REPORT DIGEST

DEPARTMENT OF CENTRAL MANAGEMENT SERVICES

FINANCIAL AUDIT

For the Year Ended:

June 30, 2005

and

COMPLIANCE EXAMINATION

For the One Year Ended:

June 30, 2005

Summary of Findings:

Total this audit                        22

Total last audit                        24

Repeated from last audit         17

Release Date:

April 25, 2006 

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

AUDITOR GENERAL

To obtain a copy of the Report contact:

Office of the Auditor General

                    740 E. Ash Street

Springfield, IL 62703

(217) 782-6046 or TTY (217) 888-2887

This Report Digest and the Full Report are also available on

the worldwide web at

http://www.state.il.us/auditor

SYNOPSIS

• CMS' contract files lacked certain documentation for 6 of 10 contracts we tested.  The maximum award amount for these 10 contracts totaled $270 million.

• CMS evaluated vendor proposals using evaluation criteria that were not stated in the RFP. 

• In 6 contracts we reviewed, CMS did not timely execute the contracts.  In one of the contracts reviewed, the vendor was allowed to initiate work on the project without a formal written agreement in place. 

• The Department’s process to monitor vendor expenses was inadequate.  For some contracts, the Department paid expenses with little or no review.  In 4 of 10 contracts tested, the Department received no detailed documentation to support reimbursement for expenses.

• The Department did not consistently develop or formally approve changes to contracts.

• The Department has not established a property management function to effectively manage occupancy costs and revenues.

• The Department should further refine its billing process for savings initiatives.  CMS billed $41 million for efficiency initiatives to State agencies during FY05, yet only collected $21 million from various State Agencies.  The remaining balance was written off by the Department.

• During the prior year, CMS did not maintain adequate documentation to support the amount of savings it attributes to efficiency initiatives.  Also, savings goals stated in RFP's, vendor proposals and/or contracts were not always realized or documented.  In April 2005, the Department reported savings of $621 million.  In October 2005, the Department issued a report citing a reduction of estimated savings to $529 million, however, this figure does not include any costs the Department incurred related to its initiatives, which are estimated to exceed $72 million.

• CMS did not maintain time sheets for its employees as required by the State Officials and Employees Ethics Act.

{Expenditures and Activity Measures are summarized on the next page.}

STATEMENT OF ACTIVITIES INFORMATION

(expressed in thousands)

Governmental Activities

Business-Type Activities

PROGRAM REVENUES

Charges for Services..........................................................

EXPENSES

General Government..........................................................

Interest..............................................................................

Insurance Programs...........................................................

Total Expenses..................................................................

NET (EXPENSE) REVENUES......................................

Total General Revenues and transfers.................................

CHANGE IN NET ASSETS..........................................

Net Assets July 1, 2004.....................................................

NET ASSETS, JUNE 30, 2005......................................

$845,668

$2,051,415

405

             0

$2,051,820

$(1,206,152)

$1,007,711

$(198,441)

205,374

$6,933

$376,730

$0

0

379,752

$379,752

$(3,022)

$56

$2,966

55,007

$52,041

STATEMENT OF NET ASSETS INFORMATION

(expressed in thousands)

Governmental Activities

Business-Type Activities

Cash equity with State Treasurer.........................................

$114,772

$75,877

Cash and cash equivalents..................................................

$32,503

$10,648

Investments.......................................................................

$4,082

$0

Capital Assets, net..............................................................

$288,638

$0

Other Assets......................................................................

$112,729

$10,246

Total Assets....................................................................

$552,724

$96,771

Accounts Payable..............................................................

$300,860

$44,619

Long Term Obligations.......................................................

$241,697

$111

Other Liabilities..................................................................

$3,234

$0

Total Liabilities...............................................................

$545,791

$44,730

Net Assets, invested in capital assets, net of debt.................

$236,169

$0

Net Assets, restricted.........................................................

$9,045

$0

Net Assets, unrestricted......................................................

$(238,281)

$52,041

Total Net Assets.............................................................

$6,933

$52,042

SELECTED ACTIVITY MEASURES (unaudited)

FY05

FY04

FY03

Number of flexible spending account participants..................

Number of billed CPU hours/month (processor hours)..........

Number of equipment items transferred out of surplus.........

Number of Workers’ Compensation Injuries.........................

Total State Garage Billings (in thousands)............................

Number of facilities participating in I-cycle...........................

8,286

5,211

5,093

6,823

$24,801

251

6,839

4,958

3,638

2,365

$24,883

251

8,075

3,997

2,460

2,325

$25,700

248

EXECUTIVE DIRECTOR

During Audit Period:  Mr. Michael M. Rumman (7-1-04 to 6-1-05), Mr. Paul J. Campbell (6-2-05 to 6-30-05 - Acting Executive Director)

Currently:  Mr. Paul J. Campbell

6 of 10 contract files reviewed did not include all documents pertinent to the decision making process

No documentation was maintained to indicate that a possible conflict of interest was reviewed and resolved

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

LACK OF DOCUMENTATION IN CONTRACT FILES

      We selected ten contracts related to the Department’s major initiatives awarded in FY05, totaling a maximum award amount of $270 million, for which we reviewed the procurement and award files at the Department. 

      Six of the 10 tested files lacked documentation in the contract files in one or more areas.  Concerns were raised about the availability and completeness of information provided to the auditors.  Numerous documents expected to be retained centrally in contract files were missing upon initial review.  Many of the requested documents were subsequently provided, however, the 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. 

