1. Audit of Procurement Card Process ABSTRACT
Controls over $6 Million resources need
improvement. Recommended changes
and Administration's actions during the
1 audit will improve controls.
/ Umesh Dalal, City Auditor
AUDIT OF PROCUREMENT
CARD PROCESS
I
n»
DENTON
Table of Contents
Description
Executive Summary 1
Detailed Report
❖ Introduction 3
❖ Management Responsibility 3
❖ Background 3
❖ What Works Well? 4
❖ Compliance with Procurement Regulations 5
❖ Excessive Number of Cards 10
❖ Supervisory Approvals 13
❖ P-Card Administration 15
❖ Internal Controls Weaknesses 15
❖ Need for Training 17
❖ Opportunity for Savings 18
The City of Denton Procurement Card Audit Report
June 2019
Executive Summary
Honorable Mayor and members of the City Council,
The City Auditor's office has completed an audit of the Procurement Card (P-Card) management process. The
City's P-Card program is expected to improve efficiency and expediency of purchasing certain products or services
which are either low dollar items or needed for emergency operational needs. However, P-Cards are vulnerable
to misuse and therefore, adequacy of internal controls over this process is critical. During the audit period from
July 1, 2017 through July 31, 2018, the City incurred about $6 million in charges on P-Cards. The objective of
the audit was to verify internal controls over City resources and procedures and evaluate efficiencies in the
Division's processes.
It should be noted that during the audit, the Compliance Officer was assigned responsibility to manage P- Card
purchases. The Compliance Officer has made progress in resolving some of the control deficiencies.
The following are the salient findings of the audit:
• Overall, the controls over this program appear to need improvement. Significant concerns are related
to lack of compliance with procurement regulations. The absence of established processes and Purchasing
Division's (Purchasing) previous interpretation of statutes resulted in non-compliance with procurement
regulations for P-card purchases. The audit identified seven vendors from whom more than $50,000 in
merchandise was purchased without inviting sealed bids (Appendix 1). These purchases totaled about
$674,000. In addition, the City purchased approximately$2.7 million in merchandise exceeding$3,000
but less than $50,000 from each of 327 vendors but did not request the required quotes from two
underutilized businesses. In addition, we observed that the City has not complied with procurement
regulations related to food purchases. City employees could incur significant liability for non-compliance
with procurement regulations.
Purchasing has taken measures to comply with the statutes and has agreed to implement monitoring
process to mitigate the above deficiency. We have conducted a detailed assessment of compliance with
the procurement regulations in the subsequent audit of the Purchasing Division. We have issued a
separate report on the Procurement Process.
• Value contributed by the audit:
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The City of Denton Procurement Card Audit Report
June 2019
o Implementation of recommendations will improve the City's compliance with the City and State
procurement regulations.
o Enhanced monitoring recommended in this report could help the City look for opportunities
for additional savings due to economy of scale and to reduce costs incurred in the procurement
of products and services. The amount of potential savings cannot be estimated as relevant data
is not available.
o Currently, the City is incurring retail costs of about $412,000 for air travel, rental cars and hotel
accommodations incurred for City business. The audit identified an opportunity to either save
costs or obtain rebates to reduce these expenditures.
The attached detailed report includes additional information. The City Auditor's Office appreciates the
cooperation of the City staff during this audit. This audit made 14 recommendations. The Purchasing Division
has concurred with all of them. Implementation of 8 recommendations is already completed. If you have any
questions or comments, please contact me at(940) 349-8158 or at umesh.dalal@cityofdenton.com.
Umesh Dalal,
City Auditor
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The City of Denton Procurement Card Audit Report
June 2019
Introduction
The City Internal Auditor is responsible for providing: (a)an independent appraisal of City operations to ensure
policies and procedures are in place and complied with, inclusive of purchasing and contracting; (b)
information that is accurate and reliable; (c) assurance that assets are properly recorded and safeguarded; (d)
assurance that risks are identified and minimized; and (e) assurance that resources are used economically and
efficiently and that the City's objectives are being achieved. The City Auditor's Office has completed an audit
of the P-Card program managed by the Procurement Department. The objectives of the audit wereto evaluate
internal controls in the Division's procedures.
