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CONTRACT REVIEW. Contract Audit Need The Value and importance of contractual expenditure in regard to capital and revenue budgetsThe Value and importance.

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Presentation on theme: "CONTRACT REVIEW. Contract Audit Need The Value and importance of contractual expenditure in regard to capital and revenue budgetsThe Value and importance."— Presentation transcript:

1 CONTRACT REVIEW

2 Contract Audit Need The Value and importance of contractual expenditure in regard to capital and revenue budgetsThe Value and importance of contractual expenditure in regard to capital and revenue budgets High turnover and diversity of contractsHigh turnover and diversity of contracts Inherent risk of loss, waste fraud resulting from such turnover and expenditure levelsInherent risk of loss, waste fraud resulting from such turnover and expenditure levels

3 Audit Objectives Policy versus procedures reviewPolicy versus procedures review System adequacy from initial planning to post completion assessmentSystem adequacy from initial planning to post completion assessment Management informationManagement information Utilization of resources efficientlyUtilization of resources efficiently

4 Audit Reasons Four areas to ask about the CONTRACT Four areas to ask about the CONTRACT Effectiveness – best meeting of objectives Effectiveness – best meeting of objectives Economy – best goods and services Economy – best goods and services Efficiency – best managing of contract process Efficiency – best managing of contract process Compliance – policies and directives being followed Compliance – policies and directives being followed

5 Stages of Proper Contract Management A.Pre- Contract planning, review, coordination B.Payment of Contract(s) C.Performance of Contract(s) D.Post Completion of Contract(s) E.Problems of Contracts (s)

6 Stages of Proper Contract Management A. Pre- Contract planning, review, coordination COJs main problem area B.Payment of Contract(s) Some issues – contract manager should address C.Performance of Contract(s) Need business as well as legal review. Legal may need enhanced than just as to form

7 Stages of Proper Contract Management D.Post Completion of Contract(s) Analyze what went well and what needed improved E.Problems of Contracts (s) Address Contractor issues ie Bankruptcy, Poor Performance, Difficult to work with etc.

8 Stages of Proper Contract Management WRITE YOUR OWN CONTRACTS OR OTHERS WILL WRITE THEIRS FOR YOU 1.) Obtain/subscribe to contracting software 2.) Include audit provision for large contracts, need to be able to inspect their books, ours are open. 3.)If specialized contract – obtain outside specialized legal counsel/review 4.) Do not be afraid to say NO!. Just because prior contractors got Cost- plus does not mean COJ does it now.

9 Basic Statistics Contracts in general reviewed 30Contracts in general reviewed 30 Contractors in general reviewed 5Contractors in general reviewed 5 Number of contractor jobs 11Number of contractor jobs 11 $ amount of contractor jobs $1,284,916$ amount of contractor jobs $1,284,916

10 Contracts in General Items Reviewed AuthorizationAuthorization SignaturesSignatures DatedDated Actual Contract – Not Bid SpecificationActual Contract – Not Bid Specification Contract TermsContract Terms Legal Review Payments Change Orders Bid Documentation Final Execution Close out Procedures

11 Contract Review Statistics 19 of 30 Not dated by Mayor 11 of 30 Not signed by Counter Party 4 of 30 No contract only Bid Specs 4 of 30 Not signed by City Officials 4 of 30 No problems 3 of 30 Not notarized as required by contract

12 Several Payments not signed by city officialsSeveral Payments not signed by city officials Change Order was found on counterparty fax not COJ documentation.Change Order was found on counterparty fax not COJ documentation. External service providers not signing off on work for payments ( engineers, architects etc.)External service providers not signing off on work for payments ( engineers, architects etc.) Finance Department not in possession of change ordersFinance Department not in possession of change orders Final executed copy not in City Clerk PossessionFinal executed copy not in City Clerk Possession

