Friday, January 7, 2011
Wednesday, January 5, 2011
Audits
At Monday's board meeting, representatives from the firm of Boldt, Carlisle, and Smith presented their annual financial audit of our district. There were several problems/issues they identified.
One of those was a lack of documentation regarding bids related to bond purchases. State law requires public entities to get three competitive bids for all items costing over $5,000. In some cases the district was unable to provide documentation that this took place. The auditors randomly selected approximately 35 items to test (out of how many I don't know) and, of those, four (15% - their math, not mine) were missing the required bid documents. They mentioned that in at least one case it appears that items were simply purchased out of a catalog with no bid at all. In other cases, bids may or may not have been solicited; it's impossible to tell as there are no documents.
Some board members seized on the idea that there were only these four sets of missing documents/non-bids but that is not what they auditors said. They said that of the 35 items they tested, these were the ones that were problematic. I would want to know what proportion of all required bids those 35 items represent (35 were tested out of a total of 50? 500? 5,000?). If there is a 15% failure rate for the bond as a whole then we could be talking about some serious money.
Paul Evans asked about potential penalties the district might face if this issue reached the Secretary of State's office. The auditors said nothing would happen to the district for failing to keep proper documentation and/or follow the bid process as required by law. That makes me wonder - what is the point of the law if it is never actually enforced? I'm also not sure why Evans seems to be mostly concerned with the legality of this issue. To me, the bigger question is whether we can have confidence that district manager's perform their duties competently and ethically.
Members of the public have been asking for a performance audit of the bond for some time now. The financial audit that was just completed (and that is done annually) just looks at the district's bookkeeping practices. A performance audit would look at actual expenditures to see if the district spent its money wisely and for the intended purposes.
At Monday's meeting the issue finally came up for discussion by the board (in the Work Session not the regular board meeting). Hunter said it would cost the district between $20,000 and $30,000. He suggested that the board review the internal checkpoints within the construction process - architects and construction managers, for example, have to sign off on certain issues at particular stages during planning and construction, While there may well be some internal checks and balances in place, a true performance audit must be done by an outside entity rather than someone who was part of the process to be scrutinized and who has a stake in the outcome of the audit.
Paul Evans and Kathy Zehner both pushed hard for the audit as a way of restoring public confidence; Traci Hamilton and Sarah Ramirez worried about the cost. Ramirez said she just couldn't support it as it would adversely affect teachers; Zehner replied that there are other monies that could potentially be used, including budgets allocated to administrators. There is also the possibility that a performance audit could be paid for out of remaining bond funds and the business manger was instructed to check on that with the district's bond counsel. For her part, Susan Stoops argued that she didn't think it would help restore public trust as everyone has already made up their minds.
I don't agree with that. Questions have been raised and it is the stonewalling of the superintendent and the board with regards to a performance audit that have deepened public suspicion. There is still time to make this right. The fact that those board members who have been most skeptical of the concerns raised are now the ones most opposed to the performance audit is not going to help the situation. One would think they would jump at the chance to prove their detractors wrong.
There are essentially three things that can happen: 1) They don't do the audit. This will only deepen the public's mistrust, particularly given the problems identified in the financial audit and the formal complaint that I lodged at the meeting regarding the overpayment on some FF&E purchases (see "Why Pay More Than List Price?" below for details); 2) They do the audit and more problems are uncovered. This is undoubtedly the potential outcome that most worries them; and 3) They do the audit and only very minor problems are uncovered. This WOULD help to restore public confidence.
If they are concerned about the expense, my recommendation would be to first audit anything that was outside of the GMP (Guaranteed Maximum Price - the construction part of the project that was controlled by Pence). Start with the parts of the bond that are most likely to be problematic, especially the FF&E purchases and the musical instruments. Of course, this course of action depends on those four problems identified by the financial audit. If they were part of the GMP then that needs a full performance audit too.
I would also strongly suggest that the board not simply rely on the superintendent's recommendation in choosing someone to do the audit. If the district is going to pay for an audit, it needs to be completely independent. Allowing the superintendent to control the process will undermine confidence in the outcome before the audit even occurs. Brian Hungerford, one of the district's attorneys, helped them hire an investigator already. Why not ask for his assistance in finding an auditor?
There are ways that a performance audit can happen that do hold the very real possibility of restoring public trust. It is up to the board to take the necessary steps.
One of those was a lack of documentation regarding bids related to bond purchases. State law requires public entities to get three competitive bids for all items costing over $5,000. In some cases the district was unable to provide documentation that this took place. The auditors randomly selected approximately 35 items to test (out of how many I don't know) and, of those, four (15% - their math, not mine) were missing the required bid documents. They mentioned that in at least one case it appears that items were simply purchased out of a catalog with no bid at all. In other cases, bids may or may not have been solicited; it's impossible to tell as there are no documents.