The audit was conducted in accordance with the Generally Accepted Government Auditing Standards
promulgated by the Comptroller General of the United States.Those Standards require that the auditors plan
and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for their
findings and conclusions based on the audit objectives.The auditors believe that the evidence obtained during
this audit provides a reasonable basis for their findings and conclusions based on the audit objectives.
Management Responsibility
The City management is responsible for ensuring resources are managed properly and used in compliance
with laws and regulations; programs are achieving their objectives;and services are being provided efficiently,
effectively, and economically. Management is responsible for establishing and maintaining a system of
internal accounting and management controls. In fulfilling this responsibility, management is required to
assess the expected benefits and related costs of control procedures.
Background
P-Cards are used to gain one or more of the following benefits:
• Improvement in accounts payable and accounting efficiencies as follows:
Usually it takes significant effort and expense to issue a check for expenses incurred. Since
a number of transactions incurred on P-Cards are paid with one wire transfer; it saves effort
and expense of issuing multiple checks.
Transactions are generally summarized, which help in the accounting process.
• Emergency needs or the necessity to purchase a small item with low cost avoid an extended delay of
processing, purchasing and accounts payable paperwork.
• Since all the transaction data is electronically available from the bank for better analysis, there is
improved management reporting.
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The City adopted the P-Card program in 2007. This program is administered by the Procurement Division. During
the audit period of July 1, 2017 through July 31, 2018 the following departments are the major users of P-Cards:
The City of Denton Procurement Card Audit Report
June 2019
P Card Spending
L� Parks
$425,680 �ILibrary
$201,008 Lul Water
$251,061
Dev. Svcs/Plan.
*1 DME
$134,017 LIHR
Lol Waste Water
Mat. Mgmt.
• 8,439 *1 Fire
$74
Tech Services
Lol Fac. Mgmt
Police
. 135,955 *Solid Waste
Airport/Fleet
• •: L]Others
$192,955 $ 38,950
The Parks department spent more than a million dollars on P-Cards during the audit period. Each of the City's
utilities and the public safety departments also spent substantial amount on P-Cards respectively.
What Works Well?
Timely cancellation of cards upon employee terminations, recovering for fraud against the
City, and transaction audit processes are working as expected.
The auditors found that the P-Card Administrator in the Procurement Department had a good
understanding of the P-Card process. The auditors found the following:
• All employee terminations have been recorded in a timely manner and the cards assigned to these
positions were canceled immediately. This prevented the potential for abuse.
• All transactions involvingfraud by the third parties were successfully followed up. The City received credits
for all of the transactions that were charged on the City's cards but did not belong to the City.
• P-Cards transactions audit process represents a control mechanism, which would identify abuse of cards
and noncompliance with the established procedures. These audits were conducted as expected.
However, the results need to be summarized and reported to management.
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The City of Denton Procurement Card Audit Report
June 2019
Opportunities for Improvement:
Compliance with Procurement Regulations
Major Purchases more than $50,000.
Compliance with State Procurement Regulations including sealed bidding, is needed.
What we found?
The City's procurement of goods and services must comply with City Charter, State law, and City
ordinances, supplemented by City Council resolutions and administrative policies. Unless a purchase is
otherwise exempt from competitive bidding, Texas Local Government Code ("State Statute') Section
252.021 requires, "(a) Before a municipality may enter into a contract that requires an expenditure of
more than $50,000 from one or more municipal funds,the municipality must:
(1) comply with the procedure prescribed by this subchapter and Subchapter C for competitive
sealed bidding or competitive sealed proposals; ...
Sec. 252.043. AWARD OF CONTRACT. (a) If the competitive sealed bidding requirement applies to the
contract for goods or services, the contract must be awarded to the lowest responsible bidder or to
the bidder who provides goods or services at the best value for the municipality."
It should be noted that the State Statute applies to the municipality, as a whole. It does not recognize
separate departments or transactions for complying with the requirements. During the audit period,
significant P-Cards transactions were incurred in the following categories,which is about 86%of the total
P-Card expenditures during the audit period:
Categories
Services $1,727,485
Supplies $1,769,688
Electronics $312,541
Materials $381,060
Furniture,Equipment $637,483
Food $268,917
Tota 1 $5,097,174
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The City of Denton Procurement Card Audit Report
June 2019
During the audit period, the City made purchases exceeding $50,000 each from seven vendors
(Appendix 1).These purchases totaled about$674,000 and were made without inviting formal sealed bids.
