PURCHASING INTERNAL AUDIT

December 2015

July 29, 2016 Finance and Administration Committee City of Springfield 840 Boonville Avenue Springfield, Missouri 65802 Re: Purchasing Internal Audit Dear Committee Members: In conjunction with our overall engagement to provide internal audit services to the City of Springfield, we have completed our internal audit of the purchasing process and the associated internal controls. Our services were performed in accordance with the International Standards for the Professional Practice of Internal Auditing, as promulgated by the Institute of Internal Auditors (IIA). The accompanying report includes an Executive Summary, Our Observations and Recommendations, and Our Process Improvement Opportunities. Because the procedures performed in conjunction with the review are more limited than would be necessary to provide an opinion on the system of internal accounting controls taken as a whole, such an opinion is not expressed. In addition, the engagement did not include a detailed audit of transactions that would be required to discover fraud, defalcations or other irregularities. This report is intended solely for the information and use of management and the City Council and is not intended to be, and should not be, used by anyone other than the specified parties. City of Springfield external auditors may be provided with a copy of this report in connection with fulfilling their responsibilities. We would like to express our gratitude to all employees involved with this project. Each person involved was accessible and responsive to our requests for information. Sincerely, RUBINBROWN LLP

Richard R. Feldt, CPA Partner Direct Dial Number: 314.290.3220 E-mail: rick.feldt@rubinbrown.com

Christina Solomon, CPA Partner Direct Dial Number: 314.290.3497 E-mail: chistina.solomon@rubinbrown.com

Enclosures cc: David Holtmann Mary Mannix-Decker Mike Bell

CITY OF SPRINGFIELD PURCHASING INTERNAL AUDIT

Table of Contents Page

Executive Summary 1 Observations and Recommendations 3 Process Improvement Opportunities 5 Appendix A – Purchases by Department 7 Appendix B – Purchases by Vendor 8 Appendix C – Top Ten Vendors by Department 9 Appendix D – Number of Approvals by Department 12 Appendix E – Contracts Timing and Composition 13

CITY OF SPRINGFIELD Purchasing Internal Audit

Executive Summary

1

Project Overview and Scope We completed our review of the City of Springfield’s purchasing process and the associated internal controls. The objectives of our review were to:

• Identify existing policies and practices related to vendor selection and purchasing approval. • Evaluate the compliance with existing policies and industry best practices for these areas. • Develop recommendations to improve the completeness, accuracy and efficiency of the

purchasing process. For the purposes of this internal audit, we examined the following processes:

• Procedures established and executed for purchasing functions at the following levels: o Under $2,000 o Between $2,000 and $5,000 o Over $5,000

• Procedures established and executed for Vendor Management, and

• Procedures established and executed for Contract Administration.

Our review included transactions between January 1 and October 31, 2015. We completed in-person interviews with City purchasing personnel. The objective of the interviews was to gain an understanding of and document the following purchasing and purchase approval processes:

• Vendor Management o Vendor master file setup and maintenance o Preferred vendor list and qualification

• Purchasing o Bidding requirements o Purchase orders and contracts o Purchasing approvals

• Review of roles and responsibilities, as documented, for Segregation of Duties conflicts and adequate Delegation of Authority

• Limited testing of transaction from January 1 – October 31, 2015 to corroborate the documented processes

• Performed data analysis on the following: o Vendor master file completeness o Common vendor names, addresses, etc. o Potential duplicate invoices submitted by vendors o Potential duplicate payments to vendors o Purchase limits

• Compared current practices to industry best practices, including an evaluation of current capabilities to achieve effective and efficient control environment.

Background The segment of our audit on the purchasing function encompassed the process beginning with the requisition, followed by the initiation of the purchase order, the collection of bids and the selection of the winning bid (if applicable), and finally ending with the drafting of a contract, when appropriate.

