the site has been linked to the agency's billing since late 1998 or early 1999. Van Arsdale said it "seems kind of far-fetched" that nobody knows when the site "actually started working."
Another big problem is that the "guy who's running the lottery right now doesn't know when it was operational," said Van Arsdale. This is "troubling." The Houston legislator reminded lottery officials that they knew about today's hearing and knew the subject matter. "This site is very important," he said. "When did it start operating?" Grief said he didn't want to leave the impression that "we didn't try to find that out." Lottery employees researched the issue "but couldn't find any documents that said, 'This site is operational,'" he said.
When Van Arsdale asked why there are no invoices of the costs involved with launching the site, Grief said he couldn't find any document that shows "when the Lottery flipped the switch." The Houston legislator insisted that there should be some kind of paperwork that lottery officials can come up with "on how this $1.3 million was spent."
Flores asked why legislators shouldn't believe Shelton Charles, the senior network analyst fired last week from the agency, when he says the disaster recovery site is not operational. "We'd be happy to take members out to the site," replied Grief. Visibly angry, the committee chair asked why key documents can't be produced but why a site visit is so easy to work out. "So if I ask in writing, it's confidential. But if I want to go touch it, it's not confidential," said Flores. "You've done a good job of confusing."
Flores then asked Grief who fired Charles. "I did," replied the lottery official. When the committee chair asked if that wasn't normally the job of a direct supervisor or manager, Grief said it was "a unique situation" since Charles had made allegations against his supervisor. Flores asked what grounds Charles was fired on, "other than insubordination." Grief replied, "That is the grounds." He said Charles was unwilling to work with his supervisor and unable to respond "to simple questions" within the scope of his job.
Noting that Charles was fired shortly after he asked his supervisor to put a work-related request to Charles in writing, Flores asked why it is considered insubordination to ask for something in writing. Grief said to imagine how much work it would amount to if everybody at the commission asked for things in writing.
The lottery official said it was "insubordinate and dysfunctional in the workplace" for Charles to ask for things in writing from his supervisor. "I don't believe anyone would tolerate" such requests in other places of employment, he said. Flores asked what would happen if someone paid $300,000 for goods that were never received, referring to pre-paid items that were never received by the agency. Grief replied that the employee who placed that order is no longer with the agency. "But that still happened and you still don't have the items," said Flores. "Nothing changed."
As tensions mounted, Flores unleashed some harsh words on Grief. "This committee has had a whole bunch of concerns, some that we have been able to validate. And nothing has happened at the Lottery," said the committee chair. "The at-will status? The purchasing? Your own audit shows that you had 21 pre-paid items, yet you don't have a method to track it and you have not received those items. Some of those were for $300,000, $400,000, $500,000. What do you call those? Aren't those grounds for termination? For being written up?"
When the lottery official said he wasn't sure how to respond to Flores' statements, the committee chair replied, "Try. Get out of the box a little bit." Flores said every time a TLC employee comes forward with information about problems within the agency, "You either terminate them or call them bad employees. And everything they said has been true."
Grief stated that "it wasn't easy" firing Charles and that he sought advice from legal staffers and human resources before firing him. He said he took a "thoughtful and considerate" approach. When asked when Charles was fired, Grief said on Nov. 4, which was the same day Charles' supervisor arranged for a meeting between the two of them. "How long did you think about it if the meeting was that day?" asked Flores, to which Grief replied, "Several hours."
Wondering aloud why the committee was meeting, Rep. Chente Quintanilla (D-El Paso) questioned if committee members were supposed to be looking at the human resources aspect of Charles' termination or whether the disaster recovery site is operational. If Charles was just a disgruntled employee, perhaps he saw an opportunity to get back at the agency, he said. "This is a good tactic. If I'm an at-will employee, if I blow the whistle, they won't be able to get rid of me." Flores said the point of today's hearing was so legislators can "go home and let people know the Lottery spent $1.3 million and there is nothing to worry about."
Candy Salinas, a network specialist at TLC, said that while the disaster recovery site has a real-time recovery system, the back-up system "is not that big." Quintanilla asked what the purpose of a back-up system is if it's not taking in all the information from the agency's headquarters. Salinas said she anticipates a full back-up system at the site in the future but currently, the system at headquarters has "more tapes" to store data than the site. "So the [disaster recovery site] does not have the capacity for the number of tapes the main office has?" asked Rep. Delwin Jones (R-Lubbock). "That is correct," replied Salinas.
TLC systems analyst Barry Fealy said the back-up system is larger at headquarters because "that's where our operations happen normally." He said SunGuard is helping the agency to develop its business continuity plan, which was finished in September. Flores reminded that he is testifying under oath and said that he is contradicting himself with regard to the site being operational. When Fealy said the agency only contracted with SunGuard to develop the business continuity plan and that other things will change, Flores replied, "That's a good line. Keep changing. You never have to be accountable. That's a good way to milk the system."
Next up was Mike Fernandez, Administrative Division Director at the commission. When he said he didn't know when the disaster recovery site became operational, Flores said he is "having trouble understanding" why the agency's administrative director, IT director and executive director don't know when the site became operational. "What's so hard to say when we turned on the electricity" at the site, he asked. "When did the phone system get turned on? What's so hard about that?" Grief said it was "a massive undertaking when the site was built and many different systems were brought aboard.
"I sense people are afraid to answer a question," noted Jones. "Is there some kind of fear complex among employees? Or they just don't like to talk?" Grief said there is probably "an intimidation factor" from being in front of the committee but that there is no culture of fear at the agency that he is aware of.
TLC Computer Operations Coordinator Joe Pulido said he tries to get all the tapes from agency headquarters over to the disaster recovery site on a daily basis. When asked if he felt any pressure when coming before the committee today, Pulido said he just wanted to give the correct answers. "I hope you don't get fired tonight," said Flores.
