AR-02-01: Commonwealth Utilities Corporation - Audit of Small Purchases From Oct. 1, 1999 Through Mar. 31, 2001 (Issued 8/27/02)

Summary

This report presents the results of an audit of small purchases made by Commonwealth Utilities Corporation (CUC) from October 1, 1999 through March 31, 2001. In Fiscal Year 2001, OPA surveyed selected CUC operations and decided to conduct four separate audits: travel, personnel hiring, compensation practices and small purchases. Burger & Comer, P.C., an independent Certified Public Accounting firm, was contracted to assist OPA in its audit of CUC's small purchases using agreed-upon procedures. These procedures were conducted in accordance with standards established by the American Institute of Certified Public Accountants.

The objectives of this audit were to determine whether CUC: (1) complied with its Procurement Regulations regarding small purchases, and (2) has adequate systems and procedures in place to ensure proper planning and budgeting for procurement of goods and services.

Results of the Audit

The audit showed that CUC did not always comply with its Procurement Regulations. The audit also noted certain internal control weaknesses. Out of 225 purchase orders (POs) examined, the audit found: (a) POs that appear to have been artificially divided in order to avoid competition requirements, (b) POs that did not have three quotations from vendors as required, (c) a CUC official had a conflict of interest with a particular vendor, (d) a PO that was not supported by an invoice, (e) POs that were issued after the goods or services had already been delivered ("after-the-fact" POs), and (f)POs that were not adequately justified.

CUC officials and employees involved in the procurement process have not strictly complied with CUC's Procurement Regulations applicable to small purchases. CUC's failure to obtain three quotations may have resulted from a misunderstanding of its procurement regulations which seem to imply that 3 quotations should be requested but not necessarily received. CUC needs to provide new guidance for determining split purchases because it is not adequately addressed in CUC's existing Procurement Regulations, policies and procedures. Some purchases discussed above involve special procurement situations, such as urgently needed goods or services, which are not addressed by CUC's Procurement Regulations. Although Burger & Comer's report stated that the design of the system is sufficient to allow for proper planning, budgeting and procurement of goods and services, they believe that there is considerable need and room for improvement in the process. OPA agrees that CUC needs to improve controls on small purchases to ensure that: (1) goods and services are procured at the lowest available price and with the best possible quality, (2) purchases of goods or services are actually needed, (3) payments are supported by vendors' invoices, and (4) conflict of interest provisions are complied with.

We recommended that the CUC Board:

1. Amend its Procurement Regulations to address: split purchases, the proper procurement method to be followed in special circumstances, and its inability to obtain required three quotations when the number of available suppliers is limited; and
    
2. Adopt policies and procedures that provide adequate guidance on determining split purchases, define emergency procurement under the "after-the-fact" procurement method specified in the CUC Comptroller's memorandum dated October 24, 2001, and provide for identifying and documenting actual or potential conflicts of interest.

We recommended that the Executive Director:

3. Direct the Procurement and Supply Manager to consolidate related purchase requests into one PO that is competitively procured if it exceeds the small purchase threshold, prepare periodic procurement plans covering anticipated needs for goods and services, ensure that the requirement for three quotations is complied with and properly documented, and ensure that small purchases are issued with an adequately supported PO; and
    
4. Remind CUC officials and employees involved in the procurement process of the requirement to comply with the conflict of interest provision in CUC's Procurement Regulations.

In its letter response, CUC generally agreed with Recommendations 1 to 3 and partially disagreed with Recommendation 4. Although they were not responsive to all the recommendations, CUC did acknowledge that the report will be considered in strengthening and streamlining its procurement functions. Since most of the recommendations involve modifications to CUC's existing procurement regulations, CUC stated that responsible officials have already begun reviewing pertinent provisions of existing procurement regulations with an aim to make them more applicable to the unique nature of CUC operations as a utility company while retaining and /or strengthening safeguards to maintain public confidence in CUC's procurement system.

Download Report No. AR-02-01 (0.99MB)
Go to Reports Page

N O T I C E

OPA Reports and Decisions are published in Adobe Acrobat (PDF) format. You will need the FREE Acrobat Reader to view them. Click here or the icon to get it.