This occurrence represents non-compliance with procurement regulations. It should be noted that a
limited analysis to verify compliance with state statutes was conducted during this audit. More
comprehensive analysis has been performed during the subsequent audit of the purchasing function.
Other purchases included in the table need to be analyzed to determine the City's compliance with
procurement regulations.
We observed that the City does not have a contract for food purchases. As depicted in the above table,
the City spent $268,000 during the audit period. Therefore, the City did not comply with procurement
regulations related to food purchases.
Purchasing previously interpreted the statutes to only require sealed bids/proposals for a single purchase
exceeding $50,000. Therefore, they were not monitoring cumulative purchases that exceed
$50,000. According Procurement Statutes, if separate purchases of items that in normal purchasing
practices would be purchased in one purchase cumulative exceed the$50,000 threshold, compliance with
the required sealed bidding/proposals provisions is required. The Procurement statutes do not specify a
timeframe for combining separate purchases in order to determine compliance with the required sealed
bidding/proposals provisions.
The P-Card Administrator may need to improve efforts to monitor and enforce compliance with
procurement statutes or policies. The Compliance officer acknowledged this need.
Purchases less than $50,000.
What we found?
The City did not comply with the Procurement regulations.
Section 252.0215 of State Local Government Code requires, "A municipality, in making an expenditure
of more than $3,000 but less than $50,000,shall contact at least two historically underutilized businesses
on a rotating basis, based on information provided by the comptroller pursuant to Chapter 2161,
Government Code."
During the audit,we found at least 327 instances where purchases exceeding$3,000 were made as single
or multiple purchases. These purchases totaled about$2.7 million. Quotes from historically underutilized �10
businesses as required by the State Statute were not obtained on these purchases. a
The City of Denton Procurement Card Audit Report
June 2019
We were informed that the default card limits were set at $3,000 as a proactive safeguard. This limit
prevents cardholders from purchasing items or services in excess of the amount that requires quotes.
However, on three of the above occasions, the P-Card Administrator increased card limit beyond $3,000
to enable these purchases. At least 17 cards have a pertransaction limit of more than$3,000. Therefore,
these card holders potentially could make purchases exceeding $3,000 and not comply with
procurement regulations. This occurrence will not be prevented prior to the employee's action. In this
case, non-compliance with procurement regulations will not be detected or corrected in a timely manner.
As described before, Purchasing interpreted statutes to only require two or more HUB quotes with a single
purchase of$3,000 or more. According to Procurement Statutes, if separate purchases of items that in
normal purchasing practices would be purchased in one purchase cumulative exceeds the $3,000
threshold, compliance with the required HUB provisions is required. Purchasing indicated that they will
conduct the same review process as described above and comply with HUB statutory requirements when
applicable.
Why does it matter?
Without verification, it is not possible to assure the City's compliance with the Procurement Statutes.The
City employees could incur significant liability for non-compliance with procurement regulations.
According to the State Statute, "If a person fails to comply with the competitive bidding or competitive
proposal procedures required by Chapter 252, that person may be convicted of a Class B misdemeanor.
This includes a situation in which a person makes or authorizes separate, sequential or component
purchases in an attempt to avoid competitive bidding requirements. A Class B misdemeanor may be
punished by a fine of up to $2,000, confinement in jail for up to 180 days, or both the fine and
confinement."
The current expectations from the departments to verify compliance with procurement requirements
appear to be unreasonable. As a result of these expectations, the compliance may not be currently
verified. This issue is highlighted in subsequent observations.
Recommendations:
1. The Purchasing Division needs to satisfy its responsibility of monitoring purchases made by using P-Cards
and enforcing compliance with State procurement statutes. Currently, this task may not be accomplished
effectively due to lack of dedicated resources.The Purchasing Division may need help in this area.
2. Educate the department personnel responsible for verifying P-Card transactions regarding their duty for
and information to verify compliance with procurement regulations.
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The City of Denton Procurement Card Audit Report
June 2019
City Management Response June 6, 2019:
The City is implementing a new p-card system which has enhanced reporting capabilities and will allow
Purchasing staff to monitor cumulative purchases over a 12-month period to ensure compliance with
procurement statutes. Training for cardholders and supervisors is scheduled for July 2019 with
implementation in September 2019. Staff is currently reviewing cumulative p-card purchases over the past
one (1) year to identify opportunities for formal solicitations and contracts. Staff will continue this practice
moving forward. It should be noted the reviews will be retrospective and will not prevent future purchases
from taking place by individual card holders.
