Draft Schedule of Audit Findings Grant County Public Utility District No. 2 January 1, 2003 through December 31, 2003 The District did not provide adequate internal controls over monitoring of contracts, which included failure to adhere to bid requirements. Description of Condition: During our audit of the District, we noticed several instances in which it did not adequately monitor the contracting process. The total amount of the contracts identified is approximately $808,000. We reviewed procedures including bid law compliance, monitoring and disbursements and noted: Computer software/server In March of 2003, the District entered into a $150,000 purchase agreement for computer software and a server used to bring video/cable to television set-top boxes through its Zipp fiber optic network. The agreement was presented to the District Board of Commissioners as a professional services contract, which would not require a competitive bid process. However, this agreement was not for professional services and should have been bid in compliance with state law (RCW 39.04.270). In addition, a payment of $50,000 was made prior to testing the server and software and the remaining $100,000 was released even though the software did not meet the contract specifications. Set top boxes The District telecommunications staff determined 400 set-top boxes were needed for retail service providers to give to customers so they could receive cable service. Set top boxes are considered telecommunications equipment and per state law (RCW 39.04.270) should have been purchased through a competitive bid process. E-mail we reviewed showed the Telecommunications Manager intentionally split the purchases into smaller increments to avoid the bid process. The District’s auditor confirmed that separate purchases were kept below $35,000 per month. For telecommunications purchases, utility district employees can spend $35,000 per month without having to obtain Board approval. The total amount of these purchases was approximately $300,000. Maintenance The District’s contracting officer signed a purchase order for $228,000 for services and maintenance on telephones one month before the Board approved the expenditure and prior to the review by District legal staff as required by District policy. Certified public accounting contract The District failed to monitor a professional services contract for auditing services, which included an annual audit of the District’s financial statements as well as individual systems. The District received audits of only individual systems and did not receive a combined financial statement opinion as required by the $130,000 contract. Cause of Condition: The District has policies and procedures in place to ensure it complies with state laws and regulations and its own policies and procedures. However, the District lacked sufficient monitoring to ensure these policies and procedures were followed. Effect of Condition: Because it did not provide adequate monitoring of its contracting process, the District cannot ensure that it received the best and lowest bids for the projects and that all services paid for were received. Recommendations: We recommend the District: Adequately monitor contracts and payments on contracts. Adhere to its established procurement policies. Comply with state law. District’s Response: Auditor’s Remarks: Applicable Laws and Regulations: RCW 54.04.070 Contracts for work or materials -- Notice -- Exemptions. Any item, or items of the same kind of materials, equipment, or supplies purchased, the estimated cost of which is in excess of ten thousand dollars, exclusive of sales tax shall be by contract: PROVIDED, That a district may make purchases of the same kind of items of materials, equipment and supplies not exceeding five thousand dollars in any calendar month without a contract, purchasing any excess thereof over five thousand dollars by contract. Any work ordered by a district commission, the estimated cost of which is in excess of ten thousand dollars exclusive of sales tax, shall be by contract, except that a district commission may have its own regularly employed personnel perform work which is an accepted industry practice under prudent utility management without a contract. Prudent utility management means performing work with regularly employed personnel utilizing material of a worth not exceeding fifty thousand dollars in value without a contract: PROVIDED, That such limit on the value of material being utilized in work being performed by regularly employed personnel shall not include the value of individual items of equipment purchased or acquired and used as one unit of a project. Before awarding such a contract, the commission shall publish a notice once or more in a newspaper of general circulation in the district at least thirteen days before the last date upon which bids will be received, inviting sealed proposals for the work or materials; plans and specifications of which shall at the time of the publication be on file at the office of the district subject to public inspection. Any published notice ordering work to be performed for the district shall be mailed at the time of publication to any established trade association which files a written request with the district to receive such notices. The commission may at the same time and as part of the same notice, invite tenders for the work or materials upon plans and specifications to be submitted by the bidders. All contract projects equal to or in excess of one hundred thousand dollars