Audit Report on the Department of Education’s Monitoring of Its Custodial Supplies Contract with Strategic Distribution, Inc.

Executive Summary

We conducted this audit to determine whether the New York City Department of Education (DOE) has adequate controls in place to monitor the compliance of Strategic Distribution, Inc. (SDI) with its custodial supply contract. DOE entered into a contract with SDI to obtain on-site delivery of custodial supplies to public schools throughout New York City (City). DOE’s Division of School Facilities (DSF) is charged with managing and monitoring that contract. DSF employs custodian engineers (CEs) to manage school buildings across the City. As part of its responsibilities, SDI provides DOE with two catalogs of products that range from equipment to custodial supplies needed for the day-to day operation of DOE’s school buildings.

CEs are responsible for creating custodial supply and equipment purchase orders based on the needs of their assigned schools. Items listed in the SDI catalogs and their corresponding prices are embedded in DOE’s Financial Accounting Management Information System (FAMIS), which allows CEs to place their orders through the system.^[1]

As reported in FAMIS, DOE purchased 272,061 custodial items valued at $100,093,447 for the period July 1, 2018 through June 30, 2020.

Audit Findings and Conclusion

DOE does not effectively monitor whether SDI is following key terms of its custodial supply management contract and so needs to improve its controls. We identified the following deficiencies in DOE’s monitoring of the SDI contract:

• DOE did not enforce the requirement that SDI submit certain management reports. As a result, DOE is less able to effectively identify trends or patterns meriting further investigation. DOE also waived the requirement that SDI submit a semi-annual contract review report that highlighted key performance areas;
• DOE was unable to provide evidence of any reconciliation of the data contained in the reports that SDI did submit to obtain assurance that the reports were accurate; and
• DOE had no evidence that it performed price analyses to assess whether it paid reasonable prices for catalog items and, if not, seek voluntary price reductions from SDI.

However, we found that DOE did not pay prices above those agreed to in the contract and paid SDI only for those goods that CEs certified were received. In addition, by embedding the SDI catalogs in FAMIS, DOE is now able to maintain detailed payment records for its custodial supplies.

Nonetheless, as a result of the weaknesses this audit identified, there is an increased risk that DOE may be paying more than it should for custodial items. In a related matter, we found that DOE did not sufficiently document its reasons for the performance evaluation ratings it gave SDI.

Audit Recommendations

Based on our findings, we make 10 recommendations, including:

• DOE should enforce the contract requirement that SDI submit four types of management reports. Specifically, DOE should require that SDI submit to it the Quarterly Spend Report and the Accuracy Detail Analysis Report.
• DOE should ensure that modifications made to contract terms are formally documented in writing as required by its Procurement Policy and Procedures (PPP) Guidelines.
• DOE should utilize the data contained in SDI’s management reports and reconcile that data with the data contained in its own records to ensure that it is getting accurate information about contract performance and to address any reporting and/or performance deficiencies identified through such reconciliations.
• DOE should periodically perform pricing surveys to ascertain whether it can identify any catalog items that can be purchased elsewhere at a savings of 20 percent or more.
• For the evaluations to be more meaningful, DOE should ensure that evaluations prepared on SDI’s performance are detailed, and that they specify—if and as applicable—those areas of the contract that the vendor is following and the areas that require further improvement.

Agency Response

In its response, DOE agreed with eight of the audit’s ten recommendations. DOE disagreed with two recommendations: that it require SDI to provide the actual price for each catalog item separate from expenses incurred associated with administering the contract (recommendation #7); and that it establish and send monthly/quarterly evaluations or surveys to the CEs and Principals to obtain feedback on SDI’s performance (recommendation #9).

[1] FAMIS is used to create purchase orders and confirm receipt for goods and services from SDI.