PURCHASING DEPARTMENT PURCHASING LEGAL COMPLIANCE AUDIT JANUARY 15, 2013

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1 PURCHASING DEPARTMENT PURCHASING LEGAL COMPLIANCE AUDIT JANUARY 15, 2013

2 CITY OF TAMPA Bob Buckhorn, Mayor Internal Audit Department Roger Strout, Internal Audit Director January 15, 2013 Honorable Bob Buckhorn Mayor, City of Tampa 1 City Hall Plaza Tampa, Florida RE: Purchasing Legal Compliance, Audit Dear Mayor Buckhorn: Attached is the Internal Audit Department's report on Purchasing Legal Compliance. The Purchasing Department (Department) has already taken positive actions in response to our recommendations. We thank the management and staff of the Department for their cooperation and assistance during this audit. Sincerely, /s/ Roger Strout Roger Strout Internal Audit Director cc: Santiago Corrada, Chief of Staff Sonya Little, Chief Financial Officer Gregory Spearman, Director of Purchasing David Vaughn, Director of Contract Administration James H. Shimberg, Jr., City Attorney Michael Herr, Administrator of Public Works and Utility Services Jane Castor, Police Chief Gregory Hart, Manager of Minority Business Development 306 E. Jackson Street, 5N Tampa, Florida (813) FAX: (813)

3 PURCHASING DEPARTMENT PURCHASING LEGAL COMPLIANCE AUDIT JANUARY 15, 2013 /s/ Vivian N. Walker Senior Auditor /s/ Roger A. Strout Audit Director

4 PURCHASING LEGAL COMPLIANCE AUDIT BACKGROUND 1 The City of Tampa s Purchasing Department is responsible for all aspects of the City s centralized procurement process. Section of the City of Tampa s Ordinances identifies the requirements of the Purchasing Division for obtaining goods and services. Per Section 2-276, all purchases $100,000 or more require approval from City Council based on a recommendation from the Mayor and only after a formal competitive bidding process has been completed. However, items purchased through an existing State Contract or Government Purchasing Council (GPC) bid do not require City Council approval at the time of purchase. The Director of the Purchasing Department is authorized to make purchases requiring expenditures of less than one hundred thousand dollars ($100,000) without the approval of the City Council. However, these purchases are required to follow the competitive bid process. Effective November 1, 2003, the City of Tampa became a participant in DemandStar. DemandStar is a program that facilitates broadcasting bid documents to interested vendors, at no cost to the City of Tampa. The interested vendor is required to register, via the Internet, with DemandStar. Vendor cost is $0 for signing up for City of Tampa, only. If vendors are not interested in registering, the bid information is still available for a $5 download fee. STATISTICS 1 This audit did not include a review the Purchasing Card program or Consultants Competitive Negotiation Act (CCNA) since they are reviewed as separate audits.

5 STATEMENT OF OBJECTIVES This audit was conducted in accordance with the Internal Audit Department's FY12 Audit Agenda. The objectives of this audit were to ensure: 1. City of Tampa departments obtained goods and / or services from vendors who met Purchasing Department requirements. Specifically, that three quotes were documented for purchases between $2,000 and $24, or that purchases $25,000 or greater were competitively bid. 2. Purchases were made from vendors who submitted the lowest, responsive, responsible bid. 3. The bid process included Minority Business Development (MBD) requirements for either Small Local Business Enterprise (SLBE) sheltered market or goal setting were being followed. 4. Bid awards greater than $100,000 followed City of Tampa purchasing requirements, were approved by City Council prior to any purchases from the vendor, and processed in a timely manner. STATEMENT OF SCOPE This audit reviewed purchasing activity for the 15 month period from October 1, 2010, through December 31, STATEMENT OF METHODOLOGY To achieve the audit s objectives, reliance was placed on computer-processed data contained in the Advanced Purchasing/Inventory Component (ADPIC) System. ADPIC was previously assessed and the data was determined to be reliable. Specific audit work performed for each audit objective included reviewing documentation to support that: 1. Three quotes were documented for purchases between $2,000 and $24, or that purchases $25,000 or greater were competitively bid. Files maintained by either the requesting department or Purchasing for a sample of purchases were reviewed to determine if they contained support for the purchase with a bid or quote from the awarded vendor. 2. Purchases were made from vendors who submitted the lowest, responsive, responsible bid. Files were reviewed for awarded bids, based on activity logged on the DemandStar System used by the City, for documentation to support that the award was to the lowest, responsive, responsible vendor. 3. The bid process included Minority Business Development (MBD) requirements for either Small Local Business Enterprise (SLBE) sheltered market or goal setting. File 2

