AUDIT / TASK: #17-09, Purchasing Compliance AUDIT CLIENT: Purchasing/Cross-Functional REPORT DATE: August 16, 2017 AUDIT GRADE: Satisfactory

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16, 2017 AUDIT GRADE: Satisfactory REPORT AUTHOR: APPROVED FOR RELEASE: Krista Hurley, Audit

1 A REPORT FROM THE OFFICE OF INTERNAL AUDIT PRESENTED TO THE CITY COUNCIL CITY OF BOISE, IDAHO AUDIT / TASK: #17-09, Compliance AUDIT CLIENT: /Cross-Functional REPORT DATE: August 16, 2017 AUDIT GRADE: Satisfactory REPORT AUTHOR: APPROVED FOR RELEASE: Krista Hurley, Audit Intern Steven Rehn, Director of Internal Audit AUTHORITY: Boise City Code, FY2017 Work Plan

2 TASK #17-09, Compliance DATE OF ENGAGEMENT: May 30, 2017 INTRODUCTION The Department of Finance and Administration s Division oversees the process of the acquisition of goods, services, and construction in a quality and cost efficient manner. provides centralized administrative services for purchases of $25,000 and larger citywide. The division is also involved, though to a lesser degree, in purchasing activities occurring within the range of $10,000 to $25,000. Laws and regulations pertinent to these activities are outlined in both State Statute and City Code, and are detailed in City Regulations. The Office of Internal Audit undertook a review of the function to ensure that basic procedures and internal controls were in place and functioning as intended. SCOPE AND METHODOLOGIES The scope period for purchasing activities included October 1, 2015 to May 30, The objectives established for this review included the following: Review purchase contracts for basic transaction metrics, selection of suppliers based on value provided, and proper approvals. Determine if sole source declarations were made in accordance with applicable laws and regulations. Determine if emergency expenditures followed the proper documentation and notification process as required by laws and regulations. Determine if surplus property disposals were made in accordance with applicable laws and regulations Internal Audit utilized various methodologies during the review including staff interviews, the review of associated documentation, statistical testing of purchasing procurements and validation techniques as were appropriate to the circumstances. The methods employed and the evidentiary materials developed were deemed to be adequate to support the conclusions contained within this report. 2

3 EVALUATION AND COMMENTS Based on the work performed, it appears that administrative controls and processes related to activities are functioning in a Satisfactory manner. The evaluation scale used by Internal Audit in assigning an audit grade defines key attributes of a Satisfactory level of performance as: Overall, systems of internal control are effective, and management oversight is adequate and effective. (Refer to Appendix A for additional details concerning Internal Audit s existing grading scale.) Internal Audit reviewed bid requests, bid specifications, contracts and supporting documentation associated with 38 randomly-selected procurements which represented 14.5% of the total population of qualifying purchasing scenarios. Those items Internal Audit reviewed totaled approximately $ 3,077,600 in authorized spending. The procurements tested included construction, goods and services, sole source and emergency purchases. Internal Audit also tested the disposal of surplus assets for compliance with relevant rules and regulations. During the engagement, Internal Audit noted a high level of compliance with established purchasing processes and procedures appears to have been achieved. Procurement methodologies satisfied established requirements. Procurements received the proper level of scrutiny in each scenario we reviewed. We did note two issues where we directed comments to other departments involved in the purchasing scenarios of interest. Those are documented in the Other Areas of Concern report section, below. (Refer to Appendix B for additional details concerning City of Boise.) 3

