1 O FFICE OF THE NEW YORK STATE COMPTROLLER DIVISION OF LOCAL GOVERNMENT & SCHOOL ACCOUNTABILITY Village of Copenhagen Purchasing Report of Examination Period Covered: June 1, 2009 January 31, M-158 Thomas P. DiNapoli
2 Table of Contents AUTHORITY LETTER 2 Page INTRODUCTION 3 Background 3 Objective 3 Scope and Methodology 3 Comments of Local Officials and Corrective Action 3 PURCHASING 5 Recommendation 8 APPENDIX A Response From Local Officials 9 APPENDIX B Audit Methodology and Standards 11 APPENDIX C How to Obtain Additional Copies of the Report 13 APPENDIX D Local Regional Office Listing 14 DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 11
3 State of New York Division of Local Government and School Accountability October 2011 Dear Village Officials: A top priority of the is to help local government officials manage government resources efficiently and effectively and, by so doing, provide accountability for tax dollars spent to support government operations. The Comptroller oversees the fiscal affairs of local governments statewide, as well as compliance with relevant statutes and observance of good business practices. This fiscal oversight is accomplished, in part, through our audits, which identify opportunities for improving operations and Village Board governance. Audits also can identify strategies to reduce costs and to strengthen controls intended to safeguard local government assets. Following is a report of our audit of the Village of Copenhagen, entitled Purchasing. This audit was conducted pursuant to Article V, Section 1 of the State Constitution and the State Comptroller s authority as set forth in Article 3 of the General Municipal Law. This audit s results and recommendations are resources for local government officials to use in effectively managing operations and in meeting the expectations of their constituents. If you have questions about this report, please feel free to contact the local regional office for your county, as listed at the end of this report. Respectfully submitted, Offi ce of the State Comptroller Division of Local Government and School Accountability 2 OFFICE OF THE NEW YORK STATE COMPTROLLER
4 Introduction Background The Village of Copenhagen (Village) is located in the Town of Denmark in Lewis County and has a population of 800 residents according to 2010 census data. The Village is governed by the Board of Trustees (Board), which comprises the Mayor and four Trustees, who are all elected to two-year terms. The Village provides water, sewer, rubbish removal and recreation services to Village residents. The Village funds the services it provides through real property taxes and user fees. The Village s budgeted operating expenditures totaled approximately $440,000 from the general fund, $193,000 from the water fund and $200,000 from the sewer fund. The Village is completing a $3.1 million capital project to find a new water source and to build a new water plant. Objective The objective of our audit was to determine if Village officials established policies to ensure that goods and services are purchased in the most prudent and economical way. Our audit addressed the following related question: Did Village officials establish procedures to ensure that goods and services are purchased in the most prudent and economical way? Scope and Methodology We examined internal controls over purchasing for the period June 1, 2009 to January 31, In addition, as part of our examination of the capital project, we extended our scope period back to October 1, 2008 and forward to March 31, We conducted our audit in accordance with generally accepted government auditing standards (GAGAS). More information on such standards and the methodology used in performing this audit are included in Appendix B of this report. Comments of Local Officials and Corrective Action The results of our audit and recommendations have been discussed with Village officials and their comments, which appear in Appendix A, have been considered in preparing this report. Village officials generally agreed with our recommendation and indicated they planned to take corrective action. The Board has the responsibility to initiate corrective action. A written corrective action plan (CAP) that addresses the findings and recommendations in this report should be prepared and forwarded DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 33
5 4 OFFICE OF THE NEW YORK STATE COMPTROLLER to our office within 90 days, pursuant to Section 35 of the General Municipal Law. For more information on preparing and filing your CAP, please refer to our brochure, Responding to an OSC Audit Report, which you received with the draft audit report. We encourage the Board to make this plan available for public review in the Clerk- Treasurer s office.
