If I Could Rewrite My Institution’s Purchasing Policies Here’s What They’d Be

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 2 Alex Brown Me

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 3 Background – OU’s Authority within Oklahoma Organization – Current Policy Organization – Proposed Policy Why? –Current Practices –Best Practices Significant Changes Side-by-Side Comparison Cross-Referenced Spreadsheet

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be Background – OU’s Authority within Oklahoma Oklahoma Constitution Section XIII-8 Board of Regents of University of Oklahoma The government of the University of Oklahoma shall be vested in a Board of Regents consisting of seven members to be appointed by the Governor by and with the advice and consent of the Senate. The term of said members shall be for seven years, except and provided that the appointed members of the Board of Regents in office at the time of the adoption of this amendment as now provided by law shall continue in office during the term for which they were appointed, and thereafter as provided herein. Appointments for filling vacancies occurring on said Board shall be made by the Governor with advice and consent of the Senate and said appoints to fill vacancies shall be for the residue of the term only. Members of the Board of Regents of the University of Oklahoma shall be subject to removal from office only as provided by law for the removal of elective officers not liable to impeachment. Added by State Question No. 311, Referendum Petition No. 88, adopted at election held on July 11,

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be Organization – Current Policies 4.11 Buying And Selling Goods And Services Policy Buying Goods and Services Purchases That Must Be Processed Through The Purchasing Department Purchases That Are Not Required To Be Processed Through The Purchasing Department Purchases The Require The Assistance And Review Of The Purchasing Department Purchases From Auxiliary Enterprises And Service Units Submitting Purchases To The Board Of Regents For Approval And Reporting Other Purchases Sole Source Purchases Property Control And Capitalization Of Certain Purchases, Gifts or Other Acquisitions Acquisition Of Surplus Property Significant Emergencies Sellin g Goods And Services 5

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 6 Organization – Proposed Policy 4.11 Buying And Selling Products And Services Policy Definitions Excluded Transactions Buying Products And Services Purchasing Department Responsibilities Supply Chain Management Competition Dollar Thresholds Direct Purchases Purchases Processed By Purchasing Purchases Processed Through Purchasing Purchases From Auxiliary Enterprises and Service Units

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 7 Organization – Proposed Policy (continued) Submitting And Reporting Purchases To The Board Submitting For Prior Approval Reporting Report Quarterly Report At Earliest Opportunity Exempt From Approval Or Reporting Submitting Purchases To The Board For Ratification Property Control And Capitalization Of Certain Purchases, Gifts Or Other Acquisitions Acquisition Of Surplus Property Significant Emergencies Selling Products And Services

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be Why? Current Practices and Best Practices Have Outpaced Current Policy 8

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 9 Current Practices Delegation of Signature Authority – Expertise within Certain Departments Purchases versus Payments

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 10 Delegation Of Signature Authority Norman Campus – 97 Health Sciences Center (OKC) – 20 Current Policy assumes everyone needs Purchasing’s intervention Incomplete guidance confuses those who don’t need Purchasing’s intervention with those who do Expertise Within Certain Departments – OU Physicians – Athletics – College of Continuing Education – Housing & Food – Research Administration – Student Union

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 11 Purchases versus Payments Current policy is silent; makes compliance difficult and confusing. Certain transactions are pure payments; do not need Purchasing’s intervention. Student refunds Research subjects Debt service Acquisition or sale of real estate OU Foundation US Postal Service Charities campus-wide (United Way) Utilities campus-wide Royalties Insurance coverage campus-wide Travel reimbursements

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 12 Best Practices Supply Chain Management – Stratification of the Supplier Base // Strategic Sourcing Purchasing’s Role: Much More Than A Turnstile

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be Supply Chain Management Encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management. It also includes coordination and collaboration with channel partners, which may be suppliers, intermediaries, service providers, or customers. It integrates supply and demand management within and across companies. Total systems view of the links that work together efficiently. Costs are lowered by driving out unnecessary expenses, movements, and handling. Focus is on efficiency, added value, and removal of bottlenecks. Performance measurement is on total system efficiency and equitable monetary reward. 13

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be Stratification of the Supplier Base // Strategic Sourcing 14