6 documentation maintained by the Purchasing Department and MBD for awarded bids was reviewed to determine if they were in compliance with the established guidelines for sheltering or goal-setting. 4. Bid awards greater than $100,000 followed City of Tampa purchasing requirements, and if applicable, were approved by City Council prior to any purchases from the vendor, and processed in a timely manner. Purchasing department files or the City Clerk s site for Council Resolutions were reviewed to determine if bid awards greater than $100,000 obtained Council approval prior to the issuance of any purchase orders. STATEMENT OF AUDITING STANDARDS We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. AUDIT CONCLUSIONS Based upon the test work performed and the audit findings noted below, we conclude that: 1. City of Tampa departments obtained goods and / or services from vendors who met Purchasing requirements. Specifically, that three quotes were documented for purchases between $2,000 and $24, or that purchases $25,000 or greater were competitively bid. However, for purchases processed by the departments for amounts less than the threshold of $2,000, the documentation maintained to support there was an actual quote obtained from an awarded vendor needs improvement. 2. Purchases were made from vendors who submitted the lowest, responsive, responsible bid. 3. The bid process included Minority Business Development (MBD) requirements for either Small Local Business Enterprise (SLBE) sheltered market or goal setting. However, the documentation to support active participation by the MBD Office for applicable bids needed improvement. 4. Bid awards greater than $100,000 followed City of Tampa purchasing requirements, were approved by City Council prior to any purchases from the vendor; however, the time for processing a bid could be improved. Additionally, it was noted that two separate DemandStar systems were being used. While the findings discussed below may not, individually or in the aggregate, significantly impair the operations of the Purchasing Department, they do present risks that can be more effectively controlled. Before we completed our audit, Purchasing personnel implemented some of the Internal Audit Department's recommendations. 3

7 WRITTEN POLICIES AND PROCEDURES AUDIT ISSUE The Purchasing Department has not revised it policies and procedures manual to reflect current operations. OBSERVATIONS The policies and procedures manual on the Purchasing Department's web page indicates it was last revised December Further discussion with personnel indicated that there is a revised manual currently being reviewed by an Assistant City Attorney. CRITERIA City Code Section 2-46 requires all departments to "create and maintain all records... together with the functions, policies, decision, procedures,... of the department." RISK DESCRIPTION Current written policies and procedures can help reduce duplication and inefficient processes. RECOMMENDATION 1 As required by City Code, Purchasing Department Management should ensure their written policies and procedures manual accurately reflects the City of Tampa's requirements for obtaining goods and services. MANAGEMENT'S RESPONSE The Purchasing Department agrees that the Purchasing Manual needs to be updated to reflect current practices of procurement for the City of Tampa. Purchasing will begin its update on the Procedures Manual immediately but a complete final document will not be available until December This delay is due to the fact that the new Enterprise Resource Planning (ERP) E-Business Suite from Oracle is scheduled to go-live in late April 2013 for the replacement of the current ADPICS mainframe application and October 2013 for the sourcing functionality that will replace Onvia Demandstar. The new system will bring a significant change in the way we process requests and approve purchases. 4