13 Larger Contractors Asked Finance Accounts Payable staff who was larger contractors. Following listed Cooper Construction Cooper Construction Randy Callahan Randy Callahan Alvin Crabtree Alvin Crabtree Cameron Construction Cameron Construction Van Horn Van Horn

14 Contractor Statistics Cooper 2 Jobs $79,161Cooper 2 Jobs $79,161 Callahan 1 Job (2 parts)$415,690Callahan 1 Job (2 parts)$415,690 Crabtree 4 Jobs$192,044Crabtree 4 Jobs$192,044 Cameron 3 Jobs$460,432Cameron 3 Jobs$460,432 Van Horn1 Job$141,590Van Horn1 Job$141,590 Total11 Jobs $1,284,916Total11 Jobs $1,284,916

15 Contractor Statistics 6 of 11 jobs had contracts$749,3246 of 11 jobs had contracts$749,324 or 58% 5 of 11 jobs had NO contracts$460,432 or 42 %5 of 11 jobs had NO contracts$460,432 or 42 % 4 of 11 jobs were brought in over bid$876,122 or 68%4 of 11 jobs were brought in over bid$876,122 or 68% Average amount of each contract = $116,811Average amount of each contract = $116,811

16 Contractor Statistics Overbids totaled$100,321 or almost 1 entire jobs worthOverbids totaled$100,321 or almost 1 entire jobs worth Overbidding was a result of mismeasurement by City officials for contract estimates. Some estimates were over 50% off. Red Flags and alarms should be sounding!!!!!

17 Contract/Project Approval Review Purpose to enable the COJ to: 1.) Better track the intake of new contracts or internal projects 2.) Conduct review/approval process to properly identify risk and relevant issues 3.) Serve as supplemental historical record for Clerk and COJs significant transactions

18 Contract/Project Approval Review Project Leader/ duties Single point of contract internally and externally for coordination of REVIEW process – NOT CONTRACT !!!Single point of contract internally and externally for coordination of REVIEW process – NOT CONTRACT !!! Call and conduct multidisciplinary group to discuss proposed project/ contractCall and conduct multidisciplinary group to discuss proposed project/ contract Responsible for communication among all partiesResponsible for communication among all parties Ensure contract/project proceeds according to COJ and State of Arkansas rules, laws and regulationsEnsure contract/project proceeds according to COJ and State of Arkansas rules, laws and regulations Ensure execution of applicable documentationEnsure execution of applicable documentation

19 Contract/Project Approval Review Project Leader/ duties Circulate final executed completed documentation to appropriate COJ personnelCirculate final executed completed documentation to appropriate COJ personnel Complete Project Approval sheets to all applicable departmentsComplete Project Approval sheets to all applicable departments

20 Contract/Project Approval Review THIS REVIEW DOES NOT CIRCUMVENT LEGISTAR AND NORMAL REGULAR APPROVAL PROCESS !!!!!!!!!THIS REVIEW DOES NOT CIRCUMVENT LEGISTAR AND NORMAL REGULAR APPROVAL PROCESS !!!!!!!!! ALL APPLICABLE PROCESSES STILL IN USE AND PLACE!!!!!!!ALL APPLICABLE PROCESSES STILL IN USE AND PLACE!!!!!!!

21 Recommendations Contract Policy/Procedure Manual 10/31/2007 Contract Review and Project Approval Policy implement – refine Purchase/subscribe to contracting software AIA - Engineering is an example. Provide Contract Terms summary sheet Utilize Contract Manager Final executed contracts, notice to proceed, change orders and closeout documents to Clerk

22 Recommendations/ Thoughts Policy Manual – Guidance providedPolicy Manual – Guidance provided Contract Approval Policy – already working with Legistar this provides assistance in group think planning.Contract Approval Policy – already working with Legistar this provides assistance in group think planning. Terms summary sheet – clarifies payment and penalty clausesTerms summary sheet – clarifies payment and penalty clauses Department heads, And Mayor Responsible for details.Department heads, And Mayor Responsible for details.


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