Pitfalls of Purchasing

1. Pitfalls of Purchasing MOASBO Spring Conference Bill Sloan – Rockwood School District sloanwilliam@rockwood.k12.mo.us 636.733.2032 Director of Purchasing and Transportation

2. Things to Consider! • What are the expectations for Purchasing? • Are you staffed to meet those expectations? • Do you know the BOE Purchasing Policies? • Does District staff know the BOE Purchasing Policies? • Who is making purchasing decisions? • Who are your vendors and how were they selected? • How Important is Service after the sale? • Do you know how much and what is being spent with your major vendors? • When is a vendor contract appropriate?

3. District Purchasing Role • District size is not a factor! • Organizational Structure Makes a Difference • Centralized vs. Decentralized? • Centralized = a few people making buying decisions. • Decentralized = multiple people and departments making buying decisions. • Centralized – more control but may not be as responsive. • Decentralized – mode is to enforce BOE policies, a resource for others • Which is Best??

4. Contract Pitfalls • Lack of Price Protection? • Commitment Contracts (one sided) • Exclusivity Arrangements – Good or Bad? • Automatic Renewals at end of term • Insurance and Indemnity Clauses • Termination Clauses • Breach – Cure • Poor Performance • With or Without Cause • Independent Contractor • Others?

5. Avoiding Pitfalls – Know and Follow your Policies • Internal Controls – separation of functions • Purchasing – bidding and approval limits • How many bids and at what $ threshold? • Who can be a vendor? • Staff and their Relatives? • BOE Members and the companies they work? • District Residents? • Purchasing By and Solicitation of Staff • Personal Gifts and Donations! • Consultants/ Employment Procedures (State Audit) • Contracts – who can sign? • Construction Contracts and Awards – when to bid ($) and advertise • Does your District have a position on: • Coop Purchasing? • Local Vendors?

6. Purchasing Policies and Regulations – Basis of Audits! • Establishes bidding requirements – • Informal: Verbal, Telephone, Internet Bids, • Formal: Written bids in response to Bid Solicitation (RFP) • Establishes purchasing methods • Purchase Orders, P-cards, Supplies Reimbursements • Process for hiring consultants • Process for “Sole Source” Items • Increased Construction Bid requirements • PO Approval Levels

7. Policy and Regulation Changes • Purchasing: Bid Limits and Exemptions clarified • Required to add bid info as part of requisition notes or attachments • Provide guidance to exempted departments (Self-funded) • Added a Convenience Purchase Option for Employee Reimbursement • Limit $100 Max per month per employee • Utilizing Consultants under $7500 • CFO and HR approval • Consultant cannot be hired as an employee within 1 year of completing consulting work • Increased Amount of Sealed Construction Bids to (minimum) $15K

8. Communicating is Critical • Educate staff on policies and procedures • Ongoing Communication • Seasonal Topics and Reminders • Beginning School, Holidays, 2nd Semester, Spring Break • Staff Appreciation, Prom Season, Close of School Year • Monthly Topics • Training • Update Internal and External Websites

9. Conduct Your Own Internal Audit! • Conduct periodic internal purchasing audits • Position an Internal Audit as a learning Opportunity – Both Ways! • Were bids obtained? • Was BOE approval obtained? • Were PO’s issued before invoices received? • Were items received? • Were prices and quantities consistent with bid? • Was an agreement signed by someone with Authority? • Retain records - 2 Years to 5 Years and Beyond! • Were Policies Followed?

10. Role in a Decentralized Purchasing Structure: • Monitor PO process • Provide bid and contract templates • Review New Vendors • Establish PO Terms and Conditions • Provide an independent perspective • Encourage Vendor Negotiations • Review vendor agreements – what is being agreed to? • Offer your services to other Departments

11. P-Cards Gone Wild! • P-cards are a great tool but must be closely managed! • Auditors – will look closely at P-Cards • “a potential risk” • Establish card limits by job role • Document changes to limits • Establish effective p-card rules – “Employee contract” • Approvals consistent with BOE Policy • Enforce the rules consistently! • Monitor Employee movement – job change, leaving the District, moving to another school • Use Bank tools to manage transactions! • State Audit? – Who qualifies for a p-card?

12. Vendor Relations • Can you determine how much and what is being spent by vendor? • Do requisition procedures generate reliable data? • Can you combine PO and P-card purchases by vendor? • Do you have a contract file? • Do others have access to this info? • Can bid info be identified for each purchase? • Bid Award Phase: Document why a vendor was selected! • Blanket PO’s are easy but provide little data or transparency!

13. State Procedural Audits – A Pitfall? • Audits are beneficial – Attitude Sets the Tone! • Auditors focus on Processes and Routines • Auditors compare Activities to Policies • Bidding Policies • Bid Procedures and Awards • BOE Approvals • Auditors look for risks – P-Card programs • Fuel for District vehicles and Buses • Vendors that are Employees • Evergreen Contracts • Construction Contracts

14. State Procedural Audit for Purchasing • Establish a Good Working Relationship • Meet in-person! • Educate your Auditor. • Ask Questions and get clarification! • P-Card Account Listing • Establish Rules (and justification) for a P-Card • Retain information for changes to P-Card limits • Change or Add BOE Policy and Regulations if necessary! • Clear BOE Policy for Hiring Consultants • Retain Information for each purchase including: Bids, PO approvals, and Invoice Payments.

15. State Auditor’s Comments • “We did not find any resistance to our work at Rockwood.“ • “I’m optimistic the matters we’ve identified in our audit report will be fixed," • “…they agreed to implement 90 to 95 percent of the recommendations”, and “some, they already have been working on.“ • “Rockwood would have been rated “Good” had it not been for the Construction Management issues.”

16. Purchasing Pitfalls Actions • Don’t allow short cuts when spending tax dollars! • Itemized PO’s = vendor data • BOE Policies are your guide! • Educate staff on Policy • Ask for more from your vendors! • Don’t sign contracts unless there is a long term benefit for your District. • Don’t allow contract signatures from unauthorized staff! • Require Justification when adding new vendors! • Avoid Vendors related to staff – Check Policy! • Keep vendor relations on a Professional Basis!

17. Pitfall – Open Discussion • Q and A!