Audit of Procurement Final Report
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Internal Auditor’s Office P.O. Box 3366 West Palm Beach, Florida 33402 Telephone: 561/659-8084 FAX: 561/659-8066 “The Capital City of the Palm Beaches” TO: Lois J. Frankel, Mayor FROM: Imogene Isaacs, CIA, CGFM, Internal Auditor DATE: July 21, 2004 SUBJECT: REPORT NO. 2004-01 AUDIT OF PROCUREMENT INTRODUCTION As approved in our fiscal year 2002/03 Audit Plan, we have performed an Audit of Procurement. The purpose of this audit was to evaluate City practices over carrying out the provisions of the Procurement Code. Specific audit objectives were to determine that City procurements were made consistent with the Procurement Code and Procurement Procedures and to determine that the system of controls over the procurement process from initiation through administration and monitoring were effective. The audit covered procurements City-wide with the exception of Procurement Card purchases. CONCLUSIONS AND SUMMARY OF FINDINGS Overall, the Procurement Code and Procurement Procedures provide an effective, efficient, and fair method of obtaining goods, services, and construction for the City. The process is comprehensive and, for the most part, followed. Practices were consistent with authorized budgets. Page 2 of 45 The Procurement Division is the focal point for City purchases. The Procurement Division has a dedicated, highly qualified staff and carefully ensures that the competitive bid ...
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| Langue | English |
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“The Capital City of the Palm Beaches
Internal Auditor’s Office P.O. Box 3366 West Palm Beach, Florida 33402 Telephone: 561/659-8084 FAX: 561/659-8066
TO:Lois J. Frankel, Mayor FROM:Imogene Isaacs, CIA, CGFM, Internal Auditor DATE:July 21, 2004 SUBJECT: REPORT NO. 2004-01 AUDIT OF PROCUREMENT INTRODUCTION As approved in our fiscal year 2002/03 Audit Plan, we have performed an Audit of Procurement. The purpose of this audit was to evaluate City practices over carrying out the provisions of the Procurement Code. Specific audit objectives were to determine that City procurements were made consistent with the Procurement Code and Procurement Procedures and to determine that the system of controls over the procurement process from initiation through administration and monitoring were effective. The audit covered procurements City-wide with the exception of Procurement Card purchases. CONCLUSIONS AND SUMMARY OF FINDINGS Overall, the Procurement Code and Procurement Procedures provide an effective, efficient, and fair method of obtaining goods, services, and construction for the City. The process is comprehensive and, for the most part, followed. Practices were consistent with authorized budgets.
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The Procurement Division is the focal point for City purchases. The Procurement Division has a dedicated, highly qualified staff and carefully ensures that the competitive bid and request for proposal processes are fair and that all participants receive the same information; openings were well documented. Our test results indicated that delays in procurements were not attributable to the Procurement Division. We commend the Finance Department for strengthening controls over the proper use of City Form 121 (direct pay for items not requiring competition and not requiring a purchase order) and reducing the number of inappropriate occurrences. This was particularly noteworthy since that had been a weak area noted in the past. At the City-wide level, adherence to some provisions of the Code and of procurement related Florida Statutes was not consistent. There were instances where competition was circumvented for convenience or expediency. Additionally, there are needs for improvement in some of our procedures and processes. More specifically, areas identified as needing attention are presented under Findings, Recommendations, and Responses and are summarized below. Opportunities for increased productivity and performance are discussed inFinding No. 1: Better utilization of automation capabilities of the Oracle Financial System would maximize efficiency and strengthen controls. We recommend the use of electronic requisitions throughout the City and revisions to the purchase order format. We also recommend improvements over entry and changes to vendors and responsibility for receiving into Oracle. Delays are wasteful of both human and financial resources and improved efficiencies and operating controls can be gained by defining and streamlining the contracting process. This is discussed inFinding No. 2: Contracting process improvements are needed for maximizing efficiency and strengthening controls. We recommend written procedures to include a routing sheet and that contracts be included in all invitations to bid and a contract shell included with all requests for proposals. We also recommend development of procedures for executing and retaining contracts for official document control. Finding No. 3: Greater effort should be made to pay vendors timely as provided by Florida Statutesillustrates the potential interest liability on late payments for water and sewer capital projects as well as services. We recommend all invoices be sent directly to accounts payable and then distributed to the respective departments for approval to pay. Additionally, we recommend that the
