In the private sector, payments to companies owned by an employee are generally frowned upon. I was curious about the payment and so I asked HCRP Chairman Jared Woodfill about it. First, my question and then his response:
BJP: One thing I noticed is that the HCRP stopped using Mr. Yates’ company, Omni Information Services, in 2002 for five years, then had a couple of small payments in 2007, and one large one last year ($20,000 ) – for automated calls.
Why did you stop for those years? Why did you use them last year for automated calls if the party has its own system?
Mr. Woodfill: The system we have is limited to 20,000 calls a day. We have had some projects that requires us to exceed the capacity, i.e., reach a lot more people in a shorter period of time.
I followed up with this:
BJP: Makes sense. What about the other questions, about Mr. Yates’ company?
Mr. Woodfill: The $20,000 was for spill over automated projects due to the lack of capacity on our system. At times we were making 200,000-300,000 calls a day. No particular reason for not using Omni.
Like I said, it does make sense to outsource when your internal means are limited. But I still did not receive an answer about why the HCRP stopped using Omni and then started again. After all, Omni had been a very large player at the start of the decade, receiving $675,710.56 between April, 2000 and March, 2002. It seems odd to me that the business relationship would be severed at that point but I was only looking at state reports; perhaps a relationship still existed on the federal reports. But Mr. Woodfill is the chair and can direct business as he chooses.
I thought that the voters would like to know what the candidates opposing Mr. Woodfill in March 2010 for the chairmanship of the HCRP would say about awarding business to employees, so I sent them this question:
The Harris County Republican Party issued a check to Omni Information Services on 11/1/08 in the amount of $20,332.56 for automated phone calls. HCRP Executive Director Jeff Yates is the owner of this company, based upon Harris County DBA records and confirmation from party officials.
As you know, current HCRP Chairman Jared Woodfill has used the purchase of an automated dialing system as an example of the progress made under his leadership in that it reduces costs. In an email response to my inquiry about the above payment, he explained that the system that the HCRP owns is limited to 20,000 calls a day and that the HCRP has had some projects that requires them to exceed the capacity, i.e., reach a lot more people in a shorter period of time, which seems like a reasonable response.
Could you respond to the following questions?
- As a precinct chair, were you aware of this transaction prior to it occuring?
- Is it typical of the HCRP to award business to companies owned by employees?
- If so, is it on a bid basis or no-bid awarding?
- Should you be elected as County Chair, will you continue the practice of awarding business to companies owned by employees of the HCRP?
If you care to do some background work, there is a history of Omni receiving funds from the HCRP from 4/11/2000 thru 3/08/2002 ($675,710.56), 12/21/2007 ($4,676.36) and the above payment on 11/1/2008 ($20,332.56) for a total of $700,719.48. These are state records only, there may or may not be federal records that I have not looked into yet.
I will be asking (candidate) the same questions and I will also ask Mr. Woodfill if he would like to comment.
I received the following response from Mr. Ed Hubbard:
1. I was not a precinct chair, but was a Republican candidate on the ballot last fall. I knew that Jeff Yates was the paid Executive Director of the HCRP, but I was not aware that he had this side business, and I was not aware of this specific transaction, or of the transactional history you have recounted.
2. I am not aware of it being typical for any organization to do business with a for-profit company owned by a full-time employee. Normally, full-time employees are not allowed to profit from conducting separate business with the employer, because it always raises the question of whether there may have been self-dealing instead of arms-length negotiation. In fact, management employees, like the Executive Director, are held to have fiduciary duties to their employers, which normally prohibit such transactions. If such transactions are ever authorized, there normally are special rules in place to require full disclosures of the relationships and the transactions; special rules in place to assure that the employee was not involved in the negotiation and approval process on behalf of the organization; and special rules in place that require a showing of some sort of necessity for the transaction, or a showing that no other alternative vendor was available.
3. All such work should be awarded on a bid basis if time permits, and always on an arms-length basis. The problem with engaging a full-time employee’s for-profit business is that it always raises a question as to whether the transaction was awarded after arms-length negotiation by creating at least the appearance or suspicion of self-dealing. This is concern is heightened when the employee is a “management” employee. Self-dealing, or the even the appearance of self-dealing, must be prohibited.
4. The best practice is to prohibit such transactions in order to avoid the risk or appearance of self-dealing. I would have never authorized such transactions, and will not authorize them in the future. Such a policy protects both the organization and the employee from facing any ethical and legal questions.
And the following response from Mr. Paul Simpson:
Under the current County Chair, precinct chairs are not consulted in advance about Party expenses. Precinct chairs are also not told how the Party awards business. To my knowledge, the expenses you have identified are no exception to this practice.
The Republican Party should demonstrate high ethics. How the Party spends money should reflect transparency and freedom from conflicts of interest. This is not a reflection on any vendors, and not to disparage any individual. But the Party’s practices should adhere to standards that avoid both the possibility and the appearance of impropriety.
When I served as Party treasurer under a prior administration, I provided full disclosure to the Party Finance Committee and any member who asked how the Party’s money was spent. My experiences leading volunteer organizations has taught me that transparency is a key to success and to earning trust. In the Simpson administration, party employees will not be awarded party business. As County Chair, I will institute procedures to ensure that donors and activists know how the Party’s funds are spent, and that they are spent fairly, without favoritism. Donors and activists are entitled to expect that Party funds be spent prudently, fairly, and in a fiscally conservative fashion!
It is important to note that no one is accusing the HCRP, Mr. Yates or Omni Information Services of any wrongdoing. The question is simply about the practice of awarding business to companies owned by current employees, which raises the appearance of impropriety. After all of the scandals in both political parties recently, it is imperative to that even the appearance of impropriety is removed. I think it is clear that both Mr. Hubbard and Mr. Simpson would change the current system in place at the HCRP.
I did ask Mr. Woodfill for comment at 3:59 pm on September 17th but have not received a reply as of yet. Should he wish to reply in a reasonable time frame, I will update this post.