Procurement Division OperationalBUDGET AND PERFORMANCE IMPROVEMENT
Internal Audit Division
TO:
FROM:
DATE:
AUDIT:
PERIOD:
Kathie G. Brooks, Interim City Manager
James J. Sutter, Internal Audit:.or 1Jf-
December 20, 2012
Procurement Division Operati nal Audit
October 1, 2008 through June 30, 2011
INTERNAL AUDIT REPORT
This report is the result of a regularly scheduled audit of selected operating processes and
transactions performed by the City's Procurement Division between October 1, 2008 and June
30, 2011. Given the division's wide array of tasks and responsibilities, the primary focus of this
audit is on the purchase requisition and purchase order processes. The audit did not include
capital improvement projects, which are programmed to be audited separately.
INTRODUCTION
The City's Procurement Division is responsible for providing centralized procurement and
technical assistance in the acquisition of goods and services including architectural and
engineering, construction and other specialized professional services, in accordance with
Federal Law, Florida Statutes, City Code, and sound business practice. Article VI of Chapter 2
of the City Code establishes the Procurement Division, and the position of Procurement Division
Director, prescribes the manner in which the City shall control purchases, and prohibits the
purchase of any material or supplies (except as provided by the Article) other than through the
Procurement Division.
Although there are many possible variations, the City's purchasing cycle can be summarized as
follows:
• Departments/divisions·submit budget requests for the fiscal year.
• After a review process, the City Commission adopts the annual budget.
• Departments/divisions submit a purchase requisition for a needed product or service in
accordance to adopted budget.
• The Procurement Division reviews the purchase requisition and verifies that all
necessary approvals have been obtained. For example, department heads have the
approval for purchase requisitions up to $25,000; OBPI's Budget Division is to approve
all purchase requisitions greater than $1,000 and capital items; and the City Manager or
his designee (Assistant City Managers or the Chief Financial Officer) have approval
authority for all purchase requisitions greater than $25,000.
• Procurement Division staff determines if the item is available through an existing City
contract. If not available, then they identify the potential sources of supply.
• Procurement then determines the source selection method (informal quotes -used for
purchases up to $25,000 and at least three quotes are to be requested; formal bids -
used for purchases exceeding $25,000 and competitive sealed bids are to be requested,
piggybacking -the post-award process whereby the City has the ability to use the same
terms as those listed in previously adopted contracts by such independent organizations
as U.S. Communities Government Purchasing Alliance, Federal GSA, State of Florida,
Miami-Dade County and the School Board of Miami-Dade County; etc.).
We are committed to providing excellent public service and safety to all who live, work, and play in our vibrant, tropical, historic community.
Internal Audit Report
Procurement Division Operational Audit
December 20, 2012
• When issuing formal bids, Procurement finalizes, assembles and issues solicitation
documents.
o All offers received are then evaluated so that a vendor is recommended in a
Commission Memorandum/Resolution.
o The City Manager may approve or disapprove of the. received recommendation.
o Procurement staff then provides the recommendation and notice to file protest to
all individuals who submitted bids/proposals.
o The City Commission decides whether to approve or disapprove of the received
recommendation.
• Once approved, the purchase order may be created so that the desired materials or
services may be purchased from the selected firm.
Based on records provided the Procurement Division, the following number of transactions
(separated by fiscal year) were processed during the October 1, 2008 through June 30, 2011
audit period:
10/01/08-09/30/09 10/01/09-09/30/10 10/01/10-06/30/11 Total
(9 months)
Purchase Requisitions 2,034 2,959 2,661 7,654
Purchase Orders 1,737 2,409 2,105 6,251
Requests for Proposals 18 12 14 46
Requests for Qualifications 5 5 8 18
Invitations to Bid 17 34 24 75
From these transactions above, Internal Audit randomly selected a sample of fifty purchase
requisitions (internal documents used by City departments/divisions to notify the Procurement
Division of items they need to order, their quantity and the timing of their order) and purchase
orders (commercial documents used to request an outside firm to supply something in return for
payment and providing specifications and quantities) for testing. The sample size was
determined by the designated audit scope and the availability of audit hours. Our audit sample
was further stratified to include twenty from the 2008/09 fiscal year, twenty from 2009/10 and
ten from the 2010/11 fiscal year.