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number of interest payments as well as the total amount of interest paid be reported to the City Commission in December of each year as required by Florida Statute 218.78. Finding No. 4: More definitive Code language and specific procedures are needed to preclude abuses in the use of “Emergency procurement provisionsnotes that use of the term “emergency is common in jutsification documents (to Procurement or in Commission Cover Letters) regardless of a formal emergency determination by the Mayor. It illustrates how, in order to meet “time constraints, the City elected to go without competition for the sake of expediency not an emergency even though it is questionable that time savings were generated. We recommend revision to the Procurement Code to clearly define an emergency as an immediate We need.recommend the Procurement Official be included in the also process and the requestor provide supporting information to justify the immediate need. Finding No. 5: Competitive selection should not be avoided by continuing contracts and continuation of contractsshows how long term relationships with selected vendors limit opportunities for others to do business with the City. Continuing agreements for engineering services executed after selection on a competitive basis provided scopes of services so broadly stated that there was seldom subsequent competition. The City tended to continue dealing with a satisfactory vendor rather than go through a new selection process. We recommend terminating existing engineering service contracts that are not project specific and ensuring services are advertised and vendors selected pursuant to Florida Statutes. We also recommend revision to the Procurement Code calling for a maximum 5-year contract period on contracts other than construction projects. In fiscal year 2001/02, several purchases were made without going through the Procurement Division. Therefore, a purchase order only acted as a confirmation for a prior committed transaction as pointed out in other than EmployeesFinding No. 6: Procurement should not be allowed to perform procurement functions and obligate the City. We recommend revision to the Procurement Procedures to clearly preclude employees from obligating the City without Procurement Division review and issuance of a purchase order and from obtaining quotes except for estimating purposes or at the direction of the Procurement Division. We recommend the Procurement Official formally notify the City Administrator when the process is being abused. We also recommend the Procurement Official remind City staff of the authority given the Procurement Official by the City Code to require compliance with Procurement Procedures.
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For the most part, management agreed with our recommendations. Responses provided by Tom Harris, Finance Director, follow each recommendation. His entire written response is included at the end of this report. Following the Findings, Recommendations, and Responses under Clarifications, Revisions, and Corrections to the Procurement Code Neededare our suggestions for fine tuning the Code. We believe the changes will make our procurement process more workable and assist the Procurement Official in carrying out the Code provisions. Also included in this report asOther Matterswere conditions noted that were presented to the Finance Director and Procurement Official for action and either corrected during the audit or not considered as findings requiring Internal Audit follow-up. During the audit, several areas in the Public Utilities Department were identified for further audit work. Some of our concerns included engineering and construction management processes primarily in the areas of cost estimate accuracy, basis of engineering fees, inspection and observation records, overly optimistic time estimates, utilization of City engineering staff, and the methods currently used to contract construction projects. A separate audit is planned to address these concerns. We thank Nora Laudermilk, Procurement Official, Jonathan Ash, Public Utilities Capital and Bond Fund Manager, Theresse duBouchet, City Clerk, Claudia McKenna, City Attorney, and the many City staff that assisted us during this audit. This audit was conducted by Scott Craig, CIA, Senior Assistant Internal Auditor; Suzie Hetherington, Assistant Internal Auditor; and Ken Nielson, CPA, CIA, CISA, Senior Assistant Internal Auditor. Dennis Prewitt, CCP, CCSA, SPHR, Management Analyst, assisted with departmental interviews. SCOPE AND METHODOLOGY The scope of the audit was all procurements, other than those made by procurement card, made during fiscal year 2001/02. A random sample of 153 checks and 359 purchase orders were selected for detail testing. Additional purchase orders were selected for review where specific types of transactions were not in our sample. The audit also included review of certain procurement system controls and user practices. This audit was performed in accordance with generally accepted government auditing standards. In performing this audit, we:
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• obtained and reviewed Florida Statutes, City Charter, Procurement Code, City Administrative Policies, Procurement Procedures, and department policies and procedures; • examined invoice packages with checks for approvals to pay; reviewed requisitions and purchase orders for supporting documentation; • • reviewed invitation to bid responses, request for proposal responses, documentation of single source and emergency designations; • agency contracts that we used, called “piggybacking, and verifiedreviewed other the City had a contract referencing the other agency contract; • verified timely payment and calculated potential late payment interest liability; • reviewed files of legal services and consultant contracts; • as vendors on the accounts payable system;reviewed employees coded • reviewed computer access and authority levels; • reviewed engineering and construction contracts and project files; • interviewed primary users of the procurement system; and • performed such other tests of procedures, practices, and records as deemed necessary. BACKGROUND AND PERTINENT INFORMATION The City of West Palm Beach Procurement Code, adopted in February 1999, provides the authority for procurement of goods, services, and construction by the City. The purposes of the Procurement Code are to: •provide a uniform system for procurement; • ensure a system of quality and integrity in procurement; • simplify, clarify, and modernize methods governing procurement; • maximize open competition; • maximize the purchasing value of public funds;