8 DOCUMENTING QUOTES/BIDS AUDIT ISSUE The documentation to support that the best price was obtained prior to procurement of goods or services required improvement. OBSERVATIONS A sample of transactions was selected to determine if a quote or bid was obtained prior to the issuance of a purchase order and subsequent procurement of goods and / or services. There are various transactions with which the City is involved that are exempt from the typical bid / quote process (i.e., payments to other government agencies or single/sole/emergency purchases). Our testing involved a review of documentation related to 30 purchase orders - issued either by the requesting department or Purchasing. This review identified that: a) Departments were not always documenting quotes obtained from the vendor prior to the issuance of the purchase order. b) The established Contract List issued by the Purchasing Department is not used in the most efficient method. Currently, the vendors on the list should only be used for the commodity identified. However, purchases were noted for vendors on the Contract List for commodities not listed. As a result, the departments should have gone through the quote or bid process for the commodity not listed on the Contract List. TPD Wrecker Services The Rotation Wrecker System (System) rules and procedures indicate that it was established for the sole purpose of providing an expedient means for the Tampa Police Department to remove vehicles and property in the course of official duties. The wrecker companies used by the Police Department are based on a rotation list, which was not developed from a competitive bid. The only requirements for inclusion on the rotation list were certification by Hillsborough County s Public Transportation Commission (PTC) and a business location within the city limits of Tampa. If these requirements were met a company could make a written request to the Chief of Police, and upon approval by the Chief, they would be added to the rotation list. Any removal or other monitoring for compliance with the rules and procedures was performed by the Police Department s Communications Division. Additionally, the fees being paid had not been approved by City Council. During the audit period the City of Tampa paid TPD related wrecker invoices that totaled more than $264,000 to 24 different vendors. The average payment was more than $11,000 and payments ranged from $703 to more than $34,800. However, one of the vendors used in the System had also been awarded the contract for the bid to provide towing of city vehicles. 5

9 The chart below shows the difference in fees charged by the contracted vendor and the fee permitted by the PTC s fee schedule for the same vehicle types: Vehicle Type Category Contract PTC Light vehicles 1 $35.00 $ Medium duty vehicles 2 $92.00 $ Heavy trucks 3 $ $ Both the City s contract and PTC rate allow for fuel adjustments and the PTC rate also permits mileage charges. Using the above rates, a comparison of actual paid invoices for the light vehicle category reflects the disparity as noted below: PTC (4 mile charge) PTC (6 mile charge) PTC (13 mile charge) Charge type Contract Base fee includes fuel adj $36.90 $ $ $ Mileage $4 / mile $0.00 $16.00 $24.00 $52.00 Total invoice $36.90 $ $ $ A discussion with the Purchasing Director indicated a positive experience in obtaining wrecker services for a different municipality s law enforcement agency procured through the bid process. CRITERIA Expenditures by City departments should be for the most responsible and cost efficient product and/or service providers. Chapter 24 section 24.8 states that city council shall have the authority to set fees by resolution. Additionally, Article VIII, Section 8.01 states that "every contract made by the city shall be in writing, approved by the council upon recommendation by the mayor, and signed by the mayor..."also, Chapter 2 of the Code of Ordinances, Section (b) indicates that the director of the purchasing department is authorized to make purchases... less than one hundred thousand dollars.. without approval of the city council. RISK DESCRIPTION The City could incur unnecessary costs if the most efficient method of procurement is not exercised by all departments. RECOMMENDATION 2 Adequate documentation should be retained to support that the user department performed due diligence in obtaining resources in the most economical manner. In order to promote the cost effective and economical procuring of resources, the Purchasing Department should remind departments of their responsibility to document that their purchases were made in a prudent and cost effective manner. Additionally, the wrecker service purchases by the Police Department should comply with the City code and ordinances and either be obtained by competitive bid or properly approved by the Director of the Purchasing Department or City Council depending on the amount. 6

10 MANAGEMENT'S RESPONSE Based on the Purchasing Department s concern related to its ability to respond to larger value purchases in a timely manner and the City s initiative to try and move some of these smaller purchases to P-Cards, the Purchasing Department believes that the current practice of allowing small purchase orders to be approved by Departments should continue. User training and reminders sent to the Departments will be used to remind employees and approving supervisors that they are responsible for ensuring that the items/services that are being purchased under $2,000 should be done at a cost that is in the best interest to the City. With regards to TPD wrecker rotation, the Purchasing Department is in agreement that a detailed discussion needs to take place with TPD to investigate alternatives for the procurement of towing services that is currently handled by the TPD rotation of wrecker companies. 7

