Introduction..................................................................................................................................................... 1
Background.................................................................................................................................................... 1
Objectives, Scope and Methodology................................................................................................ 1
Comments on the Report......................................................................................................................... 2
Opportunities Exist to
Improve Internal Controls with Department Executed Contracts............................................................................................................................................................ 3
Organization.................................................................................................................................................. 3
Control Activities....................................................................................................................................... 4
Contract Manual Needs
Updating................................................................................................................ 5
Procedures Needed for
Contract Pre-Audit Process................................................................................. 6
Procedures in Place
Within Budget Coordination Are Not Functioning as Intended.......................... 8
Conclusion........................................................................................................................................................ 8
Monitoring of the Contracting Process....................................................................................... 8
Information on the Name
and Dollar Value of All Outstanding Contracts Was Not Available........ 10
A Process for
Identifying and Reviewing Existing Contracts Does Not Exist...................................... 10
Conclusion..................................................................................................................................................... 10
Recommendations..................................................................................................................................... 11
Comments of Department Officials................................................................................................ 11
Appendix A - Contributors to the Report
Appendix B - Comments of Department Officials
Attachment A - How Contracts Are Processed by Department
Offices
This
audit of the State Education Department’s (Department) contracting system was
performed by the Office of Audit Services in response to a special request by
the Chief Operating Officer. The audit
was conducted in accordance with Government Auditing Standards issued by the
Comptroller General of the United States.
Accordingly, the audit included those tests and procedures that we
considered necessary to achieve the purposes for which the audit was designed.
The
contract approval process generally begins in a program office with a
determination that goods or services are needed which are not available within
the Department, or cannot be provided by Department staff. Requirements for processing a contract are
established by many sources including State Finance Law, Office of General
Services (OGS), Office of the State Comptroller (OSC), and the Division of the
Budget. The Department established policies
and procedures to implement these laws, rules and regulations through the
Contract section of the Administrative Policy and Procedure Manual (Manual).
The
Manual outlines specific procedures to be followed if the purchase of goods or
services will exceed $5,000. These
procedures, along with the contract development and approval process, represent
an important component of the Department's system of internal controls that
should provide assurance that the preparation and awarding of a contract
complies with the legal requirements and achieves Department goals.
In
accordance with professional auditing standards, the audit focused on the
examination and evaluation of the adequacy and effectiveness of internal
controls and the quality of performance in carrying out assigned
responsibilities.
The
audit compared the Department’s policies and procedures with Article XI of the
State Finance Law, OSC's and OGS' policies, procedures and guidelines to assess
the adequacy of the Department's policies and procedures.
The
specific objectives of the audit were to:
·
Determine if Department policies and procedures were
consistent with State Finance Law and OSC's and OGS' policies and procedures;
·
Determine if Department policies and procedures were
sufficient to ensure compliance with
State Finance Law and OSC's and OGS' policies and procedures;
·
Assess the adequacy
of the internal controls over the contracting process for:
·
Individual program offices included in our sample; and
·
The overall contracting process.
To
accomplish the audit objectives, the Office of Audit Services:
·
Obtained copies of applicable background materials to
obtain knowledge and understanding of the criteria for contract procurement and
preparation, including OGS' Procurement Guidelines, OSC's Procurement Policies
and Procedures, and the Manual's contract section;
·
Reviewed the internal controls established by
management to determine if such controls were adequate to provide reasonable
assurance of compliance with State Finance Law;
·
Interviewed staff from the Office of Counsel, the
Bureau of Fiscal Management, the Bureau of Budget Coordination and various
program offices, and documented the relevant policies and procedures for the
procurement process and for the preparation and approval of a contract; and
·
Selected a sample of five contracts and reviewed the
procurement record maintained by the program office to ensure that it complies
with State Finance Law, and to determine if internal controls are functioning
as intended by management.
Fiscal
Management and Budget Coordination officials agree with the findings and
recommendations. Their comments were
considered in the preparation of this report.
A copy of the responses are included as Appendix B of this report.
OSC
has written Standards for Internal Controls in New York State Government, which
are scheduled for release in February 1999.
Those standards define internal controls or an internal control system
as "the integration of the activities, plans, attitudes, policies and
efforts of the people of an organization working together to provide reasonable
assurance that the organization will achieve its mission."
A
typical internal control system has components that direct attention to various
areas and functions in the organization.
OSC identified the following seven components of a system: organization;
control environment; communication; assessing and managing risk; control
activities; monitoring; and evaluation.
The
audit focused on three components of the internal control system: the
organization; control activities; and monitoring. The audit team assessed the adequacy of the internal controls
within the contracting process and determined that opportunities exist to
improve the process.