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• confidence in procedures followed in public procurement;provide for public • promote fair treatment to all suppliers of goods, services, and construction; and • encourage participation by local businesses. The Procurement Division of the Finance Department procures goods, services, and construction, and, for the most part, has sole authority to administer the Procurement Code. Under the Procurement Code, the Procurement Official is responsible for establishing operating procedures to carry out the provisions. Procurement Procedures covering the 1999 Procurement Code were issued in February 2000. After implementing the new procedures, the Procurement Division was recognized by the Florida Association of Public Purchasing Officers in 2000 with an award for Best Practices, specifically “Special Recognition for Redesigning Purchasing. During the audit, the Procurement Division was awarded the 8th Annual Excellence in Procurement Award by the National Purchasing Institute, Inc. The award is designed to recognize organizational excellence in public procurement and is earned by those organizations, public or non-profit, that obtain a high score on criteria designed to measure innovation, professionalism, productivity, and leadership attributes of the procurement organization. The City of West Palm Beach Procurement Division was one of only 100 organizations that achieved this national award for 2003. The Procurement Division is responsible for obtaining sufficient competition to ensure that the goods, services, or construction being procured are the highest quality at the most reasonable cost. During fiscal year 2000/01, $72,006,542 was encumbered by Purchase Orders; $93,232,605 in fiscal year 2001/02; and $108,001,132 in fiscal year 2002/03. The Procurement Division staff is: Nora Laudermilk, CPPB, Procurement Official; Donna Levengood, CPPB, Assistant Purchasing Manager; JC Chandler, Contracts Officer; Jerry Jefferson, Warehouse Supervisor; Joseph Prince and Henry Dean, Stores Clerks; Darlene Wilkinson, Dino DeRostaing, and Jim Bowman, Buyers; Diana Williams, Contract Specialist; and Jeannie Bailey, Secretary. Authority to Procure No contract for goods, services, or construction, as well as contract amendments or change orders, may be approved or executed unless sufficient funds are available in the annual budget approved by the City Commission or an F-Resolution amending the budget
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approved by the City Commission. If any procurement is in excess of $10,000, it must be detailed in the budget or amendment to the budget. The user department director is responsible for verifying availability of funds. Contracting Procedures Contract means any type of legally enforceable written agreement, regardless of its name, for the procurement of goods, services, or construction. A written contract is required for all construction procured by the City and for all services procured by the City for which a purchase order alone is not appropriate. A purchase order is required for all goods procured by the City. A purchase order may be used for the rental of goods, for services that accompany the procurement of goods, and for repair or maintenance services that do not require execution of a contract between the City and the vendor where the terms and conditions can be adequately expressed on the purchase order. A purchase order is also used to encumber funds for goods, services, and construction under written contracts. All procurement contracts and contract amendments must be (1) approved by the user department director, (2) approved by the City Attorney as to form and legal sufficiency, and (3) signed by the Mayor or the Mayor’s designee. A duplicate original of all executed contracts and any contract amendments are to be provided to the City Clerk and a duplicate copy maintained by the Procurement Official. All purchase orders are signed by the Procurement Official and duplicate copies of all executed purchase orders are maintained by the Procurement Official. The Mayor’s designee may sign procurement contracts and contract amendments in the Mayor’s absence. Such designees are limited to the City Administrator and Assistant City Administrators. Such designations must be in writing with a copy provided to the City Clerk and the Procurement Official. The following category of contracts require the approval of the City Commission prior to execution by the Mayor: Contracts for construction of buildings and structures; • •Contracts for insurance, including property, damage, liability, health, workers’ compensation, or any other insurance; • Contracts for legal services that exceed $25,000; • Contracts where the requirements of the Procurement Code have not been fulfilled; • Contracts where approval of the City Commission has been requested in writing to the Mayor by any member of the City Commission; or
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• which require such approval pursuant to Florida Statutes.Contracts Procurement Methods and Process If the nature of the purchase is specifically described in the budget along with the estimated amount of the goods, services, or construction and does not involve above-ground changes to the “face of the City, then Procurementmay go ahead and purchase it through an approved method. Any above-ground changes to the “face of the City require City Commission approval. Procurements are categorized by dollar amounts and methods of obtaining competition are identified for each category as follows: Purchases of $.01 to $50.00: Purchases in this category are made with the procurement card (Visa) or petty cash. Purchases of $50.01 to $2,500: Purchases in this category are made through procurement cards (Visa) or purchase orders. Quotes are not required for these purchases; however, competition should be sought when practicable. Where the City procures large volumes of small items such as office supplies, the Procurement Division issues invitations to bid and the City enters into a contract, usually acquiring the items at a discounted amount. Although employees use their procurement cards to acquire the items, they are expected to procure from the pre-selected vendors. Purchases of $2,501 to $25,000: Purchases in this category are made on purchase orders and a minimum of three formal quotes is required. Purchases over $25,000: