west virginia university - wvhepc.org report 2003.pdf · established by west virginia state code...

WEST VIRGINIA UNIVERSITY

PURCHASING PERFORMANCE AND COMPLIANCE AUDIT

YEAR ENDED JUNE 30, 2003

Description of Agency The Organization’s legal name is West Virginia University (WVU). WVU is a governmental entity that is part of the West Virginia Higher Education Fund, which is a component unit of the State of West Virginia. WVU is composed of thirteen colleges and schools, including the Davis College of Agriculture, Forestry and Consumer Sciences, the Elberly College of Arts and Sciences, the College of Business and Economics, the College of Creative Arts, the School of Dentistry, the College of Engineering and Mineral Resources, College of Human Resources and Education, Perley Isaac Reed School of Journalism, College of Law, School of Medicine, School of Nursing, School of Pharmacy, and the School of Physical Education. WVU has three regional campuses; West Virginia University Institute of Technology (WVUIT), West Virginia University Parkersburg (WVUP), and West Virginia University Potomac State College (Potomac). In addition to these regional campuses, WVU has several other campuses located throughout West Virginia. WVU is governed by the West Virginia University Board of Governors as established by Senate Bill 653 in West Virginia State Code Section 18B-2A-1. Senate Bill 653 was enacted by the West Virginia Legislature on March 19, 2000 and restructured public higher education in West Virginia. Effective July 1, 2001, certain powers were transferred to the Governing Board of each of the institutions of higher education in the West Virginia system. These powers and duties include, but are not limited to: the power to determine, control, supervise, and manage the financial, business and educational policies and affairs of the institution under its jurisdiction; the duty to develop a master plan for the institution; the power to prescribe the specific functions and institution’s budget request; the duty to review at least every five years all academic programs offered at the institution; and the power to fix tuition and other fees for the different classes or categories of students enrolled at its institution. Senate Bill 653 also created the West Virginia Higher Education Policy Commission (the Commission), which is responsible for developing, gaining consensus around and overseeing the implementation and development of a higher education public policy agenda. Also, as established by West Virginia State Code Section 18B-5-4, the Commission is responsible for developing rules governing and controlling acquisitions and purchases for the Commission and Governing Boards. WVU is a state-supported interactive university located in Morgantown, West Virginia offering two-year and four-year undergraduate programs as well as several graduate programs. Students can choose from 170 associate programs, baccalaureate programs, and graduate programs. The enrollment at WVU is approximately 23,500. The faculty to student ratio is approximately 1 to 19. WVU is accredited by the Commission on Institutions of Higher Education of the North Central Association of Colleges and Schools. WVU is a member of the National Collegiate Athletic Association at the Division I-A level.

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PROCUREMENT COMPLIANCE AND INTERNAL CONTROL Audit Methodology To satisfy the procurement compliance and internal control objective noted above, we performed the following procedures: 1. Chief Procurement Officer (CPO) Designation

Procedure - Reviewed the CPO designation made by the institution of higher education president and evaluated whether the designation was filed with the Vice Chancellor for Administration, State Auditor, and the Attorney General.

Results - No relevant exceptions noted.

2. CPO Responsibilities

Procedure - Reviewed the responsibilities that the CPO was performing to evaluate compliance with the responsibilities and duties as defined in the West Virginia Higher Education Purchasing Procedures Manual.


3. Appointment of Buyers

Procedure - Obtained a listing of Buyers appointed by the CPO and reviewed the designation to ensure that it was made in writing and filed with the Vice Chancellor for Administration, State Auditor, and the Attorney General.


4. Review of Buyer’s Credentials

Procedure - Reviewed the personnel file for all Buyer’s appointed to determine at a minimum either; (a) the Buyer was a graduate of an accredited college or university; or (b) the Buyer has at least four year’s experience in purchasing for any unit of government or any business, commercial or industrial enterprise.


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5. Insurance Bond

Procedure - Obtained the institution of higher education insurance coverage to evaluate that bond coverage was executed for all Buyer’s and CPO’s appointed.


6. Review of Authority Revocations

Procedure - Obtained a listing of delegated authority revoked by the CPO and reviewed the written notification made to the Vice Chancellor for Administration, State Auditor, and the Attorney General.


7. Review of Procedures for Purchases Not Exceeding $5,000

Procedure - Obtained a copy of the institution of higher education guidelines and procedures established by the CPO for purchases not exceeding $5,000 and determined whether the procedures and any modifications had been filed with the Vice Chancellor for Administration.


8. Test Selected Procurement Transactions Not Exceeding $5,000

Procedure - Reviewed 20 procurement transactions under the $5,000 limit to evaluate compliance with the institution of higher education’s internal control policies and procedures, the West Virginia Higher Education Purchasing Procedures Manual, and the applicable sections of the West Virginia State Code.


9. Test Selected Procurement Transactions Exceeding $5,000 But Not Exceeding $25,000

Procedure - Reviewed 20 procurement transactions between $5,001 and $25,000 to evaluate compliance with the institution of higher education’s internal control policies and procedures, the West Virginia Higher Education Purchasing Procedures Manual, and the applicable sections of the West Virginia State Code.

Results - One item noted, see 2003-1.

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10. Test Selected Procurement Transactions Exceeding $25,000

Procedure - Reviewed 20 procurement transactions greater than $25,000 to evaluate compliance with the institution of higher education’s internal control policies and procedures, the West Virginia Higher Education Purchasing Procedures Manual, and the applicable sections of the West Virginia State Code.


