This month, the Auditor General reviewed the Arizona Department of Administration and released a report that found its purchasing cooperative program lacking.
According to the Auditor General, the Department of Administration administers the purchasing cooperative program that allows members to purchase goods and services from state-wide contracts. The Department established a program fee that covers the costs of administering the purchasing cooperative program.
The performance audit was conducted as part of the sunset review process prescribed by statute. The Auditor General found that the “program’s fee revenue has exceeded the program’s administrative costs. Not only has the Department used program fee revenue to administer the purchasing cooperative program, it has also used this revenue to pay for most of the cost of the state electronic procurement system, ProcureAZ, and to pay the salaries and benefits of more than half of the Department’s procurement staff.”
Findings:
The Department established a purchasing cooperative program in 1984 that allows members to purchase goods and services from state-wide contracts. As of July 2014, 957 state-wide contracts were available to purchasing cooperative members.
Between fiscal years 2012 and 2014, purchasing cooperative members purchased at least $1 billion in goods and services through the state-wide contracts.
To cover the Department’s cost of administering the purchasing cooperative program, state-wide contract vendors are required to remit to the Department on a quarterly basis a 1 percent program fee based on the dollar value of sales to purchasing cooperative members. This fee applies to all state-wide contract vendors unless defined differently in the contracts. In fiscal years 2013 and 2014, the Department collected more than $3.2 and $3.7 million in program fee revenue, respectively.
Program fee revenue has exceeded program’s costs and used for other procurement costs—Statute authorizes the Department to establish a program fee to cover the cost of administering the purchasing cooperative program, but in fiscal years 2013 and 2014, program fee revenue exceeded purchasing cooperative program costs by approximately $987,000 and $1.3 million, respectively. This resulted in a fiscal year 2014 year-end fund balance of nearly $3.4 million.
The Department has used program fee revenue to pay for some nonpurchasing cooperative program costs. For example:
• Although the Department used program fee revenue to pay the salaries and related benefit costs for more than half of its 38 procurement positions, it had not conducted any type of cost analysis to determine how many of its procurement positions program
fee revenue should support. Additionally, even though the Department’s state-wide contracts and ProcureAZ functions primarily support state agencies, the Department used program fee revenue to pay for 86 percent of procurement personnel costs related to these functions.
• The Department also used program fee revenue to pay for $7.4 million of the $8.6 million spent to purchase, implement, manage, and maintain ProcureAZ between fiscal years 2008 and 2014. However, only 17 percent of the active contracts on ProcureAZ as of July 2014 were available for purchasing cooperative members’ use.
• 15 vendors did not submit required quarterly reports documenting sales to purchasing cooperative members and state agencies. One vendor did not provide any reports and it was subsequently determined that the vendor owed approximately $1,700 in program fees.
• 5 vendors had outstanding program fee amounts due. For example, one vendor had $109,309 in unpaid program fee monies, including $21,354 that had been outstanding for nearly 2 years and $64,074 that had been outstanding for more than a year prior to the vendor remitting payment in April 2014.
• 5 vendors had discrepancies between their reported sales amounts to state agencies and state accounting records. One of these vendors under-reported $51.8 million in sales. Because it did not verify the sales amounts that this vendor reported, the Department did not collect at least $323,000 and possibly as much as $518,000 in program fee revenue.
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