1. Audit of Procurement Process ABSTRACT
Controls over $168 Million resources need
improvement. Recommended changes and
Administration's actions during the audit
will improve controls.
Umesh Dalal, City Auditor
AUDIT OF PROCUREMENT
PROCESS
CITY
C)I
DENTON
The City of Denton Procurement Process Audit Report
June 2019
Table of Contents
Description Page
Executive Summary 2
What Works Well? 6
Opportunities for Improvement
Procurements exceeding$50,000
7
11
Electronic Bids
Procurements exceeding $3000 but less than
$50,000 12
Bid Evaluation 15
Sole Source Purchases 17
The City of Denton Procurement Process Audit Report
June 2019
Executive Summary
April 16, 2019
Honorable Mayor and members of the City Council,
The City auditor's office has completed an audit of the Procurement process. The City procures products
and services for its various operations to ensure continued operation. Public procurement involves use of
significant funds for the benefit of citizens. Proper accountability and controls are necessary for proper use
of resources and for prevention of abuses. The government procurement process must comply with State
statutes and regulations. Non-compliance with the procurement statutes may subject contracts to judicial
challenge and City employees to significant penalties. At the City of Denton, this process expended $168
million of the City's resources.
The following are the salient findings of the audit:
• The internal controls over the City purchasing function need improvement. The audit identified
non-compliance with the State statutes and City Ordinance pertaining to the purchasing of
products and services. Better monitoring and follow-up of potential violations by the Purchasing
personnel may result in enhanced compliance and more knowledgeable employees engaged in
purchasing activity. The audit found:
o We worked with the Purchasing Manager to identify 71 of these vendors from whom the
City had made purchases totaling$7.4 Million (Attachment A). The purchases made from
each of these vendors for FY 17 and FY 18 were in excess of $50,000. The City did not
solicit sealed bids/proposals as required.
o The City has made purchases totaling almost $15.6 million from 867 vendors with each
purchase being within a range of $3,001 through $49,999. Statutes require the City to
obtain two quotes from Historically underutilized business (HUB). A sample of purchases
within this range from 50 vendors did not have evidence of required quoted from 40
vendors. Purchasing is charged with the responsibility to monitor the City's compliance
with Procurement Statutes. We did not see an evidence of monitoring of these purchases
for compliance purposes. N
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o The City policy requires obtaining three quotes for purchases within range of $3,001
through $49,999. We did not observe evidence of the required three quotes from 27 or
54%of the sampled vendors.
o The State statutes provide for an exception for purchases from a single source from
compliance requirements. This allows circumventing of the competitive purchasing
process, in limited circumstances. The City's procedures for verifying products acquired
from a single source was not adequate. In 41 (87.2%) of the 47 sole source purchases
reviewed,there was no evidence that the items offered were the only products or services
that could meet the City's operational need. The Purchasing staff does not verify, research
or challenge the claim by the departments or vendors.
o The City electronically receives bids for its solicitations. According to the City's Technology
Services Director,they cannot confirm adequacy of security that would prevent premature
opening of the bids. In the City's current procedures:
■ Bids can be opened any time after they are received but before the designated day
of the bid opening.
■ Bids could be altered or substituted during this time.
■ When the bid opening is not attended by bidders, the Buyers open bids without
any witness. In this event, there is a potential for altering or substituting bids
without being detected. Bids are submitted in Excel spreadsheets. Changes made
to the Excel spreadsheet do not have an audit trail to detect alterations after the
fact. In addition, some bids are not being opened at the designated place.
o The bid evaluation process for formal solicitation needs improvement. Of 57 solicitations
we examined,34 had a summary of bid evaluations, 23 were exceptions due to cooperative
or sole source purchases that did not need bid evaluation. In cases where we found a
summary of bid evaluations, evaluation sheets for evaluators were not available. It was
not clear who compiled the evaluation summaries. Based on the available records, it is not
clear if the evaluation team worked independently without any influence. Also, on a
number of bid tabulation scorings, subjective criteria such as probable performance was
not explained.While one of the evaluations criteria listed fora solicitation as"performance
record with City of Denton as a criterion", it did not clarify how new vendors would be
rated.This gives an impression that outcome of the bid process was pre-determined.
