CONTRACT MONITORING DEFICIENCIES
The Department’s process to monitor
vendor expenses was inadequate. For
some contracts reviewed, expenses were paid with little or no review by the
Department. In four contracts tested,
the Department received no detailed documentation to support reimbursement of
expenses.
During our current review, we noted the
following items on two fiscal year 2005 contracts tested:
·
The vendor awarded the truck fleet management
contract billed the Department a per-invoice fee in excess of the fee
stipulated in the contract. In
addition, the Department is not pre-authorizing all repair work as stipulated
in the contract. Further, invoices
for fleet repairs were processed and charged to the current contract, prior
to the execution of the current contract.
This vendor was paid a total of $252,252 under the contract during
fiscal year 2005.
·
For a legal services contract, the Department did not
obtain documentation supporting claimed expenses on a timely basis; certain
documentation received was not sufficient to support the expenses claimed;
and certain parking costs did not relate directly to the project. This vendor was paid a total of $176,389
under the contract during fiscal year 2005.
Additionally, in April and May 2005, the
Department requested that the Illinois Office of Internal Audits (IOIA)
review the expenses paid to four of the contractors whose expenses were the
subject of a prior audit finding. The
IOIA review was to cover fiscal year 2004 and fiscal year 2005 billings. The IOIA worked in conjunction with
another entity on this review. The
review by IOIA has been completed and a report issued. The review indicated a widespread lack of
documentation and review procedures regarding contractor billings and expenses
and recommended improvements to the Department’s processes. Additionally, the Department’s process to
conduct subsequent follow up to recover any applicable funds has not yet been
completed.
Furthermore, according to Department
officials and documentation provided by Department fiscal personnel, the
Department questioned $5.2 million in payments to the asset management
vendor. However, due to the
intervening cancellation of this contract in May 2005, the Department has
been unable to obtain necessary documentation from the vendor concerning
these charges. Additionally,
Department documentation delineates $7.4 million in “additional service
plans” that were submitted by the vendor for work outside the contract with
the vendor. Some of these additional
service plans were developed prior to the execution of the formal agreement
for the asset management services to be provided by this vendor. (Finding Code No. 05-7, pages 27-28)
We recommended that the Department
require contractors to submit supporting documentation for expenses that will
be reimbursed with State taxpayer dollars.
Additionally, we recommended the Department take the necessary steps
to increase monitoring of the expenses submitted by the contractors and
request refunds in instances where the contractor is reimbursed over the
allowable amounts stated in contracts or where adequate support is not
available.
The Department agreed and outlined steps
it has taken in its continued efforts for improvement.
SIGNIFICANT CHANGES IN CONTRACT
REQUIREMENTS
The Department did not consistently
develop and formally approve changes to contracts.
The Department entered into three
sizeable contracts associated with the IT and Telecommunication
Rationalization Project. These
contracts were filed with the Comptroller as open-ended time and materials
contracts with estimated contract obligation amounts. Although significant changes were made to
the contracts, the Department did not consistently execute and file contract
amendments to revise the project scope or to increase the estimated contract
obligation amounts. The original
contracts provided for total spending of $28 million for the IT and
Telecommunication Rationalization Project.
On January 28, 2005, the Department
entered into "Rationalization Consulting Contract Amendment
Agreements" (Amendments) with each vendor. Each of the Amendments consisted of a Rate Card and a revised
Program Charter. We noted the
following with regard to the Amendments:
·
Two of the three Amendments were filed with the
Comptroller; the third Amendment was not.
·
The Department's Director signed the Amendments in
May 2005; however, by the terms of the Amendments, the changes to the Program
Charters were effective January 28, 2005, and the Rate Cards were retroactive
to July 1, 2004. The changes to one
Program Charter included additional services for the deployment and
implementation of a newly designed network at a cost of over $6.5 million. A significant portion of the additional
services had already been completed by the time the Department Director
signed the Amendment on May 24, 2005.
·
The Rate Card included in one Amendment signed by the
Department Director on May 24, 2005, was outdated. In March 2005, the Department's Deputy Director of the Bureau
of Communication and Computer Services entered into an agreement with a
vendor to change the method of payment for a portion of the services provided
under the contract from $145 per hour to $2,926 per installed circuit. While the Department stated it undertook
an analysis to determine the payment rate change was in the State's best
interest, it was unable to provide documentation of that analysis to the
auditors.
·
For another vendor, we noted that the Rate Card
included in the original contract provided for a payment rate of $233 per
hour. In reviewing billings from this
vendor, we noted the vendor was paid at various rates that exceeded the
contract rate, up to $390 per hour, totaling an additional $636,870 over the
contracted rate.
Finally, State law requires a written
determination be made justifying certain contract changes before they are
approved (e.g., an increase or decrease of $10,000 or more, or a change in
time of completion by 30 days or more).
Although total contract spending for the IT and Telecommunication
Rationalization Project exceeded original contract estimates by $13.5 million
(from $28 million to $41.5 million), the Department did not believe change
order justifications were required since the original contract terms allowed
the changes. (Finding No. 05-9, pages
31-33)
We recommended the Department develop,
formally approve, and timely file contract amendments whenever significant
increases or changes to the terms and conditions of a contract occur.