6 Purchasing Village officials are responsible for ensuring that they use taxpayer resources as economically as possible by procuring goods and services in compliance with General Municipal Law (GML) requirements and Village policies. GML requires municipalities to competitively bid purchases and public works contracts that annually aggregate to $20,000 and $35,000, 1 respectively. GML also requires local officials to adopt written policies and procedures describing the procurement methods to use when competitive bidding is not required, including how these purchases must be documented, to ensure municipalities procure these goods and services at the best price. Such purchases include procurements from State or County contracts, professional services, sole source purchases, and emergency purchases. A comprehensive procurement policy requires that contracts for professional services be awarded after soliciting competition. Using a request for proposal (RFP) process is an effective way to obtain these services at the best value. Our tests of $2.1 million in contracts and purchases related to the Village s capital project found that the Village properly awarded the bids and made purchases in compliance with its new procurement policy. We also found that Village officials obtained quotes, as required by its policy, or obtained goods on a sole source or emergency basis for purchases totaling $30,501. However, we also found that Village officials should review and amend the policy: the policy is not clear about bidding thresholds, does not require justification for emergency or sole source purchases, and does not require the use of RFPs for professional services. Because the policy does not require RFPs, the Village paid $412,500 to professional providers without seeking competition. Unless the Village officials revise their procurement policy, the Village could pay more than necessary for goods and services. Capital Project The Village is completing a $3.1 million capital project that involves the development of a new water source, construction of a new water treatment plant, and improvements to the existing water distribution system (replacement and construction of new water mains). The funding for this project consists of a $2 million grant and a $1.063 million interest-free loan from the New York State Environmental Facilities Corporation. 1 Prior to June 22, 2010, the purchase contract threshold was $10,000 and prior to November 12, 2009, the public work threshold was $20,000. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 55
7 6 OFFICE OF THE NEW YORK STATE COMPTROLLER This project involved the bidding of multiple contracts for the various components of the project. We reviewed contract awards and purchases for this capital project totaling $2.3 million 2 and found that the Village properly awarded the bids in compliance with GML requirements and made the purchases in compliance with the Village s procurement policy, as follows: The Village competitively bid five contracts totaling $1.8 million, and awarded the bids to the lowest bidder for four of them totaling $719,500. The Board awarded the fifth contract, totaling $1,114,400, to the next lowest bidder because the lowest bidder did not submit a conforming bid. The Village paid $32,650 for an approved change order for a contract awarded prior to our audit period. The Village paid three providers $389,600 for professional services ($333,300 for engineering services, $34,000 for legal services, and $22,300 for water consultant services). The Village s policy does not require professional services to be competitively bid. The Village purchased water meters totaling $62,600 using a competitive bidding process. The Village made three additional project-related purchases totaling $6,240 after obtaining verbal quotes, as required by the policy. Competitive Quotes GML requires the Board to adopt a procurement policy for goods and services that are not subject to competitive bidding. The policy must set forth each method of procurement, such as written and verbal quotes, and explain the procedures for determining which method will be used. The policy should also provide for documentation of the actions taken. The policy can allow exceptions to requirements for competitive quotes for items purchased under New York State Office of General Services (OGS) or County contracts, for purchases of goods or services available from only one source, or for emergency purchases. The Board is responsible for following and enforcing compliance with the procurement policy. The Board adopted a new procurement policy on April 29, with guidelines for the methods to use in procuring goods and services not subject to competitive bidding. These guidelines require four 2 For the capital project we also looked at February and March 2011 expenditures. 3 An earlier procurement policy had been adopted in January 1992.