Local Government Code Section 252.042 (b) requires that discussions, in accordance with
the terms of a request for proposals and with regulations adopted by the governing body
of the municipality, may be conducted with offerors who submit proposals and who are
determined to be reasonably qualified for the award of the contract. Based on our m
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June 2019
inquiries with the Purchasing Division, it does not appear that the City Council has adopted
any regulations related to criteria for the discussions referred to above.
The attached detailed report includes additional information. The City Auditor's Office appreciates
cooperation of the City staff during this audit. The Purchasing staff has already begun addressing
these deficiencies. This audit made 14 recommendations. The Purchasing Division has concurred
with 8 of them and partially concurred with the remaining recommendations. If you have any
questions or comments, please contact me at (940) 349-8158 or at
umesh.dalal@cityofdenton.com.
Umesh Dalal,
City Auditor
The City of Denton Procurement Process 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 City's procurement process. The objectives of
the audit were to evaluate internal controls in the process and verify compliance with laws, regulations
and policies.
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
Purchasing plays a very important role in the City. During FY18, the Purchasing Division procured
products and services valued at almost $168 million that assured continued operations of the City.
The State of Texas statutes related to public procurement promotes fair and competitive purchasing of
products and services. The City must comply with the City Ordinance related to procurement that has
adopted state regulations by reference. Texas Local Government Code Chapter 252 and Chapter 271
and Texas Government Code Chapters 2252, 2253, 2254 and 2267 generally govern most of the
procurements. In addition, for DME procurements, the City has adopted regulations as permitted by
the State Codes.
The City of Denton Procurement Process Audit Report
June 2019
The Purchasing Division performs the following tasks:
• Formal Solicitations
• Contract Management
• Processing of purchase orders for goods and services
• P-card administration.
This audit reviews the compliance with procurement regulations. Auditing the Contract Management
Function is deferred as the Procurement and Compliance Department is currently working on
implementation of a new software and establishing relevant policies and procedures. The P-card audit was
recently completed by the City Auditor's Office.
The following is statistics showing the Purchasing Division's workload for FY 2018:
Tasks Workload
Contracts managed About 500
Purchase requests processed 3,147
Solicitation processed 178
P-card transactions administered 21,499
What Works Well?
Policies and Procedures:
The Division has current policies and procedures that if complied with will promote compliance
with procurement regulations.
Cooperative Purchases:
The procurement regulations allow the City to purchase products and services on another
jurisdiction's contract. This process saves significant time and efforts and enables departments to
procure desired products and services in a timely manner. We observed that the City has taken
advantage of this provision and the division had obtained the City Council approvals for the
contracts for procurements over$50,000.
Processing of Emergency Purchases:
The Division had appropriately processed emergency purchases observed during the audit.
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Opportunities for Improvement:
The state statutory requirements were not followed for all procurements
exceeding $50,000.
Legal Requirements:
According to the Texas State Local Government Code:
"Sec. 252.021. COMPETITIVE REQUIREMENTS FOR PURCHASES. (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..."
Section 252.043 provides that 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.
The State statutes also prescribe methods for construction contracting and Electric Operations'
purchasing.
What we found?
We found that most of the major purchases exceeding$50,000 were handled in accordance with
statutory requirements. However, when several smaller amount purchases from a vendor that
cumulatively exceeded $50,000, the Purchasing Division does not have a process to monitor and
procure them competitively using sealed bids. This results in a potential violation of procurement
statutes.
During the audit period, the City had procurements from 132 vendors from whom the City made
separate purchases of lesser amounts that cumulatively exceeded$50,000. We found that the City
purchased products or services totaling $22.7 million from these vendors. We worked with the
Purchasing Manager to identify 71 of these vendors from whom the City had made purchases
totaling $7.4 Million (Attachment A). The purchases made from each of these vendors for FY 17
and FY 18 were in excess of$50,000. The City did not solicit sealed bids/proposals as required.
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 to Procurement Statutes, if separate purchases
of items that in normal purchasing practices would be purchased in one purchase
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cumulatively 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.
There were three distinct issues with this situation:
1. These purchases could be treated as sequential,separate,or cumulative purchases under
state statutes that add up to$50,000 or more.This practice is not in compliance with the
statutes, if sealed bids/proposals are not invited.