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be Purchasing’s Role: Much More Than A Turnstile Train, monitor, and collaborate with those University employees who have Signature Authority and/or Processing Authority to ensure compliance Establish and manage strategic sourcing and other Contracts that offer Best Value Maintain productive University-supplier relationships Ensure that when Competition is indicated, it is appropriately carried out Validate conditions in contraindication of Competition and administer alternative methods Train, coordinate, and ensure that required supplier documentation (e.g. insurance endorsements and IRS forms) is properly obtained and filed Work with University departments relative to supply/supplier support needs Collect and analyze University data for expenditures for products and services Define, measure, and track meaningful metrics of Purchasing operations Collect and document information required for Board of Regents approval and reporting 15

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 16 Significant Changes

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 17 Significant Changes Specifically assigns to University Administration overall responsibility for establishing and enforcing related controls –University Administration may further assign responsibilities to enable compliant, effective, and efficient processes and procedures Expands “Competition” to include competitively awarded contracts from like organizations and professional associations –Allows negotiation; recognizes Competition not always possible or desired

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 18 Significant Changes Language Added Specifically Addressing Supply Chain Management Principles –“As the University offers courses and degrees in Supply Chain Management (SCM), Purchasing, as well, shall use SCM principles in its execution, management, and oversight of the University’s acquisition of products and services.” –Current policy has no such language –Brings policy into 21 st century –Recognizes and requires that Purchasing use judgment –Allows and requires Purchasing to operate in accordance with generally accepted purchasing principles and practices –Provides the platform for Purchasing to strengthen personnel requirements and focus on departmental outreach and collaboration

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 19 Significant Changes Definitions – Language added to define certain terms Best Value Competition Contract(s) Direct Purchases Payments Processing Authority Processed By Purchasing Processed Through Purchasing Purchases Purchasing Resale Signature Authority

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 20 Significant Changes Assigns labels to dollar thresholds –Makes future threshold changes easier, more efficient –“Small Dollar” - $ 5,000 –“Formal Competition” - $ 75,000 –“Approval” - $ 250,000 –“Reporting” - $ 75,000 Two thresholds – (1) Formal Competition (2) Reporting - proposed to be increased to $75,000 from $50,000 –Recognizes the effects of inflation since the last revision –Allows Purchasing a bit more judgment with mid-range Purchases –Reporting to Board - FY13 example – would still retain 77% of dollars reported but reduce the number of transactions by 39% ($34.9MM of $45.6MM // 168 of 434, respectively)

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 21 Significant Changes Signature Authority –Removes CCE as specific cite; generalizes requirements –Recognizes over 100 employees have signature authority –Assigns Purchasing oversight responsibility, requires judgment –Requires those with Signature Authority to coordinate with Purchasing (versus requiring Processing By Purchasing) Short Fuse Air Charter Services –Assigns complete approval authority to President if above Approval Threshold and no time for Board action –Removes $300,000 limit – arbitrary and potentially unworkable –Requires reporting to Board at earliest opportunity

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 22 Significant Changes Differentiates “Process By Purchasing” from “Process Through Purchasing” –“BY” requires input of a requisition, workflow to Purchasing, Purchasing must do something with it –“Through” limited to CrimsonCorner catalog purchases; also workflow to Purchasing, but released directly to supplier, no additional Purchasing action needed (unless capital asset) Removes specific cite of Purchases up to $50,000 by Executive level officers –Not needed because of new language governing Signature Authority

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 23 Significant Changes Differentiates “Payments” from “Purchases” –Assigns definition to Payments (already discussed above) and excludes them from policy –Resolves confusion over certain transactions that are processed through Accounts Payable... If they are above Small Dollar Threshold should they have been Processed By Purchasing? No, for Payments as defined. Removes language alluding to “blanket orders” and “standing orders” –Technology advancements have overtaken the need for these –Relics of past practices in older systems –Outdated tools used internally by Purchasing –Not relevant policy-wise

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 24 Significant Changes Definition of Contract encompasses the entire proposed term; rules out “annual” interpretation –Strengthens Board approval and reporting oversight –Current policy operates on annual spend; if less than Approval Threshold annually, prior approval by Board not required –Proposed policy based on total spend over life of Contract Language added for clarity –Purchases above the Reporting Threshold against Purchases (Contracts) that have received prior approval by the Board are exempt from reporting requirements and from requirement for further approval