Finally, the Procurement Division is currently in the lengthy process of entering vendors'
information, requests for proposals, contracts, etc. into the Eden System's Contract
Management Module. Possible realized benefits include centralizing pertinent contract
information, measuring vendor performance, maintaining required documentation, etc.
Applicable vendors are those whose current contracts with the City exceed $25,000 as well as
any other lesser valued ones in which performance wants to be tracked.
OVERALL OPINION
The Procurement Division processes a large volume of transactions annually so that City
departments/divisions can purchase a variety of needed goods and services. In doing so, the
Procurement Division was found to be functioning essentially in compliance with Florida
Statutes, the City Code and their administrative policies and procedures. However, several
opportunities for improvements were noted and are enumerated below:
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• Although City departments/divisions are cognizant that purchase orders should not be
split to stay below designated dollar thresholds, no clear definition was found as to what
constitutes splitting. As a result, there is a lack of consistency and uniformity noted in
the creation of purchase orders among City departments/divisions.
• Testing found that City departments/divisions ordered materials and services prior to the
Procurement Division's creation of purchase orders for 12.00% of the randomly sampled
purchase orders.
• The Procurement Division is typically not requesting, reviewing or maintaining
documentation to verify that City departments/divisions are requesting or obtaining
quotes for purchases less than $25,000 to help ensure that optimum competitively bid
prices are received.
• The fifty randomly sampled purchase orders created during the audit period took an
overall average total of 16 calendar days to complete which is a significant improvement
over the 27 calendar days similarly calculated for FY 2002/03 during a previous internal
audit.
• The Eden System's Contract Management Module is not being fully utilized as the
information had not been entered for thirteen of the tested twenty-eight relevant vendors.
• Incomplete vendor information was noted in the Eden System's Accounts Payable
module as physical mailing addresses, telephone numbers and/or federal identification
numbers were occasionally missing.
• Divisional policies and procedures are currently being updated to better reflect current
operations but have not been completed to date.
• The Procurement Division did not maintain the City Code required Purchasing Manual,
Vendor Catalog File and Listing of Debarred Contractors during the audit period.
Finally, Internal Audit reviewed the supporting documentation for the departmental performance
indicator entitled "Average # of calendar days from requisition to purchase order" and found that
the reported quarterly figures accuracy could not be confirmed due to limitations in the
generated reports.
PURPOSE
The purpose of this audit was to determine whether tested Procurement Division procedures
and operations were in compliance with the City Code and division administrative policy;
whether tested transactions were properly authorized and efficiently and effectively executed;
and whether tested bid and other related files are adequately documented.
OBJECTIVES
1. Confirm that comprehensive updated policies and procedures exist, are known to staff
and are properly followed.
2. Confirm that the internal control process implemented including a proper segregation of
duties is adequate.
3. Confirm that maintained documentation is organized, complete and sufficient.
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4. Confirm that competitive bids are requested, obtained, recorded and tabulated for tested
purchase orders. If the lowest bidder was not approved, then were the reasons properly
documented and sufficient.
5. Confirm that tested purchase orders are timely created and adhere to the relevant City
Code provisions.
6. Confirm through inquiries and testing whether unauthorized purchases occur. If so, what
disciplinary and enforcement actions were taken against the individual(s).
7. Confirm that tested vendor accounts are complete, are not duplicated and that entry is
adequately controlled.
8. Confirm that any reported vendor nonperformance cases or debarred contractors are
accurately monitored.
9. Confirm that tested data is accurately reported on the City's performance measurement
software.
FINDINGS, RECOMMENDATIONS AND MANAGEMENT RESPONSES
1. Finding -The Lack of a Definition for Splitting Results in Inconsistencies in the Creation
of Purchase Orders and Provides Leeway for City Departments/Divisions to Potentially
A void Following Proper Purchasing Approval Procedures
The operating policies and procedures furnished by the Procurement Division contain
the following sentence "Under no circumstances should purchase requisitions or the use
of small purchase orders be split to circumvent proper purchasing approval procedures
listed herein." However, there is no further language defining splitting and as to how
purchase orders should be created thereby .potentially allowing City
departments/divisions to avoid exceeding the $25,000 threshold which requires that
more stringent rules be followed.