2. The City may not get price advantage due to volume discount.
3. If there is no contract,the city doesn't have the benefit of our contractual terms dictating
the liabilities and responsibilities of the vendor.
The above observations may represent non-compliance with the procurement statutes discussed
in this section of the report.
The City Auditor met with the Deputy City Attorney, Director of Finance, Chief of Staff, Director of
Procurement and Compliance, Purchasing Manager, and Compliance Officer on May 9, 2019 and
all agreed on the following processes for compliance with the required sealed bidding/proposals
provisions,which Purchasing has implemented:
• Purchasing will conduct an initial review of the past 3 years of transactions to identify
purchases that should be purchased in compliance with competitive procurement
requirements.
• Purchasing will monitor purchases monthly and review all purchases over a rolling one-
year period to identify purchases subject to HUB and competitive bidding requirements.
• Periodic two-year reviews of purchases will also be conducted to identify purchases for
compliance with competitive procurement statutes.
• Purchasing will request sealed bids/proposals when applicable.
The Comptroller of the State of Texas recommends using NIGP codes for classifying purchases.
Use of these codes has several other benefits such as better management and analysis of
purchases. The most important benefit the City can realize is better monitoring of purchases for
compliance with state statutes. Using five-digit NIGP codes would allow proper classification and
control over purchases. Proper spend analysis using these codes may allow the City to
consolidate purchases and get volume discounts. 00
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The City of Frisco uses five-digit NIGP commodity codes. We were told by the Technology
Services Department representative that the City's financial system J D Edwards will
accommodate these codes and will allow monitoring purchases using these codes.
Why does it matter?
• According to the Texas State Local Government Code 252.062, a municipal officer or
employee that fails to comply with the competitive bidding or competitive proposal
procedures required by Chapter 252 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 punishable by a fine of up to$2,000, confinement in jail for up to 180
days, or both the fine and confinement. A final conviction results in the immediate removal
from office or employment. In addition, a contract made in violation of procurement laws is
void.
• Proper spend analysis and consolidation of purchases could allow the City to manage
purchases better and take advantage of increased competition.
• Significant noncompliance with the Procurement regulations could impact the City's
reputation adversely.
Recommendations:
1. Provide training to Procurement staff and departmental liaisons on purchasing regulations.
2. Use at least five-digit NIGP commodity codes for purchases after training departmental and
purchasing personnel about their use.
3. Require Purchasing personnel to monitor purchases and seek sealed bidding for expenditures
exceeding $50,000 either as one purchase or cumulatively from several purchases as agreed
during this audit. Using commodity codes would assist in this effort.
4. Require the Purchasing Manager to conduct a periodic spend analysis to identify opportunities
for consolidation of purchases to obtain volume discounts.
City management response:
Prior to December 2018, Purchasing staff were unable to aggregate expenditures by vendor in the City's
accounting software, JD Edwards. Beginning in December 2018, staff has been able to report on
The City of Denton Procurement Process Audit Report
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expenditures by vendor. Monthly monitoring by expenditures is on-going and staff is working to identify
contracting opportunities. However, the accounting software, JD Edwards, is not set up to review
expenditures on a 12 month rolling year.The system is setup to report by fiscal year. Purchasing staff have
agreed to monitor cumulative purchases on a 12 month rolling period moving forward and will need to
time to fully implement a process to meet compliance.
During the audit period, Purchasing completed transactions with 1,211 vendors during FY 2017 and 1,186
vendors during FY 2018. The seventy-one (71) vendors identified in Attachment A represent 4.34% of the
vendors the City transacted with over the two year period. Additionally, the $7.4 million of expenditures
listed in Attachment A represent 1.67% of the entire spend of$443M processed through the Purchasing
department during the two year period. Twenty-nine (29) of the seventy-one (71) vendors identified in
Attachment A had expenditures of less than $50,000 in each separate fiscal year 2017 and 2018. Prior to
the audit, Purchasing monitored cumulative spend during a fiscal year and not cumulatively over a 12
month rolling period or a combined period of two fiscal years. The City has already contracted with six (6)
of the seventy-one (71)vendors in order to comply with procurement statutes. Purchasing will continue to
review purchases made with the remaining thirty-six (36) vendors identified in Attachment A and
recommend contracts as needed to comply with the procurement statutes.
