720-913-5000 auditor@denvergov.org

Audit Report

Purchasing and Payment Processes

The objective of this audit was to assess the effectiveness and efficiency of the City’s procurement and payment processes.

Watch the Audit Committee presentation here once available.

Every year, the Purchasing Division is responsible for procuring about $330 million in goods and services on behalf of the city. Those purchases can be made through either a purchase order, the bidding process, non-purchase order payments or credit cards.  It is important make sure the correct checks and balances are in place to get the city the best deals, save taxpayer dollars and avoid fraud or waste.

Our audit of the City’s procurement and payment processes found that, although the related policies and procedures are generally well designed, the implementation, monitoring, enforcement, and documentation of the processes need further improvement. Approval of purchases and payments are controlled and documented by the Workday system of record, ensuring that all transactions are properly approved. However, the documentation and monitoring procedures surrounding the approvals are still manual in nature and at risk of inconsistent application that could result in incomplete or inaccurate data and support. Purchasing could also evaluate the effectiveness of their control processes.

Specifically, we found the following issues in the procurement and payment processes:

Procurement Process – Monitoring and Enforcement Improvements Are Needed – We found that bidding documentation and tracking span across several databases, which was causing inconsistent and incomplete data that make tracking bid solicitations inefficient and unreliable. There were also tracking issues with emergency purchase order numbers, change orders, and Master Purchase Order transactions paid with P-cards. Lastly, we found that documentation requirements for bidding exceptions and unauthorized purchases are not being enforced consistently.

Payment Process – Documentation, Monitoring, Enforcement, and System Improvements Are Needed – We found that documentation requirements for payments were not being enforced consistently. The Non-PO procurement mechanisms were not always used in compliance with the Non-PO guidance, which is outdated. Also, we found that required reporting on prompt pay interest penalties was not being performed, nor had an analysis of cost and volume of payment methods been performed for several years. Lastly, we noted that Workday lacked certain input validation controls for invoice numbers and that minor improvements are needed in the three-way match exception processing.

1.1 Create Key Identifier among Databases Used in the Bidding Process – The Purchasing Division should consider developing a key identifier field that is shared among all procurement-related systems and databases in order to more effectively track the procurements that have gone through the solicitation process and have been awarded.

 

Auditee Response: Agree, Implementation Date – May 2019

 

1.2 Integrate Key Bid Information – The Purchasing Division should consider developing a plan and timeline that would better integrate key information from the different bidding systems used across the City in order to enable more visibility and provide access to consistent reports which can facilitate executive and management reviews.

Auditee Response: Agree, Implementation Date – January 2019

 

 

1.3 Improve Request for Proposal Intake Process – The Purchasing Division should continue making improvements to the Request for Proposal intake process, including the implementation of standardized tools and forms and timely identifying requests that require review by Technology Services.

Auditee Response: Agree, Implementation Date – December 2018

 

1.4 Enforce Bidding Exception Documentation Requirements – The Purchasing Division should develop a plan to better enforce documentation requirements for bidding exceptions.

Auditee Response: Agree, Implementation Date – January 2019

 

1.5 Change Order Reporting and Analysis – The Purchasing Division should develop procedures to analyze purchase order changes to improve process efficiency. The Purchasing Division should consider working with Technology Services as necessary to create a Workday report that facilitates this analysis.

Auditee Response: Agree, Implementation Date – January 2019

 

1.6 Identify P-Card Transactions Associated with Master Purchase Orders – The Accounts Payable team, in consultation with the Purchasing Division, should work with Technology Services to require that users identify whether a P-card purchase is associated with a Master Purchase Order. Assess the use of Master Purchase Orders for P-card purchases to reduce disallowed splits and recurring purchases. Instead of a technical solution, the Accounts Payable team could reduce splits and recurring purchases made with P-cards by modifying policies and procedures.

Auditee Response: Agree, Implementation Date – May 2019

1.7 Create Online P-Card Training – The Accounts Payable team should update the City’s P-card policies and procedures, which are used as training material for City employees being issued a P-card and continue to work with the Controller’s Office to create an online P-card training program that can be accessed by new P-card holders at any time.

Auditee Response: Agree, Implementation Date – March 2019

 

 

1.8 Improve Unauthorized Purchase Document Enforcement – We recommend that the Purchasing Division improve enforcement of unauthorized purchases by developing and implementing a plan to require fully completed unauthorized purchase documentation. Consider updating policies and procedures to allow for additional flexibility in specific instances.