Inquiries with Procurement Division staff found that some City departments/divisions
created several purchase orders rather than just one because their intended purchases
involved several general ledger accounts, several locations, etc. all other things being
equal. For example, our testing identified three sequentially numbered purchase orders
which cumulatively totaled $28,500 but each individually was below $25,000 and all
monies were paid from the same general ledger account. The only difference noted was
that one was for a City cost allocation study, while the second involved resort tax and the
third was for South Pointe. Conversely, Procurement Division staff cited other examples
whereby City departments/divisions would group these same types of items together
under one purchase order.
Under current practices, these types of purchase orders would not be questioned as
there is leeway given which results in a corresponding lack of uniformity and
consistency. Negatively, it could also potentially allow City departments/divisions to
circumvent proper purchasing approval procedures.
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Recommendations:
The Procurement Division should define splitting and the desired manner as to which
purchase orders should be created. For example, should they be separated by general
ledger accounts, by locations, by fiscal year, etc. or should they be combined. Once
determined, the rules should be unilaterally enforced so there is consistency and
uniformity among City departments/divisions in the creation of purchase orders.
Management Response:
The Procurement Division did prepare three separate agreements in the amounts of
$18,500, $8,500 and $3,500 for Consulting Services -Cost Allocation studies which in
total did exceed the established threshold. These three agreements were presented to
the City Manager and were signed on the same day, October gth, 2009.
Although it is difficult to define splitting as it is frequently determined on a case by case
basis during the Procurement Division's review process, various examples of
impermissible splitting will be prepared and distributed to the City departments/divisions
to be used as examples. In addition, meetings will be held with divisional staff to further
discuss the issue so that it can be uniformly enforced by all ·personnel.
2. Finding -Vendors' Invoice Oates were Found to Precede the Procurement Division's
Creation Date for Three of the Applicable Randomly Sampled Twenty-Five Purchase
Orders or 12.00%
Section 2-393(a) and (b) of the City Code states "Except as provided in this article, it
shall be unlawful for any city officer or other person to order the purchase of any
materials or supplies or make any contract for municipal materials or supplies within the
purview of this article other than through the procurement director, and any purchase,
order or contract made contrary to the provisions of this article shall not be approved and
the city shall not be bound thereby. There shall be no exceptions by any using agency
to the above provisions except as may be specifically authorized by the city manager in
writing, stating the reasons for such exceptions. "
Testing was conducted to determine whether City departments/divisions were in
compliance for the fifty randomly sampled purchase orders by checking if the materials
and services were ordered prior to the creation of the purchase orders absent a contract.
In doing so, it was determined with the Procurement Division that the following twenty-
five were excluded from analysis for the listed reasons:
• fourteen purchase order involved services provided in accordance with properly
approved City contracts
• seven purchase orders did not have any corresponding payments remitted by the
City department/division
• two purchase orders numbered 16041 and 16463 were excluded from analysis
because the City's CIP Department indicated that the· Gordian System (PROGEN-
JOC Program) prompts an invoice every time a job request is entered, with the same
date as the job entered. After the project and the corresponding Gordian Group fees
are generated by PROGEN, CIP cannot enter the pertinent requisitions for the
project and Gordian Group fees in the Eden System. As a result, the invoices
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automatically created by PROGEN will always be dated earlier than the purchase
order
• purchase order numbered 11405 was caused by an emergency and urgent request
made by the City Manager
• purchase order numbered 11356 was entered into the Eden System with a creation
date of 08/31/09 when the supporting documentation shows that it actually should
have been 08/31/08
Of the remaining twenty-five sampled purchase orders, it was determined that three or
12.00% of the first vendors' invoices preceded the creation date. All three involved
different City departments (Parks & Recreation, CIP, and Public Works) with the relevant
number of days ranging from a low of 10 for purchase order number 11837 (CIP) to a
high of 97 days for purchase order number 14040 (Public Works). Nothing in writing
was furnished for any of these transactions showing that the City Manager specifically
authorized them or that there was a valid signed contract in effect first, yet all were
approved and the requested payments made.
Recommendations:
City departments/divisions should not purchase, order or contract with vendors for
desired materials and services until the purchase order is created unless specifically
authorized by the City Manager in writing. The Procurement Division Director should
send notification reminding all City departments/divisions of the need to comply or be
subject to disciplinary actions. If deviant behavior continues to exist, then the
corresponding disciplinary actions should be enforced.