Purchasing staff will work with Technology Services to further research the use of commodity codes in JD
Edwards. Currently, it is Purchasing staff's understanding that commodity codes can only be used by
purchase order and not on the individual purchase order line items. Since a variety of commodities are
purchased on a single purchase order, use of commodity codes would not allow for the detailed
expenditure analysis being recommended in this audit.
Auditor Comments:
The City must comply with the laws. Non-compliance with only a small number of vendors
purchases worth $7.4 million compared to all the purchases of the City does not provide
justification for the non-compliance. The salient point the audit made is that Purchasing Division's
duty is to verify and ensure compliance with the state statutes. The Division need better
monitoring process for purchases made by the City departments.
Electronic Bids:
The City receives electronic bids (E-bids). City Council resolution R2105-002 dated February 3, 2015
authorized the Purchasing Division to receive e-bids. The resolution stated in part, "...as authorized in
a 'Materials Management Division — Electronic Receipt of Bids and Proposals Policy' as permitted by
Texas Local Government Code, Section 254.0415, as a rule to ensure the identification, security and
The City of Denton Procurement Process Audit Report
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confidentiality of electronically transmitted bids or proposals;and to ensure that such bids or proposals
remain effectively unopened until the proper time."
What we found?
The City's adopted policy reads, "The Purchasing Manager of the City of Denton or his/her designee
shall serve as the City's administrator over electronic bids and proposals. The Technology Services
Department Head for the City of Denton, or his/her designee,shall ensure technical components of the
identification, security, and confidentiality of electronic bids and proposals are maintained within the
City of Denton's Electronic Procurement Submittal System (EPSS)."
The City does not have an Electronic Procurement Submittal System. In addition,according to the City's
Technology Services Director,they cannot confirm adequacy of security that would prevent premature
opening of the bids. We were informed that an Assistant Buyer receives all e-bids.These e-bids are in
the form of emails to which Excel spreadsheets containing bids are attached. When the bids are due
to be opened the Assistant Buyer forwards the file folder containing emails to the Buyer. State statute
requires these bids to be opened at the designated place, which is the Purchasing conference room,
and should be read aloud. Many times, no one attends bid openings. In this event, the buyers open
bids at their own desks. The City's processes can be challenged as the above process provides several
opportunities for manipulation of bids as follows:
• Bids can be opened any time after they are received but before the designated day of the bid
opening.
• Bids could be altered or substituted during this time.
• When bid opening is not attended by bidders, the Buyers open bids without any witness. In
this event bids could be altered or substituted without being detected. Changes in Excel
spreadsheet do not have an audit trail to detect changes after the fact. In addition, the bids
are not being opened at the designated place.
Why does it matter?
The integrity of bidding process may be questioned. If the City is not able to defend its process, the
contract may not be valid, and the City will have to procure it again. In addition, the City's reputation
may be impacted adversely.
Recommendations:
5. Require Purchasing to implement an electronic solution to secure electronic bids prior to the
bid opening date. If this cannot be accomplished, require all bids to be submitted to a
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person/unit not involved in purchasing activity and forward bids to the buyer on bid opening
day.
6. Ensure that the bids, once submitted, cannot be changed.
7. Require witnessing of the bid opening, which must be conducted at the designated place.
City management response
The Purchasing department purchased an electronic bidding software as approved by Council on
November 6, 2018.The purpose of the software is to ensure compliance with bidding policies and
procedures as well as maintain security of all electronic bids received by the City. The software
has been implemented as of June 2019 and staff is working to communicate the process changes
to vendors and potential bidders.
Procurements exceeding $3,000 but less than $50,000
The City's Purchasing Manual requires the departments to obtain at least three quotes when possible for
purchases in this range. In addition, Sec. 252.0215 of the State Local Government Code states, "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. If the list fails to identify a historically
underutilized business in the county in which the municipality is situated, the municipality is exempt from
this section."
What we found?
The City has made purchases totaling almost$15.6 million with each purchase within a range of$3,001
through $49,999, from 867 vendors. An analysis of purchases made from a sample of 50 of these
vendors indicated that purchases from 40 vendors or 80%of the sample did not have two quotes from
historically underutilized businesses (HUB). These records did not indicate if a search for such
businesses in Denton County was conducted as required by the statutes.