Purchases in this category require Invitations to Bid or Requests for Proposals as discussed below: Invitation to Bid: Invitation to Bid contains precise specifications of the City’s needed product, service, or construction along with proposed contractual terms, conditions, and other applicable requirements. The bidders must meet specifications in order to qualify. The selection is based on the bidder offering the best price as well as being in the City’s best interest. There is no negotiation once the bidder has been selected. Request for Proposals: If the Procurement Official determines that a Bid is neither applicable nor practicable, goods, services, or construction may be procured by competitive sealed proposals Request for Proposals (RFPs). With a RFP, the City may not provide precise specifications but rather a need or problem description for which proposed solutions are sought. The RFP encourages the proposal of alternative specifications, scope of services, and contractual terms and conditions. With a RFP, the selection is based on the qualifications, skills, and
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experience of the proposer and, of course, the solution proposed rather than the price. Negotiation is commenced after the selection. While the above represent the normal procurement, the following address unique circumstances or special requirements. Single Source: The Procurement Official may select a single source without competition if, after conducting a search for available sources, determines in writing that only a single source is practicable or in the City’s best interest. Professional Services: Florida Statutes Chapter 287.055, the Consultants Competitive Negotiation Act (CCNA), deals specifically with acquisition of professional architectural, engineering, landscape architectural, and surveying and mapping services for projects with estimated construction costs in excess of $250,000 or professional service study fees in excess of $25,000. Selection factors are based on capabilities, adequacy of personnel, past record, professional designations, and expertise and experience of the firm and its individual professionals. The City has a program in place to pre-qualify firms or individuals. Only qualified professionals may respond to RFPs, thus if not pre-qualified, responders must qualify during the response period. Legal Services: The City Attorney may select a lawyer on the basis of expertise and skill without competitive selection. However, a contract for legal services that exceeds $25,000 requires City Commission’s approval. Lobbying Services: The Mayor, the City Commission, or the City Attorney may select a person to provide lobbying services without competitive selection. Other Agencies: The Procurement Official may utilize other government contracts which are made available to the City. Other government contracts include contracts of the state, general services administration (Federal), and other governmental agencies within the state. If such other government contract is utilized, a contract is executed between the City and the particular provider. Emergency Procurement: The Mayor may authorize the Procurement Official to make emergency procurements when a threat to public health, safety, or welfare exists; such emergency procurements are to be made competitive when practicable under the circumstances. Procurement Procedures The sequence of events in a procurement (1) begins with a requisition, (2) involves competition at the appropriate level for whichever of the above approved methods is used, (3) leads to selection of the vendor, and (4) culminates with the creation of a
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purchase order by the Procurement Official. The requesting department is responsible for accepting deliverables and approving payment. The user department describes in detail the procurement and may suggest a supplier on the requisition; however, it is up to Procurement staff to determine the appropriate supplier. Currently, requisitions are prepared manually by the user departments except for the Warehouse and Fleet, who use Oracle automated requisitions. For small items, the user department may obtain their own quotes, but these quotes are subject to verification by the Procurement staff and additional quotes may be obtained. Invitations to Bid and Requests for Proposals are handled through the Procurement Division. A purchase order is issued by Procurement after review of the quotes, invitations to bid, or requests for proposals, and recommendations by the user department. Procurement creates the purchase orders which encumber the funds. All procurements of the City are accomplished by purchase orders except for the procurement card (Visa) and the 121 forms. A Form 121 describes the item being purchased and is signed by the authorizing department director. It is then forwarded to Finance, reviewed by the Assistant Finance Director, and paid by check without a purchase order being generated. Form 121 procurements include items such as dues, subscriptions, and memberships in trade or professional organizations, copyrighted materials not available from multiple sources, and water, sewer, electrical, telephone, and other utility services where competition is not available. Procurements with the procurement card (Visa) are set at different dollar levels for different employees based on need, usually not to exceed $500 per transaction. There are also daily and monthly limits. Use of the card is limited to approved categories of commodities and services. Oracle Financial System The City uses the Oracle Financial System that has various computer applications and modules (including accounts payable and purchasing). Users are set up on access profiles by the system administrator. FINDINGS, RECOMMENDATIONS, AND RESPONSES Finding No. 1: Better utilization of automation capabilities of the Oracle Financial System would maximize efficiency and strengthen controls Under utilization of automated systems results in inefficient and ineffective use of manpower and in weakened internal controls. The Oracle Financial System has features
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