DENVER – The city will end the year with mixed results when it comes to fixing problems pointed out in audits issued by the office of Denver Auditor Timothy M. O’Brien, CPA.
The last round of 2019 follow-up reports came out this month, and they show the city did not implement a single recommendation related to data reliability and contracting practices, though city leaders did follow through on every recommendation we made to improve indirect cost accounting practices.
“Every one of our recommendations is meant to help city agencies improve their stewardship of taxpayer resources,” Auditor O’Brien said. “I would like to see implementation rates at 100% and hope to see city leaders do better in 2020.”
This month, the Auditor’s Office completed five follow-up reports on previous audits, including: Contract Controls in Alfresco, Indirect Cost Accounting Practices, Compensation and Benefits, Governmental Activities Receivables and Purchasing and Payment Processes.
Auditor O’Brien was disappointed in the lack of action taken by the Mayor’s Office to improve the city’s contracting process after the Contract Controls in Alfresco audit. Since the 2017 report, the city got a new system for contract administration called Jaggaer. However, the audit team found some of the problems identified in the old system were carried over to the new one.
According to our follow-up work, individual agencies and departments continue to provide decentralized training on contract workflow, and system training is not mandatory for users. This inconsistent training and lack of oversight could lead to unreliable processes differing from agency to agency.
The city also has not received final approval to strengthen the rules against splitting contracts to avoid City Council oversight. Splitting is not allowed if the two contracts with the same vendor would have been more than the $500,000 limit if they were in one contract. At the $500,000 threshold, City Council must approve. Avoiding the oversight limit diminishes the appearance of transparency and usurps the authority of City Council.
The City Attorney’s Office has instructed attorneys to review contracts for potential splits as part of the approval process. However, this review and guidance for conducting it, such as potential indicators for fraud, are not formalized and rely on each attorney’s personal knowledge. The audit team found gaps in proposed revisions, limitations in the review process, and no change in the prevalence of potential splits occurring.
The unmitigated risks from this audit could result in negative consequences to the city’s ability to effectively manage the contracting process and prevent inappropriate contract splits from occurring.
In contrast, the city’s Purchasing Division and Accounts Payable team made some progress in monitoring, enforcement, and documentation when obtaining and paying for goods and services. The city improved steps to enter data as part of the purchasing process and the Purchasing Division is enforcing bidding exception documentation requirements.
Auditor O’Brien felt strongly after the 2018 audit that the city needed to make sure the correct checks and balances are in place to get the city the best deals, save taxpayer dollars, and avoid fraud or waste. Each year, the Purchasing Division is responsible for procuring about $330 million in goods and services on behalf of the city. Those purchases can be made through either a purchase order, the bidding process, non-purchase order payments, or credit cards.
“Strong internal controls and procedural guidance is important to keep our city accountable in how it spends taxpayer money,” Auditor O’Brien said. “Purchasing has improved its checks and balances and I expect to see the city do the same with how it administers contracts in Alfresco.”
Auditor O’Brien was pleased with the results of the Indirect Cost Accounting Practices audit follow-up. The audit team found the city’s Budget and Management Office fully implemented every recommendation. Thanks to these improvements, the city should have a more accurate and consistent process for compiling its cost allocation plans.
“It’s great when we see an agency really take our recommendations to heart and willingly make improvements the way the Budget and Management Office did,” Auditor O’Brien said.
In our Compensation and Benefits follow-up evaluation, we found the office of Human Resources implemented three of the four recommendations. Auditor O’Brien was pleased to learn the city will likely reduce health care costs by adopting a self-funded model for United Healthcare plans in 2020. However, the Mayor’s office still has not indicated how often employee benefits should be reviewed, despite a recommendation to do so every other year.
Finally, only two of our recommendations from the Governmental Activities Receivables audit were fully implemented. This 2018 audit found lack of compliance with fiscal accountability rules, a need for improved processes for write-offs, and a need for formal assurance from vendors providing services and financial information.