In addition, the required three quotes were not obtained from 27 or 54% of the sampled vendors.
These observations are as follows:
Vendor .-
of Three of HUB
• - • CV
123 Security Products $3,652.00 Yes No
Action Target $5,850.00 No No
The City of Denton Procurement Process Audit Report
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Active Network Inc $6,526.91 No No
Ace Golf Netting LP $7,500.00 No No
Ironsmith Inc $7,749.00 No No
Aerowave Technologies $11,394.33 No No
C C Creations-Po $11,693.54 No No
Ace Air Conditioning&Heating $12,626.04 No No
ADB Safegate America Holding Inc $14,005.61 No No
Spectracom Corporation $14,278.00 Yes No
A Star Renovation $15,940.00 No No
Hanes Geo Components $18,535.27 No No
Forterra Pressure Pipe Inc $21,471.00 No No
AGM Airfield Guidancesign Manufacturers $26,480.00 No No
Barco Well Service LP $28,826.22 Yes No
RCS Inc $33,215.00 No No
Advanced Rescue Systems $38,040.00 No No
A Closer Look Inc $43,000.00 No No
Acme Fence Services Inc $47,350.00 Yes No
Fluid Components International LLC $23,260.00 No No
Gabriel Roeder Smith &Company $17,000.00 No No
Game Court Services Inc $11,995.00 Yes No
Galls LLC $27,706.00 Yes No
Genes Paint&Body Shop $7,121.50 No No
Geoshack $8,812.25 Yes No
Global Rental Company Po $26,428.57 No No
Herc Rentals Inc $4,208.00 No No
Irrigators Supply Inc $17,761.04 Yes No
Isco Industries $33,920.80 Yes No
Jamar $3,803.00 No No
Jessica Adamson LLC $7,140.00 No No
JIFCO Inc Of Texas $10,325.00 No No
Kaspar Ranch Hand Equipment LLC $13,702.50 Yes No
Knox Company $29,542.00 No No
Lantek Communications Inc-Remit $16,331.59 Yes No
Leum Engineering Inc $45,200.00 Yes No
Life Fitness $16,742.68 Yes No
LSC Trailer Sales LLC $16,140.00 Yes No m
Maglo Sports LLC $24,375.00 No No
Magnus Industries LLC $36,000.00 Yes No
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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 the Procurement Statutes, if separate purchases
of items that in normal purchasing practices would be purchased in one purchase cumulatively
exceed the$3,000 threshold,compliance with the required HUB provisions is required. Purchasing
will conduct the same review process as described above and comply with HUB statutory
requirements when applicable.
The Purchasing Division did not have a process or a way to monitor these purchases for
compliance. As stated in the previous observation, use of commodity codes would enable
the purchasing staff to monitor purchases.
Why does it matter?
The situation cited in the observation represents non-compliance with procurement regulations.
Recommendations:
8. Require Purchasing staff to monitor purchases made to ensure that three quotes and the
quotes from HUB vendors are obtained for total purchases over$3,000 but less than $50,000.
9. Documentation must be maintained on the record if HUB vendors providing desired product
or services are not available from a HUB vendor in Denton County.
City management response:
During the audit period, the City's purchasing policies did not require documentation verifying
HUB vendors were given the opportunity to quote, if a HUB vendor was available in Denton
County. As of March 2019, Purchasing implemented a new process to standardize requisition
requests and document HUB compliance. Every requisition processed by Purchasing requires
documentation verifying HUB compliance, where applicable. Monitoring of cumulative purchases
will be challenging given that the current policy does not require departments to obtain quotes
or comply with HUB requirements for purchases less than $3,000. Purchasing does not currently
have a mechanism to inform departments of when non-contract expenditures with a particular
vendor reach a certain dollar amount (e.g. $3,000).
r—I
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Bid Evaluation
In order for the City to have an objective evaluation of bids received for solicitations, the following
condition needs to exist:
• A team of evaluators must be assembled,
• Specific evaluation criteria must be established with guidelines for consistent evaluation
• The team members must be independent and not influenced by others
• The reasoning for scoring is documented
What we found?
