Auditor Of Public Accounts
State Auditor Crit Luallen Releases Performance Review of Kentucky's Contracting of Service Workers

Press Release Date:  Thursday, September 01, 2005  
Contact Information:  Jeff Derouen
Phone: (502) 573-0050
Fax: (502) 573-0067
Pager: (888) 222-5670

State Auditor Crit Luallen today released a performance audit of Kentucky's management of contracting for service workers and recommendations for improvement. The audit is the second of a three-part appraisal of the Commonwealth's contracting policies.  The Auditor's Office found, as in the commodity purchases reviewed in the previous audit, the state is unable to determine the number of service workers under contract with state government.  The state is also unable to determine the actual number of hours worked by contract workers.  Because of this, the Commonwealth is unable to determine the exact size of its total workforce.

"A lack of information makes it impossible to determine whether hiring additional state employees or contracting for services is the most cost effective way to fulfill state services.  During this time of austere state budgets, it is important that no money is wasted.  Outsourcing state work has often been presented as a way to save the state money.  While that may be the situation the current method of contracting for workers does not allow the state to conduct a case-by-case cost-benefit analysis to be sure," State Auditor Crit Luallen said.

The analysis, performed by the Auditor's Division of Performance Audit, showed that Kentucky spent over $655 million on 2,633 contracts for services in fiscal year 2004.  These numbers are estimated because some contracts were improperly classified and because many service contracts are bundled with commodity contracts. Further, no method exists to distinguish the services provided to the Commonwealth.  The state also lacks a clear process for determining whether service contract workers should be classified as employees.  States could be liable for payment of Social Security taxes for contract workers under certain conditions. 

The Auditor's Office recommends that Kentucky State Government require all state agencies to clearly use designations that will allow the state to track the number of contract employees.  The Finance and Administration Cabinet should then use this data to routinely produce reports that will be made available to the public identifying the total number of service contracts by agency, the total contract cost by agency, and the type of services purchased.  This data could then be compared to the cost of completing a service with state employees and a cost-benefit analysis could be performed to determine those circumstances where contracting would benefit the state.

"There are several states which have developed progressive practices in contracting oversight and management.  Texas regularly identifies the number of service contract workers and associated costs in deciding whether to employ or contract.  Virginia uses a detailed cost-benefit analysis in their contracting process. If all of us work together, Kentucky can be on the cutting edge of contract management and save the taxpayer's money," Luallen said.