8 written quotes for purchases between $20,000 and $34,999, 4 three written quotes for purchases between $5,000 and $19,999, and three verbal quotes for purchases between $1,000 and $4,999. It would be appropriate to require four written quotes for public works contracts $20,000 and $34,999, but not for purchase contracts; purchase contracts over $20,000 must be competitively bid. We also found that Village officials had not updated their policy to reflect the increase of the competitive bidding threshold for purchase contracts from $10,000 to $20,000. We examined a sample of payments made after the adoption of the new procurement policy for purchases that were unlikely to require competitive quotes (e.g., salary, utility payments) to test conformance with the guidelines. We identified purchases totaling $30,501 that required written or verbal quotes: six purchases totaling $23,475, plus payments made to four vendors that aggregated to $7,026. One of the six purchases involved repair of a main sewer line break and cost $11,969. Under normal circumstances, this purchase would require three written quotes, but because of an emergency declaration, no quotes were required. Five purchases, totaling $11,506, required verbal quotes. Village officials obtained quotes for one purchase totaling $2,438; of the remaining four purchases, one purchase totaling $2,300 was from a sole source vendor, and three purchases totaling $6,768 were obtained on an emergency basis. Four items that aggregated to $7,026 were purchased from sole source vendors. Village officials purchased $28,063 of the $30,501 in purchases we examined on an emergency or sole source basis. Except for the sewer line repair, officials did not document the emergency circumstances involved or explain why certain purchases were available from just one vendor, because the Village s policy does not require such documentation. Unless the policy requires documentation to justify exemptions from the policy s requirement for written and verbal quotes, the Village could pay more than necessary for goods and services. Professional Services Although GML does not require competitive bidding for the procurement of professional services, it does require that Village purchasing policies state the method the Village will use 4 This limit would only apply to a public works contract because purchase contracts, as of June 22, 2010, are subject to bidding at $20,000. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 77
9 to obtain these services. An effective and comprehensive purchasing policy would require the Village to solicit competition through quotes or RFPs to ensure that the Village obtains the desired services on the most beneficial terms and conditions and for the best value. The Village did not obtain any of its professional services using the RFP process because the policy does not require the solicitation of competitive proposals. The Village spent approximately $412,500 for professional services, including $333,300 for engineering services, $56,900 5 for legal services, and $22,300 for water consultants, from June 2009 through March According to Village officials, the current attorney was recommended by the previous attorney from a list of five attorneys provided by the previous attorney. The engineering firm has worked with the Village on water issues for many years, so the Village wanted to continue the relationship for the capital project. The engineering firm recommended the water consultant for the capital project. The policy states that it does not require using RFPs because alternative proposals would not be in the Village s best interests. However, it is always in taxpayers interest to ensure that the Village obtains the best value for what it pays for professional services. Without the solicitation of competition, taxpayers have less assurance that the Village is obtaining these services as economically as possible. Recommendation 1. Village officials should revise their new procurement policy to clearly reflect the requirements for purchase and public work contracts, to require documentation to justify the need for sole source and emergency purchases, and to require officials to solicit competition before awarding contracts for professional services. 8 OFFICE OF THE NEW YORK STATE COMPTROLLER 5 The attorney was paid out of both the capital fund for the water system improvement project ($34,000) and the general fund for work done on other Village matters ($22,900).
10 APPENDIX A RESPONSE FROM LOCAL OFFICIALS The local officials response to this audit can be found on the following page. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 99
11 10 OFFICE OF THE NEW YORK STATE COMPTROLLER