Of 57 solicitations we examined:
• Thirty-four had a summary of bid evaluations. In these cases, evaluation sheets for evaluators
were not available. It was not clear, who compiled the evaluation summaries. There were no
minutes of the evaluation meeting. Based on the available records, it is not clear if the
evaluation team worked independently without any influence. Also, on a number of bid
tabulation scorings, subjective criteria such as probable performance was not explained.
While the evaluation criterion listed for a solicitation as "performance record with City of
Denton" it does not clarify how new vendors would be rated. This gives an impression that
outcome of the bid process was pre-determined.
• The remaining 23were exceptions due to cooperative or sole source purchases.
Local Government Code Section 252.042 (b) requires that discussions in accordance with the terms of
a request for proposals and with regulations adopted by the governing body of the municipality may
be conducted with offerors who submit proposals and who are determined to be reasonably qualified
for the award of the contract. Based on our inquiries with the Purchasing Division, it does not appear
that the City Council has adopted any regulations related to criteria for discussions referred above.
We also observed the following during our review:
VendorSolicitations where awards were not
pricing
made to the vendor(s)with favorable Lr)
The City of Denton Procurement Process Audit Report
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Techline,Inc. (contract#6778) Competing Bids
Three Vendors had evaluated bids below
Evaluated Bid: $13,303,491 Techlines' Evaluated bids. (This was an IFB,
which means that lowest price decides the
award)
Rental One Competing Quote
Bid: $27,500 Dyson Equip. LLC
Bid:$25,950
In the above contract with Techline, no explanation was available as to why the contract was not
awarded to the vendors quoting lower price. For the purchase from Rental One,three quotes were
received. Rental one had the highest quote. It is not clear why purchase was not made from the
vendor submitting the lowest quote.
The records did not have any documentation describing the reasoning for not awarding bids to the
lowest price vendor(s).This above situation can lead to manipulation and selection of favored vendors.
Why does it matter?
The Local Government Code requirements related to competitive bidding have not been complied
with. In this situation, the City will not have a good defense if the bid award is contested. This could
impact the City's reputation adversely.
Recommendation:
10. The Director of Purchasing and Compliance must ensure that criteria for best value are
included in the request for bids/proposals.
11. The City Council needs to adopt criteria for discussions with offerors submitting qualified
proposals in accordance with the Local Government Code 252.042 (b).
12. Require retention of all bid evaluation sheets along with detailed explanation of the scores
assigned to each bid. Ensure proper documentation is maintained on the record justifying
awarding contracts to the vendor other than the vendor offering the lowest price. If these
reasons cannot be documented; the contract must be awarded to the lowest bidder in
compliance with the procurement regulation. Lp
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City management response:
As of January 2018, evaluation team members are required to sign a non-disclosure agreement
and affirm no known conflict of interests exists before meeting with the evaluation team. Signed
agreements are saved in the solicitation files as a record of employees' involvement on the
evaluation team. The evaluations sampled in the audit report were conducted prior to January
2018. Any indication of bias regarding evaluations, unfair treatment of vendors or conflicts of
interests during the procurement process are referred to the Director of Procurement and
Compliance Officer for review and determination.
Contract # 6778 was awarded to the lowest responsible bidder. The lowest bid received did not
meet the technical specification requirements as stated in the solicitation documents.The original
bid tabulation noted the disqualification in Purchasing's files. Disqualified bids are not included in
the final bid tabulation when taken to Council for consideration and award. Disqualifications are
noted in the agenda information sheet provided to Council. Purchasing staff have standardized
the documentation requirements for bid files and disqualifications are clearly noted.
Purchasing staff are currently updating the Purchasing Manual which will include evaluation
criteria in accordance with Local Government Code 252.042 (b). Council is scheduled to review
and adopt the Purchasing Manual updates in August 2019.
Sole Source Purchases:
Sec. 252.022 of the Local Government Code exempts a procurement of items that are available
from only [emphasis added] one source, including:
(A) items that are available from only one source because of patents, copyrights,secret processes,
or natural monopolies;
(B) films, manuscripts, or books;
(C) gas, water, and other utility services;
(D) captive replacement parts or components for equipment;
(E) books, papers, and other library materials for a public library that are available only from the
persons holding exclusive distribution rights to the materials; and
(F) management services provided by a nonprofit organization to a municipal museum, park, zoo,
or other facility to which the organization has provided significant financial or other benefits.