Management Response:
The Procurement Division will schedule annual training to enforce the Procurement
Policy and Procedures to help prevent this and other not permitted actions. Department
heads and all other personnel engaged in the purchasing of items or services will be
required to attend. During the annual session, Procurement will make clear what
constitutes an "unauthorized purchase" as defined by Section 2-393 (a) of the City Code:
Purchases are to be made only by procurement director. It shall be unlawful for any city
officers or employee to order the purchase of any materials, supplies, equipment and
certain contractual services, or make any contract within the purview of this article other
than through the procurement director, and any purchase, order or contract made
contrary to the provisions of this article shall not be approved and the city shall not be
bound thereby. ·
Additionally, the Procurement Division Policy and Procedures states that "All
unauthorized purchases (ordering and/or receiving of materials or services without the
required prior City authorizations) is a violation of Chapter 2 of the City Code. All such
violations will be reported by the Procurement Division in coordination with the Finance
Department, to the Office of the City Manager with a copy to the Internal Auditor. The
City Manager may request for Internal Audit to conduct a review of the unauthorized
purchase."
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3. Finding -The Procurement Division is not Confirming or Maintaining Documentation to
Verify that the City Departments/Divisions are Requesting and/or Receiving Quotes
and/or Bids for Purchases Less than $25,000
Although City departments/divisions are empowered to request or obtain quotes prior to
submitting purchase requisitions, the Procurement Division is ultimately tasked with .
confirming that all requirements are satisfied before creating the corresponding purchase
order. Yet, they typically did not request, review or maintain documentation confirming
that the required quotes were requested or obtained for purchases totaling less than
$25,000 from the same vendor. As a result, Internal Audit could not verify that the
required due diligence was performed and that the City obtained the optimum
competitively bid purchase prices for the desired products and/or services.
Recommendations:
At a minimum, Procurement Division staff should obtain a tabulation sheet from the
applicable City department/division detailing what quotes/bids were requested/received
from outside vendors. This document should be maintained to support each purchase
order's creation so that it can be confirmed that the optimum competitively bid price was
received. Finally, the Procurement Division Director should create a checklist listing the
required documents to be provided and reviewed before a purchase order is created.
Staff should complete this checklist and attest to the accuracy of the contained
information to help improve accountability.
Management Response:
Currently, each person is filing quotes received by the Procurement Division or
requested by any other department/division. The City's Eden System was very recently
upgraded to allow departments/divisions the ability to attach documents such as the
quotes received along with the requisition and to add any pertinent comments.
The Reverse Auction and informal quote features built in the new E-Procurement
System, The Public Group, will allow Procurement to review, track and record all quotes
initiated by the departments/divisions and/or Procurement. All quotes will be initiated in
the system and all requisitions will have to make reference the quote number or Reverse
Auction date/number in the future.
4. Finding -Tested Purchase Orders were Created on Average Sixteen Days After the
Process was Initiated
A total of fifty purchase orders were randomly sampled during the audit period with
twenty being created during the 2008/09 fiscal year, twenty more originating from the
2009/10 fiscal year and the last ten from the current fiscal year. The Eden System's
automated approval queue was reviewed to calculate the number of days that it took for
each person to approve each purchase order to help determine if and where the process
was being bottlenecked. The following table summarizes the computed average number
of days (rounded to the nearest whole number) that it took each listed position to
approve the tested purchase orders:
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Originating Person
Originating Department Head
OS PI/Budget
City Manager's Office
Procurement Employee - Create
Purchase Order in Eden
Procurement Director
Procurement Employee -Finalize
Purchase Order
Total Average Per Fiscal Year*
FY 2008/09
5
1
4
2
12
2
2
23
FY 2009/10 10/10-04/11 Position Average
9 1 3
2 2 2
3 4 3
2 1 2
5 7 8
1 1 1
2 3 2
18 17 20
* Different positions are required to approve different purchase orders based on the amount and type
as summarized earlier in the audit report's introduction section. As a result, the above table's
individual components will not necessarily equal the total average per fiscal year.