Auditee Response: Agree, Implementation Date – December 2018

1.9 Create Emergency Purchase Order Tracking Log – The Purchasing Division should develop, implement, and evaluate an Emergency Purchase Order number tracking log to ensure all emergencies are approved and in accordance with City Charter.

Auditee Response: Agree, Implementation Date – December 2018

2.1 Update Non-PO Voucher Guidance – The Accounts Payable team and the Purchasing Division should update and clarify guidance specifying when non-PO vouchers can be used for City agencies as well as for Accounts Payable employees.

Auditee Response: Agree, Implementation Date – January 2019

2.2 Analyze Inappropriate Non-PO Voucher Usage – The Accounts Payable team and the Purchasing Division should analyze inappropriate non-PO voucher usage and work with agencies to reduce noncompliance.

Auditee Response: Agree, Implementation Date – January 2019

2.3 Additional Training and Enforcement of Transaction Support Requirements – The Accounts Payable team should provide additional training and/or guidance for accounts payable specialists and agencies regarding adequate support for transactions. Additionally, the Accounts Payable team should enforce support requirements for all payments by not processing payments until all support is included, as required by Financial Accountability Rule and other policies and procedures.

Auditee Response: Agree, Implementation Date – December 2018

2.4 Create a Process to Verify Confidential Support – The Accounts Payable team should create and follow a process to ensure that confidential payment support exists and has been properly verified.

Auditee Response: Agree, Implementation Date – December 2018

2.5 Implement Additional Input Validation Controls – The Accounts Payable team should work with Technology Services to implement Workday data validation system controls to prevent exact duplicate ad hoc reference numbers and special characters in invoice numbers.

Auditee Response: Agree, Implementation Date – March 2019

2.6 Prevent Duplicate Ad Hoc payments – The Accounts Payable team should design and implement additional controls to detect and rectify duplicate ad hoc payments when an invoice number is created by the Accounts Payable team. Consider designing, generating, and periodically reviewing a report, which facilitates the identification of similar invoice numbers and other indicators of duplicate payments.

Auditee Response: Agree, Implementation Date – December 2018

2.7 Create and Analyze a Historic Report for Three-way Match Exceptions – The Accounts Payable team should collaborate with Workday consultants to create a historic report of all three-way match exceptions and periodically generate and analyze this report to identify trends and major issues.

Auditee Response: Agree, Implementation Date – December 2018

2.8 Resolve Workday Receipt Application Limitations – The Accounts Payable team should work with Technology Services to resolve limitations related to receipt application and exception identification. If a technical resolution is not feasible, Accounts Payable should implement monitoring controls to mitigate the risk of overpayment.

Auditee Response: Agree, Implementation Date – May 2019

2.9 Resolve Three-way Match System Anomalies – The Accounts Payable team should work with Technology Services to resolve the three-way match system anomalies.

Auditee Response: Agree, Implementation Date – May 2019

2.10 Report Prompt Pay Interest to City Council – The Accounts Payable team should continue to prepare the 2018 annual report of prompt pay interest by each department or agency as required by the Prompt Pay Ordinance Section 20-115 and continue to do so annually in the future. As part of this effort, Accounts Payable should consider the need to confirm their interpretation of this section regarding what to do with the annual report and how to use it if City Council does not request a presentation of the results. Additionally, Accounts Payable should consider working with City Council on revising the prompt pay interest rate to better align it with the market rate.

Auditee Response: Agree, Implementation Date – November 2018

2.11 Analyze and Reduce Checks Held for Pick Up – The Accounting and Financial Reporting Division should analyze the volume and type of checks held for pick up and work to reduce the number of checks held.

Auditee Response: Agree, Implementation Date – December 2018

2.12 Reduce Payment Processing Costs by Increasing Electronic Payments – The Accounts Payable team should analyze the cost of payment methods and create a plan for payment processing cost reduction.

Auditee Response: Agree, Implementation Date – December 2018

Follow-up report
A follow-up report is forthcoming.
Other related reports
None at this time.
In the news
None at this time.

Audit Team: Cody Schulte, Vilma Balnyte, Robert Perischitte, William Morales Ferrer, Brandon Stolba, Katja E.V. Freeman