Prior to the audit, staff interpreted the statute as single transactions exceeding $3,000 and less than
$50,000, require extending the opportunity to quote from 2 Historically Underutilized Businesses and no
documentation was required by the P-card Program Administrator. As of October 2018, p-card holders are
required to provide documentation verifying compliance with the State's statute to extend the opportunity
to quote from 2 HUB vendors in Denton County for purchases between $3,000 and $49,999. Staff has
implemented a "P-card Increase Form" that requires card holders to affirm their responsibility in requiring
the opportunity to quote from 2 Historically Underutilized Businesses for purchases between $3,000 and
$50,000 when requesting a p-card limit increase over$3,000.There are currently 13 card holders, of a total
422 card holders, with a single transaction limit greater than $3,000. Staff will monitor for compliance with
the procurement statutes related to HUB vendors moving forward.
The City has already contracted with four (4) of the seven (7) vendors identified in Appendix I in order to
bring expenditures into compliance with procurement statutes. Staff will be bringing forward another two
(2) contracts for Council consideration in the upcoming months. One (1) vendor is not available through a
cooperative purchase agreement and the products routinely purchased will be made available in the City's
Distribution Center.
The City purchases food for a variety of events, departments, programs and meetings. Additionally, many
purchases are made ad-hoc as the need arises. Staff is working to establish a qualified list of food vendors
for planned programs and events.The application has been made available on the City's website and is open
to all food vendors. Beginning March 5, 2019, a "Food Purchase Justification Form" is required for any food
purchases made on a p-card.The form requires the cardholder to justify the purchase, explain the selection
process and requires Department Director approval. Food purchases will be reported to the City Manager
on a quarterly basis.
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The City of Denton Procurement Card Audit Report
June 2019
Lack of monitoring P-Cards purchases could result in missing cost saving opportunities
The P-Card manual states:
"At the end of each billing cycle, the Purchasing Card Administrator will review the master JP
Morgan Chase bank statement and request clarification of purchases to determine:
• Monthly or multi-months purchase trends, which may indicate split or combined Purchasing Card
purchases to circumvent competitive quoting/bidding requirements
• Purchase trends indicating the need to bid and establish annual contracts for repetitively
obtained goods and services
• Purchases that exceed the established per transaction ceiling or exceed the designated per month
expenditure limit(card usage violations)"
Upon inquiry, the Compliance Officer informed auditors that due to high P-Card transaction volume, the
P-Card Administrator is unable to review purchases for compliance. In addition, the Purchasing Division
does not evaluate purchases to determine if entering into a contract will result in better pricing and lower
cost for the City.
Regular audits are also a method used to prevent contract or procurement violations. Currently, the
Compliance Officer is working on finding a solution that will make it easier for cardholders to check for
active contracts.
We had the following observations:
• Currently neither Purchasing staff nor Departments are monitoring P-Card purchases to identify
consolidation and seek volume discounts.
• Several Department Directors were unaware of how to access to the City contract list.The P-Card
manual also indicates that P-Cards are not to be used for the purchase of items available from
the Distribution Center and Fleet Services. However, the departments do not have access to the
inventory to search for parts and supplies that are available at these locations.
Why does it matter?
The City may be purchasing similar commodities from different vendors. Consolidation of these
purchases and negotiating contracts to receive volume discounts could result in cost savings. For
example, we noticed that during the audit period, the City purchased about$83,000 in products
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The City of Denton Procurement Card Audit Report
June 2019
from Lowes and $61,000 in products from Home Depot. Both businesses sell similar merchandise.
The City does not have a contract with either of them. There are other examples of similar
purchases made from different vendors. If a thorough analysis of purchases made from different
vendors is performed to identify bulk purchasing opportunities to seek volume discounts, the City's
costs may be reduced. The potential savings from these procedures cannot be identified as the
procedures don't exist and relevant information is not available.
In addition, due to lack of information, there is a risk that the departments could be buying
merchandise that they should be obtaining from the City's warehouse or from vendors with which
the City has contracts.
Recommendations:
3. The Purchasing Division needs to work with departments for the monitoring of purchases made on P-Cards
and attempt to identify consolidation opportunities to obtain lower prices through contracting or
receiving discounts.