It was initially determined that it took an overall average of twenty days from the date
that the tested purchase orders first entered the queue until the date that they were
created. Most of the queue time was spent inside the Procurement Division with an
average of eleven calendar days consisting of eight calendar days by the corresponding
employee assigned to that department/division, one day by the Procurement Division
Director and two days to finalize the purchase order's creation.
Similar testing preformed in previously completed internal audits covering the 2002/03
(various City departments/divisions were tested) fiscal year found that it took the
Procurement Division an average of twenty-seven to finalize tested purchase orders.
Consequently, the above table's computed total average of twenty days during the audit
period represents a substantial improvement. Each analysis could not properly evaluate
and measure any external factors (ex. the purchase order was incomplete or prepared
incorrectly, the supporting invoices were not attached, etc.) which could lengthen the
process.
The Procurement Division was notified of these results and was given the opportunity to
review the tested forty-three purchase order transactions. In doing so, they found that
that four of these purchase orders numbered 10711, 10760, 10800 and 11151 occurring
prior to February 2009 disappeared for an extended period due to an Eden System glitch
resulting in processing times in excess of forty days thereby skewing the overall
computed average. The City's Information Technology Division was subsequently
contacted whereby they said that that this software defect was patched in version 5.2.0
with Tracker # 32862, and the City upgraded to Eden version 5.2.2 in November of
2009. Upon removing these four purchase orders from analysis, the corresponding
average was reduced from 20 to 16 calendar days.
Recommendations:
Since purchase orders are typically created due to departments/divisions immediate
needs, the calculated time savings realized above over prior results is important.
Procurement Division staff should continue trying to expedite the purchase order
creation process so that additional improvements can be achieved.
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Management Response:
It must be noted that the Procurement Division is tasked with the responsibility of doing
the due diligence, reviewing the request and identifying the purchase authority for each
acquisition. It is only normal that the requisition will take the longest in this process
since some require a formal process such as bid, RFP, or piggyback process in order to
be approved. In addition, within the Procurement Division and depending on the
expenditure amount, the requisition may be reviewed by three to four individuals.
5. Finding -The Eden System's Contract Management Module is not being Fully Utilized
as only Thirteen Vendors Relevant Information of the Twenty-Eight Sampled or 46.43%
were Entered
Of the fifty randomly sampled purchase requisitions and purchase orders, it was
determined with Procurement Division staff that twenty-eight vendors pertinent
information warranted entry into the Eden System's Contract Management Module. Yet,
testing found that entry had not yet been made for thirteen or 46.43% of these tested
into the Contract Management Module by the currently designated Procurement Division
employee.
Furthermore, it was discovered that the Contract Management Module's usage is
currently being limited primarily to alerting users when the contracUagreement is
expiring, tracking vendor performance and listing the actual contacts/agreements.
However, it could also be used to track insurance expiration dates and the existence of
valid performance bonds which are currently not being done.
Recommendations:
Although a formidable and time consuming task given the lengthy entry process and the
large number of pertinent vendors, the Procurement Division staff should continue to
enter the applicable vendors' information. Furthermor~. the Procurement Division
Director should consider reassigning these duties among all staff members or to the
corresponding departments/divisions personnel to expedite this process.
Management Response:
The Contract Management Module should contain all contracts resulting from formal
bidding processes from the 2006 fiscal year to the present. The Procurement Division is
also looking at entering all purchase authorities created via piggyback memo.
The Procurement Division started to build the Contract Management Module in early
2010. Currently, there are 421 contracts in the system, which have all been entered by
one designated Procurement Division employee with each entry taking approximately
twenty minutes.
In addition, Procurement provided four Citywide training sessions whereby participants
learned how to link the contracts to the requisitions in order to track expenditures on
each applicable vendor and how to enter performance comments and attach
Contractor's Performance Evaluations. Since last year, the Procurement Division has
been working with the Information Technology Division in creating a report allowing
Procurement to track if the departments are entering performance comments and
uploading the Contractor's Performance Evaluations.