CITY OF SPRINGFIELD Purchasing Internal Audit

Executive Summary

2

During the first ten months of 2015, purchase orders issued totaled approximately $70 million. The table below depicts the dollar amounts and number of purchases that fall into the categories we tested.

Dollar

Amount# of Purchase

Orders< $2,000 155,092$ 164 $2,000 - $5,000 659,198 183 > $5,000 68,179,078 834

Best Practices Based on our review, the following internal controls are in place and, in our opinion, represent a best practice:

• Proper internal records are maintained to support required procedures for purchases, including approval, review, and bid documentation.

• Proper vendor setup is maintained and the vendor master file is regularly reviewed and updated.

• A contract database is maintained to track necessary information on the City’s contracts over the years.

Observations and Recommendations We determined that there are adequate internal control procedures in place over the processes noted above; however, we noted the following procedures that we would consider internal control weaknesses:

• For various employees, requisitions are routed directly to Purchasing and are not approved by someone with direct knowledge of the purchase. Pass-through approvals could be made if the approver in Purchasing is not aware of the requesting department’s needs or budget.

• One contract administrator is tasked with reviewing all of the City’s contracts. This process is not well documented either, which poses a key-man risk.

• Common errors or questions in the purchasing process are addressed at training events hosted by the Purchasing Department. Training is only required upon initiation of an employee making purchases. The employee may unintentionally make mistakes in the Purchasing process if no refresher training is required.

• Minority-owned (MWBE) business usage is not being tracked. This may bring scrutiny on the City’s purchasing choices as MWBE usage is becoming a high-profile issue.

All observations and recommendations were discussed with management. Details are noted in the report attached immediately hereafter.

City of Springfield PURCHASING INTERNAL AUDIT

OBSERVATIONS AND RECOMMENDATIONS Electronic Payment Conversion

3

Process/Procedure Observation and Risk Recommendation Management Response

1 All purchase orders and requisitions are approved through an Oracle hierarchy.

Observation: Oracle allows the City’s department heads to send their requisitions to Purchasing or Finance for approval rather than a superior. Risk: Pass-through approval is possible if approvers in Finance or Purchasing are unaware of the department needs.

Designate an upstream approver (peer or higher) who has knowledge of the department for requisitions made by department heads.

The City's current process is appropriate given the size and complexity of the City. Department heads are charged and evaluated each year on their budgetary performance. It is not feasible for city managers to have detailed knowledge of every department’s daily operations.

2 One Contract Administrator reviews over 1,800 contracts annually to verify that standard terms and conditions are included, the correct signatures are received, and any other contract-specific language is included.

Observation: Limited documentation exists as to the process the current Contract Administrator performs in order to adequately prepare a successor or assistant. Risk: If the current Contract Administrator leaves the City’s employment, it will be difficult for a new employee to quickly learn the process.

Consider having the current Contract Administrator develop a training document that details the current process for future training and/or cross-training purposes.

The Contract Administrator is currently working on a procedures manual and will have it updated by May 31, 2016. In addition, a second employee is being cross-trained to serve as a backup to the Contract Administrator.

City of Springfield PURCHASING INTERNAL AUDIT

OBSERVATIONS AND RECOMMENDATIONS Electronic Payment Conversion

4

Process/Procedure Observation and Risk Recommendation Management Response

3 There is one-time required purchasing training if employees are going to receive bids or use purchase cards.

Observation: Employees could not remember the purchasing guidelines years after initial purchasing training. Risk: Employees could perform purchasing functions incorrectly.

Require employees with purchasing capability to attend periodic refresher/update training. Consider holding an annual purchasing meeting with all authorized purchasers of the City.

Purchasing agrees with the recommendation and supports refresher/update training. We have implemented onsite departmental purchasing training and plan to expand the training to include refresher training, as well, for authorized purchasers of the City.

4

Usage of minority-owned businesses (MWBE) is not currently being tracked.

Observation: The City may unintentionally not hire MWBE businesses based on pricing. Risk: Reputation exposure exists if an employee or citizen were to bring negative publicity against the City.