At
the time of the audit, essentially the Department's contracting process was
decentralized and involved four offices: the program office needing to procure
goods or services; the Bureau of Fiscal Management; the Bureau of Budget
Coordination; and the Office of Counsel.
A detailed description of the contracting process is included as
Attachment A to this report.
Responsibility
for the contracting process was decentralized among the four offices. The decision on the need to contract is made
in program offices throughout the Department.
In addition to making a determination of the need, the program offices
also are responsible for selecting a method to choose a vendor, evaluating
vendors, and choosing the successful vendor.
The
Bureaus of Fiscal Management and Budget Coordination had responsibility for
determining that funding needs are met.
The Office of Counsel had responsibility for reviewing the documentation
of the contract as developed by the program office and forwarding the
documentation to the control agencies (Office of the State Comptroller,
Attorney General) for final approvals.
However,
no one office had the responsibility to oversee and guide the overall process
from the beginning to the end. The
program offices can proceed almost through the entire process without any
oversight exercised by any one office.
The
requirements for executing State contracts are regulated by a very extensive
and complex set of laws and regulations.
Program offices are expected to be aware of the requirements of the
contracting process through a review of the Manual and be technically
proficient in applications. The program
office has broad responsibility to proceed with the contracting process. In fact, the program office essentially
completes the process including solicitation of bids, advertising, evaluation
of prospective bidders, and determining the successful bidder.
Subsequent
to the completion of the field work, the Department has created a unit within
the Office of Management Services which will provide oversight of the
contracting process. The functions
formerly handled in the Office of Counsel have been transferred to this unit.
Policies and procedures
are developed by management to guide the processing of information and to
ensure compliance with applicable laws, rules and regulations. As mentioned in the background section of
this report, State Finance Law, and OGS' and OSC's rules and regulations govern
the contracting process. The Department
has developed a contract section of the Manual as a method of communicating the
requirements of the contracting process.
The
audit reviewed the applicable background material including State Finance Law
(chapter XI), OSC's procurement guidelines, OGS' procurement guidelines, and
the contract section of the Manual to determine if:
1. The
policies and procedures comply with State Finance Law, and OSC's and OGS' rules
and regulations; and
2. Sufficient
information exists in the Manual to enable the Department to comply with
applicable laws, rules and regulations.
The
audit found that:
·
The contract section of the Manual has not been updated
since 1995 and does not provide program offices with sufficient information.
·
There are no procedures in place to review bidding
documents and ensure bidding requirements have been followed.
·
The policies and procedures in place within the Bureau
of Budget Coordination to ensure that funding is available prior to the
issuance of a contract are not functioning as intended.
The
Manual was produced by the Division of Administrative Analysis during the early
part of the 1990s. The contract section
of the Manual was last updated in 1995.
The
audit found that the contract section of the Manual does not reflect a 1995
revision to the State Finance Law (Procurement Stewardship Act 1995) which
requires the Department to maintain “documentation of the decisions made and
the approaches taken in the procurement process.” The Procurement Stewardship Act requires the Department to
maintain a Procurement Record and to submit a procurement record checklist with
the contract package to OSC.
A
review of contract documentation disclosed that information maintained by the
Department is not sufficient to meet the intent of the Law.
Although
policies and procedures exist for the process as a whole, procedures for
processing the information within the various offices are either lacking or
nonexistent. For example, although the
Manual states that an office will review the documents submitted, procedures
for conducting that review have not been developed.
The
contract section of the Manual should be clear, concise and up-to-date to
ensure that the Department complies with applicable laws, rules and regulations
for the procurement of goods and services, and the contract approval process.
Laws,
rules and regulations governing the procurement of goods and services and the
contract approval process emanate from many sources, including OGS, State
Finance Law, and OSC regulations. The
Department established policies and procedures to implement these laws and
regulations through the contract section of the Manual.
The
Procurement Record should include for each procurement, “a clear statement of
need, a description of the required specification governing performance and
related factors, a reasonable process for ensuring a competitive field; a fair
and equal opportunity for offers to submit responsive offers and a balanced and
fair method of award. State agencies
shall document the determination of the method of procurement and the basis of
award in the record.”
The
audit team sampled five contracts to determine if sufficient information
existed in order to ensure compliance with the Procurement Stewardship Act of
1995. The contracts selected are shown
below:
Table 1
Contracts Reviewed by the Office of Audit
Services
|
Contract Number
|
Vendor
|
Program Office
|
Dollar Value
|
|
C005685
|
McGraw Hill
|
EMSC
|
$5,819,520
|
|
C005706
|
System Automation Corp
|
OMS
|
$1,628,930
|
|
C005675
|
DRT Systems
|
VESID
|
$3,545,535
|
|
C109833
|
NYS (SUNYA)
|
Office
of Audit Services