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 25 Significant Changes Language added to strengthen certain exemptions from approval and reporting –“This provision may not be relied upon to devise Purchase transactions above the Reporting Threshold with the intent of circumventing the requirement to otherwise report or submit to The Board” “Sole Source” replaced by “without Competition” –Strengthens and enlarges the pool of Purchases that must be justified in which Competition is not used –“Sole Source” is too restrictive –Recognizes technological advances and market forces that make Competition-required-by-policy pro-forma and counter-productive

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 26 Significant Changes Language added to address Board ratification of noncompliant purchases above the Approval Threshold –Current policy has no such language –Sets forth a sound process –Strengthens Board oversight Selling Products and Services –Replaces the current $125,000 threshold with the Approval Threshold –Replaces “ratification” with “reporting” –Revenue contracts are reviewed by Legal Counsel and go through thorough reviews by departments and University Administration –Process to ensure Board oversight is streamlined

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 27 Side-by-Side Comparison

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 28 Current PolicyProposed PolicyComment The University’s legal capacity to acquire goods and services from others in exchange for payment, and to provide goods and services to others in exchange for revenue, originates with the Board of Regents. University funds are budgeted on an annual basis, and these budgets are approved by the Board of Regents. The Board of Regents recognizes that this is a large institution with sizeable annual cash flow, and realizes that substantial authority must be delegated. The University’s authority to (1) acquire products and services; (2) make payments in support of University purposes; (3) negotiate, execute, monitor, renew, and terminate contracts with others pursuant to University purposes, and (4) sell and otherwise dispose of University property originates with the Board of Regents (The Board). The Board delegates substantial authority in order for the University to carry out its mission effectively, efficiently, and in compliance with governing laws and regulations. No substantive change from Current to Proposed Policy. Proposed Policy adds language assigning overall responsibility to University Administration. The University Departments of Administration & Finance (University Administration) have the overall responsibility for establishing and enforcing related controls. University Administration may further assign responsibilities to enable compliant, effective, and efficient processes and procedures General Policy Statement

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 29 Current PolicyProposed PolicyComment Competition, in the context of buying, means open and fair competition among suppliers; in the context of selling, it means making University products and services (that are authorized to be sold) publicly available by the most feasible means under the circumstances. Sets forth the definition for Competition as the term is used in this Section of the Policy. Contract(s) means contracts, agreements, memoranda of understanding, or similar instruments purposed to be signed by two or more parties, binding them to promises, actions, or transactions, whether or not consideration or value is given or received. Sets forth the definition for Contracts as the term is used in this Section of the Policy. Direct Purchase(s) means Purchases that are made directly by University departments without being Processed By or Through Purchasing. The distinguishing processing characteristics of a Direct Purchase are that (1) the supplier’s invoice/bill is forwarded by the requesting department directly to Accounts Payable, and (2) no related requisition (pre-encumbrance) or purchase order (encumbrance) has been processed. Also included are Purchases by University departments from University auxiliary enterprises, service units, independent operations or other University departments authorized to engage in Resale as defined herein. Sets forth the definition for Direct Purchases as the term is used in this Section of the Policy. Definitions

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 30 Current PolicyProposed PolicyComment The University purchases a substantial volume of goods and services. Except in certain limited situations, University employees shall acquire these goods and services through an open and competitive process aimed at fairness to interested suppliers and best value for the University. Competition allows for the use of new technology in communications and of prior competitive history. Existing contracts established by cooperative associations and state and federal entities that meet the criteria for formal competitive process may be considered competitively bid. University departments are encouraged to request and receive assistance from the Purchasing Department for all purchases, regardless of the dollar amount. Competition is the method of first consideration. It comprises processes such as (1) invitations to bid [ITB]; (2) requests for proposals [RFP]; (3) invitations to negotiate [ITN]; (4) requests for quotes [RFQ]; (5) requests for information [RFI], and (6) similar reasonable and well documented canvassing and comparative processes. Competition also includes using Contracts held by governments, cooperative and group purchasing organizations, and by other education and/or research institutions, provided that such Contracts result via competitive principles and processes that are generally accepted by the National Association of Educational Procurement (NAEP), the National Association of College and University Business Officers (NACUBO), the National Association of State Procurement Officials (NASPO), the National Institute of Governmental Purchasing (NIGP), the Association of Independent Research Institutes (AIRI), the Institute of Supply Management (ISM), or other similar organizations. When Competition is not possible or in the University’s best interest, other methods such as selection or negotiation may be used provided that the justification is validated by Purchasing. Proposed Policy expands on the discussion and the provisions for Competition. It provides greater flexibility for effective and efficient purchasing while satisfying the requirements for control and oversight. This is consistent with Supply Chain Management principles Competition Explained / Defined