Implement a program for setting City-wide MWBE goals. Determine how to include this in a balanced score card method of awarding bids and contracts. Track work outsourced to MWBE businesses.

Purchasing agrees MWBE should be tracked and has developed an MBE/WBE tracking system also being used by Public Works and Environmental Services. Additionally, we are in the process of adding status to our Oracle Vendor File which will give us access to run reports and track dollars spent with DBE’s.

City of Springfield PURCHASING INTERNAL AUDIT

PROCESS IMPROVEMENT OPPORTUNITIES

5

We noted the following process improvements during our review. These observations are not internal control weaknesses; however, we do recommend management consider each observation and take action where appropriate. Observation and Risk Recommendation Management Response

1

Purchase orders are entered into Oracle and into an excel spreadsheet before being sent to a vendor which is a duplication of effort and seems to be inefficient.

Consider attempting to use the item number in the item line and list any other pertinent information such as date of delivery in the comments section for product purchases.

Purchasing uses the Excel form which is formatted in a very user-friendly style for vendor notification. It contains all the information necessary for vendors to complete the PO request. Oracle, the City’s accounting system, is duplicated for accounting and payment.

2

The cost of insurance is high and may eliminate the opportunity for small companies to bid on services. The purchasing policy states, “The City shall, whenever possible or practical, use small or disadvantaged businesses in the procurement process.” Small or disadvantaged businesses may be excluded due to over burdensome insurance requirements. Cost to perform services to the City increases due to increased cost of vendor to cover the insurance requirement.

Consider developing a tiered system for insurance requirements to allow smaller, qualified vendors to bid on projects with less risk.

The City acknowledges that risk levels may vary between projects. The City is currently considering a risk matrix that would tier insurance requirements based on the risks associated with the services provided. While reduced insurance requirements may encourage more small businesses to participate in the bidding process, businesses that attempt to pass their insurance costs along in the bid will be at a cost dis-advantage versus businesses that do not.

3

The number of potential approvals on each purchase required ranges from one to nine, depending on the department. See Appendix D for further information.

Review the approval process for departments with excessive approval requirements and consider consolidating redundant approvals.

The City acknowledges this issue and will revisit the approval process with the department in question.

City of Springfield PURCHASING INTERNAL AUDIT

PROCESS IMPROVEMENT OPPORTUNITIES

6

Observation and Risk Recommendation Management Response

4

The Parks department utilizes Oracle and hard copy forms to route requisitions in the procurement process.

Perform a pilot test for routing requisitions in the Parks department electronically through Oracle rather than continuing the manual process.

The Springfield-Greene County Park Board will perform a pilot test of routing requisitions electronically through Oracle to see if this is practical as well as efficient and functional from both an accounting and time management perspective. We plan to perform this test over the next few months department-wide as staff availability and timing allows.

City of Springfield PURCHASING INTERNAL AUDIT

APPENDICES

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Appendix A Purchases by Department Below is a summary of authorized contracts and purchase orders for the period January through October 2015. As shown in the table and graph, Environmental Services and Public Works collectively accounted for 67% of authorized spend during the first ten months of 2015.

DepartmentTotal SpendJan-Oct 2015 Percent

Environmental Services $ 23,582,627 34%Public Works 22,271,485 32%Airport 5,696,262 8%Parks 2,879,573 4%Police 2,746,078 4%Fire 2,458,313 4%Health 2,416,759 4%Workforce Development 2,412,954 3%Information Systems 1,164,732 2%Planning and Development 843,059 1%All Others 2,515,026 4%

34%

32%

8%

4%

4%

4% 4%

3% 2% 1% 4%

Environmental Services

Public Works

Airport

Parks

Police

Fire

Health

Workforce Development

Information Systems

Planning and Development

All Others

City of Springfield PURCHASING INTERNAL AUDIT

APPENDICES

8

Appendix B Purchases by Vendor Below is a summary of the ten largest vendors by contract and purchase order dollars for the period January through October 2015. As shown in the charts below and on the following page, the two largest vendors, Rosetta Construction and Hartman and Company were vendors for Environmental Services and Public Works, respectively.