11. Test Selected Procurement Transactions Exceeding $15,000

Procedure - Reviewed 25 procurement transactions greater than $15,000 to evaluate compliance with the Attorney General and State Auditor’s Office requirements.


12. Test Selected Special Procurement Transactions

Procedure - Reviewed 12 special procurement transactions which are defined as sole/single source procurement contracts, emergency contracts, motor vehicle contracts, open-end contracts, and professional service contracts to evaluate compliance with the institution of higher education’s internal control policies and procedures, the West Virginia Higher Education Purchasing Procedures Manual, and the applicable sections of the West Virginia State Code.


13. Test for Potential Stringing

Procedure - Utilizing data extraction software, reviewed all purchase orders issued during the fiscal year ended June 30, 2003 for potential stringing.


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14. Test Selected Complaints, Protests, and Reconsiderations

Procedure - Reviewed for complaints, protests, and reconsiderations filed during the period of review to evaluate compliance with the institution of higher education’s internal control policies and procedures, the West Virginia Higher Education Purchasing Procedures Manual, and the applicable sections of West Virginia State Code.

Results - There were no complaints, protests, or reconsiderations during the review

period. 15. Test Selected Vendor Suspensions

Procedure - Reviewed for vendors suspended during the period of review to evaluate compliance with the institution of higher education’s internal control policies and procedures, the West Virginia Higher Education Purchasing Procedures Manual, and the applicable sections of West Virginia State Code.

Results - Two items noted, see 2003-2 and 2003-3.

16. Review Receiving and Inventory Procedures

Procedure - Obtained a copy of the institution of higher education guidelines and procedures for receiving and distributing materials, supplies, equipment, services, and printing to departments and offices and reviewed the procedures to evaluate compliance with the West Virginia Higher Education Purchasing Procedures Manual and the applicable sections of West Virginia State Code.


17. Review Inventory Dispositions

Procedure - Reviewed 20 dispositions of surplus equipment, supplies, and materials to evaluate compliance with the institution of higher education’s internal control policies and procedures, the West Virginia Higher Education Purchasing Procedures Manual, and the applicable sections of West Virginia State Code.


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18. Review Prompt Payment Act Procedures

Procedure - Obtained a copy of the institution of higher education guidelines and procedures for administering the requirements of the West Virginia State Code Prompt Payment Act to evaluate compliance with the West Virginia Higher Education Purchasing Procedures Manual and the applicable sections of West Virginia State Code.


19. Review Selected Transactions for Compliance with Prompt Payment Act

Procedure - Reviewed 40 invoices paid during the period of review to evaluate compliance with the requirements of the West Virginia State Code Prompt Payment Act.

Results - Eight items noted, see 2003-5.

20. Review Annual Report to Vice Chancellor

Procedure - Reviewed the annual prescribed report submitted to the Vice Chancellor for Administration and subsequently to the Finance Committees of the House of Delegates and the Senate to evaluate compliance with the requirements of the filing.


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2003-1 Procurement - Time and Date Stamp of Bids Criteria: Section 5.4.14.1 of the West Virginia Higher Education Purchasing

Procedures Manual states that: “Upon its receipt, each bid and modification shall be time and date stamped…”

Condition: Envelopes with the time and date stamp are not being maintained after the

bid opening; therefore, we could not determine compliance with the requirement of the West Virginia Higher Education Purchasing Procedures Manual.

Context: The total number of purchase orders greater than $5,000 issued during the

fiscal year ended June 30, 2003 were approximately 1,100 in the amount of approximately $42,000,000. The total non-payroll related expenditures for the fiscal year ended June 30, 2003 were approximately $158,000,000.

Effect: We were unable to determine whether WVU was in compliance with the

West Virginia Higher Education Purchasing Procedures Manual section as noted above.

Cause: Envelopes with the time and date stamp were discarded after the bid opening

date and no other evidence exists to support the time and date stamp. Recommendation: We recommend that WVU either maintain the envelopes with the time and

date stamp or document the time and date from the envelopes onto the bid-opening log during the official bid opening.

Agency’s Comments /Corrective Action:

WVU will implement this recommendation. A column has been added to the log sheet, where the date and time a bid was received will now be recorded. See attachment 2003-1-1.

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2003-2 Procurement - Vendor Suspension Notification Criteria: Section 8.1.3 of the West Virginia Higher Education Purchasing Procedures

Manual states, “When the Chief Procurement Office determines that sufficient reason or cause exists to warrant suspension of a vendor, the Chief Procurement Officer shall: (a) Notify the vendor by letter posted by registered mail of such reason or cause…”

Condition: There was no evidence that the vendor suspended was notified by registered

mail. Context: A copy of the letter included in the file indicated that it was sent via

registered mail; however, there was no registered mail or return receipt documentation in the procurement file. This was the only vendor suspension during the fiscal year under review.

Effect: We were unable to determine whether WVU was in compliance with the

West Virginia Higher Education Purchasing Procedures Manual section as noted above.

Cause: Documentation that the letter was sent by registered mail was not maintained

in the procurement file. Recommendation: We recommend WVU ensure that the notification of vendor suspension is

sent by registered mail and documentation of this process is properly maintained in the vendor procurement file.


WVU agrees with this recommendation. WVU’s policy is to retain documentation of vendor suspension in the file.

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2003-3 Procurement - Vendor Suspension Documentation Criteria: Section 8.1. of the West Virginia Higher Education Purchasing Procedures

Manual states: “The Chief Procurement Officer shall have the power and authority to suspend, for a period not exceeding one year, the right and privilege of a vendor to bid on purchases of the institution.” Furthermore, Section 8.1.9 of the West Virginia Higher Education Purchasing Procedures Manual states: “Decisions rendered by the Chief Procurement Officer shall be in writing or stated in the record and shall be accompanied by findings of fact and conclusions of law.”

