I don't believe this is FOF training by/for the auxiliaries, rather, pursuant to their support function they were serving as role players / OPFOR for the sworn officers. Most federal agencies national academies (FLETC, Quantico etc) hire role players for these functions.
Even if the training was for the auxiliaries it would likely be run by the regular LEO instructors / training staff.
Regardless, this is a failure by both the instructors running the training and those participating, one of whom introduced the live weapon.
I consider FOF training more dangerous than live fire training because as @AMC and @Dan Lehr and others have said people get sloppy, consider themselves too cool for proper safety procedures etc.
I've also been through the FLETC UOF and NLTA classes. In addition to the lassie-faire attitude towards safety, the other issue I see is understaffing. As @Coyotes Fan mentioned running FOF properly is a lot of work. In addition to the instructors running the evolutions, you need at least one maintaining site security / sterile environment and one handing FOF weapons and ammo, loading/issuing mags etc.