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6. Finding -Incomplete Vendor Information is being Entered into the Eden System's
Accounts Payable Module
The fifty randomly sampled purchase requisitions and purchase orders were created for
forty-seven different vendors as there were three duplications. Internal Audit
subsequently reviewed the completeness of these forty-seven vendors contact
information entered into the Eden System's Accounts Payable Module. The creation of
vendor accounts is currently restricted to three Finance Department employees and one
Procurement Division employee. The following informational items were noted in our
analysis that could allow for the creation of fictitious businesses if not corrected in the
future:
• Sixteen of the forty-seven vendors sampled or 34.04% did not contain a physical
mailing address. Of these, fifteen listed a P.O. Box and one did not contain an
address as it merely stated "Fleet". Internal Audit's concern with P.O. Boxes is
that they can be opened by anyone as they do not contain the vendor's physical
location which can then be more easily verified by independent sources.
• Eight of the forty-seven vendors sampled or 17.02% did not include a phone
number at which the company could be reached. This list includes two of the
aforementioned vendors whose address consisted of only a P.O. Box and the
one that did not have an address.
• Twenty-seven of the forty-seven vendors sampled or 57.45% did not include an
email address to facilitate contact.
• Seven of the forty-seven vendors sampled or 14.89% did not include their federal
tax identification number or EIN, which is assigned by the Internal Revenue
Service to business entities operating in the United States for the purposes of
identification.
Despite this missing information raising concerns as to the vendors' legitimacy, Internal
Audit confirmed their existence through internet research and phone calls with no
exceptions noted. Although not all this information is required for the creation of
vendors, there are fields available in the Eden System and it is beneficial to have more
information present.
Recommendation(s):
Designated Finance and Procurement employees should ensure that such information
as the vendor's physical address, phone number and federal tax identification number
are fully completed before creating the vendor in the Eden System. Furthermore, this
information should be updated when and if the vendor's information changes. Current
centralized contact information is beneficial in the event that City personnel need to
speak with vendor representatives and it helps facilitate independent confirmation as to
the vendors' existence.
Management Response:
Currently, two Finance Department employees and one Procurement Division employee
have the ability to add vendors in the Eden System and there is no known way to
determine who actually created the vendor and when. Either way, the corresponding
Procurement Division employee went through the sampled vendors and updated much
of the missing information, especially concerning EIN~. Going forward, a more
concerted effort will be made to enter as much information as possible on the vendor,
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however; more vendors are using P.O. Boxes as their mailing address and there is no
known way to enter both addresses in the Eden System.
7. Finding-Procurement Division Operating Policies and Procedures Need Updating
The Procurement Division's provided operating policies and procedures are currently
being updated and they expect to be finished shortly so that they could be submitted for
review and approval.
Recommendations:
The division's operating policies and procedures should be completed since they serve
both as a benchmark to measure individuals' performance and as an instruction manual
in the event employees' change. Once completed, they should be distributed to all
applicable personnel so that they can be read, understood and followed.
Management Response:
The operating policies and procedures have since been completed and are awaiting final
approval before being implemented.
8. Finding -The City Code Required Purchasing Manual, Vendor Catalog File and Listing
of Debarred Contractors Were Not Maintained During the Audit Period
City Code Section 2-339(5) states that the Procurement Director shall "Prescribe and
maintain a manual of purchasing procedures and provide same for all using agencies."
Inquiries found that the Procurement Division does not currently have an up-to-date
purchasing manual serving as a basic guide to the City's purchasing operations and
reflecting the current provisions of the Purchasing Ordinance. Consequently,
Procurement Division personnel may receive inquiries from other departments/divisions
on various items that hinder their ability to perform other more important tasks.
In addition, City Code Section 2-339(8) requires the preparation, adoption and
maintenance of a vendor's catalog file according to materials and containing descriptions
of vendor's commodities, prices and discounts. This document was requested from
divisional staff several times during the audit but was not received.
Finally, City Code Section 2-399 requires the compilation and maintenance of a current,
consolidated list of all contractors debarred by City departments which is a public record
available for inspection. Inquiries found that this listing has not been maintained by the
Procurement Division during the audit period.
Recommendations:
The Procurement Division should create and maintain a purchasing manual, vendor's
catalog file and a listing of debarred contractors per the City Code. If any of these items
are deemed unnecessary, then efforts should be made to have the City Commission
consider revising the City Code accordingly.
Management Response:
The maintained purchasing manual has been distributed to all user City
departments/divisions. The vendor catalog is no longer applicable as it was required by
the City Code in 1964 when electronic methods were not available. The Procurement
Division does the vendor outreach in the internet and by posting business opportunities
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in several bid notification systems. Finally, there are not currently any debarred
contractors so there is no need for a listing.
