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INTRODUCTION
Our audit
of the Department of Central Management Services is issued in two documents:
1) the Financial Audit, and 2) the Compliance Examination. The Financial Audit Report contains the
Department’s financial statements and the auditors’ opinion on these statements. The Compliance Examination document
contains the audit findings, recommendations, and Department Responses, as
well as the supplementary financial information.
FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS
NONCOMPLIANCE WITH FEDERAL REGULATIONS AND FAILURE TO TIMELY RECOGNIZE
A FEDERAL LIABILITY
The Department did not comply with the requirements of OMB
Circular A-87, incurred a liability to the federal government for overcharges
in two internal service funds for fiscal years 2004 and 2005, and did not
recognize the liability until a federal audit was initiated subsequent to
fiscal year 2006.
The Department’s internal service funds receive revenue from
charges for services provided to various federal grants of the State. OMB Circular A-87 (circular), Cost Principles for State, Local and
Indian Tribal Governments, establishes policies governing central service
activities such as those provided by the Department’s internal service
funds. The Circular allows internal
service funds to maintain reasonable working capital reserves, up to 60 days
cash expenses, for normal operating purposes.
However, two internal service funds administered by the
Department maintained fund balances in excess of the allowable working
capital reserve. Consequently, the Department believes that it is probable
that a payback representing the federal share of excess fund balances will be
required from the Statistical Services Revolving Fund (SSRF) and the
Communications Revolving Fund (CRF).
It is estimated that the SSRF liability for fiscal years 2004 and 2005
is approximately $6.136 million and the CRF liability for fiscal years 2004
and 2005 is approximately $6.920 million.
The Department has indicated any potential liability for fiscal year
2006 is indeterminable at this time.
Furthermore, the circular stipulates “A comparison of the
revenue generated by each billed service (including total revenues whether or
not billed or collected) to the actual allowable cost of the service will be
made at least annually, and an adjustment will be made for the difference
between the revenue and the allowable costs.” The Department has failed to perform the annual comparison and
make adjustments as required by the Circular. This current situation was brought to the Department’s
attention by federal auditors.
(Finding Number 1, pages 13-14)
We recommended the Department comply with the provisions of
OMB Circular A-87 by performing an annual comparison of revenue generated by
each billed service to the actual allowable cost of the service and make an
adjustment for the difference using an acceptable method. In addition, the financial statements
should reflect the effect of this determination.
Department officials concurred with the overall
recommendation to adjust for overbalances on a timelier basis, and to
recognize potential payback liabilities on its financial statements.
LACK
OF DOCUMENTATION IN CONTRACT FILES
The Department of Central Management
Services (Department) contract files lacked basic information, such as best
and final offers and written determinations for contract award, to adequately
document the evaluation and selection process. Documentation of the process used and decisions made in the
evaluation and scoring of proposals is a critical control component to ensure
a fair and open procurement process.
During the current period, the
procurement and award files for ten solicitations or contracts awarded in
fiscal year 2006, totaling a maximum award amount of approximately $151
million, were selected for testing.
Some documents expected to be centrally located in the procurement
file were missing upon initial review.
Many of the requested documents were subsequently provided, however
the initial omission of these documents from the contract files demonstrates
the Department’s inability to provide sufficient support for procurement
decisions in a timely and complete manner.
Five of the 10 tested files (50 percent)
awarded in fiscal year 2006 lacked documentation in the contract files in one
or more areas.
Specific documentation not contained in
contract files included the following:
·
One of 10 (10%) did not have a written recommendation
or decision memorandum for a procurement outlining reasons for selecting the
winning vendor,
·
One of 10 (10%) did not have documentation supporting
the pricing evaluation component of the procurement,
·
4 of 10(40%) did not have documentation of reference
checks,
·
2 of 5 (40%) did not have best and final offer
documentation, and
·
One of 4 (25%) did not have documentation of the
protest letters and responses. (Finding Number 2, pages 15-16)
We recommended the Department maintain procurement files that
contain all relevant information to the decision making process in a
procurement.
Department officials concurred with our recommendation and
stated it is continuing to make improvements.
CHANGES
IN AWARD EVALUATION CRITERIA NOT COMMUNICATED TO PROPOSERS
The Department used evaluation criteria
to evaluate vendor proposals that were not stated in the Request for Proposals
(RFP). Specifics of the scoring
methodology and weighting of pricing alternatives were not included in the
original RFP, and in some cases, not communicated to proposing vendors or
reflected in any addendums.
The Illinois Administrative Code states that
proposals shall be evaluated only on the basis of evaluation factors set
forth in the RFP (44 Ill. Adm. Code 1.2035 (h)(2) and 44 Ill. Adm. Code
1.2015 (f)2)). For professional and
artistic contracts, price will not be evaluated until ranking of all proposals
and identification of the most qualified vendors.