Condition: An original suspension letter stated that the vendor was suspended until

August 22, 2003; however the suspension was lifted during March of 2003. The procurement file contained one hand written note indicating that the suspension was lifted as of March, 2003; however, justification and/or written notification was not documented in the procurement file.

Context: The total number of suspensions for the year ended June 30, 2003 was one. Effect: We were unable to determine how the vendor suspension issue was resolved. Cause: Management was unable to provide a cause. Recommendation: We recommend that WVU ensure adequate documentation be maintained in

the procurement files regarding vendor suspensions and resolutions of the vendor suspensions.


WVU agrees with this recommendation. WVU’s policy is to retain documentation of vendor suspension in the file.

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2003-4 Procurement - Inventory Report Criteria: Section 9.2.5 of the West Virginia Higher Education Purchasing Procedures

Manual states that, “on the 15th day of July of each year, the president shall submit the institution’s inventory report to the Vice Chancellor for Administration for the preceding fiscal year.”

Condition: The inventory report for fiscal year 2003 was submitted to the Vice

Chancellor for Administration on August 15, 2003. Effect: WVU was not in compliance with the above referenced section of the West

Virginia Higher Education Purchasing Procedures Manual. Cause: The physical inventory had been completed prior to the July 15th deadline

but the reconciliation to the general ledger was not completed until subsequent to the July 15th deadline.

Recommendation: We recommend that WVU submit the inventory report to the Vice

Chancellor for Administration in accordance with the West Virginia Higher Education Purchasing Procedures Manual.


WVU agrees with the technical nature of the finding. However, WVU has discussed this requirement with the HEPC and determined that this report is no longer used. The HEPC will have this requirement removed from the WV Higher Education Purchasing Procedures Manual.

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2003-5 Procurement - Prompt Payment of Vendors Criteria: Section 11.2.2 of the West Virginia Higher Education Purchasing Procedures

Manual states: “An institution receiving a legitimate uncontested invoice shall process the invoice within ten working days from its receipt.” Furthermore, Section 11.3.2b states that: “All invoices should be date stamped upon receipt.” Also, “the accounts payable function may keep other documentation in its files as evidence of the date of receipt of the invoice.” In addition, Section 11.3.2c states that: “If an institution contests an invoice for any reason which ultimately delays payment, the accounts payable function shall immediately return the invoice to the vendor with a written explanation of why the invoice is being returned.”

Condition: During our review of the prompt payment transactions tested, we noted that

for eight of the forty transactions tested, the uncontested vendor invoices were not processed within ten working days from their receipt or were not immediately returned to the vendor with a written explanation of why the invoice was being returned.

Context: The eight instances totaled approximately $13,000 of the approximately

$170,000 of vendor payments tested. The number of processing days ranged from thirteen days to one instance of over 100 days. The total number of vendor payments processed during the fiscal year ending June 30, 2003 for WVU was approximately 35,000 in the amount of approximately $158,000,000.

Effect: In these instances, WVU is not in compliance with the section of the Prompt

Payment Act that states the agency must process the invoice to the Auditor within 10 days of receipt of a legitimate, uncontested invoice.

Cause: Vendor(s) mailed some invoices directly to a Department instead of to the

Business Office. Some of the invoices were contested; however, the invoice was not contested in writing.

Recommendation: We recommend that WVU reemphasize that all invoices should be mailed

directly to the Business Office instead of to the Department receiving the goods or services. Furthermore, if an invoice is contested, WVU should ensure that written documentation of the contested invoice is maintained.

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2003-5 Procurement - Prompt Payment of Vendors (Continued) Agency’s Comments /Corrective Action:

WVU agrees with the findings on six of the cited instances. • 2 were sent to the departments and were not sent to Payment Services

in a timely manner • 1 was for architectural services that require additional reviews and

approvals to ensure that the services being billed for have been delivered to WVU's satisfaction prior to payment

• 3 were received after the Year end close State cutoff date (June 19, 2002)

WVU disagrees with two of the cited instances. In each case, the vendor was notified of the circumstances that resulted in an inability to process the invoices. Therefore, they were not considered legitimate invoices. One was contested to the vendor and required a state change order. The other required proof of delivery from the vendor. The vendor was notified and supplied the requested proof. All noted invoices were paid within 36 days of receipt of a legitimate invoice in Payment Services. WVU processed approximately 35,000 invoices to the State during the audit review period. There were no requests for Prompt Pay interest. Three invoices out of the eight cited were mailed directly to departments. All purchase orders currently note Payment Services as the Bill To address. WVU will continue to emphasize this to users and vendors.

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PURCHASING CARD COMPLIANCE AND INTERNAL CONTROL To satisfy the purchasing card objective noted above, we performed the following procedures: 1. Review Purchasing Card Policies and Procedures

Procedure - Obtained and reviewed the institution of higher education’s purchasing card program’s policies and procedures and obtained an understanding of the internal controls over the purchasing card program during the period of our review.


2. Review Prior Purchasing Card Audits

Procedure - Obtained a copy of the State Auditor’s Office purchasing card audit conducted during the period of our review and noted any items of audit significance.

Results - There were no State Auditor’s Office purchasing card audits for the period

under review; however, the WVU Internal Audit Department conducted an in-depth review of the purchasing card. One item noted, see 2003-7.