Some board members seized on the idea that there were only these four sets of missing documents/non-bids but that is not what they auditors said. They said that of the 35 items they tested, these were the ones that were problematic. I would want to know what proportion of all required bids those 35 items represent (35 were tested out of a total of 50? 500? 5,000?). If there is a 15% failure rate for the bond as a whole then we could be talking about some serious money.
Paul Evans asked about potential penalties the district might face if this issue reached the Secretary of State's office. The auditors said nothing would happen to the district for failing to keep proper documentation and/or follow the bid process as required by law. That makes me wonder - what is the point of the law if it is never actually enforced? I'm also not sure why Evans seems to be mostly concerned with the legality of this issue. To me, the bigger question is whether we can have confidence that district manager's perform their duties competently and ethically.
Members of the public have been asking for a performance audit of the bond for some time now. The financial audit that was just completed (and that is done annually) just looks at the district's bookkeeping practices. A performance audit would look at actual expenditures to see if the district spent its money wisely and for the intended purposes.
At Monday's meeting the issue finally came up for discussion by the board (in the Work Session not the regular board meeting). Hunter said it would cost the district between $20,000 and $30,000. He suggested that the board review the internal checkpoints within the construction process - architects and construction managers, for example, have to sign off on certain issues at particular stages during planning and construction, While there may well be some internal checks and balances in place, a true performance audit must be done by an outside entity rather than someone who was part of the process to be scrutinized and who has a stake in the outcome of the audit.
Paul Evans and Kathy Zehner both pushed hard for the audit as a way of restoring public confidence; Traci Hamilton and Sarah Ramirez worried about the cost. Ramirez said she just couldn't support it as it would adversely affect teachers; Zehner replied that there are other monies that could potentially be used, including budgets allocated to administrators. There is also the possibility that a performance audit could be paid for out of remaining bond funds and the business manger was instructed to check on that with the district's bond counsel. For her part, Susan Stoops argued that she didn't think it would help restore public trust as everyone has already made up their minds.
I don't agree with that. Questions have been raised and it is the stonewalling of the superintendent and the board with regards to a performance audit that have deepened public suspicion. There is still time to make this right. The fact that those board members who have been most skeptical of the concerns raised are now the ones most opposed to the performance audit is not going to help the situation. One would think they would jump at the chance to prove their detractors wrong.
There are essentially three things that can happen: 1) They don't do the audit. This will only deepen the public's mistrust, particularly given the problems identified in the financial audit and the formal complaint that I lodged at the meeting regarding the overpayment on some FF&E purchases (see "Why Pay More Than List Price?" below for details); 2) They do the audit and more problems are uncovered. This is undoubtedly the potential outcome that most worries them; and 3) They do the audit and only very minor problems are uncovered. This WOULD help to restore public confidence.
If they are concerned about the expense, my recommendation would be to first audit anything that was outside of the GMP (Guaranteed Maximum Price - the construction part of the project that was controlled by Pence). Start with the parts of the bond that are most likely to be problematic, especially the FF&E purchases and the musical instruments. Of course, this course of action depends on those four problems identified by the financial audit. If they were part of the GMP then that needs a full performance audit too.
I would also strongly suggest that the board not simply rely on the superintendent's recommendation in choosing someone to do the audit. If the district is going to pay for an audit, it needs to be completely independent. Allowing the superintendent to control the process will undermine confidence in the outcome before the audit even occurs. Brian Hungerford, one of the district's attorneys, helped them hire an investigator already. Why not ask for his assistance in finding an auditor?
There are ways that a performance audit can happen that do hold the very real possibility of restoring public trust. It is up to the board to take the necessary steps.
Sunday, January 2, 2011
Why Pay More Than List Price?
The purchase of "furniture, fixtures, and equipment" as part of the high school reconstruction has remained a point of contention. Over a year ago, Mike Maloney was asked why it appeared that the district paid more than list price for some items and he said the invoice prices reflected not just the cost of the items but also charges for delivery and hauling away the dunnage (packing materials).
Most of the furniture purchases were handled by a company called Saxton Bradley which is headquartered in the Seattle area. As part of my inquires into the FF&E purchases I have acquired from the district copies of all the Saxton Bradley invoices. Because they make volume purchases and can get educational discounts, Saxton Bradley is able to pass along considerable savings on many items.
For some items that we purchased through Saxton-Bradly, however, we paid over list price.
Here are some examples:
50 Mahasset Music Stands - Through Saxton Bradley we paid $49 each ($2,450.00 total). If we had purchased through Musician's Friend we could have bought them for $29.99 each delivered ($1,499.50 total) - a difference of $950.50!
A Conductor Stand from Wenger - Through Saxton Bradley we paid $561. If we had purchased direct from Wenger we could have bought the same stand for $359 plus $35 shipping and handling - a difference of $167!
