Good afternoon, everyone.

Sorry I'm a minute late.

Um the budget and audit committee of the city council will come to order.

Let's call the role, please, and establish a quorum.

Councilmember Ashby.

Councilmember Schneer.

Vice Mayor Jennings.

And Mayor Mayor Steinberg.

Here, we've got a full full committee.

Hopefully, full counsel uh today as well.

Uh, we have a couple of items here.

Um we do need to the disclaimer.

Do you need to read the disclaimer?

Is it just we don't need to?

Okay.

Then we're gonna begin with a couple of discussion items.

We begin with City Auditors audit of procurement for services of $25,000 or less.

Mr.

Auditor.

Welcome.

Thank you very much.

Good afternoon, members of the budget and audit committee.

Jorge Seguera, your city auditor.

With me today is Sean Arnold, who is primarily responsible for completing this audit.

The recommendation that is before you is that you accept the auditor's audit of the procurement of services of $25,000 or less, and to forward to the city council for final approval.

We selected the limit of $25,000 as this represents the city's threshold at which stricter bidding, advertisement, and contracting requirements apply.

As contracts for $25,000 and below require less structured solicitation and lower levels of approval, they may present a higher risk of noncompliance with laws and policies.

Trend analysis and general compliance testing was conducted using a sample data set of 180 contracts from July through September of 2015.

Overall, we are presenting four findings and 32 recommendations.

This wasn't always the case until uh fiscal year 2007-2008, procurement was aligned under the Department of Finance.

In fiscal year 2008-09, the procurement division was reorganized under the Department of General Services, where it stayed until fiscal year 2012-13.

As you can see, manpower was reduced during this time by approximately 73% from 22 FTEs to six FTEs.

During this time, centralized procurement services were also greatly reduced, leading to the current decentralized procurement model.

We also found that some published procurement guidance contradicts the city code and policy.

Procurement stakeholders and their responsibilities are not defined.

Procurement training is not required, and purchase orders are not well defined and not utilized consistently.

We developed 13 recommendations to address finding one, which include establishing policies, revisiting training, and developing ethic standards.

Our second finding states that city departments did not ensure contracts were awarded and executed in accordance with city code and city policy.

Awarding contracts typically falls to the individual departments.

Due to the sensitive nature of expending public funds, care must be taken to ensure procurement activities are not only ethical but are also transparent and encourage competition.

A of particular concern is sole source contracting.

This is all for $25,000 and less, correct?

That's correct.

These are all the smaller contracts.

Still, this is really important information, but I just want to be clear that that's what we're talking about.

That is correct.

Thank you.

City policy does not require sole source contracts for non-professional services to be approved by the procurement division manager.

However, we found that approval typically occurs after the contract has already been executed, which defeats the purpose of any independent centralized review.

Additionally, sole source requests for professional services are currently not required to be approved outside of the department that conducts the contracting.

We developed eight recommendations to address finding two, which include establishing controls to ensure sole source contracts are approved prior to starting work and developing controls to ensure contracts cannot be executed without a BOT certificate.

Our third finding states that city departments failed to ensure contracts were managed in accordance with city code and city policy.

City departments are also responsible for administering the performance of contracts and managing contracts in execution.

This includes contract amendments, also known as contract supplements.

While there may sometimes be a legitimate need to amend the terms of a contract, extra care should be taken when executing supplements as they may not be subject to the same scrutiny as the original contracts.

Of particular concern were the regular practices of improperly extending contract periods and bypassing formal competitive bidding by supplementing contracts that were bid at $25,000 or less into the over $25,000 range.

Finally, our last finding is that internal controls were insufficient to prevent inappropriate payments to contractors.

We found that the payment and purchasing process currently does not prevent either paying for services that are not under contract or that exceed the limits of a contract.

One example we use in our report shows that a particular contractor had been paid nearly 270,000 for services over the last nine years.

However, the city had contracts in place for only about half of that time, leading to more than 132,000 in payments for services that were not contracted.