During the current period, the
procurement and award files for ten solicitations or contracts awarded in
fiscal year 2006, totaling a maximum award amount of approximately $151
million, were selected for testing.
In 1 of 10 procurements evaluated (10
percent), a $27 million master contract for leasing and purchasing of
personal computers and laptops, the Department used an evaluation process
that was not consistent with the process specified in the RFP. The pricing formula used to evaluate the
proposal was not reflected in the original specifications or in an addendum
to the Request for Proposal. The
Department specifically failed to indicate what percent of the scoring would
be based on leasing versus purchasing, which was an essential element of the
proposal.
In 1 of 10 procurements evaluated (10
percent), a contract for federal revenue maximization services, we noted that
the original request for proposal failed to specify how proposals would be
evaluated if a vendor proposed on all components of work, an individual
component of the work or multiple but not all components of the work. The original solicitation did not clearly
identify how a proposal for multiple components would be evaluated. Additionally, the Request for Proposal did
not include technical scoring values or scoring weights. This information was subsequently provided
to the prospective proposers through addendums. (Finding Number 3, pages 17-18)
We recommended the Department follow
evaluation criteria stated in Requests for Proposals when evaluating and
awarding State contracts.
Additionally, the Department should implement procedures to more
thoroughly establish evaluation criteria prior to issuance of the original procurement
request to minimize the need to change the evaluation criteria through
subsequent addendum so that all vendors are assured of a fair and open
contracting process.
Department
officials concurred with our recommendation and stated they have implemented
procedures to strengthen controls in this area. The Department also noted that the exceptions noted in this
finding were selected from procurements made prior to the implementation of
these new policies.
INADEQUATE CONTROLS REGARDING MASTER CONTRACT DEVELOPMENT AND USAGE
The Department does not have an adequate
process in place to assess the State’s needs for master contracts and to
develop and monitor the usage of master contracts.
In 1 of 4 contracts awarded
in 2005 reviewed in the current year (25 percent), a master contract to provide VSAT (Very Small Aperture Terminal)
data transport services, the State determined there was a need to provide
satellite services across the State for schools in remote areas as well as
for Illinois State Police mobile units.
The State believed these alternative data transport services would be
much more cost effective than existing services, along with providing
transportable solutions that could be temporarily set up in remote
locations.
The request for proposal estimated the
contract amount at $3,800,000 over three years; however, actual usage by one
agency was just over $20,000 during the first year (FY06). A total of $114,421
was expended for VSAT satellite services in FY06, but Department personnel
indicated approximately $94,000 of the total was for mobile installation of
the VSAT units in support of the Hurricane Katrina effort. The Department noted this payment was not
made off the VSAT master contract; however, the vendor agreed to extend the master
contract pricing to the emergency equipment/service order.
This
master contract has not been utilized to the extent originally
estimated. Furthermore, because the
VSAT program has not been deployed as a statewide initiative, the master
contract requirements regarding reporting, milestones, and deliverables have
not been monitored.
Significant resources were dedicated in procuring the master
contract for VSAT services and negotiating a final contract. The Department’s process for
developing specifications for master contracts to be used by State agencies
in awarding separate contracts to eligible vendors was not adequate to assess
the State’s needs. Further, we noted
the Department does not currently have a system to monitor the usage of State
master contracts once they are awarded.
The unique number of each master contract awarded by the Department is
not retained as a tracking mechanism as the master contract is adopted and
used by each agency.
Failure to adequately assess the State’s
needs in developing specifications for master contracts may impair the
procurement process.
Misrepresentation of the scope of the procurement may alter the pool
of prospective bidders, thus denying the State and the individual agencies
access to qualified vendors.
Inadequate assessment can also cause State resources, specifically
those dedicated in procuring and negotiating master contracts, to be
wasted. Further, the Department
lacks a system to effectively monitor usage of master contracts. The current system does not facilitate
reporting of an
estimated usage amount vs. actual.
Consequently, if a contract is being over or under utilized, there is
not a system to monitor these results.
Since one purpose of a master contract is to provide advantageous
pricing to all State agencies, underutilization of a master contract may mean
the agencies are not accessing planned savings. (Finding Number 5, pages 21-23)
We recommended that the Department develop a process to more
effectively assess the needs of State agencies when developing master
contract procurement specifications.
Further, the Department should establish guidelines or a system to
ensure multiple agency utilization of master contracts provides adequate vendor
performance in relation to anticipated needs, especially for awards made
through a proposal process.