11 MINORITY BUSINESS UTILIZATION AUDIT ISSUE The process for documenting efforts to ensure utilization of minority businesses needed to be improved. OBSERVATIONS Bid awards during the audit scope period between $50,000 and $200,000 were used as the population to randomly identify 25 transactions for review of how the requirements of the goal setting and sheltered bids process were performed. The DemandStar system has an option titled Programs", which allows those vendors that have been certified through the City of Tampa s Minority Business Development Program to be included when identifying possible vendors for a quote or bid. Based on the use of the "Programs" field, for the selected commodity codes used during the awarded bids, 18 awards in the above noted $50,000 to $200,000 threshold were identified that should have been evaluated by the Minority Business Development (MBD) Office for either sheltering or goal setting. However, a discussion with MBD indicated that they had not been involved. In discussing the certification process with the MBD Office, we were informed that they use the Vendor Eligibility Tracking System (VETS) as a database that maintains minority business certifications as well as tracking bid opportunity evaluations. This information is forwarded to the Purchasing department for updating DemandStar and specifically, the "Programs" field. After identifying that 15 of the 18 awards had not been evaluated, several observations were noted: a) MBD Office personnel provided discrepancies with the details of a vendor s categorization in the Programs field in DemandStar versus the details of the vendor s categorization in VETS. b) The discrepancies between how a vendor was identified in DemandStar versus how they were certified in VETS typically occurred due to the inconsistent application of the National Institute of Governmental Purchasing (NIGP) commodity codes by various parties involved. There were differences due to how the vendor responded to a bid in DemandStar, how the City of Tampa s MBD Office certified the vendor, and how the Purchasing buyer identified the bid using NIGP. c) The checklist in the Purchasing file indicated "submitted to MBD"; however, the date noted was after the bid had been processed and only documented that the MBD Office had been notified of the upcoming solicitation. CRITERIA The City of Tampa Small Business Enterprise Ordinance and City Code Chapter 26.5 Equal Business Opportunity Program document the provisions for ensuring minority vendors are considered for any bid opportunities. 8

12 RISK DESCRIPTION Potential non-compliance with the established Ordinance and City Code. RECOMMENDATION 3 Although procedures have been developed to ensure the Minority Business Development Office actively participates in the bid process, when applicable, overall the accuracy of the information being relied upon needs to be improved. Also, a consistent list of specific NIGP codes for commonly used goods and services should be developed that will be used by both MBD and Purchasing when establishing a bid specification and certifying vendors for participation in the MBD program. MANAGEMENT'S RESPONSE The Purchasing Department has long established itself a supporter of the Minority Business Development (MBD) Office and the program(s) that the MBD facilitates. As communicated during the audit process the time period of this audit (October 2010 through December 2011) the Small Local Business Enterprise (SLBE) program was the only program that the Purchasing Department was involved with notifying the MBD Office of a bid with a potential of sheltering for SLBE firms or for goal setting in Request for Proposals. Based on the good/service being requested and a preliminary look at the monthly online MBD Office List of Certified SLBE Firms or reviewing the certified firms on Onvia Demandstar by the selected commodity, the Purchasing Department was proactive in identifying sheltering opportunities for SLBE firms. Since the timeframe of this audit period, the Purchasing Department and the MBD office have met multiple times to discuss changes in the process/procedures between the two departments to increase the amount of participation of W/MBE and SLBE firms in bids and proposals. The following three program changes have occurred based on these meetings and to address this recommendation from Internal Audit: 1) The Purchasing Department has begun the process of sending all bids/proposals with an expected award amount greater than $25K (and also Request for Quotes for amounts <$25K initiated by the Purchasing Department) to the MBD Office for its review. The MBD office has 48 hours to review and notify the Purchasing Department of any projects it would like to shelter or establish goal-setting in the documentation. If no opportunities are identified, the MBD Office also notifies Purchasing of that decision. 2) The Purchasing Department has provided the MBD Office a list of NIGP commodity codes used in Onvia Demandstar that matches the good/services that W/MBE and SLBE firms have been certified by the MBD Office to provide to the City. The matching up of the current MBD classifications and the NIGP codes for the goods/services should assist in the identification of projects for sheltering or goal-setting with SLBE and W/MBE firms. 3) The Purchasing Department has begun notifying the MBD Office of upcoming contract/award renewals. This notification occurs 5 months prior to the actual renewal month. The MBD Office has the option to request that the Purchasing Department stop any 9