3. Test Selected Cardholders

Procedure - Obtained a detail listing of the institution of higher education cardholders, transaction limits, and transactions for the period, and tested 40 cardholders to evaluate whether the cardholder was eligible to be assigned a purchasing card, whether transaction limits assigned to each cardholder were adhered to for individual transactions, and whether a cardholder agreement was signed and on file at the institution of higher education.


4. Test for Potential Stringing

Procedure - Utilizing data extraction software, reviewed all purchases made with purchasing card during the fiscal year ended June 30, 2003 for potential stringing.


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5. Test Selected Purchasing Card Transactions

Procedure - Reviewed 40 purchasing card transactions to evaluate compliance with the Institution’s internal control policies and procedures, State Auditor’s Office Purchasing Card Policies and Procedures, and the applicable sections of the West Virginia Code.


6. Test Purchasing Card Transactions for Utilities

Procedure - Obtained a detail listing of purchasing card transactions issued for payment of utilities and scanned the detail to note whether any unusual or non-utility related purchases were made.


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2003-6 Purchasing Card - Disciplinary Policies and Procedures Criteria: WVU Business Services - guidance in WVU Payment Services Audit Process

states: “Copies of receipts for questionable purchases are requested (those that may be in violation of policy) and should be received in Payment Services within 2 weeks.” In addition excerpts from Section 1.15 of the WVU State Procurement Card Program state, “Misuse of the procurement card will be handled promptly and uniformly for all cardholders…The following situations are examples of “misuse” of the procurement card:…Insufficient or lack of supporting documentation… First Offense: Cardholder/Departmental Card Coordinator will be notified of violation and re-education will occur… Second Offense: Formal letter of violation will be sent to cardholder copying the DCC and the Chief Business Officer. Letter will be held on file for one year.”

Condition: During our review of the WVU Payment Services audit process we noted

two instances where the cardholders failed to remit documentation upon request by the WVU Business Services Department. Furthermore, no evidence of disciplinary action existed for these two cardholders. The first cardholder had one instance of questionable purchase and the second cardholder had two instances of questionable purchases. Neither cardholder submitted documentation for the questionable purchases within two weeks of the request. The first questionable purchase totaled $2,556 and the total of the two additional questionable purchases were $5,416.

Context: The total number of purchasing card payments processed during the fiscal

year ended June 30, 2003 was approximately 102,000 in the amount of approximately $24,300,000. The total non-payroll related expenditures for the fiscal year ended June 30, 2003 were approximately $158,000,000.

Effect: For these two instances WVU is not in compliance with their disciplinary

policies and procedures. Cause: WVU has indicated that verbal action was taken and the unresolved

purchasing card issues have been resolved. Recommendation: We recommend that WVU follow the policies and procedures as outlined in

their disciplinary policy and procedure manual.

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2003-6 Purchasing Card - Disciplinary Policies and Procedures (Continued) Agency’s Comments /Corrective Action:

WVU disagrees with this finding. WVU’s violations policy states that the cardholder or DCC will be notified of a first offense violation and re-education will occur. In this instance, verbal notification and counseling were provided. WVU contends that policies and procedures were followed in these two instances. Written notification of the violations is not required. Since the counseling sessions, no other instances have occurred. WVU believes that the lack of subsequent violations by these cardholders is evidence that verbal action was taken. However, WVU will clarify the policy in the procedures manual to reflect that violation notification may be written or verbal. During the time period of January to June 2003, WVU made approximately 55,000 Pcard transactions, requested and reviewed approximately 1,300 transactions and identified 34 violations. Copies of all audit reports are sent to the State Pcard Auditor and to WVU’s Internal Auditors on a monthly basis for review.

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2003-7 Purchasing Card - Internal Audit Review Criteria: Section 1.19 of the WVU P-Card Cardholder Manual states, “Both internal

and external auditors will perform periodic audits to ensure that the cardholders and their respective Departmental Card Coordinators/Business Operations are adhering to proper policies and procedures.”

Condition: The WVU Internal Audit Department conducted a review of one Expert

Business Office operation during the fiscal year and noted the following:

• Card security - The review revealed one instance where the departmental card coordinator (DCC) kept most of the purchasing cards issued to employees within the Expert Business Official’s (EBO) custody.

• Stringing of purchases - The review revealed several instances in

which invoices were split and processed as separate transactions.

• Cardholder delegation - The review revealed numerous instances in which someone authorized the use of a purchasing card by someone other than the actual cardholder.

• Supporting documentation - The review revealed one instance in

which the transaction did not have adequate supporting documentation readily available in the EBO’s files.

• Written procedures for the purchasing card procurement process -

The review revealed one instance in which the EBO did not have written procedures for the purchasing card procurement process.

• Supervisor approval - The review revealed that the DCC in the

Expert Business Office reviews and approves their own purchasing card transactions.

Context: The total number of purchasing card payments processed during the fiscal

year ended June 30, 2003 was approximately 102,000 in the amount of approximately $24,300,000. The total non-payroll related expenditures for the fiscal year ended June 30, 2003 were approximately $158,000,000.

Effect: The internal audit review noted several instances in which a WVU EBO was

not following best business practices prescribed by WVU P-Card Administration.

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2003-7 Purchasing Card - Internal Audit Review (Continued) Cause: Management has provided specific responses and the cause for these issues

to the WVU Internal Audit Department. Recommendation: We recommend that WVU follow the recommendations included in the

WVU Internal Auditor Department report. In addition, we recommend that WVU continue to conduct reviews in the purchasing card area to ensure compliance with the policies and procedures of the West Virginia State Auditor’s Office Purchasing Card Policies and Procedures.