Department officials stated they will continue to improve its
assessment of the needs of State agencies when developing master contracts,
on a case by case basis, since each master contract has unique criteria and
circumstances.
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. 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 – 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.
·
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 as of October 2006 there were 230 leases 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 of $3,314,713 restitution.
In
addition to the holdover lease issue, we also noted numerous deficiencies
regarding the handling of three leases in a Chicago property. (Finding Number 7, pages 25-29)
We made
several recommendations that the Department should implement to effectively
carry out its facilities management responsibilities.
Department
officials concurred and noted that it has already implemented most of the
recommendations.
ACCOUNTS RECEIVABLE DEFICIENCIES
Deficiencies
were noted in the Department’s processing, recording and collection of
receivables. During our testing we
noted the following:
·
The Department is not applying payments received to
vendor accounts in their Accounts Receivable Posting System (ARPS) for
certain internal service funds on a timely basis. At the end of fiscal year 2006 the Department had received
$16,373,021 in the Facilities Management Revolving Fund and $2,026,995 in the
Communications Revolving Fund that had not been properly applied against the
corresponding agency account.
·
Amounts deemed uncollectible from other State
agencies, component units and the federal government increased significantly
from fiscal year 2005 to fiscal year 2006.
During fiscal year 2006 the Department requested permission to
write-off receivables totaling $512,650, the majority of which was owed by
other State agencies, compared to only $75,730 written off in fiscal year
2005. Amounts owed by other State
agencies should be collectible in their entirety.
·
In the financial reporting to the Office of the
Comptroller, the Department reports net accounts receivable relating only to
the current fiscal year without regard to outstanding balances relating to
prior fiscal years that remain uncollected.
As such, the financial statements reflect an improper timing in the
recognition of income between fiscal years.
·
The methodology for calculating the allowance for
uncollectible accounts receivable does not consider receivables written off
in prior years. As a result, the
estimated uncollectible balance is not representative of the historical
financial results.
Good business
practices require the Department to process agency payments in a timely
manner, properly report receivables in the financial statements and utilize
an acceptable methodology for estimated uncollectible receivable
balances. (Finding Number 12, pages
38-39)
We
recommend the Department take the necessary steps and implement policies to
allow for more timely processing of vendor payments and apply them to
appropriate accounts within their accounts receivable system.
Department
officials concurred with the recommendations, but noted that it has limited
influence over the budgets or payment cycles of other agencies. The Department also stated to the extent
practicable, the Department seeks to collect past due amounts, and properly
estimate allowances for doubtful accounts based on its collection experience.
IMPROPER
TRANSFERS OF PERSONNEL AND CERTIFICATION OF PAYROLL
The Department circumvented the
appropriation process and violated the State Finance Act when it temporarily
transferred personnel from the Facilities Management Revolving Fund (FMRF) to
the Efficiency Initiatives Revolving Fund (EIRF) and the Professional
Services Fund (PSF).
The FMRF is an internal service fund intended
to finance its operations through charges to user agencies. The Department did not bill user agencies
on a timely basis in fiscal year 2006 resulting in a cash shortfall to meet
its operating costs. In order to pay
outstanding vendor bills and meet payroll obligations, the Department
transferred employees performing facilities management functions to other
funds that had the ability to absorb the payroll obligations of the FMRF.
For three pay periods during fiscal year
2006, approximately 300 employees performing facilities management duties
were temporarily transferred to the EIRF.
Total payroll and related costs of $2,219,596 were paid by the
EIRF. Additionally, for three pay
periods during fiscal year 2006, approximately 300 employees performing
facilities management duties were temporarily transferred to the PSF. Total payroll and related costs of
$2,188,941 were paid by the PSF.
The transfer of personnel and payroll
costs circumvents the appropriation process (Public Act 094-0015) and
violates the State Finance Act (30 ILCS 105/9.03) by overriding the controls
established by the General Assembly. (Finding Number 12, pages 40-41)
We recommend the Department bill
Facilities Management Revolving Fund charges to user agencies on a timely
basis to avoid cash shortfalls within the fund. We further recommend the Department comply with the statute
regarding payroll certification.
Department officials did not concur with this finding and
recommendation. The Department
contends that it has statutory authority to expend both PSF and EIRF funds in
support of Facilities Management Services.
The Department further believes that its payroll certification was
accurate.
We commented, because of problems noted
by the auditors in billing and collecting State agencies for facilities
management services, the FMRF had a severe shortfall (see Finding 06-7). Consequently, Bureau of Property
Management payroll costs that were intended to be paid from FMRF, and that
were appropriated from FMRF, were instead administratively shifted to
appropriations made for the Bureau of Administrative Operations from the
Professional Services Fund (PSF) and Efficiency Initiatives Revolving Fund
(EIRF). While use of the PSF and EIRF
for this purpose is permitted under the statutory provisions creating these
funds, we continue to recommend that appropriations made by the General
Assembly for one Bureau not be used for costs associated with operations of
another Bureau absent the use of established methods designed to alter or
amend appropriation authority.