9. Finding-Review of a Selected Departmental Performance Indicator "Entitled Average#
of Calendar Days from Requisition to Purchase Order''
The Procurement Division's performance measurement scorecard was reviewed to
determine the accuracy of the departmental performance indicator entitled "Average# of
calendar days from requisition to purchase order''. A· review of the performance
measure's nonfinancial information entered into the City's performance measurement
software found it to be complete except that variance reports were typically not
completed when the actual figures differed from the targets.
The following table lists the Citywide averages reported for the eleven completed
quarters during the audit period in the City's performance measurement software:
, Quarter Reoor:ted. ,_ Cityyifjg~i!i[~verage
Q4 FY08 11
Q1 FY09 22
Q2 FY09 18
Q3 FY09 19
Q4 FY09 18
Q1 FY10 23
Q2 FY10 12
Q3 FY10 14
Q4 FY10 12
Q1 FY11 20
Q2 FY11 20
The figures in the table above are calculated from two reports called "Requisition to PO
Avg Days Per Queue" and "Requisition to PO Average Per Queue Level". These two
reports are time sensitive and have to be generated promptly following the end of the
month by the Procurement Division or they may be either incomplete or capture
unwanted data because they are based on real time as they default to the current date
that the report is generated.
Therefore, if the designated preparer for whatever reason runs these reports prior to the
end of the month then they will not capture any purchase orders created afterwards
during that month. Similarly, if the report is run after the month's conclusion then it may
include some purchase orders that were created in the subsequent month that may also
be captured again when the next month's reports are generated. Testing performed on
four quarters' reports (Q2 FY09, Q2 FY1 0, Q3 FY1 0 and Q1 FY11) found that three
were completed very near the end of the period but the Q3 FY1 0 report was run on
08/02/10 or 33 days after the actual quarter's 06/30/1 0 end date.
Furthermore, the two reports have to be saved electronically and/or be printed because
they cannot be re-created for a period once the time has passed. For example, the
reports covering Q1 FY1 0 could not be located during the audit so the corresponding
reported figures could not be verified.
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Procurement Division Operational Audit
December 20, 2012
Another shortcoming of these two reports is that they do not list the individual purchase
requisitions and purchase order numbers so that their accuracy can be confirmed.
Instead, the reports only portray such summary departmental information as the total
number of purchase orders created that were reviewed by each level and the average
number of days taken to approve the purchase order by each level to facilitate identifying
any potential bottlenecks (similar to finding number 3). Levels represent the different
City employees who have to approve the transaction based on the amount and type. of
purchase order (ex. level 1 =department head, level 2 = budget, etc.).
Since the two reports do not compute the overall Citywide average, a designated
Procurement Division employee manually enters each departments' data into an Excel
spreadsheet so that it can be calculated and reported in the City's performance
measurement software. All provided manually prepared Excel spreadsheets computed
Citywide quarterly averages were found to equal those amounts reported in the City's
performance measurement software. However, review of four months' Excel
spreadsheets found that sometimes not all departments' average number of days are
recorded, occasionally they are listed under the incorrect department, etc. thereby
potentially resulting in incorrect Citywide and departmental averages. For example, 03
FY10 reported a Citywide average of 14 days when it was determined to be actually only
13 days due to these types of mistakes.
In summary, Internal Audit concludes that the figures reported during the audit period for
the departmental performance measure entitled "Average # of calendar days from
requisition to purchase order' fall into the "factors prevented certification" category based
on the criteria defined in Exhibit 1 located at the end of this audit report.
Recommendations:
When necessary, the Procurement Division should complete variance reports in the
City's performance measurement software to explain the reasons for the difference
between the actual and targeted figures. Meanwhile, the City's Information Technology
Division should be contacted to determine if going forward they can add the
corresponding purchase requisition and purchase order numbers to the two
aforementioned reports. It would also be helpful if the preparer could enter an ending
date for which calculations are based and to have them compute the Citywide average
so that the manually prepared Excel spreadsheets could be eliminated.
Finally, Procurement Division staff should review the remaining six quarters supporting
documentation (no records are available for the 01 FY1 0) to determine the accuracy of
the reported Citywide average figures during the audit period. Any found inaccuracies
such as with the tested 03 FY1 0 should be corrected in the City's performance
measurement software.