50 Student Music Chairs from Wenger - Through Saxton Bradley we paid $131 each ( ($6,550 total). If we had purchased direct from Wenger we could have bought the same chairs for $76 each plus $643 shipping and handling ($4,443 total) - a difference of $2,107!
3 Expanded Music Lab Workstations from Wenger - Through Saxton Bradley we paid $2,368 each ($7,104 total). If we had purchased direct from Wenger we could have bought the same workstations for $1,360 each plus $456 shipping and handling ($4,536 total) - a difference of $2,568!
4 Folio Band Carts from Wenger - Through Saxton Bradley we paid $1,945 each ($7,780 total). If we had purchased direct from Wenger we could have bought them for $1,090 each plus $782 shipping and handling ($5,142 total) - a difference of $2,638!
Note: The documents above are copies of Saxton Bradley invoices with my notes; pages from the 2009-2010 Wenger catalog; and an on-line order form from Musician's Friend. In order to determine the shipping and handling charges from Wenger, I created an account and set up orders with the exact same items we purchased. They then calculated the shipping and handling charges. The prices paid to Saxton Bradley include delivery and installation. Most of the items we purchased through them required minimal or no assembling.
On just the items listed above, we overpaid by a whopping $8,430!! The total of our Saxton Bradley purchases was $332,000 dollars. For what other items were we overcharged? How do we even know if they gave us a good deal overall or not?
The whole point of ordering through Saxton Bradley is to get good deals. If they can't get us good deals, why would Maloney not just order these items separately? It doesn't make any sense.
In my quest to get some answers I've spoken with representatives from Saxton Bradley who each said they didn't know why we paid so much for these things. I've also spoken with the state procurement office and head procurement officer for the Oregon Department of Education. So far no one has an explanation. When pressed for an answer, the Saxton Bradley representative responded with "Have you seen the high school? Doesn't it look great?" - a laughable attempt at distraction. The head of procurement for ODE said she "would want to know why we paid more than the catalog price - that shouldn't ever happen."
But it did. The question is "Why?"
Most of the furniture purchases were handled by a company called Saxton Bradley which is headquartered in the Seattle area. As part of my inquires into the FF&E purchases I have acquired from the district copies of all the Saxton Bradley invoices. Because they make volume purchases and can get educational discounts, Saxton Bradley is able to pass along considerable savings on many items.
For some items that we purchased through Saxton-Bradly, however, we paid over list price.
Here are some examples:
50 Mahasset Music Stands - Through Saxton Bradley we paid $49 each ($2,450.00 total). If we had purchased through Musician's Friend we could have bought them for $29.99 each delivered ($1,499.50 total) - a difference of $950.50!
A Conductor Stand from Wenger - Through Saxton Bradley we paid $561. If we had purchased direct from Wenger we could have bought the same stand for $359 plus $35 shipping and handling - a difference of $167!
50 Student Music Chairs from Wenger - Through Saxton Bradley we paid $131 each ( ($6,550 total). If we had purchased direct from Wenger we could have bought the same chairs for $76 each plus $643 shipping and handling ($4,443 total) - a difference of $2,107!
3 Expanded Music Lab Workstations from Wenger - Through Saxton Bradley we paid $2,368 each ($7,104 total). If we had purchased direct from Wenger we could have bought the same workstations for $1,360 each plus $456 shipping and handling ($4,536 total) - a difference of $2,568!
4 Folio Band Carts from Wenger - Through Saxton Bradley we paid $1,945 each ($7,780 total). If we had purchased direct from Wenger we could have bought them for $1,090 each plus $782 shipping and handling ($5,142 total) - a difference of $2,638!
Note: The documents above are copies of Saxton Bradley invoices with my notes; pages from the 2009-2010 Wenger catalog; and an on-line order form from Musician's Friend. In order to determine the shipping and handling charges from Wenger, I created an account and set up orders with the exact same items we purchased. They then calculated the shipping and handling charges. The prices paid to Saxton Bradley include delivery and installation. Most of the items we purchased through them required minimal or no assembling.
On just the items listed above, we overpaid by a whopping $8,430!! The total of our Saxton Bradley purchases was $332,000 dollars. For what other items were we overcharged? How do we even know if they gave us a good deal overall or not?
The whole point of ordering through Saxton Bradley is to get good deals. If they can't get us good deals, why would Maloney not just order these items separately? It doesn't make any sense.
In my quest to get some answers I've spoken with representatives from Saxton Bradley who each said they didn't know why we paid so much for these things. I've also spoken with the state procurement office and head procurement officer for the Oregon Department of Education. So far no one has an explanation. When pressed for an answer, the Saxton Bradley representative responded with "Have you seen the high school? Doesn't it look great?" - a laughable attempt at distraction. The head of procurement for ODE said she "would want to know why we paid more than the catalog price - that shouldn't ever happen."
But it did. The question is "Why?"
Saturday, January 1, 2011
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