TIMESHEETS
NOT MAINTAINED IN COMPLIANCE WITH THE STATE OFFICIALS AND EMPLOYEES ETHICS
ACT
The Department is not
maintaining time sheets for its employees in compliance with the State
Officials and Employees Ethics Act (Act).
The Act (5 ILCS 430/5-5(c)) states, “The policies shall require State
employees to periodically submit time sheets documenting the time spent each
day on official State business to the nearest quarter hour.”
We noted that only 75 of
the 1,745 average Department employees maintained time sheets in compliance
with
the Act.
Most employees’ time is generally tracked using the Central Management
Services payroll system, which is a “negative” timekeeping system whereby the
employee is assumed to be working unless noted otherwise. No time sheets documenting the time spent
each day on official State business to the nearest quarter hour are
maintained for the majority of Department employees. (Finding Number 14, page 43)
We recommended the
Department establish an appropriate mechanism that will enable all employees
to maintain time sheets in compliance with the Act.
Department officials
concurred with the recommendation and stated that the ongoing Shared Services
initiative will be focusing on a statewide time keeping solution.
NONCOMPLIANCE WITH THE FISCAL CONTROL AND
INTERNAL AUDITING ACT
The Department’s Illinois Office of
Internal Audit (IOIA) did not complete audits of all major systems of
internal accounting and administrative control as required.
The Fiscal Control and Internal Auditing
Act (Act) (30 ILCS 10/2003) requires the internal auditing program include
audits of major systems of internal accounting and administrative control be
conducted on a periodic basis so that all major systems are reviewed at least
once every two years. For the two
year audit period ending June 30, 2006, the IOIA planned to conduct 196
audits but only completed 46 audits (23%) with an additional 24 audits (12%)
in progress. (Finding Number 16, page 45)
We
recommended the Department comply with the Fiscal Control and Internal
Auditing Act by ensuring that audits of all major systems of internal
accounting and administrative control be conducted at least once every two
years and that independent reviews of major new computer systems and major
modifications to those computer systems are performed.
Department officials concurred with the
recommendation and stated they will effectively allocate resources to ensure
compliance with the Fiscal Control and Internal Auditing Act.
INADEQUATE MONITORING OF
INTERAGENCY AGREEMENTS
The Department’s process to monitor
interagency agreements was inadequate.
During our examination of four interagency agreements between the
Department and the Governor’s Office of Management and Budget the following
deficiencies were noted:
·
4 of 4 (100%) interagency agreements tested were
signed 127 to 385 days after the effective date.
·
1 of 4 (25%) interagency agreements tested pertaining
to legal services did not include supporting documentation detailing the
methodology used for determining the percent allocation to be paid by the
Department for billing of shared services.
·
4 of 4 (100%) interagency agreements tested had
services invoiced prior to the effective date of the agreement totaling
$387,488.
·
1 of 4 (25%) interagency agreements pertaining to
legal services had the same expense paid twice totaling $10,986.
The Department enters into
multiple agreements with other State agencies and other units of
government. The purpose of the
agreements is to assist the Department in fulfilling its mandated
mission. In order to assess whether
the agreement is reasonable, appropriate, and sufficiently documents the
responsibilities of the appropriate parties, the agreement needs to be
approved prior to the effective date, include proper documentation supporting
the percent allocation used for billings, and include proper support for
payments to vendors. (Finding Number
17, pages 46-47)
We
recommended that the Department ensure all interagency agreements are
approved by an authorized signer prior to the effective date of the
agreement. Additionally, the
Department should take the necessary steps to increase monitoring of the
billings and expenses submitted by the contractors and request refunds in
instances where the Department determines that the contractor was
overpaid. Further, the Department
should require all interagency agreements include methodology supporting the
percent allocations used for billing of shared services.
Department officials concurred with the
overall recommendations, noting however, that all affidavits regarding these
contracts were properly executed and filed, and all Comptroller rules were
met.
OTHER FINDINGS
The remaining findings are reportedly
being given attention by the Department.
We will review the Department’s progress toward the implementation of
our recommendations in our next engagement.
AUDITORS’ OPINION
Our auditors stated the Department’s financial statements as
of and for the year ended June 30, 2006 are fairly presented in all material
respects.
WILLIAM
G. HOLLAND, Auditor General
WGH:KAL:pp
SPECIAL ASSISTANT AUDITORS
Sikich LLP was our special assistant auditor for this
engagement.
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