Follow-up Audit Report on the New York City Department of Finance Small Procurement and Vouchering Practices

SUMMARY OF FINDINGS AND CONCLUSIONS

This report discloses the results of a follow-up audit conducted to determine whether the New York City Department of Finance (Finance) has implemented the 12 recommendations made in our previous audit report, Audit Report on The Department of Finance Small Procurement and Vouchering Practices (Audit No. FR98-096A, issued May 1, 1998). The previous audit evaluated Finance’s compliance with Procurement Policy Board (PPB) Rules; Comptroller’s Directives, and other City guidelines pertaining to its small procurement and vouchering practices. In this report, we discuss each of the previous report’s recommendations in detail, as well as the current implementation status of each recommendation.

During our previous audit, the auditors found that Finance generally complied with PPB rules and Comptroller’s Directives when using purchase orders. However, Finance’s small procurement operation did not comply with provisions of the City Charter, PPB rules and Comptroller’s Directives related to small purchase contracts and miscellaneous vouchers. Specifically: Finance split purchases made from eight vendors into 21 small purchase contracts, thereby circumventing the competitive bidding requirements of the PPB rules; paid for travel expenses that did not meet the requirements of Comptroller’s Directive #6; and failed to determine the lowest prevailing market price for 20 purchases made through New York State contracts, as required by PPB rules. Furthermore, Finance charged incorrect object codes for four small contracts, nine purchase orders and three miscellaneous vouchers.

Our previous audit made 12 recommendations to Finance. Of the 12 recommendations, five were implemented, two were not implemented, and five were not applicable. The details of those recommendations and their implementation status follow. Finance should:

1. "Ensure that all contracts awarded to vendors are in compliance with PPB rules relating to small purchases. Further Finance should not artificially divide contracts as a means of circumventing the small-procurement thresholds."
2. "Follow the emergency procurement procedures prescribed in the section 3-06 of the PPB rules when procuring goods or services under emergency circumstances."
3. "Research the market to determine that the rates listed in the New York State contracts are equal to, or lower than, the prevailing market prices at the time of procurement. Finance should document this research in the contract files."
4. "Ensure that any procurement of a sole source provider is fully justified and supported, in accordance with the PPB rules"
5. "Determine that the price submitted and awarded to a lone responsive bidder is fair and reasonable. This conclusion should be documented in the contract file."
6. "Ensure that its contract files contain documentation to support its award to contractors who are not the lowest bidders. In addition, Finance should forward the appropriate documentation to PPB."
7. "Not use miscellaneous vouchers in cases where purchase orders, agency encumbrances, or interagency vouchers are required."
8. "Carefully monitor its employees’ travel expenses and disallow those that are not in compliance with Comptroller’s Directive #6."
9. "Ensure that Purchasing Unit’s staff properly encumber funds by preparing and processing purchase orders before items are purchased."
10. "In cases where a purchase order account has been incorrectly closed, contact the Comptroller’s Office to have purchase orders reinstated."
11. "Provide adequate segregation of duties by ensuring that the person preparing the purchase order is not the same person who approves the purchase order."
12. "Carefully review the City’s Chart of Accounts and use the correct object codes for its expenses."

To address the problems that still exist, we now recommend that Finance:

1. Comply with the Comptroller’s Directive #6 when reimbursing employees for work-related travel expenses.
2. Carefully review the chart of accounts and use the correct Object Codes for its expenses.

This 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 City Comptroller’s audit responsibilities as set forth in Chapter 5, § 93, of the New York City Charter.

The matters covered in this report were discussed with officials from Finance during and at the conclusion of this audit. A preliminary draft report was sent to Finance officials and was discussed at an exit conference on June 3, 2002. On June 5, 2002, we submitted a draft report to Finance officials with a request for comments. We received a written response from Finance on June 19, 2002. Finance stated that it agrees with and will implement the report’s recommendations. The full text of Finance’s comments is included as an addendum to this report.