Top 10 VendorsTotal SpendJan-Oct 2015 Percent

ROSETTA CONSTRUCTION, L.L.C. $ 10,238,944 15%HARTMAN AND COMPANY, INC. 7,948,175 11%LARRY SNYDER & COMPANY 3,020,783 4%JOHN FABICK TRACTOR CO. DBA FABICK CAT 2,989,204 4%TRI-LAKES PETROLEUM CO. 2,893,750 4%PHILLIPS 66 COMPANY 2,500,000 4%MID AMERICA FIRE APPARATUS INC DBA JON'S 1,857,649 3%DAVIS STRUCTURE AND DEVELOPMENT 1,489,964 2%BLEVINS ASPHALT CONSTRUCTION CO. INC. 1,263,000 2%PREFERRED FAMILY HEALTHCARE 1,195,048 2%All Others 34,796,854 50%

City of Springfield PURCHASING INTERNAL AUDIT

APPENDICES

9

Appendix C Top Ten Vendors by Department The top ten vendors over the period examined for the large departments identified are show below. Note: Tri-Lakes Petroleum is a common top ten vendor for four of these departments. The Airport also uses Phillips 66 as well as Tri-Lakes Petroleum. The Purchasing Department should consider whether volume discounts are or could be received from Tri-Lakes and also consider whether the Phillips 66 purchases could be incorporated into the Tri-Lakes contract.

Environmental Services Top 10 VendorsTotal Spend Jan-Oct 2015 Percent

ROSETTA CONSTRUCTION, L.L.C. 10,238,944$ 43%LARRY SNYDER & COMPANY 3,020,783 13%JOHN FABICK TRACTOR CO. DBA FABICK CAT 2,979,957 13%DAVIS STRUCTURE AND DEVELOPMENT 1,489,964 6%POLYDYNE INC. 617,848 3%KCR INTERNATIONAL TRUCK INC 446,292 2%PVS TECHNOLOGIES INC 365,000 2%TRI-LAKES PETROLEUM CO. 320,000 1%HDR ENGINEERING, INC. 319,700 1%KEMIRA WATER SOLUTIONS INC. 299,200 1%ALL OTHERS 3,484,938 15%

Public Works Top 10 VendorsTotal Spend Jan-Oct 2015 Percent

HARTMAN AND COMPANY, INC. 7,948,175$ 36%TRI-LAKES PETROLEUM CO. LLC 1,473,750 7%BLEVINS ASPHALT CONSTRUCTION CO. INC. 1,263,000 6%HUNTER CHASE & ASSOCIATES, INC. 1,158,937 5%TOWE CONSTRUCTION CO., INC. 1,102,289 5%DONELSON CONSTRUCTION CO. LLC 725,000 3%FLAT CREEK EXCAVATING, L.L.C. 675,613 3%HOVEY HOMES LLC 569,980 3%HAMILTON AND DAD, INC. 539,687 2%ASH GROVE READY MIX 485,920 2%ALL OTHERS 6,334,089 28%

City of Springfield PURCHASING INTERNAL AUDIT

APPENDICES

10

Airport Top 10 Vendors Total Spend Jan-Oct 2015 Percent

PHILLIPS 66 COMPANY 2,500,000$ 44%TRI-LAKES PETROLEUM CO. 1,010,000 18%GENERAL ATOMICS INTERNATIONAL 175,000 3%MW SPRINGMO, INC. 169,728 3%AOS LLC 167,412 3%RIO CONTRACTING LLC 124,740 2%GOLD MECHANICAL INC 116,200 2%KY3 TV, INC. 113,950 2%CRAWFORD MURPHY & TILLY, INC. 91,490 2%SWARCO INDUSTRIES 80,000 1%ALL OTHERS 1,147,742 20%

