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A Report on Recent Contracting Audits

January 2015

Report Number 15-019

Overall Conclusion

The State Auditor's Office regularly conducts audits of selected contracts at state entities for compliance with requirements in each of the four phases of the contract management process. Generally, the objectives of those audits are to determine whether state entities planned, procured, established, managed, and monitored selected contracts in accordance with applicable statutes, rules, and other requirements.

The State Auditor's Office selected the state entities audited based on factors that included the state entities' total contract expenditures, other audit coverage, and the types of contracts into which the state entities entered. The State Auditor's Office released 14 reports on audits of contracts at state entities from July 2012 through December 2014. Those reports discussed various strengths and weaknesses in the contract management processes that state entities used for the audited contracts.

Overall, of the 14 contracting audit reports released, 2 reports—on a design services contract and a construction contract audited at the Department of Transportation and on a marketing contract audited at the Texas Lottery Commission—concluded that the state entities' contract management processes for the contracts audited generally ensured compliance with all requirements in each of the contracting management phases. In contrast, the audit of the HealthSelect contract at the Employees Retirement System concluded that the state entity's contract management processes were not sufficient to ensure full compliance with the requirements for any of the contracting management phases. In addition, two audits of contracts valued at more than $100 million—the audit of the student assessment services contract at the Texas Education Agency and the telecommunications managed services contract at the Health and Human Services Commission—identified significant weaknesses in the state entities' processes for procurement, formation, and oversight of the contract.

Strengths: For the contracts audited, the state entities generally complied with contract planning and contract formation requirements.

Contract Planning. The majority of state entities audited documented their planning efforts. That could include performing a needs assessment, performing a risk assessment, and/or developing a communication plan. In addition, for the audit reports that discussed the State's Contract Advisory Team, most of the state entities submitted the solicitations for the contracts audited to the Contract Advisory Team as required.

Contract Formation. Most state entities audited ensured that the contracts audited included provisions required by the State of Texas Contract Management Guide.

Weaknesses: For the contracts audited, the state entities did not consistently comply with contract procurement and contract monitoring requirements.

Contract Procurement. The majority of state entities audited did not consistently maintain documentation of their proposal evaluation processes and/or document their determinations of best value. In addition, of the reports that discussed conflicts of interest, the majority of the state entities did not adequately identify and/or document conflicts of interest for the contracts audited.

Contract Oversight. Auditors identified opportunities to improve contract oversight activities for all contracts audited. Oversight activities that should be strengthened included monitoring contractor performance and compliance with the terms of the contract, implementing corrective action, processing payments, amending contracts, and/or complying with certain reporting requirements.

Table 1 in the report summarizes the overall strengths and weaknesses that auditors identified in the contract management processes for the contracts audited from July 2012 through December 2014. An overall strength or weakness was determined based on the number of audit reports in which auditors had identified a strength or a weakness in the state entities' contracting process. Please note that this is a summary of the information included in the published audit reports. The scope of the audit work conducted varied among the reports. As a result, auditors may not have reviewed an individual state entity's processes in all of the contract management phases.

In addition, state entities did not always ensure they had documented contract management processes or that contracting staff received adequate training. Specifically, more than half of the audit reports concluded that the state entities audited did not have adequately documented contract management policies and procedures. More than half of the audit reports also found that the state entities audited did not ensure that all contract managers and purchasers received statutorily required training. Having established and documented policies and procedures and trained contract management staff can help a state entity comply with statutes, rules, and other requirements in the State of Texas Contract Management Guide and protect the State's interests.

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