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What we found?
In 41 (87.2%) of the 47 sole source purchases reviewed, there was no evidence that items offered
are the only products or services that can meet the City's operational need. Twenty-nine (61.7%)
of these purchases were supported by letters from vendors promoting their product's superiority
and stating that they are the only one that can provide their own proprietary product. Although,
it is conceivable that other products in market can serve the same purpose.There was no evidence
that the staff conducted research to verify if other products were available. The Purchasing staff
has been accepting these letters as a conclusive proof of the products being sole-source and
authorizing non-competitive purchases. There was no evidence on record indicating the
Purchasing staff's verification, researching or challenging of the claim by the departments or
vendors.
On the remaining exceptions, the Division accepted the department's notification showing their
preference due to their past positive experience with the product they are recommending. Some
correspondence infers that there are other vendors that can provide services. One of the examples
is procurement of HVAC system, where the department indicated positive experience with the
system and vendor certified that they are the only provider of that system. However, it is common
knowledge that there are several vendors who would offer different HVAC systems.The Purchasing
Division personnel did not question the sole source claim and approved the purchase. Also, these
procurements did not fall within categories listed in exemption form competitive bidding under
State statute.
A Purchasing staff member indicated that since these agreements are approved by the City Council,
there was no need for further explanation. However, it should be noted that the City Council
approves the sole-source agreement upon management recommendation.
Purchasing recently introduced a form to be signed by both the Department Head and Purchasing
Manager as a solution for justifying why the items or service are the only ones suitable and
necessary for the City. The form also requires a statement that the research was performed to
ensure that no other source can fulfill the requirement. It should be noted that while this is a step
in the right direction, Purchasing will have to perform its own due diligence to verify the validity of
statements made by the departments.
Why does it matter?
It appears that the City has not complied with the Local Government Code provisions related to
municipal procurement. The Purchasing Division is expected to operate as the City's control 00
mechanism for detecting and preventing violation. This mechanism needs to be improved through
better scrutiny of sole source purchases.
The City of Denton Procurement Process Audit Report
June 2019
Recommendations:
13. Require the Department Directors to ensure that the products or services requested for sole-
source procurement are not available from any other source.
14. Require the Purchasing Division to conduct due diligence to research and obtain all pertinent
information related to the sole-source purchase request for analysis and determine if the
request complies with the state regulations. The following procedures may also be used to
determine if the request for the sole-source is valid:
i. Advertise in the newspaper the City's intention to procure a product or service as
sole-source and invite proposals/information from potential vendors related to
the procurement.
ii. Consult the City Attorney's office to verify if any additional inquiries or information
is necessary to justify the sole-source procurement.
City management response:
As stated in the audit, Purchasing staff recently introduced a sole source justification form
requiring departments to explain the selection process for products and any research
conducted by departments in order to justify sole source exemption status. In addition to the
justification form, Purchasing staff check cooperative agreements for the desired product or
service as well as check with other municipalities who have recently made similar purchases.
Purchasing also utilizes GovSpend, which allows members to research how other entities
procure goods and services, to further research and verify sole source claims. For sole source
purchases greater than $50,000, Purchasing staff consult with the City Attorney's Office in
order to ensure the purchase meets exemption status in the procurement statutes.
C)
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The City of Denton Procurement Process Audit Report
June 2019
Appendix I:
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.
Expected
1 Provide training to Procurement staff and departmental Concur Completion:
liaisons on purchasing regulations. In progress;
on-going
Comments:Training is provided quarterly to department liaisons and as requested for Responsibility:
department users, Purchasing staff training is budgeted annually and attended as Purchasing
relevant training is available.
rUse at least five-digit NIGP commodity codes for purchase Expected
after training departmental and purchasing personnel about Partially Concur Completion:
their use. Unknown
Comments: Use of commodity codes will be researched further in partnership with Responsibility:
Technology Services; commodity codes are likely not a viable option due to system Purchasing/TS
constraints
Require Purchasing personnel to monitor purchases and seek Expected
3 sealed bidding for expenditures exceeding$50,000 either as Partially Concur Completion:
one purchase or cumulatively from several purchases as In progress;
agreed during this audit. on-going
Comments: Monthly monitoring of expenditures is on-going however, the 3 year Responsibility:
historical reviews will be retrospective and it will take time for staff to implement a Purchasing
process and execute contracts to become compliant.