4. Educate the department personnel responsible for verifying P-Card transactions regarding their duty
for and information to verify compliance with procurement regulations.
City management response:
During the audit period, staff reviewed purchases on a monthly basis with no cumulative review of prior
months' transactions until the end of the fiscal year. The City is implementing a new p-card system which
has enhanced reporting capabilities and will allow Purchasing staff to monitor cumulative purchases over
a 12-month period to ensure compliance with procurement statutes.Training for cardholders is scheduled
for July 2019 with implementation in September 2019.
As of October 2018,training material for new p-card users includes more information regarding the p-card
holder's responsibilities when verifying transactions and compliance with procurement regulations.
Excessive Number of Cards
Many cards are used sparingly. Eliminating these cards will reduce the City's exposure to
risk of misuse and improve controls.
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The available P-Card list showed that the City had 445 credit cards during the audit. The City has
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The City of Denton Procurement Card Audit Report
June 2019
1,445 employees. This means every third employee in the City had a P-Card. Some of these
cards were used infrequently.
What we found?
There were 126 P-Cards that were used either once a month or less. There were at least 24 cards that
were not used for at least three months. Seven of these cards were not used for a year or more.
Subsequently,the Department informed auditors that 12 of these cards had increased use in subsequent
period and 39 cards were terminated but the records erroneously depicted them as active. Fifteen
additional cards were terminated after the audit period. Each department used the remaining cards as
follows:
-.. UnderUsed Cards -.
CITY MANAGER 3 8 38%
DEVELOPMENT SERVICES 2 12 17%
DME 14 60 23%
ECONOMIC DEVELOPMENT 1 6 17%
FACILITIES MANAGEMENT 0 16 0%
FIRE 9 49 18%
FLEET SERVICES 1 5 20%
HUMAN RESOURCES 1 6 17%
LEGAL 1 4 25%
LIBRARY 3 23 13%
MATERIALS MANAGEMENT 6 16 38%
MUNICIPALCOURT 1 3 33%
PARKS 3 54 6%
POLICE 5 32 16%
REALESTATE 4 4 100%
SOLID WASTE 3 18 17%
STREETS 1 6 17%
TECH SERVICES 12 31 39%
WASTEWATER 2 30 7%
WATER 3 34 9%
Total 75
We found the following six cards had significantly higher limits compared to their use:
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The City of Denton Procurement Card Audit Report
June 2019
1 $10,000 $20,000 1 $75 $6
2 $10,000 $20,000 1 $1,211 $93
3 $10,000 $20,000 3 $962 $74
4 $10,000 $20,000 6 $323 $25
5 $10,000 $20,000 10 $8,896 $684
6 $25,000 $100,000 13 $9,825 $756
*Legend for Table Titles:
A: Cardholder designated by number
B:Authorized amount per transaction
C: Maximum authorized amount per month
D: Number of transactions during the audit period
E:Total spending during audit period
F:Total Spending per month
Why does it matter?
These observations indicate that frequency of utilization of P-Cards is not being reviewed or monitored.
Elimination of these cards and using other cards available in the department to carry out these purchases
will not hinder the City's operation. In some Departments such as Real Estate and Solid Waste, a
significant proportion the of cards are seldom used. This presents an opportunity for additional
consolidation. Several Directors indicated the possibility of consolidating P-Cards in their Departments.
The current situation empowers certain City employees to incur liability for the City. The sparingly used
P-Cards are associated with per transaction and aggregate monthly credit limits totaling $300,000
and $353,000 respectively. In addition, having unnecessary cards increases the potential for abuse.
Generally, a limited number of cards assigned to fewer employees helps in administration and
monitoring compliance. This process may encourage involving more than one individual in making
required purchases, which in turn, will improve controls.
Recommendations:
5. Eliminate sparingly used cards and use other cards available to the respective Departments for
making necessary purchases. N
6. Look for additional opportunity for consolidation of cards to facilitate better administration of P-
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The City of Denton Procurement Card Audit Report
June 2019
City management Response:
As of February 20, 2019, there are 422 cardholders due to elimination of several sparingly used cards. Staff
continues to collaborate with departments to identify sparingly used cards that can be eliminated.
Supervisory approval process could be improved.
What we found?