Management Response:
The Information Technology Division reports have recently been revised so that the user
can enter starting and ending dates rather than relying on an employee to generate
these reports at the end of the month. As a result, the performance measurement
system reported data should be more accurate and will be consistently calculated going
forward.
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Internal Audit Report
Procurement Division Operational Audit
December 20, 2012
However, there may still be instances where requisitions do not hit all queue levels
because they are rejected or returned which cannot be captured in these reports. There
are other instances when a requisition is entered to request an increase, the original
requisition is always rejected and the increase is performed in the original purchase
order. In these instances, the report reflects said requisitions as going into a cloud
without being able to report the actual location of those requisitions. As confirmed with
Information Technology, these are considered mathematical discrepancies in the
reporting tools which make them not fully accurate. Finally, Eden System glitches as
described in finding number four above will also affect the accuracy of the reported
figures.
EXIT CONFERENCE
Several meetings were held to discuss the audit report and. to solicit the management
responses recorded above. Attendees included various combinations of the following City
employees: Chief Financial Officer Patricia Walker, Assistant Finance Director Georgina
Echert, Previous Procurement Division Director Gus Lopez, Assistant Procurement Division
Director Maria Estevez, Internal Auditor James Sutter and Senior Auditor Mark Coolidge. All
parties were in agreement as to the contents of this report. Management responses were
solicited and have been incorporated into the audit report.
JS:MC:mc
(Audit performed by Mark Coolidge, Senior Auditor)
F:\OBPI\$AUD\INTERNAL AUDIT FILES\DOC1 0-11\REPORTS-FINAL\PROCUREMENT OPERATIONS RPT.docx
cc: Patricia Walker, Chief Financial Officer
Georgina Echert, Assistant Finance Director
Raul Aguila, Chief Deputy City Attorney
Alexis Denis, Procurement Division Director
Maria Estevez, Assistant Procurement Division Director
Gladys Gonzalez, Information Technology Division Director
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Internal Audit Report
Procurement Division Operational Audit
December 20, 2012
EXHIBIT: 1 -Assessment Categories for Performance Measures Verification
',-;·;-,: ~~s~ssrrient :CaJegory ••••••• {;;·, ' ~: •••.. :·· ,f ·" '::::,:::~·;.·.criteria \[2. :·. ; .'\, l :·> J :::;,,
If reported performance is 100% accurate and if it appears that
Certified controls are in place to ensure accuracy for collecting and
reporting performance data. Measurement data is supported by
source documents.
This category is assigned under either one of two conditions:
1. Reported performance is within +/-3%, but the controls over
data collection and reporting are not adequate to ensure
Certified with Qualifications continued accuracy.
2. The department's calculation of actual performance deviates
from the measure definition, but was still within an
acceptable range.
Documentation is unavailable or incomplete and controls are not
Factors Prevented Certification adequate to ensure accuracy. This category is also assigned
when there is a deviation from the measure definition and the
reviewer cannot determine the correct measure result.
Actual performance is not within 3% of reported performance, or
Inaccurate there is a greater than 5% error in the sample of documents
tested.
EXHIBIT: 2 -Additional References for Performance Management Software's
Description of Measure
1) Measure Name:
2) Measure Type:
3) Measure Description:
4) Measure Frequency:
5) Data Sources:
6) Calculation Methodology:
Should list the name of the measure for which data is being
collected and reported.
Should recognize whether the measure is an "Input", "Output", or
"Outcome" measure. One must consider whether results are
measured through input (Ex: Customer surveys), output (Ex:
Number of contracts completed without change orders), or
outcome (Ex: % of projects substantially completed or in
beneficial use within 120 days).
Should describe the measure. Some measures are self
explanatory and some may not; however, a description should
always be included (Ex: The measure considers the % of
change in the value of the change orders for a specific category
divided by the original project cost).
Describes how often performance data is reported (Ex:
Quarterly).
Should list sources used to collect performance data (Ex:
System Software Names, Report Names, Schedules, etc.)
Should explain how data reported was calculated (Ex: change
orders for that quarter divided by the original total projects costs,
projects substantially completed or in beneficial use within 120
days of the contract milestone date divided by the total number
of projects completed during the same quarter).
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