Parks Top 10 Vendors Total Spend Jan-Oct 2015 Percent

WRIGHT EXPRESS FINANCIAL SERVICES 280,000$ 10%BALES CONSTRUCTION COMPANY, INC. 240,500 8%CONTINENTAL POOLS 153,246 5%CLEAR CREEK VEHICLES 139,448 5%PROFESSIONAL TURF PRODUCTS LP 104,283 4%BALL PAVING, INC. 99,937 3%TRI-LAKES PETROLEUM CO. 90,000 3%PLANTATION DISTRIBUTORS DBA GORDON'S 71,500 2%ACTIVE NETWORK 69,120 2%ULTRAMAX SPORTS DBA ULTRAMAX EVENTS 66,594 2%ALL OTHERS 1,564,947 54%

Police Top 10 VendorsTotal Spend Jan-Oct 2015 Percent

JOE MACHENS FORD 810,551$ 30%MARSHFIELD MOTOR COMPANY 240,539 9%MOTOROLA SOLUTIONS INC. 188,728 7%GULF STATES DISTRIBUTORS INC. 152,139 6%ED ROEHR SAFETY PRODUCTS 147,835 5%REPUBLIC FORD INC. 131,715 5%TURN-KEY MOBILE INC. 109,716 4%ENTERPRISE FLEET MANAGEMENT TRUST 91,426 3%SOUTHERN UNIFORM & EQUIPMENT LLC 90,243 3%DELL MARKETING 50,182 2%ALL OTHERS 733,004 27%

Fire Top 10 VendorsTotal Spend Jan-Oct 2015 Percent

MID AMERICA FIRE APPARATUS INC 1,857,649$ 76%FELD FIRE EQUIPMENT COMPANY 162,449 7%MOTOROLA SOLUTIONS INC. 67,762 3%MUNICAPL EMERGENCY SERVICES INC. 64,979 3%RAYFIELD COMMUNICATIONS INC. 64,366 3%MERCY CLINIC SPRINGFIELD COMMUNITIES 42,091 2%DXE MEDICAL INC. 34,907 1%B & I TIRE COMPANY INC. 30,000 1%CUMMINS CENTRAL POWER LLC 21,398 1%MARVIN J. PERRY 14,591 1%ALL OTHERS 98,122 4%

City of Springfield PURCHASING INTERNAL AUDIT

APPENDICES

11

Health Top 10 VendorsTotal Spend Jan-Oct 2015 Percent

AIDS PROJECT OF THE OZARKS, INC. 1,125,300$ 47%ADVOCATES FOR A HEALTHY COMMUNITY 497,082 21%GEN-PROBE 245,000 10%MERCK SHARP AND DOHME CORPORATION 182,492 8%DOULA FOUNDATION OF MID AMERICA, INC. 70,000 3%DAIRY FARMERS OF AMERICA 34,000 1%FAIR GROVE VETERINARY SERVICE LLC 29,400 1%SPRINGFIELD ANIMAL ADVOCACY FDN 24,000 1%COXHEALTH NETWORK 21,735 1%OZARK TRANSLATORS, L.L.C. 20,000 1%ALL OTHERS 167,750 7%

Workforce Development Top 10 VendorsTotal Spend Jan-Oct 2015 Percent

PREFERRED FAMILY HEALTHCARE 1,195,048$ 50%ALTERNATIVE OPPORTUNITIES INC. 513,592 21%PENMAC STAFFING SERVICES INC. 235,600 10%GREENE COUNTY MISSOURI 59,310 2%MISSOURI SUN SOLAR, L.L.C. 50,400 2%ARCHITECTURAL COMPONENT GROUP, INC. 38,400 2%POWER TRAIN INDUSTRIES, INC. 36,000 1%ISS FACILITY SERVICES 26,281 1%HILAND DAIRY FOODS COMPANY 20,712 1%K & K MACHINE DBA CIONA TECHNOLOGIES 18,400 1%ALL OTHERS 219,210 9%