12 APPENDIX B AUDIT METHODOLOGY AND STANDARDS The objective of this audit was to determine whether Village officials have established procedures to ensure that goods and services are purchased in the most prudent and economical way. To achieve our audit objective and obtain valid audit evidence, we performed the following audit procedures: We interviewed appropriate Village officials to gain an understanding of the Village s purchasing process. We examined all costs of the water capital project and identified five contracts totaling approximately $1.8 million that were subject to competitive bidding requirements and examined supporting documentation to determine if the Village complied with competitive bidding laws. We confirmed the bid award pricing to the bid documents submitted by the vendors. We reviewed the bid of the contractor that was not awarded the contract due to non-conforming unit pricing to verify that the vendor did not meet the bid specifications. We traced a payment for water meters, identified as a standardized purchase, to the Board resolution in the minutes that established the standardization. We traced grant and interest free loan payments received by the Village from the New York State Environmental Facilities Corporation for October 2008 to February 2011 totaling $2.5 million to the Village's bank account. We requested a copy of the Village's procurement policy which Village officials were not able to initially find. Village officials subsequently found a copy (dated January 1, 1992); in the mean time the Board adopted a new procurement policy (dated April 29, 2010). We reviewed the Village's two purchasing policies and evaluated their adequacy. To test compliance with the Village s new procurement policy, we reviewed manual check abstracts 6 for the period April 1, 2010 to January 31, 2011 to identify all checks issued over the competitive bid limits (9), all checks issued within the range for written quotes (13), and all checks issued within the range for verbal quotes (71). We then excluded payments to vendors that were unlikely to require competitive bidding or quotes (e.g., debt payments, salary or wage payments to employees, transfers to other funds, utility payments, landfill costs, eminent domain payments, and professional services). After making the exclusions, no payments were identified that would require competitive bidding. We identified six purchases totaling $23,475 that required quotes. Due to the limited number, we examined all purchases requiring written and verbal quotes and examined supporting documentation to determine if the Village complied with purchasing guidelines. 6 We examined expenditures from the general, water and sewer funds. The capital fund expenditures were reviewed separately. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 111
13 We scanned the manual check abstracts of the Village by vendor name to determine if any items might have been subject to classification as competitively bid or require written or verbal quotes if the items were considered in aggregate. We identified four vendors where aggregation of payments for the period April 1, 2010 to January 31, 2011, totaling $7,026, would require the Village of obtain quotes for the items or services purchased. We determined if the Village complied with the procurement policy with respect to these purchases. We reviewed the procurement of professional services for the Village attorney totaling approximately $22, We also inquired about the procurement of the engineering firm totaling $333,326 and the water consultant, totaling $22,275, for the capital project. We conducted this performance audit in accordance with generally accepted government auditing standards (GAGAS). Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. 7 An additional $34,000 was spent in the capital project fund. 12 OFFICE OF THE NEW YORK STATE COMPTROLLER
14 APPENDIX C HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT To obtain copies of this report, write or visit our web page: Public Information Office 110 State Street, 15th Floor Albany, New York (518) DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 1313
15 APPENDIX D OFFICE OF THE STATE COMPTROLLER DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY Steven J. Hancox, Deputy Comptroller Nathaalie N. Carey, Assistant Comptroller LOCAL REGIONAL OFFICE LISTING BINGHAMTON REGIONAL OFFICE H. Todd Eames, Chief Examiner State Office Building - Suite Hawley Street Binghamton, New York (607) Fax (607) Serving: Broome, Chenango, Cortland, Delaware, Otsego, Schoharie, Sullivan, Tioga, Tompkins Counties BUFFALO REGIONAL OFFICE Robert Meller, Chief Examiner 295 Main Street, Suite 1032 Buffalo, New York (716) Fax (716) Serving: Allegany, Cattaraugus, Chautauqua, Erie, Genesee, Niagara, Orleans, Wyoming Counties NEWBURGH REGIONAL OFFICE Christopher Ellis, Chief Examiner 33 Airport Center Drive, Suite 103 New Windsor, New York (845) Fax (845) Serving: Columbia, Dutchess, Greene, Orange, Putnam, Rockland, Ulster, Westchester Counties ROCHESTER REGIONAL OFFICE Edward V. Grant, Jr., Chief Examiner The Powers Building 16 West Main Street Suite 522 Rochester, New York (585) Fax (585) Serving: Cayuga, Chemung, Livingston, Monroe, Ontario, Schuyler, Seneca, Steuben, Wayne, Yates Counties GLENS FALLS REGIONAL OFFICE Jeffrey P. Leonard, Chief Examiner One Broad Street Plaza Glens Falls, New York (518) Fax (518) Serving: Albany, Clinton, Essex, Franklin, Fulton, Hamilton, Montgomery, Rensselaer, Saratoga, Schenectady, Warren, Washington Counties SYRACUSE REGIONAL OFFICE Rebecca Wilcox, Chief Examiner State Office Building, Room E. Washington Street Syracuse, New York (315) Fax (315) Serving: Herkimer, Jefferson, Lewis, Madison, Oneida, Onondaga, Oswego, St. Lawrence Counties HAUPPAUGE REGIONAL OFFICE Ira McCracken, Chief Examiner NYS Office Building, Room 3A10 Veterans Memorial Highway Hauppauge, New York (631) Fax (631) STATEWIDE AND REGIONAL PROJECTS Ann C. Singer, Chief Examiner State Office Building - Suite Hawley Street Binghamton, New York (607) Fax (607) Serving: Nassau and Suffolk Counties 14 OFFICE OF THE NEW YORK STATE COMPTROLLER