Results in Brief

The purchasing component of the Integrated Financial System (IFS) contains a number of controls designed to ensure that purchasing transactions are properly recorded and executed. However, we identified areas where internal control weaknesses exist. For example, vendor payments could be better controlled, discounts are not always taken, and fixed asset codes need to be consistently entered. These weaknesses were caused, in part, because the Division’s policies and procedures for the online processing of purchasing transactions have not been fully developed. In addition, Purchasing staff must enter incorrect dates to process certain transactions. Further, transactions can be completed in one fiscal year, but recorded as expenditures in the prior year. As a result, the reliability of information and the accuracy of budgetary accounting data could be impacted. The development of sound internal controls is critical to help ensure the integrity of purchasing transactions and that management’s directives are carried out.

Principal Findings

· State agencies did a poor job in planning the contracts we reviewed. Agencies incorrectly identified five of seven contractors as sole source providers. In addition, agencies did not typically obtain approval for the use of a sole source provider. Review and approval of the decision not to seek proposals from other providers is important because these contracts bypass full and open competition. (page 11)

· Contracts did not always contain adequate performance requirements. Contract deliverables were unclear, expected completion dates were not always specified, and performance incentives were often lacking. Only 1 of 16 contracts we reviewed contained a penalty provision for poor performance. (page 15)

· Poor planning contributes to frequent contract amendments. The BOE approved 27 amendments for the 16 contracts we reviewed. In total, contract amounts increased more than $5 million from $2.2 to $7.4 million. (page 18)

· The state’s contract award process does not ensure vendor proposals are consistently and objectively evaluated, and contracts are awarded fairly. State agencies used a wide variety of methods for evaluating vendor proposals. Only five of nine evaluation methods assigned a score to each proposal as required by state law. In addition, none of the proposals were evaluated using a technical evaluation process. (page 19)

· Evaluation committees were not always used to evaluate proposals. A committee was not used to evaluate proposals in three of nine solicitations. In addition, two committees evaluating proposals did not receive sufficient guidance to ensure consistent and objective scoring. (page 25)

· State agencies did not follow proper contract monitoring practices. Contract Compliance Checklists were not prepared for 7 of 16 contracts. In addition, most checklists prepared were incomplete. Further-more, vendor reporting requirements were not included in 9 of 16 contracts. For the seven contracts with reporting requirements, only two agencies received reports. (page 26)

· The Department of Administration lacks the information it needs to oversee the state’s contracting activities. Information regarding state contracts is not complete, accurate, or readily available. In addition, Contract Summary forms submitted to the BOE are not always accurate. Furthermore, agencies do not always provide the BOE with adequate justification for their decision to contract. (page 28)

· The State does not ensure employees responsible for contracting activities are adequately trained. Although the State offers a contract training course, the training does not provide in-depth coverage on contract planning, awarding, and monitoring. In addition, attendance is not required. Other states have recognized the importance of this training and have developed contract certification programs to ensure employees have adequate contracting skills. (page 31)

· The State does not have adequate policies and procedures to ensure contracting activities are properly carried out. In fiscal year 2000, the BOE and its Clerk approved about 1,900 contracts amounting to more than $500 million. Without adequate policies and procedures, the BOE does not have assurance the contracts it approves are properly planned and awarded, and will be monitored after approval. (page 33)

· Accountability for the state’s contracting activities is poor. Although the BOE is responsible for approving contracts, it has little involvement in key activities such as planning, awarding, and monitoring. The responsibility for these activities is fragmented throughout state government. Because a framework for accountability has not been established, agencies often delegate contracting functions to employees that may not have adequate skills. In addition, employees may not have proper authority over the function being contracted for, or accept responsibility for ensuring vendor performance. (page 33)

State’s Contracting Process

Agency Response

to Audit Recommendations

Recommendation Number		Accepted	Rejected

1	Segregate the responsibilities for entering the information creating a vendor payment voucher	X

2	Create a report that will identify discounts available and taken	X

3	Establish a process to identify those users who consistently fail to include the “FA” code, providing additional training where necessary	X

4	Develop policies and procedures for the Division’s use of the extended purchasing component, including approving payment vouchers, ensuring cash discounts are taken, and reviewing purchase orders to ensure fixed assets are properly coded	X

5	Request that appropriate staff be provided the ability to authorize the continued processing of a transaction when the error message occurs that indicates the delivery date is before the transaction date	X

6	Request a system edit to control the recording of transactions to the wrong fiscal year	X

	TOTALS	6	0