shall be let by competitive bidding unless the public utility district lets contracts using the small works roster process under RCW 39.04.155. Whenever equipment or materials required by a district are held by a governmental agency and are available for sale but such agency is unwilling to submit a proposal, the commission may ascertain the price of such items and file a statement of such price supported by the sworn affidavit of one member of the commission and may consider such price as a bid without a deposit or bond. The commission may waive the competitive bidding requirements of this section pursuant to RCW 39.04.280 if an exemption contained within that section applies to the purchase or public work. RCW 39.04.270 (2) A municipality may acquire electronic data processing or telecommunication equipment, software, or services through competitive negotiation rather than through competitive bidding. (3) "Competitive negotiation," for the purposes of this section, shall include, as a minimum, the following requirements: (a) A request for proposal shall be prepared and submitted to an adequate number of qualified sources, as determined by the municipality in its discretion, to permit reasonable competition consistent with the requirements of the procurement. Notice of the request for the proposal must be published in a newspaper of general circulation in the municipality at least thirteen days before the last date upon which proposals will be received. The request for proposal shall identify significant evaluation factors, including price, and their relative importance. (b) The municipality shall provide reasonable procedures for technical evaluation of the proposals received, identification of qualified sources, and selection for awarding the contract. (c) The award shall be made to the qualified bidder whose proposal is most advantageous to the municipality with price and other factors considered. The municipality may reject any and all proposals for good cause and request new proposals. RCW 39.04.280 Competitive bidding requirements -- Exemptions. This section provides uniform exemptions to competitive bidding requirements utilized by municipalities when awarding contracts for public works and contracts for purchases. The statutes governing a specific type of municipality may also include other exemptions from competitive bidding requirements. The purpose of this section is to supplement and not to limit the current powers of any municipality to provide exemptions from competitive bidding requirements.      (1) Competitive bidding requirements may be waived by the governing body of the municipality for:      (a) Purchases that are clearly and legitimately limited to a single source of supply;      (b) Purchases involving special facilities or market conditions;      (c) Purchases in the event of an emergency;      (d) Purchases of insurance or bonds; and      (e) Public works in the event of an emergency.      (2)(a) The waiver of competitive bidding requirements under subsection (1) of this section may be by resolution or by the terms of written policies adopted by the municipality, at the option of the governing body of the municipality. If the governing body elects to waive competitive bidding requirements by the terms of written policies adopted by the municipality, immediately after the award of any contract, the contract and the factual basis for the exception must be recorded and open to public inspection. RCW 43.09.200 Local government accounting--Uniform system of accounting states in part: The state auditor shall formulate, prescribe, and install a system of accounting and reporting for all local governments, which shall be uniform for every public institution, and every public office, and every public account of the same class. The system shall exhibit true accounts and detailed statements of funds collected, received, and expended for account of the public for any purpose whatever, and by all public officers, employees, or other persons. RCW 42.24.080 Municipal corporations and political subdivisions--Claims against for contractual purposes--Auditing and payment--Forms--Authentication and certification states: All claims presented against any county, city, district or other municipal corporation or political subdivision by persons furnishing materials, rendering services or performing labor, or for any other contractual purpose, shall be audited, before payment, by an auditing officer elected or appointed pursuant to statute or, in the absence of statute, an appropriate charter provision, ordinance or resolution of the municipal corporation or political subdivision. Such claims shall be prepared for audit and payment on a form and in the manner prescribed by the state auditor. The form shall provide for the authentication and certification by such auditing officer that the materials have been furnished, the services rendered or the labor performed as described, and that the claim is a just, due and unpaid obligation against the municipal corporation or political subdivision; and no claim shall be paid without such authentication and certification: PROVIDED, That the certificates as to claims of officers and employees of a county, city, district or other municipal corporation or political subdivision, for services rendered, shall be made by the person charged with the duty of preparing and submitting vouchers for the payment of services, and he or she shall certify that the claim is just, true and unpaid, which certificate shall be part of the voucher.