P-Card purchases typically involve an employee unilaterally deciding and carry out purchasing activity. In
this process, if there has been supervisory involvement, it is not documented, and available evidence
does not support it. Under these circumstances, the risk of abuse of P-Card privilege increases. The
established procedures require P-Card purchases to be reviewed and approved by a supervisor. This is
the only, ongoing effective control that ensures appropriateness and reasonableness of purchases made.
The auditors found that 862 transactions were not approved by supervisors as follows:
Department •- of Total'---,,
amountTransactions
Airport 11 $2,791
City Manager 45 $10,761
Dev.Services 41 $8,013
DME 90 $24,451
Economic Dev. 39 $11,312
Fire 16 $3,594
Fleet Services 34 $8,640
Legal 23 $2,783
Library 11 $1,074
Materials Mgt. 33 $10,895
Parks 252 $73,785
Police 10 $470
Real Estate 4 $351
Solid Waste 121 $28,221
Streets 8 $5,138
Tech.Services 25 $11,867
Waste Water 56 $18,131 M
Water 43 $16,635 r—I
Total 862 $238,912
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The City of Denton Procurement Card Audit Report
June 2019
The P-Card Administrator audits 20 card accounts per month. This process is effective; however, it will
allow some of the P-Card transactions to go as long as two years before being audited.
Why does it matter?
Employees are empowered to make purchases on Amazon.com or Walmart.com. This is acceptable as
the City can find some better deals on these websites. However, these websites offer many types of
merchandise. Some of which could be used for personal consumption of employees. Therefore, there
are vulnerabilities associated with these types of purchases.
The procedures require employees to document the nature and purpose of the purchase and supervisors
are expected to verify them. The risk increases if the supervisors do not approve these purchases.
We found that the above transactions included 178 transactions with Amazon with a total value
of $20,850. These transactions were not approved by the supervisors. Fifty-five of these
transactions did not have the description of items purchased.The City does not require P-Card holders
to upload their receipts to the J P Morgan system. This situation further hinders verification of these
purchases. In addition, supervisors not approving a significant number of transactions for almost
$238,000 may lead to the risk that P-Card abuses that may not be detected and addressed in a timely
manner.
Recommendation:
7. Suspend P-Cards for which transactions are not approved by the supervisors after giving adequate
warning.
8. Require employees to upload their receipts in J P Morgan system.
City management response:
The aforementioned recommendations have been addressed as of October 26, 2018. As of October 2018, p-card
holders are required to upload receipts in the JP Morgan system. Staff monitors for compliance monthly. All 862
outstanding supervisory approvals identified in the audit period were approved as of October 26, 2018.There
are currently no outstanding supervisory approvals.
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The City of Denton Procurement Card Audit Report
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P-Card Administration
The P-Card Administrator had the responsibility to administer card use but did not have authority to enforce
compliance.
What we found?
We observed that the Administrator sent e-mails to several employees repeatedly (up to four email
reminders)for reconciling and approving P-Card transactions.The P-Card policy provides for cancellation
of the card. However, the Administrator had no authority to cancel the card. During the audit, the
auditors were informed that Administration has escalated follow-up process to the City's compliance
officer, who will be responsible for taking action for non-compliance.
Why does it matter?
Lack of enforcement of P-Card policy may encourage non-compliance as employees may give lesser
priority to these tasks.
Recommendation:
9. The Compliance Officer needs to establish a process for monitoring compliance and enforce the
City's policy for non-compliance with P-Card procedures.
City management response:
The aforementioned recommendation has been addressed effective October 5, 2018; all outstanding
approvals were completed.
Internal Control Weakness
Both the City's P-Card Administrator and the alternate Administrator had P-Cards.Abuse of any of these
cards will not be detected in a timely manner.
The City's P-Card Administrator is an associate buyer in the Procurement Department. The Department
has assigned an alternate Administrator to fill in when the Administrator is not available.
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The City of Denton Procurement Card Audit Report
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What we found?
Both the Administrator and alternate Administrator had P-cards assigned to them in addition to the ability
to: set up an account, reconcile, review, approve transactions, and recommend transactions for
payment. In addition, they had an enhanced level of access to the J P Morgan system.
We were informed that during the audit, the cards assigned to both these individuals were cancelled.
Why does it matter?
It was possible to set up additional an account, reconcile and approve transactions on that account, and
make recommendations for payments without involvement of any other individual.
Recommendations:
10. The P-Card policies and procedures need to be updated prohibiting assigning cards to individuals
responsible for administering the program.
