Audit Report on the Small Procurement and Vouchering Practices Of the Department of Cultural Affairs

EXECUTIVE SUMMARY

The mission of the New York City Department of Cultural Affairs (DCLA) is to sustain and promote the cultural life of the City. DCLA represents and serves nonprofit cultural organizations and public-oriented science and humanities institutions. The department is an advocate and source of funding for those institutions. Among other things, it provides operational support to institutions in City-owned facilities.

DCLA spent $1,059,084 for Other Than Personal Services (OTPS) direct agency purchases in Fiscal Year 2001. Of this amount, it spent $471,691 on small procurements, consisting of 134 purchase orders totaling $403,895, two small contracts totaling $37,211, and 112 miscellaneous vouchers totaling $30,585.

Rules governing an agency’s handling of small procurements are found in the City’s Procurement Policy Board (PPB) Rules and the Comptroller’s Directives. § 3-08 of the PPB Rules deals with small purchases, and Comptroller’s Directives #6, #24, and #25 deal with miscellaneous agency expenses, internal controls over purchasing, and miscellaneous vouchers, respectively.

The objective of this audit was to determine whether DCLA complied with the PPB rules and Comptroller’s directives governing small procurement and vouchering practices, and to verify the accuracy and propriety of payments the agency made to vendors for small OTPS purchases.

The scope of the audit was Fiscal Year 2001.

We obtained and reviewed the City’s annual financial statements to determine DCLA’s OTPS budget, its actual expenditures, and the specific accounts it charged those expenditures to. We asked DCLA personnel to provide us with a list of all purchase orders, miscellaneous vouchers, and small contracts that they considered related to small purchases. We also obtained a printout of all OTPS general fund payments from the City’s Financial Management System (FMS) for Fiscal Year 2001.

We obtained and reviewed the PPB Rules and Comptroller’s Directives to determine the small procurement procedures that DCLA must follow. To gain an understanding of DCLA’s small procurement operation, we interviewed personnel responsible for each phase of the procurement and vouchering process.

To determine whether DCLA complied with applicable regulations, we sampled 53 purchases totaling $179,462 and performed compliance testing. To test DCLA’s internal control structure regarding small purchases, we determined whether the duties for the requisition, preparation of purchase orders, approval, and processing of invoices functions were segregated, and whether they were performed by different individuals.

Our audit was conducted in accordance with Generally Accepted Government Auditing Standards (GAGAS) and included tests of the records and other auditing procedures considered necessary. The audit was performed in accordance with the New York City Comptroller’s audit responsibilities as set forth in §93, Chapter 5, of the New York City Charter.

In some areas, DCLA complied with PPB Rules and Comptroller’s directives when processing small purchases. Specifically, we found that DCLA: charged purchases to the correct object codes; used requirement contracts when available; and properly authorized and used miscellaneous vouchers.

However, there were a number of areas in which DCLA’s small procurement practices did not comply with provisions of the PPB Rules and Comptroller’s directives related to small purchases.

DCLA had no type of purchase requisitions (as recommended by Comptroller’s Directive #24) in the purchasing files for 13 of the 26 purchase orders we reviewed. Without purchase requisitions, DCLA is limited in its ability to document that the specific goods and services requested by authorized personnel are purchased.

While DCLA generally did not artificially divide procurements to circumvent the PPB Small Purchase Rule, there was one instance in which it failed to use a competitive sealed bidding process to award a procurement in excess of the Small Purchase Rule $25,000 threshold. DCLA purchased theater lighting totaling $26,493.14 from the same vendor by issuing three purchase orders.

At the exit conference, DCLA officials stated that they do not consider this to be one procurement, because the purchases were made on behalf of three different institutions. We disagree with that contention. Although the requests originated from three different institutions, the purchase orders were generated from one location (DCLA). Accordingly, DCLA should have treated these requests as one procurement. Officials further stated that they cannot anticipate when different institutions will request similar goods and services at the same time. However, DCLA issued the purchase orders for the theater lighting on the same day. Therefore, it knew or should have known that the total value of these purchases exceeded the small purchase limits and should have used a competitive sealed bidding process, as required.

Five of the 26 of the purchase orders reviewed lacked adequate specifications—such as a description of goods or services and the unit price, or the address of the supplier—as required by Comptroller’s Directive #24.

For 18 of the 53 sampled purchases, invoices were not marked "Vouchered" when payments were made, as required by Comptroller’s Directive #24.

DCLA’s purchasing files contained evidence that the agency solicited bids for purchases in which bids were required by PPB Rules. However, the files contained no evidence that bids were solicited from the required minimum of five vendors. This limited the agency’s ability to obtain a competitive price.

The voucher packages for all 26 purchases contained the proper certifications required by Comptroller’s Directive #24. However, 25 of the packages had inadequate documentation to support payments to vendors. Twenty-two packages lacked documentation that the goods were received (a receiving report), and five packages lacked a complete purchase order. Two voucher packages contained neither a receiving report nor a complete purchase order.

DCLA had inadequate segregation of duties over some aspects of the purchasing and payment functions. For all 26 purchase orders reviewed, the person who prepared the purchase order was the same person who prepared the payment vouchers. DCLA officials stated that due to the size of the agency, they do not have a large enough staff to adequately segregate the purchasing and vouchering functions. However, a representative from the City’s Financial Information Services Agency told us that her agency had previously informed DCLA that it had enough staff to comply with the Comptroller’s Directives regarding segregation of duties and is therefore not exempted from this requirement.

The audit resulted in ten recommendations to DCLA, some of which are listed below. DCLA should:

• Ensure that it follows the competitive solicitation requirements in the PPB Rules for any procurement that exceeds the small purchase limits.
• Ensure that purchase orders contain adequate specifications to document the exact terms of purchases.
• Ensure that it solicits a minimum of five bids for all small purchases exceeding $2,500, as required by the PPB Rules.
• Ensure that it receives a receiving report for all goods received.
• Reconcile receiving reports to purchase orders and invoices as part of each Pre-Audit Certification required by Comptroller’s Directive #24 before making payments to vendors.

The matters covered in this report were discussed with DCLA officials during and at the conclusion of this audit. A preliminary draft report was sent to DCLA officials and was discussed at an exit conference on May 13, 2002. On May 21, 2002, we submitted a draft report to DCLA officials with a request for comments. We received a written response from DCLA on June 6, 2002. In its response, DCLA generally agreed to comply with the audit’s recommendations. However, the agency disagreed with our finding that it failed to obtain competitive sealed bids for a procurement that exceeded small purchase limits.