4 FINDINGS AND RECOMMENDATIONS There are no formal findings or recommendations included within this report. Any comments or observations provided to the Division were done so informally, with any follow-up left solely to their discretion. OTHER AREAS OF CONCERN Internal Audit utilizes Other Area of Concern comments to provide management with feedback on issues noted during a project that, while they may not apply directly to the department or function under review, do appear to deserve additional management attention. Audit provided the following comments to management teams of two separate departments (external to ) during the engagement: Incorrect Charges Against a Purchase Order: We noted one department had applied three small invoices against a purchase order incorrectly. In order to acquire the goods originally intended, and to properly relieve the encumbered funds, the Purchase Order had to be increased to include the value of the three unauthorized invoices. The city suffered no loss as a result of these actions, but the transaction did impose an unnecessary administrative burden on staff. We recommended management reinforce their procedures as necessary. Failure to Waive a Purchase Order: We noted another purchase involving the acquisition of personal services where a department failed to follow purchasing requirements. Due to the size of the contract, a Purchase Order was required. The department elected to pay the vendor with a city P-Card as the services progressed, but did not seek a waiver of Purchase Order requirement from the Division as required. The city suffered no known loss due to the process that was followed. We recommended management reinforce their procedures as necessary. In both instances, administrative oversight appeared to be the most likely causal factor; follow up was left to management s discretion in both cases. 4

5 CONCLUSION For the sample tested, overall compliance with statute, code, and regulation was demonstrated and achieved by the City s Division. The results of our work indicate processes and procedures are effective in helping to satisfy its defined mission: Our mission is to ensure that City Departments obtain quality and cost efficient goods, services and products in a timely manner, and to ensure that all bid processes are fair and equitable Internal Audit would like to thank management and staff of the Department of Finance and Administration for their valuable assistance and input during the project. MANAGEMENT PARTICIPANTS Colin Millar, Manager / Department of Finance and Administration Tammi Leatham, Specialist / Department of Finance and Administration 5

6 APPENDIX A Evaluation and Grading of Audits Each audit will be evaluated or graded, and will receive one of the three following ratings. Grades will be assigned based on the perceived best fit. Thus, not all attributes associated with an assigned grade may be present within a given Department or Division. Satisfactory No significant weaknesses or operational issues were noted during the audit. If any issues were noted, they did not materially detract from the business unit s ability to deliver services and / or to accomplish defined mission, goals, and objectives. Overall, systems of internal control are effective, and management oversight is adequate and effective. Needs Improvement Weaknesses or issues detrimental to operational efficiency or effectiveness existed within the audited area, and were encountered frequently enough to lose the appearance of isolated. Issues noted were strongly suggestive of an impaired ability to provide services at needed levels, or to accomplish mission, goals, and objectives successfully. Internal control mechanisms may not be universally in place, implemented, or actively observed. Management oversight is weak. Unsatisfactory Material or significant issues were noted within the operations under review. Issues posed risks that were mission-fatal; the business unit could not successfully deliver services in an acceptable fashion. Management failed to implement appropriate internal control mechanisms. Management oversight is ineffective, absent, or willfully avoided. 6

7 APPENDIX B Boise City Transaction Type Items Purchased Dollar Limits Solicitation Method Purchase Order Bid Approval Level < $10,000 Solicitations Optional Optional / Recommended Department Director $10,000 < $25,000 Solicitations Written Quotes Undefined Semi- Semi- Professional / Consultant Goods and Services Construction < $100,000 $25,000 < $50,000 $25,000 < $100,000 Written Request to Vendors Written Request to Vendors Optional Written Bids Written Bids Department Director Goods and Services $50,000 Published Invitations Sealed Bid Construction $100,000 Sole Source Sole Source Change Orders Change Orders Change Orders Professional / Consultant $100,000 < $25,000 $25,000 < $10,000, and < 10% of Contract < 10% up to $1 million 10% of Contract, and / or $1million Published Invitations above $9,999 Sealed Bid Sealed Bid Sole Source Declaration by Sole Source Declaration by n/a n/a n/a n/a n/a n/a with Review Department Director n/a n/a n/a Note: This table presents a general overview of Boise City s purchasing requirements in place as of the date of our review. It does not attempt to present all contingencies that might be encountered in various purchasing situations. 7

A REPORT FROM THE OFFICE OF INTERNAL AUDIT

A REPORT FROM THE OFFICE OF INTERNAL AUDIT PRESENTED TO THE CITY COUNCIL CITY OF BOISE, IDAHO AUDIT / TASK: #12-08S1, Purchasing Compliance AUDIT CLIENT: Purchasing / Cross-Functional REPORT DATE: August