The Department agreed and outlined steps
it has taken in its continued efforts for improvement.
INEFFECTIVE PROPERTY MANAGEMENT
The Department has not established a
property management function to effectively manage occupancy costs and
revenues. Responsibility for managing
the majority of State owned and leased buildings was transferred to the
Department through Executive Order 2003-10, which consolidated the Facilities
Management function. This Executive
Order, which was effective May 31, 2003, stipulated the consolidation of the
facilities management function to be implemented as of July 1, 2004.
Prior to the issuance of this Executive
Order, the Department was responsible for managing 42 State owned or leased
buildings and 15 garages generally used by the Department and for negotiating
certain building and property leases and acquisitions. Subsequent to the consolidation the
Department is currently responsible for managing 706 State owned or leased
properties.
The Department’s Bureau of Property
Management has primary responsibility for coordinating Department activities
involving State property. Beginning
in fiscal year 2005, most transactions, including charges to or transfers
from user agencies for space occupancy and payment of property costs such as
lease payments, building maintenance, utilities and security were accounted
for in the Facilities Management Revolving Fund (FMRF).
Specifically, we noted deficiencies in
the following areas:
·
Lack of Timely Funding
or Billing – During FY05 the Department was incurring costs to
manage the properties, however, no statutory transfers took place until
September 2004 and interim billings were not sent to user agencies until
December 2004. Furthermore, during
fiscal year 2005, the Department contracted with a consultant to design a
cost allocation methodology that would determine costs by agency and property
for purposes of establishing billings to the agencies for the management of
their buildings and properties. On
April 8, 2005 the Department completed its new rate model and did its first
billing using these rates. As of
December 7, 2005, the Department had not completed the calculation of the new
rates for fiscal year 2006.
Furthermore, as of January 30, 2006, agencies had not been billed
using new 2006 Rates. Delays in
updating the cost allocation model and billing agencies have created
difficulties in monitoring user agency occupancy costs which has had a
negative impact in the development of fiscal year 2006 budgets and
forecasting for fiscal year 2007.
·
Inaccuracy of Billings -
We tested 15
billings to agencies and noted 5 of the 15 billings (33%) were
inaccurate. Department records
indicate the actual occupancy costs paid for these properties were
$6,504,478. However, the Department
only billed the user agencies $6,138,449 resulting in a cash flow deficiency
for these properties of $366,029.
·
Delayed Vendor Payments
and Consolidation Issues - Payments to vendors for monthly lease obligations, utilities and other
occupancy related costs were not made timely.
·
Renewal of Leases not Actively Managed - The
Department is not actively managing its leased space or occupancy, nor
bidding and renewing, or consolidating its existing leases resulting in a
substantial number of leases that have not been timely renewed or
terminated. Department records
indicate that 305 of the 642 (48%) leases were in holdover status. Leases in holdover status represent leases
for which the contractual term of the lease has expired but the State
continues to occupy the building and pay on a month-to-month basis under the
previous terms of the lease. Many of
these leases have been in this status for over 5 years. Furthermore, lack of a formal, written
agreement has exposed the State to litigation in one situation involving a
holdover lease and in another situation involving the termination of a
lease. In these cases, the claimants
are seeking a total $3,314,713 restitution.
(Finding Code No. 05-11, pages 37-41 )
We
recommended that the Department implement a system to effectively carry out
its facilities management responsibilities.
The
Department agreed and outlined steps it has taken in its continued efforts
for improvement.
METHODOLOGY FOR CALCULATING SAVINGS
AMOUNTS TO BILL AGENCIES FOR SAVINGS INITIATIVES
The Department should further refine its
billing process for savings initiatives.
During fiscal year 2004, the Department
billed State agencies $137 million for efficiency initiatives. At that time, the Department failed to
adequately determine the amount of savings it expected State agencies to
realize when billing for savings initiatives. This resulted in a majority of State agencies being billed more
for savings initiatives than Department documentation showed the agencies had
realized in savings.
During fiscal year 2005, the Department
billed State agencies $41 million for efficiency initiatives. The Department has collected only $21
million of the amount billed (51%).
The remaining balance was written off by the Department through the
issuance of credits to 20 agencies totaling $20 million. Department representatives stated the
credits were issued for a variety of reasons, which included agencies
claiming there was a lack of supporting documentation for the savings and
billings amounts, agencies disagreed with the savings or believed the savings
would not be realized, or agencies were federally funded and the billings
were unallowable expenses.
Furthermore, not all agencies were
billed for the procurement and information technology initiatives for some or
all of the various categories of estimated savings. Department officials
have represented that decisions regarding which agencies and which
initiatives were to be billed were made by the Governor's Office of
Management and Budget.
Additionally, the procurement efficiency
initiative billings included a component for savings in various commodities
categories. However, the Department
failed to consider commodity quantities on hand in estimating fiscal year
2005 purchases. (Finding Code No.
05-12, pages 42-43)
We recommended that the Department take
the necessary steps to ensure that amounts billed to State agencies for
savings initiatives are supported by sound methodologies so that agencies are
not paying for savings that are not realized.
The Department agreed and outlined steps it has taken in its
continued efforts for improvement.
|
