Comptroller Stringer Investigation: DOE Blatantly Violating its Own Contracting Rules

(New York, NY) — A new investigation released today by New York City Comptroller Scott M. Stringer found that the New York City Department of Education (DOE) has routinely flouted its own contracting rules and internal procedures in awarding non-competitive contracts, putting billions of dollars at increased risk of waste, fraud, and abuse. The new findings show that the agency plays by its own rules when it comes to contracting.

The audit released today builds on one issued in June 2015, which found serious shortcomings in the DOE’s oversight of “limited competition” contracts — or those that are not awarded through a competitive bidding process. In Fiscal Year 2016, the Department awarded $2.7 billion in contracts without full competition — representing 64% of the agency’s total contract spending.

A review of 521 limited competition contracts and contract actions revealed:

• DOE directed 442 of the vendors — approximately 85 percent — to begin work before the contract was even registered with the Comptroller’s Office, in violation of the New York State Education Law, the City Charter and DOE’s own rules;
• DOE submitted 302 new contracts and renewals to the Comptroller’s Office, on average, 258 days after their start dates, while 140 extensions of existing contracts were submitted on average 137 days after work began;
• In the most egregious case, a contract was submitted to the Comptroller’s Office 910 days — nearly two and a half years — after the vendor began work; and
• DOE submitted dozens of contracts to the Comptroller’s Office after the contract’s end date.

Because vendors cannot be paid until contracts are registered by the Comptroller’s Office, DOE’s failure to submit contracts for registration resulted in vendors providing goods and services without being paid — sometimes for years. Those delays can cause serious problems for the vendors — along with service disruptions for the City — and may discourage additional companies from bidding on DOE contracts, reducing competition for DOE’s business and increasing costs.

“It’s unbelievable. This investigation shows that DOE acts as though the rules don’t matter.  We’re talking about billions of dollars spent without real oversight, without competitive bids, and without accountability. But this is about more than just contracts. It’s about right and wrong, because every time we don’t get the most competitive price, it means a dollar is taken away from our kids. When it comes to our schools, every penny counts,” New York City Comptroller Scott M. Stringer said. “These are issues the DOE has known about for years, and billions of dollars are on the line. When it comes to contracting, this is an opaque agency that refuses to accept responsibility, that often uses inaccurate arguments to defend backwards organizational practices. No one can possibly argue that these findings – and a lack of basic accountability and oversight – are acceptable.”

Among other findings in the Comptroller’s Investigation:

The DOE failed to review vendors’ performance as required

Every DOE contract is supposed to be overseen by a “contract manager” who is responsible for monitoring the contract’s execution and evaluating vendor performance.

The Comptroller’s 2015 audit found serious shortcomings in contract monitoring and evaluation, which increases the risk that vendors who did not live up to a contract’s terms could be awarded future contracts. The follow up audit uncovered similar issues, including:

• A continued failure to establish criteria and ratings or specific guidelines to determine whether a vendor is delivering services efficiently and cost-effectively — even though the Comptroller’s Office identified this problem two years ago;
• In a sample of 18 contract renewals and extensions, there was no evidence the DOE conducted performance evaluations, as required by the DOE’s own procurement rules; and
• In one case, the DOE renewed a five-year, $2.3 million contract for elevator and escalator maintenance, despite the fact the DOE’s Division of School Facilities expressed concerns the vendor previously “failed to provide service as required.”

The DOE failed to consistently conduct background checks on vendors and address red flags
The DOE is required to conduct background checks to ensure vendors are “responsible” — i.e. able to fulfill a contract’s terms and not compromised by fraudulent activity. The Comptroller’s audit found that this was not consistently happening, nor was adverse information addressed. Specifically:

• According to procurement files provided by the DOE, the Department failed to complete background checks for 15 out of 34 sampled contract actions that required them (44 percent); and
• Of the 19 vendors that the DOE did complete background checks on, 14 contained “noteworthy” negative information. The DOE, however, awarded contracts to a number of these vendors without verifying the issues were addressed. They include:
  • A contract assignment authorized by the DOE despite a background check which found the proposed vendor owed New York State taxes from 2007. The file did not contain any evidence that the back taxes were ever paid.
  • A second contract approved by the DOE even though the background review found that the vendor had been debarred by the Worker’s Compensation Board in 2014. The contract file did not include any documents showing that the vendor was in good standing with the board.

The DOE paid more than $2 million for 55 improper purchases
The DOE’s rules require officials purchasing goods or services worth more than $25,000 to obtain them through pre-existing contracts when possible. If there isn’t an existing contract, officials must request that DOE’s central purchasing office procure the items through an approved contracting method, preferably by seeking competitive bids or proposals.

Auditors, however, found dozens of examples where the DOE entered into “negotiated services” contracts — which were not competitively-bid — after school officials directly purchased goods or services worth more than $25,000 without any contract in place:

• In Fiscal Year 2016, the DOE retroactively awarded 55 “negotiated services” contracts totaling more than $2 million to pay for goods or services that had already been improperly purchased in violation of DOE’s procurement rules;
• That practice circumvents the normal procurement process and could lead to the City’s paying higher prices than necessary while also opening the Department up to an increased risk of waste, fraud, and abuse.

Final contract files often lacked approvals and required documents
Every procurement file from a group of 40 contracts sampled by auditors was missing one or more required approvals or documents. Specific omissions included:

• Six contracts were missing insurance documents such as Certificates of Liability Insurance and Broker Certifications;
• Eight contracts were missing required VENDEX documents, which verify the vendors have not been flagged by the City for fraud or other issues; and
• Thirty-two contracts were missing required approvals, such as those from the Panel for Educational Policy and the Chancellor’s Committee on Contracts.

The Comptroller’s Office made twenty recommendations to improve the DOE’s procurement process, including that the Department:

• Ensure contracts are submitted to the Comptroller’s Office before vendors begin their work to ensure prompt payment and limit the chance of service disruptions affecting students and teachers;
• Make sure that performance evaluations are conducted — especially for contractors seeking renewals or contract extensions;
• Monitor schools more closely and ensure that they don’t make improper purchases which will later require retroactive, non-competitive contracts;
• Ensure required background checks are completed and all noteworthy negative findings are addressed before a contract is awarded; and
• Make sure that procurement files contain all required supporting documents and approvals before a contract is finalized.

The report released today is Comptroller Stringer’s 17^th audit of the DOE since taking office. Earlier this year, Comptroller Stringer highlighted serious concerns with the Department’s procurement process and called for oversight hearings in the City Council.

To see a full copy of the audit released today, click here.

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