Information Systems Top 10 VendorsTotal Spend Jan-Oct 2015 Percent

AOS LLC 170,000$ 15%CDW GOVERNMENT INC. 253,254 22%CHOICE SOLUTIONS 33,998 3%CITRIX SYSTEMS INC 11,596 1%DELL SOFTWARE 7,752 1%EN POINTE TECHNOLOGIES SALES INC. 13,909 1%ESRI INC. 59,328 5%GISEDGE, INC. 7,000 1%HEWLETT PACKARD FINANCIAL SERVICES 44,248 4%INTERNATIONAL BUSINESS MACHINES CORP 7,889 1%ALL OTHERS 555,759 48%

Planning and Development Top 10 VendorsTotal Spend Jan-Oct 2015 Percent

LAKE COUNTRY SOCCER, INC. 201,250$ 24%COMMUNITY PARTNERSHIP OF THE OZARKS 165,402 20%THE KITCHEN, INC. 63,812 8%HABITAT FOR HUMANITY, SPRINGFIELD, MO 45,900 5%COUNCIL OF CHURCHES OF THE OZARKS 41,900 5%THE SALVATION ARMY 40,423 5%THE FAMILY VIOLENCE CENTER, INC. 37,792 4%SPRINGFIELD COMMUNITY LAND TRUST 30,000 4%OZARKS AREA COMMUNITY ACTION CORP 24,900 3%DISCOVERY CENTER OF SPRINGFIELD, INC. 20,000 2%ALL OTHERS 171,681 20%

City of Springfield PURCHASING INTERNAL AUDIT

APPENDICES

12

Appendix D Number of Approvals by Department Below is a summary of the number of approvers that various departments require. The left most column shows the average number of approvers by department. When compared to the middle and right columns showing the maximum and minimum number of approvers, some departments are requiring more approvals than seems necessary.

Average Number of Potential Approvers

Min Number of Potential Approvers

Max Number of Potential Approvers

AIRPORT 5 4 5 ART MUSEUM 5 4 5 BUILDING DEVELOPMENT 4 4 5 CITY CLERK 5 4 6 CITY MANAGER 4 4 4 EMERGENCY COMMUNICATIONS 5 4 5 ENVIRONMENTAL SERVICES 7 5 9 FINANCE 2 1 3 FIRE 5 4 6 HEALTH 4 4 5 HUMAN RESOURCES 5 4 5 INFORMATION SYSTEMS 4 4 5 LAW 5 4 6 MUNICIPAL COURT 5 4 6 PARKS 5 4 6 PLANNING AND DEVELOPMENT 5 4 6 POLICE 5 4 6 PUBLIC INFORMATION 4 4 5 PUBLIC WORKS 6 4 8 WORKFORCE DEVELOPMENT 5 4 5

City of Springfield PURCHASING INTERNAL AUDIT

APPENDICES

13

Appendix E Contracts Timing and Composition

1. As shown in the Contract Type graph, Parks Service Agreements represented the highest volume of contracts issued until recently when the Sewer Rehab contracts more than doubled as a percent of total contracts in 2015. This coincides with the Department Type graph which shows the Parks and Environmental Services Departments having the majority of contracts.

2. The number of contracts has consistently peaked during June and July since 2005 as shown in the chart on the left.

3. The majority of the contracts are for new contracts rather than renewals, addendums, or change orders as shown on the graph.

City of Springfield PURCHASING INTERNAL AUDIT

APPENDICES

14

City of Springfield PURCHASING INTERNAL AUDIT

APPENDICES

15

0

50

100

150

200

250

300

350

400

450

Number of Contracts by Month

2005 2006 2007 2008 2009 2010

2011 2012 2013 2014 2015