The whistle-blower
The next witness was Shelton Charles, who said blowing the whistle on the lottery commission is the "hardest thing I've had to do in many years" because he has had to face his fears of being fired as well as put his co-workers at risk by asking them to testify. He testified that he has been a network specialist for 20 years and that he knows networks "backwards and forwards." If the state spends $1.5 million on a back-up system, it should work, said Charles. "They can't tell you when it was turned on because it doesn't work."
When Jones asked if he was nervous to testify, Charles said he was nervous that his co-workers jobs might be in jeopardy. "I haven't seen anything that might create a problem for them," said Jones. "Have you?" Charles said yes and that his fear stems from witnessing "massive firings" of at-will employees at the agency. "The list is long," he said. "When you look at the history of Lottery and compare it to other agencies, how many had as many at-will firings in that short period of a time? That's scary." He said he estimates between 15 to 20 people have been fired in the last two to three years.
Jones asked what legislators would find if they went to visit the disaster recovery site. Charles said they would need to bring technology professionals in order to know what they are looking at. "Someone needs to pull the plug on this thing and see if it comes back up," he said. If someone were to test communications with GTech, it wouldn't work because there isn't sufficient bandwidth, said Charles. When Flores asked why lottery officials were frowning at him from the back of the committee room, Charles said it is because they know that he is "intimate with that system, more so than anyone" at the agency.
"If something happened at one location, the other one is not able to function?" asked Flores. "Yes," replied Charles, who described what would happen in the event of a disaster. All claim centers would have to communicate through a single line through GTech to get to the disaster recovery site, he said, which would "greatly overburden that connectivity. It's going to slow it down and probably shut it down." But Charles added that he can't speak to absolutes "because, of course, it's never been tested."
Charles said what hindered network analysts from getting the system up and running was Fernandez telling them repeatedly that there was no money to purchase the equipment because that money was already budgeted. When asked if the site is not running at all or if it is just not running adequately, Charles said as of Nov. 4, "Not at all." He said the problem is that while the data is there, there are "no servers to remove that data."
Jones asked Charles to put in writing what it would take to get the system up and running. When asked what his supervisors would say to him when he told them about problems with the site, Charles reiterated the culture of fear driving the agency. "What did they say? You're fired," he said. "I have to decide, do I piss these people off constantly and tell them again there's something wrong?" Charles said when he recently brought problems up with Fernandez, the supervisor replied, "I'll fire every one of you sons of bitches as soon as you walk out the door." This reflects "the tone of the Lottery," said Charles. "This is what we live under." He listed off several managers who "all knew [the system] didn't work" but who did nothing about it.
Rep. Charlie Geren (R-River Oaks) asked Charles about a complaint he had filed relating to lottery employees being treated differently based on race. "Look at the salaries at Texas Lottery right now and compare the races of individuals," he said. "You'll find some interesting information there." Charles said promotions and advancement are "all tied to" a person's race. When Geren asked where legislators should begin with investigating the matter, Charles said to start with IT and then the financial division.
Fernandez testified that the "sons of bitches" remark "never occurred." Charles said several other people were present when Fernandez made the remark, some people currently with the commission and others who have left. When asked who was there, Charles said Salinas and Pulido were among them. Someone in today's hearing "is perjuring," noted Van Arsdale. "Do you understand that?" Charles replied, "I understand that."
Charles went on to describe how agency officials would discourage open records requests by making them cost-prohibitive. He recalled Joan Kotal, a programming services manager, telling him that if the agency charges an inflated amount for an open records request, it will help to keep people from asking for them. "How many CDs cost $21,000?" asked Charles, referring to a charge for restoring information from emails onto a CD.
"I don't know that we accomplished anything, but we at least brought it to light," said Flores toward the end of today's testimony. Charles said that is the most important thing and that the responsibility now falls to the committee members to do something. "I've done what I can. If you go out there and find this thing running, call me a liar, fine," he said. "But I doubt that will happen. I know it won't happen."
Pre-payments of promotional items
The committee moved on to address the agency's prepayment of promotional items. Internal Audit Director Catherine Melvin said the agency reviewed prepayments to vendors of promotional items in May of 2005. The audit found a series of outstanding orders made by a former employee whereby payments were made but items had not yet been received. Flores became agitated when Melvin said she was not aware of any caps on purchases per employee. "You're the auditor and you can't answer that question?" he asked, noting there should have been two or three other check-offs involved in signing off for inventory.
When Flores asked what changes have taken place since the discovery, Melvin said she has communicated with several higher-level officials and they plan to revisit the issue in a year. "I expect management to put controls in place," she said. But Flores criticized the approach being taken by the agency. "You're now going to establish this when we've been paying for them to do this for the last nine years?" he asked. "Why are we telling them to do this when we've been paying them to do this?"
But Grief said the agency has made significant changes, including the recent hire of a comptroller, which the agency has never had before. The problems with prepayments were the result of "a general lack of controls we have in this process," he said, noting that there are new procedures in place to address this problem. But Flores said $311,000 "is very serious" and is something he "wouldn't characterize as a bump in the road." When he asked if anybody was fired, Grief said people involved with these prepayments were no longer with the agency.
The hearing concluded on a tense note as Flores asked if this would have happened if the agency made its purchases under the state purchasing code and Grief said no. "Why doesn't this happen at any other place but the Lottery?" asked Flores. "Because at other places, you have check-offs. That's the difference. Why the hesitancy to adhere and go under this code?" Grief said he understands what the chairman is saying about the agency needing to have better controls on its purchases, to which Flores replied, "That's what you said last time and it's still not being done."