Common Audit Findings Related to Purchasing and How to Avoid Them

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1 Common Audit Findings Related to Purchasing and How to Avoid Them Jennifer L. Smith, CPA, Senior Manager 1 Audit Reports and Types of Audit Findings Report on Internal Control over Financial Reporting and on Compliance and Other Matters Significant deficiencies Material weaknesses Report on Legal Compliance for the State of Minnesota Report on Compliance for Each Major Federal Program and on Internal Control over Compliance 2 What's New for the Uniform Guidance 1

2 Internal Control Most common audit finding related to purchasing: Lack of Segregation of Duties 3 Who is doing the following: Creates new vendors Initiates purchase Authorizes purchases Selects vendors Receives invoices Approves payment of invoices Assigns general ledger coding Prepares payments Signs checks Mails checks Reviews completed bank reconciliation Reviews cancelled checks Completes bank reconciliation 4 What's New for the Uniform Guidance 2

3 How to avoid audit findings Document processes Involve other staff and board members Discuss with your auditor 5 MN Legal Compliance MN Legal Compliance Guide published by the Minnesota State Auditor A school district entering into an agreement for the sale or purchase of supplies, materials, equipment or the rental thereof, or the construction, alteration, repair or maintenance of real or personal property must abide by the statutes relating to contracting and bidding 6 What's New for the Uniform Guidance 3

4 Thresholds >$100,000 sealed bids, solicited by public notice $25,000 to $100,000 sealed bids or direct negotiation, with two quotations whenever possible. < $25,000 open market or quotations 7 Common Audit Findings Quotations obtained but not kept on file Performance bonds not obtained Contractor s withholding affidavit (IC-134) not obtained before making final payment Reasons not documented in the minutes for not awarding contract to the lowest bidder 8 What's New for the Uniform Guidance 4

5 and how to avoid them Become familiar with the MN Legal Compliance Guide Educate everyone involved in the purchasing process Develop processes to ensure appropriate documentation is maintained 9 Uniform Guidance Effective Date Federal awards made after December 26, 2014 Initial option to defer the adoption of procurement standards for two years (fiscal year beginning July 1, 2017) Addendum issued May 17, 2017 allowing an additional year to implement requirements related to procurement (fiscal year beginning July 1, 2017) 10 What's New for the Uniform Guidance 5

6 Procurement The acquisition of goods and services to be used internally by the organization or to carry out a grant or contract-funded project The procurement process includes the decision to purchase as well as the process to complete the purchase 11 Avoiding Audit Findings Document decision to delay implementation of Uniform Guidance procurement standards Be prepared July 1, 2018! 12 What's New for the Uniform Guidance 6

7 Key points (a) Competition Must provide for full and open competition (b) Documentation - Must document procurement procedures and policies (c) Oversight Ensure funds are used responsibly (d) Conflicts of interest - Must maintain written standards of conduct covering conflicts of interest 13 Key points (e) Necessary purchases Must avoid purchasing unnecessary or duplicative items (f) Geographical preferences Must prohibit geographic preference (g) Records Must maintain documentation to support the procurement 14 What's New for the Uniform Guidance 7

8 Procurement Summary Micro Purchases $3,500 No quotations Equitable Distributions Small Purchases Up to $150k Rate quotations No cost or price analysis Sealed Bids >$150k Construction projects Price is major factor Competitive Proposals >$150k Fixed price or cost reimb. RFP with evaluation Sole Source Unique Public emergency Authorization No competition 15 Avoiding Audit Findings Adopt policies that comply with Uniform Guidance requirements Adopt conflict of interest policy Policies must be written! 16 What's New for the Uniform Guidance 8

9 17 Thank you! 18 What's New for the Uniform Guidance 9