11. Periodically, the Compliance Officer needs to review active cards to determine appropriateness and
business needs for the charge card accounts.
City management response:
The aforementioned recommendations will be addressed in the revised P-Card Manual,
expected to be completed when the audit is finalized.
P-Card Audit Process:
The Audit process is working as intended.
What we found?
The established practice requires the P-Card Administrator to select and audit 20 card accounts each
month. This means that the Administrator would need 22 months to audit 445 cards.
The P-Card administrator is conducting audits as intended. The Administrator follows up with the user to
correct discrepancies observed. However, no report of her work is being made to the Compliance
officer.
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The City of Denton Procurement Card Audit Report
June 2019
Why does it matter?
This process is generally working well.
Recommendation:
12. Notify results of audits to the Compliance Officer.
City management response:
Management agrees with the recommendation and will begin reporting monthly audit report findings to
management.
Training
Currently, P-Card training is not provided to the supervisors who approve the transactions but
are not cardholders.
What we found?
Current procedures require that all the employees receiving P-Cards must go through training to
understand the City's policies and rules related to P-Card. However, the supervisors that do not have
cards but are required to review the card transactions do not get such training. These individuals are
required to enforce the P-Card rules but may not have thorough knowledge of these rules.
Why does it matter?
The approval process is the only ongoing, effective control in the process. Without proper
training this control may not be as effective.
Recommendation:
13. Provide training on P-Card policies and procedures to all supervisors who approve P-card
transactions.
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The City of Denton Procurement Card Audit Report
June 2019
City management response:
Staff is in process of revising the P-Card Manual and will be addressing supervisory training upon completion
of the manual.The P-Card Manual is expected to be complete when the audit is finalized. All supervisors
responsible for P-card approvals were notified of their responsibilities via email on October 11, 2018. New p-
card holders and their supervisors are required to complete training before p-cards are issued.
Opportunity for Saving Travel and other Costs
During the audit period of July 1, 2017 through July 31, 2018, the City paid $411,957 for travel costs. This
amount mostly consists of airline and hotel costs. The City employees generally pay commercially available
prices for airline tickets. For hotels, either commercially available room costs or negotiated rates for
conference are paid.
What we found?
The State of Texas (State) has a travel management program which is available for counties and municipalities
in Texas.This program at the State Comptroller's office ensures that taxpayer dollars are used more efficiently
by providing discounted travel services through vendor contracts and monitoring state travel activity.
They have negotiated the following travel contracts that the City may be able to use:
• Airline
• State Travel Card
• Hotels
• Rental Car
Airline Costs:
The State has contracts with American and Jet Blue airlines. Using information available on the State
website, it appears that the rates available underthis contract are cheaper than commercial rates. During
the audit period,the City paid $144,795 for air travel. This would mean that during this period, if the City
was using the State's program, it would have recognized savings.
Travel Card rebates:
00
The State has a contract with City Bank for travel cards that can also be used as P-Cards. The State's
negotiated rebate and early payment incentive is 2.005% compared to the City's negotiated rate of
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The City of Denton Procurement Card Audit Report
June 2019
1.6625%. At the volume noted during the audit period, the City would have received a larger amount in
rebates and early payment incentives compared to the City's current rebates and incentives program.
Hotel Costs:
The State Program uses an organization called Hotel Engine. The State website indicated that the
program guarantees booking hotels at or below GSA rates. The City incurred $256,000 during the audit
period. The Hotel Engine representative could not provide an estimate of savings as the program is
new and does not have adequate history. However, the representative was confident that substantial
savings could be generated. Using this program would add to the previously quantified savings. We
selected a sample of 30 hotel payments incurred by the City employees and compared them with the
corresponding GSA rates and found GSA rate to be 25.40% less expensive. This means that based on
current spending, the City could have some savings.
Why does it matter?
The City has opportunity to save travel costs using the State travel management program.
Recommendation:
14. The Procurement and Compliance Office needs to evaluate feasibility of participating in the State's travel
Management Program. If found beneficial, consider participating in the program.
City management response:
The Director of Procurement and Compliance will work with the Finance Department to research the
options available to the City through the State's travel management program.