13 of those renewals based on the goods/services provided and re-bid if an adequate number of SLBE and under-utilized W/MBE firms are certified in the matching NIGP categories. The Purchasing Department believes that the combination of these recent efforts should bolster the participation of W/MBE and SLBE firms in solicitations handled by Purchasing moving forward. 10

14 SEPARATION OF PROCUREMENT DUTIES AUDIT ISSUE The separation of duties between procurement and contract administration for construction related projects could be improved. OBSERVATIONS During a review of the time required to process bid requests from the DemandStar broadcast date until a City Council resolution of approval had been processed it was identified that there were two separate DemandStar accounts being used. The City s Contract Administration Department administered a separate DemandStar account and handled projects under their control. However, as of January 2012, the DemandStar account under the direction of the City's Contract Administration Department was de-activated. As a result, for new bid opportunities, the Contract Administration Department forwards bid documentation to the Purchasing Department to be uploaded to DemandStar for broadcast. Once broadcast, the scope of work section refers interested vendors to Contract Administration for any further information, including remittal of the bid response. It should be noted that with the implementation of the Enterprise Resource Planning System (ERP) in 2013, the standard ERP functionality is designed out of the box with the Purchasing Department receiving all bid responses. CRITERIA Purchasing policies and procedures should be followed by all City of Tampa departments when procuring goods and / or services. In order to help ensure the bid process is as objective as possible, the procurement process should be independent of the administering of a contract. RISK DESCRIPTION Without the best separation of duties, there is the risk of non-compliance with City Charter Article VIII, which requires a competitive procurement to the maximum extent practicable and states that it shall include factors as may be determined by the director of the purchasing department. RECOMMENDATION 4 In order to ensure the procurement process is separate from the Contract Administration (separation of duties) to the greatest extent possible, the department receiving the bid responses should be separate from the department administering the contract. Therefore, it is recommended that the Purchasing Department receive all bid responses for construction related projects directly. Additionally, the Purchasing Department should be timely in their remittal of the bid responses to Contract Administration so that no delay occurs. 11

15 It is important to note that this recommendation is not being made on the basis of any identified project that was mishandled or any staff impropriety, but to improve the internal controls to what we believe to be a best practice environment. The Contract Administration Department should continue to be responsible for developing the specifications for the bid, evaluating bid responses with input from the user departments, notifying Purchasing of who is awarded the bid as is currently done, and ultimately administering the contract after the awarding of the bid. The Legal Department should review any affected Ordinances and / or Executive Orders and determine if there are any required revisions. We recognize that as part of the ERP implementation, many processes will change. Therefore, as a result, it may be appropriate to delay implementing our recommendation until the functionality of the ERP is configured and the new system is fully operational. MANAGEMENT'S RESPONSE PURCHASING The Purchasing Department and Contract Administration have agreed to the Purchasing Department handling the posting of their bid documents on Onvia Demandstar under one account, City of Tampa, Florida. This decision was made to provide accurate data gathering for the MBD Office on the availability of W/MBE and SLBE firms for all projects as it relates to the Broadcast List and Planholders List. Beyond the posting of bid documents, Contract Administration has been responsible for the opening of their bid documents and awarding the project(s). The Purchasing Department would be in agreement to the opening of Contract Administration bid submittals and providing the information in a timely manner. Purchasing would not be responsible for the developing of bid specifications, bid submittal evaluation and the award preparation (including City Council Resolution). MANAGEMENT'S RESPONSE CONTRACT ADMINISTRATION This office has reviewed the Separation of Procurement Duties, as contained within the Purchasing Legal Compliance Audit 12-03, and understands the suggested policy change described in Recommendation 4. The Contract Administration Department is prepared to diligently work with both the Purchasing and the Legal Departments for implementation. This office agrees that implementation should be coordinated with the implementation of the contract procurement portions of the ERP. MANAGEMENT'S RESPONSE LEGAL DEPARTMENT Pursuant to the recommendation of the Internal Auditor, and in concert with the implementation of the ERP System, the legal department will review and recommend any necessary amendments to ordinances and/or executive orders where applicable. 12