It should be noted that awareness of all of these instances was the result of internal self monitoring work performed by WVU; these were not findings of the audit. Further, internal actions were taken promptly. Compliance responses:

• Stringing: Out of the 315 transactions sampled, 7 were identified as stringing, all by the same cardholder. The department provided the cardholder with additional training. The stringing violations were identified in the Payment Services audit process and corrective action taken.

• Cardholder Delegation: The instances of card delegation again

involved one cardholder. The department has requested and received adjustments to the appropriate card limits so this will not occur in the future. These transactions were identified in the Payment Services audit process and corrective action taken.

• Supporting Documentation: Out of 315 transactions sampled, one

was found to have inadequate documentation. The documentation has since been located and is part of the file.

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2003-7 Purchasing Card - Internal Audit Review (Continued) The following instances noted in the Internal Audit review were identified as

weaknesses, not compliance violations, in the department’s internal controls:

1. Card Security: While it is not condoned as a best business practice, some departments do keep Pcards in a locked, central location. This is not in violation of any State Pcard policy or procedure. This department responded that they would return the cards to the employees.

2. Written procedures for the purchasing card procurement process:

WVU provides all cardholders with a card holder manual and every employee is required to attend centralized card holder training prior to receipt of a Pcard. This activity fulfills the compliance requirements of the State Pcard policies. The department has decided to prepare departmental Pcard procedures for distribution within their department.

Supervisor approval: WVU has a segregation of duties policy in place to handle such situations. Many departments have centralized purchasing and Pcard functions within the EBO. Therefore, the propensity to handle all aspects of the Pcard/purchasing process can exist with one person. These cases have been identified and communication/direction given to any department that more than one person must initiate, review, edit, or approve any one transaction. This department has two people who handle the review for the other’s Pcard transactions. Once transactions are mapped into the Oracle system, managers and other EBO personnel review the reports generated by the systems. This department has implemented a second review to eliminate any potential segregation of duties issues.

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OVERALL COMPLIANCE AND INTERNAL CONTROL RESPONSE Management has also provided the following overall response to the purchasing compliance and internal control comments. Of the 26 compliance procedures performed, 19 had no relevant exceptions noted. The exceptions that were noted are not significant; thus no material weaknesses were identified by the audit procedures. For each transaction type, multiple compliance tests were performed. However, findings and detailed information regarding test procedures only appear for the items in which exceptions were noted. The format of this report reflects only those few items which exceptions were noted and does not fully reflect the magnitude of the testing performed nor WVU's successful demonstration of compliance with all applicable policies, procedures and regulations.

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PERFORMANCE AUDIT To satisfy the performance audit objective noted above, we performed the following procedures: 1. Compare Procedures to Identified Best Practices

Procedures - Obtained and reviewed the purchasing procedures of the institution of higher education and compared these procedures to other institutions of higher education in West Virginia and best practice procedures as defined by the National Association of Educational Buyers, Center for Advanced Purchasing Services, and the National Institute of Governmental Purchasing, Inc.

Results - Four items noted, see 2003-8 through 2003-11

2. Compare Staffing Levels to Benchmarks

Procedures - Reviewed the staffing levels and other key benchmarks for the purchasing program at the institution of higher education and compared these benchmarks to other institutions of higher education in West Virginia and information available from the Center for Advanced Purchasing Services.

Results - Six items noted, see 2003-12 through 2003-15

3. Review Procedures for Efficiency and Accountability

Procedures - Reviewed the purchasing function processes and procedures to make recommendations regarding potential improvements in efficiency and accountability at the institution of higher education level and at the system-wide level.

Results - Three items noted, see 2003-9, 2003-10, and 2003-16.

4. Review for Factors Inhibiting Performance

Procedures - Reviewed the purchasing function processes and procedures to identify factors that may inhibit satisfactory performance of the purchasing program.

Results - Two items noted, see 2003-14, and 2003-17.

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5. Review Procedures, Laws, and Regulations to Identify Additional Flexibility

Procedures - Reviewed the purchasing function policies and procedures, the West Virginia Higher Education Purchasing Procedures Manual, West Virginia State Code, etc., to identify additional flexibility in purchasing rules, policies, procedures and state law that could potentially improve efficiency and execution of the purchasing program.


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2003-8 Procurement - Utilization of Alternate Purchasing Methods Benchmark/Criteria West Virginia State Code Section 18B-5-9(3) states that the emergency rule

issued shall, “provide for institutions individually or cooperatively to maximize their use of any of the following purchasing practices that are determined to provide a financial advantage: (1) Bulk purchasing; (2) Reverse bidding; (3) Electronic marketplaces; and Electronic remitting.”

Condition: The institutions of higher education are not taking full advantage of alternate

purchasing methods as provided for under West Virginia State Code. Furthermore, information such as quantities of items purchased are not readily available to determine the “purchasing power” that the consortium of institutions of higher education can utilize with alternative purchasing methods.

Context: The institutions of higher education represent a combined “purchasing

power” of approximately $95,000,000. Although a large portion of these purchases may not qualify for an alternate purchasing method, a 10 percent savings on a small amount of this “purchasing power” could still result in a substantial reduction of cost. Surveys conducted by the Center for Advanced Purchasing Services have identified the potential for measurable direct cost reductions of purchased goods and services in the range of 10 to 20 percent. In addition, the U.S. General Services Administration has noted that several federal agencies have experienced savings of 12 to 48 percent.

Cause: Until recently there appears to have been insufficient coordination on the

part of the institutions of higher education throughout West Virginia to ensure the maximization of purchasing power. Furthermore, budget constraints, training and investment in technology by the State of West Virginia has been limited in the procurement area.

