Pretty sure they can create humans with human DNA .w. They have cloning mastered. Grab human, clone it, voila. They didn't do it in Xcom 1 for reasons. They have them everywhere in XCOM 2 though. Guess they wanted EXALT to be the only human characters during the campaign. 

Gene mods? Pretty sure Gene mods do just that. I won't take the Bureau as reference, sticking to the EU and probably XCOM 2 when it comes out.