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The City of Denton Procurement Card Audit Report
June 2019
Appendix I
Non-compliance with Inviting Sealed Bidding Requirements:
Vendor
Purchases
Amazon Marketplace $240,841
SAMS CLUB and Walmart $95,389
Dealers Electrical $82,984
Lowes $82,892
The Home Depot $60,552
Denton Tools& Fastener $56,579
Red Wing Shoe $54,431
Total $673,668
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The City of Denton Procurement Card Audit Report
June 2019
Appendix II
The following summarizes the recommendations issued throughout this report.The auditors found that staff
and the Division was receptive and willing to make improvements to controls where needed. Management has
provided their response to each recommendation.
The Purchasing Division needs to satisfy its
1 responsibility of monitoring purchases made by Concur Expected Completion:
using P-Cards and enforcing compliance with State In progress; Ongoing
procurement statutes.
Comments: Improved monitoring effective 10/2018; updating monitoring processes in accordance with audit.
Educate the department personnel responsible for
2 verifying P-Card transactions regarding their duty Concur Expected Completion:
for and information to verify compliance with In progress; Ongoing
procurement regulations.
Comments:Training materials revised 10/2018 for new cardholders and approvers; will update in accordance
with audit;Additional training will be completed as new P-Card system is implemented—Q4 FY 18/19.
The Purchasing Division needs to work with
departments for the monitoring of purchases made Expected Completion:
3 on P-Cards and attempt to identify consolidation Concur
opportunities to obtain lower prices through In progress; Ongoing
contracting or receiving discounts.
Comments: Improved monitoring and training material updates effective 10/2018; updating monitoring
processes in accordance with audit; A new P-Card system will be implemented and additional training
completed—Q4 FY 18/19.
Educate the department personnel responsible for
4 verifying P-Card transactions regarding their duty Concur Expected Completion:
for and information to verify compliance with Effective 10/2018; Ongoing
procurement regulations.
Comments:Training materials revised 10/2018 for new cardholders and approvers; Additional training will be
completed as new P-Card system is implemented—Q4 FY 18/19.
Eliminate sparingly used cards and use other cards Expected Completion:
5 available to the respective Departments for making Concur Already in progress; Ongoing
necessary purchases.
Comments: In progress prior to audit; will continue to review utilization and work with departments regularly
6 Look for additional opportunity for consolidation of Concur Expected Completion:
cards to facilitate better administration of P-Cards. Already in progress; Ongoing
Comments: In progress prior to audit; will continue to review utilization and work with departments regularly
Suspend P-Cards for which transactions are not Expected Completion:
7 approved by the supervisors after giving adequate Concur Complete
warning.
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The City of Denton Procurement Card Audit Report
June 2019
Comments: Compliance Officer has the authority to suspend cards effective 10/2018; monitors approvals
monthly and communicates with approvers accordingly
8 Require employees to upload their receipts in l P Concur Expected Completion:
Morgan system. Complete
Comments: Documentation required in JPMorgan effective 10/2018
The Compliance Officer needs to establish a process
9 for monitoring compliance and enforce the City's Concur Expected Completion:
Effective 10/2018; Ongoing
policy for non-compliance with P-Card procedures.
Comments: Compliance Officer has the authority to suspend cards effective 10/2018; monitors transactions and
approvals monthly; communicates with cardholders and approvers accordingly
The P-Card policies and procedures need to be Expected Completion:
10 updated prohibiting assigning cards to individuals Concur Complete
responsible for administering the program. _
Comments: Program administrators no longer have P-Cards
Periodically, the Compliance Officer needs to review Expected Completion:
11 active cards to determine appropriateness and Concur Effective 10/2018; Ongoing
business needs for the charge card accounts.
Comments: In progress prior to audit; will continue to review utilization and work with departments regularly
12 Notify results of audits to the Compliance Officer. Concur Expected Completion:
Effective 10/2018; Ongoing
Comments:As of 10/2018,the Compliance Officer completes the audits; Results provided to Director.
13 Provide training on P-Card policies and procedures Concur Expected Completion:
to all supervisors who approve P-card transactions. Effective 10/2018; Ongoing
Comments:All new approvers trained effective 10/2018; Additional supervisory training will be completed as
new P-Card system is implemented—Q4 FY 18/19.
The Procurement and Compliance Office needs to Partially
14 evaluate feasibility of participating in the State's Expected Completion:
travel Management Program. Concur
Comments: Opportunities to save on travel expenses will be researched;the state program is likely not a viable
option
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