Recommendation: We recommend the institutions of higher education work with the central

office and devote the necessary resources to the new implementation task force to review the potential for alternate purchasing methods. Alternate purchasing methods of key importance include bulk purchasing, reverse bidding, and e-procurement through a centralized purchasing function (shopping cart) process. This task force should be sufficiently funded, and should develop a strategic plan for the implementation and use of alternate purchasing methods. Furthermore, this task force should draft policy to be approved by the West Virginia Higher Education Policy Commission to ensure full utilization and cooperation from all the State’s institutions of higher education.

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2003-8 Procurement - Utilization of Alternate Purchasing Methods (Continued) Agency’s Comments:

WVU agrees with this recommendation. However, it should be noted that the authority to purchase using these alternate methods was passed on March 8, 2003. The enabling legislation required an emergency rule to be filed outlining policies and procedures related to these purchasing methods. The rule was filed on July 11, 2003. Because the emergency rule was not filed until after the completion of the 2003 fiscal year, these purchasing methods could not be utilized during the audited period. WVU is actively working with other public higher education institutions and the HEPC staff to develop the authorized purchasing methods. Committees are working to formulate processes for bulk purchasing and reverse bidding. In addition, specific commodities are being considered for procurement using these alternate methods. Implementation should be the domain of the respective institution's Board of Governors.

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2003-9 Procurement - Central Website Benchmark/Criteria West Virginia State Code Section 18B-5-9(3)(f) states: “Each institution

shall establish a consortium with at least one institution in the most cost-efficient manner feasible, to consolidate the following operations and student services:…(7) Any other operation or service appropriate for consolidation as determined by the commission.”

Condition/Context: Currently, the various institutions of higher education maintain individual

websites with a variety of information related to the procurement process. Information that varies by website includes purchasing policies and procedures, current contracts available, statewide contracts available, resource links to additional purchasing resources, etc. The total cost and time of maintaining each individual website is currently not available.

Recommendation: The establishment of a central website could enhance the procurement

process users’ ability to access procurement related information at one location. Furthermore, centralizing the maintenance of the majority of the website content will reduce time and effort as duplicated processes will be minimized. In addition, more current and up-to-date information can be made available in a timely manner. We recommend that the institutions of higher education work with the central office and consider establishing one centralized website for all higher education procurement functions in the State. At a minimum, the website should include the procurement policies and procedures, standardized forms, statewide contracts available, higher education contracts available, and links to additional resources. In addition, the website could be utilized to post bid notices and awards which could reduce the time and cost of mailing information to potential users. Further, if established, this website should be maintained daily and all users of the procurement function should be informed of the benefits and how to use the site.

Agency’s Comments:

WVU does not agree with this recommendation. WVU is providing information to the HEPC staff for a central informational web site that can have links to each institution's procurement web page. Currently, the WVU intranet web page contains data such as contract number, vendor information, commodity, buyer name, contract effective dates, etc. RFP's are also listed on the site. WVU will deliver this information to the Internet by the end of the calendar year so it will be available to all Higher Education institutions and potential vendors.

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2003-10 Procurement - Notification of Available Contracts Benchmark/Criteria West Virginia State Code Section 18B-5-9(3)(f) states: “Each institution

shall establish a consortium with at least one institution in the most cost-efficient manner feasible, to consolidate the following operations and student services:…(6) Standard and bulk purchasing; and (7) Any other operation or service appropriate for consolidation as determined by the commission.”

Condition: There is no coordinated notification process being utilized to notify the other

West Virginia institutions of higher education of available purchasing contracts and other procurement related information.

Context: Notification of new statewide contracts and/or other contracts available to

the institutions of higher education could minimize duplication of effort and provide users with more informative data regarding the use of the procurement process.

Effect: The establishment of a notification method could enhance the various

institutions of higher educations use of the procurement function and reduce duplicated effort. In addition, more current and up-to-date information can be made available in a more timely manner.

Cause: There is no centralized method in use for notifying other institutions of

higher education of available purchasing contracts and other procurement related information.

Recommendation: We recommend that notice of all new contracts be sent to other institutions

of higher education via email. This could be accomplished through the use of a centralized website as noted previously. If properly developed, individual departments within other institutions of higher education could register to receive automatic updates regarding the contracts posted to the website that may be useful for the department.


WVU has an intranet website available where internal users, including WVU Regional Campuses, can view contract information such as vendor name, commodity, contract number, effective dates, and buyer information. Based on this information, the user can request a copy of the contract. Contracts are delivered electronically to save copying, mailing, and storage costs. This information will be placed on the Internet and be available to all the other Higher Education institutions, in addition to the regionals, by the end of the calendar year.

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2003-11 Surplus Property - Internet Surplus Auctions Benchmark/Criteria Section 10.1 of the West Virginia Higher Education Purchasing Procedures

Manual establishes the policies and procedures as prescribed by West Virginia State Code Section 18B-5-7. Specifically Section 18B-5-7(a) states: “(a) The commission and the governing boards shall dispose of obsolete and unusable equipment, surplus supplies and other unneeded materials, either by transfer to other government agencies or institutions, by exchange or trade, or by sale as junk or otherwise.”

Condition/Context: Currently, most surplus property is disposed of either through a public

auction and/or through the State of West Virginia Surplus Property Division. WVU should consider using alternatives such as internet auctions for certain types of disposals.

Recommendation: Data accumulated by the Center for Advanced Purchasing Studies indicates

that internet auctions for retail related items typically sell for higher dollars than other methods of disposals. Furthermore, various third-party companies can administer the internet auction such as U.S. General Services Administration, E-Bay, or Yahoo to name a few. We recommend that WVU work with the central office and consider piloting an internet surplus auction.