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 31 Current PolicyProposed PolicyComment The University provides a substantial volume of goods and services for compensation. To protect and preserve the University’s interests and ensure that it remains in compliance with all applicable laws and regulations, contractual documents must be processed through the University’s Legal Counsel Office and any other appropriate office (for example, Grants and Contracts Administration, the Controller, Public Affairs). Such contractual documents should be signed only after all appropriate and required reviews and approvals have been completed. Only an individual to whom the President has delegated the appropriate authority to sign contractual documents in the nature of the document in question may sign the document. Each document involving annual revenues of $125,000 or more shall be submitted to the Board of Regents for ratification. Additionally, if the agreement would establish or make policy for the University, or would otherwise involve a substantial service to be performed by the University, it must be submitted to the Board of Regents for approval. The University provides a substantial volume of products and services for compensation. Competition is the method of first consideration. To protect the University’s interests and ensure compliance with all applicable laws and regulations, Contracts must be processed through University Legal Counsel and/or other appropriate Processing Authority. Each Contract involving annual revenues above the Approval Threshold shall be reported to The Board at the earliest opportunity. If the Contract would establish or make policy for the University, it must be submitted to The Board for prior approval. Proposed Policy changes the requirement to reporting rather than ratification, and increases the threshold to the amount associated with the Approval Threshold, as defined, from the $125,000 amount cited in Current Policy. Proposed Policy also deletes "or would otherwise involve a substantail service to be performed by the University" because "substantial" is a subjective term and has never come into question in practice Selling Products and Services

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 32 Cross-Referenced Spreadsheet

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 33 Cross Ref Current Policy RefCommentRef Proposed Policy RefComment C14.11—BUYING AND SELLING GOODS AND SERVICES P14.11—BUYING AND SELLING PRODUCTS AND SERVICES Proposed Policy uses the word "Products" versus the word "Goods" throughout. New Subsections are added requiring the new numbering and renumbering of some Subsections. Some reorganization of content has been made to facilitate and improve reading and comprehension. C —POLICY P —POLICY C3 The University’s legal capacity to acquire goods and services from others in exchange for payment, and to provide goods and services to others in exchange for revenue, originates with the Board of Regents. University funds are budgeted on an annual basis, and these budgets are approved by the Board of Regents. The Board of Regents recognizes that this is a large institution with sizeable annual cash flow, and realizes that substantial authority must be delegated. P3 P4 No substantive change from Current to Proposed Policy P3 The University’s authority to (1) acquire products and services; (2) make payments in support of University purposes; (3) negotiate, execute, monitor, renew, and terminate contracts with others pursuant to University purposes, and (4) sell and otherwise dispose of University property originates with the Board of Regents (The Board). The Board delegates substantial authority in order for the University to carry out its mission effectively, efficiently, and in compliance with governing laws and regulations. C3 No substantive change from Current to Proposed Policy C —BUYING GOODS AND SERVICES P4 The University Departments of Administration & Finance (University Administration) have the overall responsibility for establishing and enforcing related controls. University Administration may further assign responsibilities to enable compliant, effective, and efficient processes and procedures. C3 Proposed Policy adds language assigning overall responsibility to University Administration. Thorough Reference / Cross Reference Document on Excel Spreadsheet (C1- C68 // P1-P104). Partial example below.

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be 34

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be Purchases From Auxiliary Enterprises & Service Units No Change University auxiliary enterprises and service units offer various products and services for sale. Examples are food services, printing services, and maintenance and repair of working spaces. Any excess of revenues over expenses generated by these entities is used to ensure future operations, renew and replace plant and equipment, and contribute back to the University’s education and research missions through Presidential priorities. When a University department purchases such products or services, the University department must allow the related auxiliary enterprise or service unit first opportunity to service the transaction. Such Purchases may be awarded to outside vendors only upon sufficient justification or upon refusal by the auxiliary enterprise or service unit. 35

Burr Millsap, CPA MBA Associate Vice President If I Could Rewrite My Institution’s Purchasing Policies, Here’s What They’d Be Auxiliary Enterprises & Service Units 36