State Auditor Crit Luallen announced today findings from a performance audit of Kentucky's contract purchasing of commodities and non-professional services. The study noted several improvements that could be made to enhance the state's purchasing procedures. The report is the first of a three - part audit of state contract business practices.
"Government procurement is one area everyone has worked very hard to streamline. Kentucky has accomplished a lot over the last several years, spanning Governors and parties. Improvements have been and are continuing to be made. Working with Secretary Robbie Rudolph and the Finance and Administration Cabinet, we are able to offer ideas for improvement to continue making Kentucky's procurement system even better." State Auditor Crit Luallen said.
The audit found that competition is typically identified as the preferred method when contracting for commodities and non-professional services. Research conducted by the Auditor's Office has shown that out of 1,061 contracts during fiscal year 2004, 82% were established through a competitive sealed bidding process.
*See report for graph
The report, completed by the State Auditor's Performance Audit Division, also found that the state could not determine the number of items purchased by state agencies or the expense incurred for any particular type of item. The study concluded that not knowing the quantities purchased hampers the state in negotiating with vendors to take advantage of Kentucky's substantial buying power. The audit recommends that the Commonwealth implement a spending analysis similar to the federal government and the state of Virginia. The analysis would allow the state to understand the buying habits and needs of all state agencies.
An additional finding of the audit is that 55 vendors hold three or more contracts for similar commodities and services. These 55 vendors held 291 contracts for an average of over 5 contracts for each vendor. The audit recommends that these contracts, whose expenditures totaled over $106 million, should be reviewed by the Finance and Administration Cabinet to determine if consolidating some of these contracts would result in lower prices.
In addition, the report found there is no way of determining if Kentucky is getting the lowest unit price through the state's "best value" policy. "Best value" pricing means that an item's price includes the cost of the product as well as other ancillary services such as delivery, installation, and maintenance. Because Kentucky does not require vendors to break their costs down when making bids, there is no way of determining if the state is getting the lowest unit price for the actual commodity or service purchased. In fact, of 89 commodities and non - professional service items reviewed, 42% were found to have higher prices through Kentucky's standing contracts than if purchased on the private market. For example, a pair of work boots purchased in one retail outlet would cost the everyday buyer $89.99, while the state contract price is $106.99 for the exact same item.
The review recommends that the Finance and Administration Cabinet segregate unit cost whenever possible to do so. The state of New York has successfully required vendors to standardize unit cost criteria used in best value purchasing. This allows state officials to better compare prices and require that commodities are bid based solely on the "lowest price" to the state. Secretary Rudolph, in the report's response, indicated that the Office of Material and Procurement Services and the Commonwealth Office of Technology have already begun to initiate a segregation of unit cost approach in the purchase of technology.
The audit further recommends that the Finance and Administration Cabinet should also conduct regular on-going compliance reviews of agencies' purchasing. State agency compliance with procurement laws is largely unknown. In fiscal year 2004, these types of contracts amounted to over $345 million in state spending. Failure to conduct compliance reviews creates a significant risk that errors in the procurement process may be causing avoidable waste.
Luallen commented that improving government efficiency is not a partisan issue. "This report is an example of how we can find areas of common ground to make our system more efficient and accountable to Kentucky's taxpayers." Luallen said.