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Dec 28

Report: Purchasing Division Investigations

Posted on December 28, 2018 at 3:51 PM by Thomas Reeves

Back in 2017, the city found an unacceptable practice in its purchasing division and, after a series of investigations and process improvements, I’m sharing what is being done to avoid this practice from ever occurring again.  

In a nutshell, over multiple years, different city employees, holding different titles and responsibilities, allowed for a practice of augmenting contracts without required city council approval, which became a repeated chain of events.  

That conduct was unprofessional, irresponsible, and significantly undermined the public confidence in staff, the council, and the city.  In addition to the outright deceptive actions involved in cases where agreements went above council-approved dates and amounts, historical practices and culture created a “Don’t see, don’t tell” attitude, and resulted in employees not taking ownership for the organization.  

City leadership – mostly new at this point – tackled this issue head-on and engaged in a massive review of what occurred and how it will be corrected.  What started as a general review of a limited number of contracts quickly became a much more detailed examination of our processes, and over a thousand additional agreements.  

We hired a team of experts to help with the review and investigation into the city’s purchasing practices to determine how this occurred.  Public Management Group was hired as the project lead and reviewed the city’s internal practices and culture; Hudson Henderson was hired as external auditors to audit the city’s systems; and Armistead Research and Investigative Services was hired to conduct an internal personnel investigation.  

These types of investigations are never fun and always intrusive, and yet, by design, they are a necessary step in the evolution of any organization.  We’re sharing the entire collection of reports below for your review.  We want the community to know what happened and how we’re growing.  At the end of the day, let it be said of this city, it’s not what we did, but how we learned from it, and what we did to ensure it never happens again.

A quick snapshot of the report findings:
  • In an audit of the city’s hot patch invoices, Hudson Henderson found that agreements exceeded City Council’s authority by over $9 million; the city paid its vendors by over $2 million above council’s authority; and there were price increases authorized above the annual Consumer Price Index increases by a range from 4.69% to 16%.
  • In a review of the city’s past purchasing processes, Hudson Henderson found that agreements exceeded council’s authority by over $6.6 million and expenses were incurred above council’s authority by nearly $3 million.  
  • In the personnel investigation, Armistead Research and Investigative Services found that former city employees knowingly violated municipal code by approving expenditures above council’s approval.  The report also calls out several former city employees who participated in the process of approving expenditures but also took steps to bring these actions to light.  
  • There is a broad agreement among the former employees that under-staffing of the division, poor compliance with procurement guidelines, and expenditure monitoring by city departments all contributed to pressure on purchasing staff to implement revisions quickly in order to avoid critical shortages of supplies or services.  (Certainly this is not an adequate excuse.)
  • None of the employees involved in the investigation are with the city any longer, and therefore not subject to discipline.  
  • None of the employees at the heart of the investigations benefited from illicit income.
We’ve made many changes to our purchasing division since these investigations began:
  • We’re changing the city culture, and clarified that operational departments also have a role in code compliance.
  • We’ve added additional system controls in Oracle for staff and provide purchasing updates to the council’s Finance Committee.
  • We have bi-monthly purchasing meetings with all city departments to discuss code compliance and related issues.
  • We’ve revised the purchasing policy and are currently in the process of updating the manual.
  • Modifications include:
    • All agreements and approved increases will be stored in the purchasing system, which helps the reviewer avoid errors.
    • All agreements over $50,000 must be reviewed and approved by the Director of Finance, which adds an additional level of oversight.
    • Establishment of pricing controls to manage approved rates.
    • Alert notifications added to notify purchasing division about spending limits or expiration dates.
    • Agreement amounts only entered for first two years, and incremental increases will be made once extension options have been approved by all authorized parties.  
I want to reiterate my commitment to you that our team will continue to pursue organizational excellence by constantly evaluating our processes for efficiency. 

I also want to reiterate my commitment to our staff that I will strive to afford you the type of working environment that allows for you to do your job with pride.  We are operating under new expectations – from our front-line employees, to our supervisors and managers, to our directors and even me; we will hold each other accountable in ensuring effective and honest government service for the residents of this city.  That’s how we’re reimagining government.  

January 23 2018 Agenda Report Public Management Group
January 23 2018 Full Report - Public Management Group
March 26 2018 Finance Committee Agenda Report - Hudson Henderson
March 26 2018 Finance Committee Report 1 - Hudson Henderson
March 26 2018 Finance Committee Report 2 - Hudson Henderson
March 26 2018 Finance Committee Report 3 - Hudson Henderson
Purchasing Division Personnel Investigation - Armistead Research and Investigative Services