Talk:IV.A. Central Level Procurement Policy

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Name of Proposed Policy: Central-Level Procurement Policy and Implementation Timeline Authors: Tommy York, VPFA; Max Baroi, VPO; Elaina Marshalek, President; Ben Perez, VPIA; Jan Stokley, Executive Director; Kim Benson, Operations Manager. Draft reviewed by FiCom and approved by Audit Com. Belief in Miracles: Y/N Brief Description of Proposal: Provide a policy framework and an implementation timeline for strengthening the BSC’s procurement of goods and services to achieve a competitive price for the benefit of our members, to make our vendor selection and product selection transparent and available to all, to take advantage of new accounting software capacities, and to provide for segregation of duties to reduce the risk of error and fraud. Stakeholders: Board, Cabinet, members, staff, auditor. Pertinent History: In 2009, the BSC chose a new auditor after having used the same auditor for approximately 13 years. In connection with the audit of fiscal year 2009-2010, the new auditors found a significant deficiency in the BSC’s procurement of goods and services. The auditors found that: “ BSC would benefit from a strengthened and/or restructured process for the procurement of goods/services (i.e. Central Kitchen, Central Maintenance, etc.) and the eventual payment of third-party vendors. While we recognized that BSC did have a process in place, it was susceptible to irregularities, lack of trail and inadequate supporting documents. The impact of this was that monitoring of the purchased goods was extremely difficult for BSC’s employees and thus resulted in an unreliable inventory database. A few considerations shown below would strengthen the procure-to-pay process: • Accounting department to receive invoices directly from third-party vendors. • Authorization of purchase orders be independent of the division/department making the orders. • Strict implementation of inventory count upon receipt of goods. • Review of data input of the received goods to the inventory system. • Usage of inventory be adequately monitored and documented through inventory tickets/stubs. • Establishment of timing, frequency, and procedures of inventory physical count. • Central Kitchen/Central Maintenance to communicate with Accounting on how cost allocation of supplies is determined and provide adequate support. • Vendor creation/deletion to be outside control of Accounts Payable personnel. • Regular review of vendor database (at least annually). • Approval process for creation/deletion of vendors from the vendor database. • Receipt of goods at different houses be documented with proper identification and accountability be established by reporting the actual name of the student member of corresponding house and House Manager’s acknowledgment of the deliveries with monthly reconciliation with Accounting.” The auditors further recommended that “management consider centralizing the purchasing process and segregate the functions of authorizing the orders, custody of the ordered goods and recordkeeping. If these functions cannot be separated, due to limited personnel, a detailed supervisory review of related activities may be used as a compensating control activity.” This critique would require significant changes in the BSC business processes and also would depend on software capacity which was lacking in our current system. The auditor’s proposal would affect not only the work of the Central Warehouse but also the work of Central Maintenance which engages in a variety of independent purchasing and service contracting without the checks and balances provided by a competitive bidding requirement and segregation of duties and without any inventory system. In early Spring 2011, the ED convened several meetings with staff whose departments were most affected by this change. Supervisors were asked to document their current processes as a starting point for work on a set of comprehensive recommendations. In April 2011, the ED asked the auditor to conduct a training with supervisory staff May 3, 2012 Board of Director’s Meeting Packet

6 Page 12 of 55 using a sample template which showed segregation of duties--not as a specific recommendation, but as a tool for helping supervisors understand what segregation of duties meant. In Fall 2011, in the management letter for the fiscal year ending May 31, 2011, the auditors noted that management had been attempting to address the procurement weaknesses but with little progress made. The new VPFA took on the task of creating graphic documentation of Central Warehouse procurement practices, spending time reviewing the narrative description of Central Warehouse processes and also interviewing responsible staff. He made a Board presentation at the end of the Fall semester. Also in Fall 2011, OpCom created metrics for collecting Central Warehouse performance metrics, including costing time, central level workshift consistency, and when Room and Board positions were filled. Given our paper-based information management system, OpCom found it to be very challenging to recommend ongoing collection of data in the current system. In Spring 2012, the VPFA continued to interview Central Warehouse staff about purchasing processes. He produced a vendor list which showed the identities of vendors, the estimated amount of purchasing with them, and the reasons they were selected. He pointed out the concern that some vendors were selected for historical reasons that were not currently relevant and that there was no documentation that vendors were selected with consideration of price. During that semester, the VPFA and the VPO had several meetings with Central Warehouse staff to clarify existing practices. In late Spring 2012, OpCom discussed product and service review. Also in Spring 2012, after completion of the budget, FiCom turned its attention to examining the actual mechanics and time involved in researching vendors based on lowest responsible price. Different members of FiCom researched different sample products and found that most pricing information was readily available on the Internet and that the BSC was not getting the lowest price with respect to most of the sample items. In carrying out this research, FiCom members interviewed various central level staff, including the Bookkeeping Supervisor (with respect to Office Supplies) and Central Warehouse staff (with respect to furniture purchasing and specific supply purchasing). FiCom reviewed a draft of the Procurement Policy at the final FiCom meeting of the semester on April 17. AuditCom reviewed a draft of the Procurement Policy on April 24. The VPIA, VPFA, and VPO met with Kitchen Managers to explain the proposed Procurement Policy on April 26. Goals: (1) Create a procurement policy which: a) Fulfills Board’s fiduciary responsibility with respect to procurement and the establishment of Board-approved criteria for choosing vendors who offer the “lowest responsible bid”. b) Establishes that the Central Level should procure goods for the Units when the use of Central Level resources can yield better prices and better services through economies of scale. c) Creates an open and transparent process through OpCom for deciding which goods and services should be procured at the Central Level. d) Reduces member rates through a system of regular vendor and price review to secure the lowest responsible bid. e) Prevents error and fraud by segregating duties in the procurement process. f) Provides for increased oversight of purchasing by the Operations Manager. g) Uses our new accounting software to create online tools for requisitioning goods and services, making and approving purchase orders, and creating a reliable and transparent inventory system. (2) Adopt a realistic timeline for implementing all aspects of the proposed Procurement Policy by June 1, 2013, as follows: (a) Summer 2012: Initial study of product and service offerings and development of guidelines for OpCom’s service and product review by a summer working group. (b) Fall 2012: More detailed evaluation of Accu-Fund capabilities for online requisitions, aggregation of requisitions, creation of purchase orders, authorization of payment, tracking of inventory, and distribution of costs (ITCom). Determine whether additional software capacity is needed (ITCom). Create two new part-time member jobs: (1) Contracting Agent reporting to the Accountant; and (2) Purchasing Agent reporting to the Accountant (HRCom). Undertake Fall review of services offered (OpCom) (c) Spring 2013: Fill two new jobs approved in Fall (HiCom). Revise existing job descriptions (HRCom). Reassign Costing functions to a position overseen by the Accounts Payable Bookkeeper (HRCom). Implement

software changes planned in Fall (staff). Undertake Spring review of products offered. (OpCom). (d) June 1, 2013: Effective date of the Procurement Policy.