Require the Purchasing Manager to conduct a periodic spend Expected
4 analysis to identify opportunities for consolidation of purchases Concur Completion:
to obtain volume discounts. On-going
Comments: Beginning in December 2018, staff has been able to report on expenditures Responsibility:
by vendor. Monthly monitoring by expenditures is on-going and staff is working to Purchasing
identify contracting opportunities. Manager
Expected
Require Purchasing to implement an electronic solution to Completion:
5 secure electronic bids prior to the bid opening date. Concur Effective
6/12/19
Comments:As of 6/12/19, the City has implemented an electronic bidding software. Responsibility:
Purchasing
Expected
6 Ensure that the bids, once submitted, cannot be changed. Concur Completion:
6/12/19
Comments:As of 6/12/19,the City has implemented an electronic bidding software. Responsibility: 0
Purchasing v
The City of Denton Procurement Process Audit Report
June 2019
Require witnessing of the bid opening, which must be Expected
7 conducted at the designated place. Concur Completion:
On-going
Comments: Purchasing staff will require witnessing of the bid opening, as stated in the Responsibility:
solicitation documents. Purchasing
Require Purchasing staff to monitor purchases made to ensure Expected
8 that three quotes and the quotes from HUB vendors are Partially Concur Completion:
obtained for total purchases over$3,000 but less than On-going
$50,000.
Comments: Monitoring of cumulative purchases will be challenging given that the current Responsibility:
policy does not require departments to obtain quotes or comply with HUB requirements Purchasing
for purchases less than$3,000. Purchasing does not currently have a mechanism to inform
departments of when non-contract expenditures with a particular vendor reach a certain
dollar amount(e.g. $3,000).
Documentation must be maintained on the record if HUB Expected
9 vendors providing desired product or services are not available Partially Concur Completion:
from a HUB vendor in Denton County. 3/1/19; On-
going
Comments: Purchasing implemented a requisition information form that requires Responsibility:
documentation of HUB compliance. Certain purchases are exempt from HUB Purchasing
compliance, these purchases will not have documentation of HUB compliance.
The Director of Purchasing and Compliance must ensure that Expected
10 criteria for best value are included in the request for Concur Completion:
bids/proposals. On-going
Comments: Evaluation criteria are stated in solicitation documents when City issues a Responsibility:
Request for Proposal (RFP). Bids are required to meet specifications& minimum Purchasing
qualifications as stated in solicitation documents when City issues Invitation to Bid (IFB) Director
to be considered for award.
The City Council needs to adopt criteria for discussions with
Expected
11 offerors submitting qualified proposals in accordance with the Concur Completion:
Local Government Code 252.042 (b). September
2019
Comments: Purchasing staff are currently updating the Purchasing Manual which will Responsibility:
include evaluation criteria in accordance with Local Government Code 252.042 (b). Purchasing
Council is scheduled to review and adopt the Purchasing Manual updates in August 2019
Require retention of all bid evaluation sheets along with Expected
12 detailed explanation of the scores assigned to each bid. Partially Concur Completion:
On-going
Comments: Purchasing will maintain bid evaluations with explanations of the scores for Responsibility:
the evaluation team, individual notes from each evaluation team member will not be Purchasing
maintained. rl
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The City of Denton Procurement Process Audit Report
June 2019
Require the Department Directors to ensure that the products Expected
13 or services requested forsole-source procurement are not Concur Completion:
available from any other source. On-going
Comments: Purchasing has implemented a sole source justification form requiring Responsibility:
Department Directors signature when requesting a sole source purchase. Purchasing
Require the Purchasing Division to conduct due diligence to Expected
14 research and obtain all pertinent information related to the Partially Concur Completion:
sole-source purchase request for analysis and determine if the On-going
request complies with the state regulations.
Comments: Purchasing staff check cooperative purchase agreements, other Responsibility:
municipalities, and consult with the City Attorney's Office when verifying sole source Purchasing
claims. Not all research is documented in a central location.
N
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