WVU will consider this recommendation.

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2003-12 Procurement - Comparison to Center For Advance Purchasing Studies

Benchmarks Benchmark/Criteria The Center for Advanced Purchasing Studies (CAPS) data provides the

following benchmarks for institutions of higher education:

• The average institution budget per professional purchasing employee is $46,130,591.

• The average purchase dollars per professional purchasing employee

is $6,129,051.

• The total professional purchasing employee head count as a percent of total institution employee head count is .31%.

Condition: Information provided by WVU indicated the following:

• The average institution budget per professional purchasing employee

was greater than the benchmark established by CAPS.

• The average purchase dollars per professional purchasing employee was greater than the benchmark established by CAPS.

• The average total professional purchasing employee head count as a

percent of the total institution employee head count was less than the benchmark established by CAPS.

Context: WVU’s budget per professional purchasing employee was $92,082,819, as

determined by dividing the total institution budget of $476,989,000 by the total number of professional purchasing employees of 5.18, as reported by WVU. WVU’s purchase dollars per professional purchasing employee was $9,027,382, as determined by dividing the total institution purchase dollars of $46,761,839 by the number of professional purchasing employees of 5.18, as reported by WVU. WVU’s total professional purchasing employee head count as a percent of the total institution employee head count was .10%, as determined by dividing the total number of professional purchasing employees of 5.18 by the total institution employee head count of 5,330, as reported by WVU.

31

2003-12 Procurement - Comparison to Center For Advance Purchasing Studies

Benchmarks (Continued) Recommendation: We recommend that WVU monitor their performance as compared to the

relevant benchmarks above and investigate significant variances if identified. Agency’s Comments:

WVU is utilizing purchasing efficiencies to accomplish the level of performance noted. WVU is performing better than the CAPS average benchmark in each category noted. The facts cited under the caption "Benchmark/Criteria", "Condition", and "Context" appear to support this conclusion. WVU is exploring potential flexibilities to further enhance the performance of the purchasing staff.

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2003-13 Procurement - Total Institution Purchase Dollars as a Percent of the

Total Institution Budget Benchmark/Criteria The Center for Advanced Purchasing Studies (CAPS) data indicates that for

institutions of higher education, the total institution purchase dollars as a percent of the total institution budget is 22%.

Condition: Information provided by WVU indicated that their average total institution

purchase dollars as a percent of the total institution budget was less than the benchmark established by CAPS.

Context: WVU’s total institution purchase dollars as a percent of the total institution

budget was 10%, as determined by dividing the total institution purchase dollars of $46,761,839 by the total institution budget of $476,989,000 as reported by WVU.

Effect: WVU appears to utilize other methods of purchases that may be more

efficient such as purchasing cards instead of the typical procurement process. Cause: WVU may be taking more advantage of alternate purchasing methods such

as the purchasing card. Recommendation: We recommend that WVU review and summarize its purchases to analyze

its usage of increased purchasing authority and new purchasing methods. Agency’s Comments:

WVU will consider this recommendation. However, it should be noted that the ratio could just as well reflect the fact that WVU exercises frugality in its allocation of budget dollars.

33

2003-14 Procurement - Training Hours and Budget Benchmark/Criteria The Center for Advanced Purchasing Studies (CAPS) data indicates that for

institutions of higher education, the average training hours per professional purchasing employee should be 39 hours per year.

Condition: WVU does not have a formal training program including a budget

established for professional purchasing employees. Furthermore, the number of training hours per professional purchasing employee was less than the average benchmark per CAPS.

Context: WVU indicated that each professional purchasing employee receives on

average 27 hours of training. Further, WVU indicated that there was no budget for training and that very little training hours were provided for each professional purchasing employee. These individuals are responsible for oversight of procurement purchases of approximately $46,800,000.

Cause: Management indicated that due to reductions in funding, professional

purchasing employees have been unable to receive adequate and sufficient training to meet the CAPS benchmark.

Recommendation: Correctly administered training of professional procurement employees is an

investment in the future of the procurement department. Properly trained employees are often more aware of current policies and procedures, more efficient in their day-to-day responsibilities, are more aware of current technology enhancements in the procurement process, and may generate additional efficiencies and quality enhancements to the overall procurement process. We recommend that WVU establish a formal training plan and training budget for all professional purchasing employees. This plan should be tailored to the various employees and their specialty areas to ensure maximum utilization of the training budget.


The hours of training noted in this finding reflect only external professional development activities. In addition, WVU provides numerous internal professional training and development opportunities through the departments such as Purchasing, Oracle Training, Human Resources, and Information Technology. The WVU Procurement department has memberships and affiliations with professional purchasing associations and publications where educational information is available and shared.

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2003-15 Procurement - Average Purchase Order Cycle Benchmark/Criteria The Center for Advanced Purchasing Studies (CAPS) data indicates that for

institutions of higher education, the average purchase order cycle time is 5.90 days for public institutions. The average purchase order cycle is the number of days from the initial requisition by the department to the issuance of a signed purchase order.

Condition/Context: WVU indicated that their average purchase order cycle time varied and was

unable to provide an estimate for this cycle to the benchmark established by CAPS. This average should include all purchases that have purchase orders, including those that require formal bidding.

Recommendation: We recommend that WVU develop policies and procedures to gather

information necessary for monitoring the length of time it takes to complete purchase orders for both over and under $5,000 for each buyer.


WVU agrees with this recommendation.