      Specific documentation not contained in contract files included the following:

·    No written recommendation or decision memorandum for a procurement outlining reasons for selecting the winning vendor.

·    A written recommendation did not provide sufficient justification for selecting the winning vendor.

·    A technical point evaluation was done collectively for all persons performing the proposal evaluation rather than individually by each person as required.

·    A contract was executed that included an hourly rate for the vendor different than the rate proposed, and the contract file lacked documentation regarding the change.  In this instance the rate was lower than proposed; however, there was no documentation of a best and final offer process.

·    For one solicitation, only the successful vendor was deemed responsive.  The contract file lacked documentation of the reasons all other vendors were deemed unresponsive.

·    Two awards that were subsequently cancelled lacked documentation in the files regarding the reason for the cancellation of the award.

·    Furthermore, in one contract, we noted a possible conflict of interest that was disclosed but there was no documentation as to the Department’s review and resolution of this potential conflict.  Also, the procurement file was incomplete, as it did not contain the losing bids.

      The Illinois Administrative Code requires written determinations to be filed in the solicitation or contract file to which it applies.  The State Records Act dictates that Agencies shall maintain proper documentation for the decisions, procedures, and essential transactions of the agency.  (Finding Code No. 05-1, pages 13-15)

      We recommended that the Department maintain procurement files that contain all relevant information to the decision making process.

      The Department agreed and outlined steps it has taken in its continued efforts for improvement.

The Department evaluated vendor proposals using evaluation criteria that was not stated in the Request for Proposals

In 1 of 8 of the contracts we reviewed, the Department allowed vendors to initiate work on the project without a formal contract in place

One vendor was allowed to work on a project for approximately six months without a formal written agreement in place

Oversight and public accountability is compromised when large amounts of work are performed and costs incurred before the public is made aware of the specifics of a contract

CHANGES IN AWARD EVALUATION CRITERIA NOT COMMUNICATED TO PROPOSERS

      The Department evaluated vendor proposals using evaluation criteria that were not stated in the Request for Proposal (RFP).  Changes in scoring methodology were not communicated to proposing vendors or reflected in an addendum to the RFP. 

            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)).  However, we found in 1 of 10 of the contracts we reviewed, a $162 million contract for pharmaceuticals, the Department used an evaluation process that conflicted with the process specified in the RFP.  After technically scoring the proposals and determining that three of the four vendors met the minimum responsiveness point scale, the Department failed to proceed to price evaluation as stated in the RFP.  The evaluation committee instead determined that no vendor met all of the Mandatory Requirements from the RFP and sent all four vendors a revised document on the Mandatory Requirements from the RFP as a stated Best and Final Offer.  Within this correspondence was no mention that the evaluation criteria had been changed from what was outlined in the RFP.  After reviewing the second responses, the evaluation committee determined that only the winning vendor was evaluated as being able to meet the State’s requirements.  The evaluation committee, through a consultant, reviewed pricing submitted by all vendors, even though only the winning vendor was deemed able to meet all the requirements, and the pricing structure of the winning vendor was identified as being at the “upper end of the market”. (Finding Code No. 05-4, pages 20-21 )

      We recommended that the Department follow evaluation criteria stated in Requests for Proposals when evaluating and awarding State contracts.  Additionally, the Department should develop an addendum to Request for Proposals when it determines there needs to be a change to the evaluation criteria so that all vendors are assured of a fair and open contracting process.

      The Department agreed and outlined steps it has taken in its continued efforts for improvement.

NOT TIMELY IN EXECUTING CONTRACTS

      The Department was not timely in executing contracts with vendors for contracts awarded.  Additionally, the Department allowed vendors to initiate work on these projects without a written contract in place. 

            Of the ten fiscal year 2005 awards tested, only eight resulted in contracts.  Six of the eight fiscal year 2005 contracts tested (75 percent) were not executed timely.  On average, the length of time between announcement of the award and the filing of a contract with the Comptroller, for these 6 contracts, was 125 days (with a range of 64 days to 190 days).  Additionally, two of the contracts were not filed within 30 days of contract execution as required.  Finally, in one of the contracts reviewed, the Department allowed the vendor to work on the project for approximately six months without a formal written agreement in place.

      While the Department states that vendors who initiate work prior to a written agreement do so at their own risk, allowing vendors to perform work without a written agreement has several adverse implications/effects for the State, for instance:  oversight and public accountability is compromised when large amounts of work are performed and costs incurred before the public is made aware of the specifics of a contract; delays may increase the likelihood that proposed elements do not make it into the final agreement; and delays may limit the Department’s ability to negotiate with the vendor.  (Finding Code No. 05-6, pages 24-26)

      We recommended that the Department take the necessary steps to increase timeliness in reducing a contract to writing.  Additionally, we recommended the Department should review its practice of allowing vendors to initiate work on projects without a written agreement in place so as to protect State resources. 

      The Department agreed and outlined steps it has taken in its continued efforts for improvement.

Contractor expenses were paid with little or no review by the Department

A review by IOIA indicated a widespread lack of documentation and review procedures regarding contractor billings and expenses

Additional expenses on the asset management contract which was cancelled in May 2005 are still in question

A $6.5 million change to a program charter was not timely approved by the Director

The Department paid $13.5 million in excess of original contract estimates for the IT and Telecommunication Rationalization Project

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