DENVER – Weaknesses in the city’s contracting process could leave room for political favoritism or contracting errors, according to a new audit from Denver Auditor Timothy M. O’Brien, CPA.

Key findings in the audit address the policies and procedures to avoid conflicts of interest, political favoritism, and inadequate documentation of how the city’s vendors are selected.

“This audit is an opportunity for city leaders to improve how they do business and show the people that they are, indeed, making decisions in the public’s interest, instead of their own,” Auditor O’Brien said.

Auditors looked at citywide rules and also at contracting practices specifically in Denver’s departments of Public Works, Parks and Recreation, and Public Health and Environment. With the exception of the weaknesses identified in the report, Parks and Public Works’ policies and procedures for procurement are sound. Public Health officials say they are in the process of creating departmentwide procedures.

A key weakness identified in the report related to how vendors make political contribution disclosures while bidding for city contracts. City ordinance requires vendors who are awarded noncompetitive contracts to fill out a political contribution disclosure form. However, vendors who are awarded competitive contracts are not subject to the same requirement.

This requirement was changed in 2013 when members of City Council wanted to simplify the process. At the time, officials said they did not think that competitive contract procurement presented an opportunity for pay-to-play contracting.

However, best practices say there should be a transparent procurement process and no “insiders” when doing business with government. Without disclosure of political contributions early in the procurement process — no matter whether there is competition or not — it becomes more difficult to detect and deter political influence, which lowers transparency and accountability.

“While I recognize the desire to make doing business with the city simpler and more accessible, the easy answer isn’t always the right one,” Auditor O’Brien said. “Accountability is of the utmost importance when it comes to fairly and efficiently using taxpayer dollars.”

Denver requires city agencies to use a competitive procurement process when the estimated cost of goods or services is greater than $10,000, unless there is an allowed type of exception.

In addition, when the political disclosure forms are required, the majority of the noncompetitive contracts we examined from Public Works, Parks, and Public Health did not have these forms retained with the Clerk and Recorder’s Office. Public Works had only some of its own copies and the other two agencies had no forms saved. City agencies should also be reviewing these forms during the bidding process.

This diminishes public transparency and could make it easier for the city to fail to detect whether campaign contributions and political donations are influencing city decision-makers.

“If city agencies are not following policies and procedures to ensure a fair contract procurement process, the city cannot guarantee it is getting the best value for taxpayers or that it is effectively avoiding favoritism,” Auditor O’Brien said.

The audit team also found problems with how all three agencies approve contracts and maintain documentation.

For instance, Public Works had inconsistencies in contract procurement and, in some cases, lacked reasonable justification for approving contract extensions. One noncompetitive contract procured by the North Denver Cornerstone Collaborative, with facilitation from Public Works, described the vendor’s political contributions to a city bond initiative as one of the justifications for why that vendor should be exclusively contracted. This demonstrates apparent favoritism to that vendor.

According to Executive Order 8, it is the policy of the City and County of Denver to maintain a fair, open, and competitive market for the goods and services it purchases.

“The call for a fair and open government is a good start, but now the city agencies need to live up to that standard,” Auditor O’Brien said.

The Auditor’s Office also found problems with how employees and selection committee members in all three agencies document and address possible conflicts of interest. The agencies do not require conflict-of-interest forms from employees and committee members involved with bid solicitations. They are only required to fill out the standard annual gift reporting form for gifts over $50.

Parks officials say they have undocumented disclosure procedures and that they have conversations with employees to address conflicts of interest. However, without a formal disclosure process, there is greater risk that conflicts — accidental or deliberate — might not be detected and addressed.

An example of a conflict of interest that might not show up on standard gift reporting forms would be if an employee with influence over a contract procurement has a family member who owns a company seeking that city contract. That employee could obtain confidential information and provide it to their family member or otherwise influence the procurement decision.

The audit team recommends requiring conflict-of-interest disclosures across all city agencies. Auditors found the Department of General Services’ Purchasing Division and the City Attorney’s Office worked together to create a good best practice form that the rest of the city could use.

Finally, all three agencies need to ensure proper authorization to ensure they do not use tax dollars for unnecessary or unfunded contract expenditures. They all need to improve documentation of contracting approvals and decisions. And, they all need to work on data analysis and ensuring the security of contract proposals.

The audited agencies and the Mayor’s Office agreed with all report recommendations, and stated that they have already begun working on the improvements that were recommended.

Read the Audit

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