The Kansas City Council held a business session on January 6, 2022, to receive two audit presentations from the City Auditor, discuss the reinstitution of a mask mandate with a presentation from the interim public health director, and honor a departing police captain. The meeting highlighted significant weaknesses in the city's purchasing card program, with findings of noncompliance and potential fraud, and concluded with a robust debate over the necessity and efficacy of a new mask mandate amid a surge in COVID-19 cases.
Welcome to today's business session. Our first item is approval of minutes from our previous business session. Is there a motion? So moved. Second. All in favor indicate by saying aye. Aye. Aye. Aye. All opposed. The motion is approved. The city auditor has a series of presentations for us today. Mr. Jones. Good afternoon, Mayor Lucas, members of City Council, Doug Jones, City Auditor's Office. I'm here to present our December 2021 audit of the city's purchasing card program and purchases. I will discuss the audit objective, provide some background, and summarize our findings and recommendations. In front of you are copies of the audit report, highlights page and presentation slides. The team for the audit was Kara Jorgensen, Jonathan Lequeur, and Sue Paulis. Our audit focused on determining whether purchasing cards are used as intended and identifying program improvements needed to reduce the risk of card misuse. We also evaluated the effectiveness of the city's checks and balances to ensure adherence to city policies. We conducted the audit in accordance with government auditing standards. Purchasing card programs are established to provide efficient and cost effective methods for paying for small dollar purchases. While this type of program is meant to be cost effective and efficient, there are also opportunities for noncompliance with the city's policies and procedures, as well as opportunities for fraud and abuse. The city has had a purchasing card program since 2001. Between December 29th, 2019 and January 27, 2021, city employees made about 7,800 purchases from over 3,000 vendors, totaling about $3.3 million. The top 10 city purchasing card vendors are shown on this slide. Amazon was the top vendor by amount during our time frame. Water, fire, and aviation departments have the most purchasing cards, have the greatest number of transactions, and spend the most money using these cards. We concluded that some staff did not use purchasing cards as intended. The finance department has implemented rules and guidelines to prevent card misuse. While many transactions did follow established rules, we found some cardholders did not always follow these rules and contracting procedures meant to prevent card misuse. Some transactions violated several policies and procedures. Using our data analytics software, we analyzed about 7800 purchasing card transactions and selected a judgmental sample of 583 transactions we flagged as potential violations. From our judgmental sample, we identified 216 transactions that resulted in 256 purchasing card or city program procurement rule violations that included a potential ethics violation, payment split to avoid card transaction limits, lack of transaction receipts and required written approvals, disregard for contracting policies, basically not obtaining three bids or proposals for purchases over $5,000, and repeatedly purchasing near the transaction limit to avoid procurement rules. We found transaction approvers did not identify the violations we found, and in some cases were not aware the transaction should be considered a violation of city policy. Are supposed to verify the purchase validity and detect and correct violations. The review process relies on approvers understanding policies and procedures so they may detect violations. Some cardholders and approvers ignored or forgot the city requirements or did not approve transactions at all. 670 transactions were not reviewed before payment. Two approvers said they were not aware that buying products from a family member was a potential ethics violation. So these purchasing card training manual administrative regulation do not address contracting policies in detail. Both the training and written guidelines should cover conflicts of interest and ethics. Procurement rules requiring bids on proposals or purchases over $5,000, and prohibition on making monthly purchases for the same item just below the card limits to avoid the procurement rules. About one-third of our judgmental sample had receipt problems. Frequently, the problem was locating the receipt. Rather than requiring cardholders to upload purchasing card receipts to the work's purchasing card systems, finance department requires departments to maintain hard copies. Uploading receipts would help ensure purchasing record receipts are retained in one location, making storage and review easier. Since 2018, the department has reviewed card transactions in six of 20 departments by reviewing all transactions in the selected departments during a time period. The review method takes longer than a targeted risk-based review and did not include the two departments with the most purchasing card use.