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2003-16 Procurement - Performance Measures Benchmark/Criteria West Virginia State Code Section 18B-5-9(l)(1) requires that the

Commission, “conduct a performance audit of the policies, procedures and results of the procurement of goods and services by the state institutions of higher education.”

Condition: Currently, WVU does accumulate certain data for measuring the

performance of the purchasing process; however, this accumulation of performance data has not been formalized.

Context: Performance measures, when properly developed and maintained, can

strengthen the employee evaluation process, increase efficiency and effectiveness, and provide WVU with a useful management tool.

Effect: By monitoring purchasing performance, trends can be identified that could

improve the effectiveness of the purchasing function. Cause: Management has not formalized the performance measurement process. Recommendation: We recommend that WVU develop policies and procedures for the

performance data currently being gathered. Furthermore, WVU should utilize the data to develop benchmarks for the department that can be monitored against actual performance.


WVU has such processes in place and will document the current practices related to performance measurements.

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2003-17 Purchasing Card - Travel Related Expenses Benchmark/Criteria Section 6.6 of the West Virginia State Auditor’s Office Purchasing Card

Policies and Procedures Manual states that: “Payment for the following items may not be made using the purchasing card:…Travel Related Expenses…”

Condition: The West Virginia State Auditor’s Office is responsible for establishing the

general purchasing card policies and procedures as allowed for in West Virginia Code; however, employees are required to use a separate card for travel related expenses.

Context: The current procedures list travel related expenses as restricted items, thus a

separate card must be obtained for travel related expenses. Effect: If controls with the purchasing card are properly established, the use of one

card could be more effective than requiring multiple cards and/or a manual travel expense reimbursement process.

Cause: Under current state laws and rules the West Virginia State Auditors’ Office

established policies and procedures as they relate to purchasing cards. Recommendation: We recommend that WVU work with the West Virginia State Auditor’s

Office in an effort to review whether travel related expenses should be an allowable purchase utilizing the purchasing card.


WVU agrees with this recommendation. However, it should be noted that the authority to use the procurement card for selected travel expenses was passed on March 8, 2003. Because policies and procedures for this use have not been developed, this authority could not be exercised during the audit period. WVU is actively involved in the pilot for travel expenses paid by procurement card being led by the State Auditor’s Office.

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2003-18 Procurement - State Purchasing Encumbrance Benchmark/Criteria West Virginia State Code requires each institution of higher education

purchase order greater than $15,000 to be encumbered by the West Virginia State Purchasing Division.

Condition/Context: Currently, the institutions of higher education are required to encumber all

purchase orders greater than $15,000 through the West Virginia State Purchasing Division. Furthermore, purchasing documents are required to be filed in hard copy and electronic copy with the West Virginia State Purchasing Department. Management has indicated that the average purchase order cycle is increased by two to three days and there is no value to the added process.

Cause: Legislation currently requires WVU to encumber all purchase orders greater

than $15,000 through the West Virginia State Purchasing Division. Recommendation: We recommend that WVU work with the central office, the West Virginia

State Purchasing Division and the West Virginia Legislature to determine the cost/benefit of the encumbrance requirement. Furthermore, we recommend that WVU work with the West Virginia State Purchasing Division to determine the value of filing both electronic and hard copy purchase order documents.


Revised legislation has been drafted to address this issue.

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EXHIBIT A

USER SURVEY RESULTS

West Virginia University Summary of Purchasing Performance

Benchmarking Questionnaire Responses Procedure - A total of 24 questionnaires were e-mailed to various departments with a response

rate of 11 or 46%. Each respondent was asked to rate the purchasing function within WVU on the following criteria using a scale of 1 to 7 where 1 = poor or disagree strongly and 7 = excellent or agree strongly. Below is a summary of the average ratings received by criteria:

Questionnaire Response Summary Service How happy are you with the range of services provided

by your Purchasing Department? 4.55

How happy are you with the methods you can use to access these services? 4.45

Website Do you find the website helpful? 3.45

Is the website easy to use? 3.82

Do you find it useful for information on suppliers? 3.27

Do you find it useful for information on products? 2.82

Do you find it useful for general purchasing advice? 3.45

Confidence Are you confident in the qualifications, knowledge, experience and abilities of Purchasing staff? 4.82

Responsiveness Do you believe Purchasing staff are aware of your needs? 3.82

Do you believe Purchasing staff respond to your needs in an acceptable timescale? 3.91

Do you believe Purchasing staff put themselves out to meet your requirements? 3.91

Would you like one of the Purchasing managers to contact you to discuss this or any other issues you have raised? 1-Yes & 10-No

Results - Responses appear to give average ratings in all areas.

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EXHIBIT B

COMPARISON TO BENCHMARKS

Comparison to Benchmarks per CAPS a. Total institution purchase dollars $46,761,839b. Total number of purchasing employees 5.18c. Total institution purchase dollars per employee (a./b.) $9,027,382d. Benchmark per CAPS $6,129,051 e. Total number of institution employees 5,330f. Total purchasing head count as a percent of total institution head count (b./e.) 0.10%g. Benchmark per CAPS 0.31% h. Total institution purchase dollars $46,761,839i. Total institution budget $476,989,000j. Total institution purchase dollars/total institution budget dollars (h./i.) as a percent 10%k. Benchmark per CAPS 22% l. Average purchase cycle time for institution Variesm. Benchmark per CAPS 5.9 n. Total institution budget dollars per purchasing employee (i./b.) $92,082,819o. Benchmark per CAPS $46,130,591 p. Average number of training hours per professional purchasing employee very littleq. Benchmark per CAPS 39

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