Town of Rye Internal Controls Over Purchasing by nyb13813

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									OFFICE   OF THE   NEW YORK STATE COMPTROLLER
                  D IVISION OF LOCAL GOVERNMENT
                      & SCHOOL ACCOUNTABILITY




          Town of Rye
          Internal Controls
          Over Purchasing

           Report of Examination
                    Period Covered:
         January 1, 2005 — September 30, 2006
                       2007M-76




               Thomas P. DiNapoli
                               Table of Contents


                                                                               Page

AUTHORITY LETTER                                                                3


EXECUTIVE SUMMARY                                                               5


INTRODUCTION                                                                    7
           Background                                                           7
           Objective                                                            7
           Scope and Methodology                                                7
           Comments of Local Officials and Corrective Action                     7


PURCHASING                                                                      9
               Purchasing Practices                                             9
               Written Contracts                                               11
               Claims Processing                                               11
               Recommendations                                                 12



APPENDIX   A   Response From Local Officials                                    13
APPENDIX   B   OSC Comment on the Town’s Response                              16
APPENDIX   C   Audit Methodology and Standards                                 17
APPENDIX   D   How to Obtain Additional Copies of the Report                   18
APPENDIX   E   Local Regional Office Listing                                    19




                      DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY          11
                                              State of New York
                                 Office of the State Comptroller

Division of Local Government
and School Accountability

August 2007

Dear Local Officials:

A top priority of the Office of the State Comptroller is to help local government officials manage
government resources efficiently and effectively and, by so doing, provide accountability for tax
dollars spent to support government operations. The Comptroller oversees the fiscal affairs of local
governments statewide, as well as their compliance with relevant statutes and observance of good
business practices. This fiscal oversight is accomplished through our audits, which identify opportunities
for improving operations and Town Council governance. Audits also can identify strategies to reduce
costs and to strengthen controls intended to safeguard local government assets.

Following is a report of our audit of the Town of Rye, entitled Internal Controls Over Purchasing. This
audit was conducted pursuant to the State Comptroller’s authority as set forth in Article V, Section 1
of the State Constitution, and Article 3 of the General Municipal Law.

This audit’s results and recommendations are resources for local government officials in effectively
managing operations and in meeting the expectations of their constituents. If you have questions about
this report, please feel free to contact the local regional office for your county, as listed at the end of
this report.

Respectfully submitted,


Office of the State Comptroller
Division of Local Government
and School Accountability




                           DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                    33
                                                                   State of New York
                                                      Office of the State Comptroller
                                                        EXECUTIVE SUMMARY



The Town provides various services to its residents including maintenance and improvements of
Town roads, snow removal, and general government support. These services are financed mainly by
real property taxes, sales tax distributed by the County, and State aid. The Town Board (Board) is
the legislative body responsible for overseeing the Town’s operations and finances. The Board has
appointed a Town Comptroller (Comptroller) who is responsible for examining, auditing and approving
claims against the Town.

The Town Supervisor (Supervisor) serves as both the chief executive officer and chief fiscal officer. As
chief fiscal officer, he is responsible for virtually all of the Town’s financial duties. These duties include
collecting, receiving, and having custody of the Town’s funds. He also is responsible for making
payments on claims and keeping accurate and complete accounts of all receipts and disbursements. The
Supervisor has appointed a confidential secretary/Director of Purchasing (Director) who is responsible
for making all purchases for supplies, materials, and equipment for the Town. The Board is responsible
for the management of the Town, including the establishment of effective internal controls over cash
receipts and disbursements. The Town’s budget for 2006 was more than $3.5 million.

Scope and Objective

The objective of our audit was to examine the Town’s internal controls over purchasing for the period
January 1, 2005 to September 30, 2006. Our audit addressed the following related question:

   •   Are controls over purchasing adequate to ensure that goods and services were purchased in
       compliance with applicable laws and Town policies and procedures?

Audit Results

The Town’s controls over purchasing were inadequate because the Supervisor did not properly oversee
and monitor the Director to ensure compliance with the Town’s procurement policies and State law.
Although the Town had policies and procedures for acquiring goods and services, Town personnel did
not follow these policies and procedures. As a result, the Town may have paid more for goods and
services than was necessary.

For example, the Town paid $971,009 to eight professional services vendors without using requests
for proposals (RFPs). In addition, the Town did not obtain and retain the required written quotes for



                           DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                     55
purchases from three vendors totaling $110,493 and four public work contracts totaling $294,017. The
Town also hired and paid five vendors a total of $305,257 without using written contracts. In addition,
the Comptroller did not prepare abstracts1 for 83 claim vouchers totaling $535,533. As a result, Town
assets were at increased risk of loss or misuse.

Comments of Local Officials

The results of our audit and recommendations have been discussed with Town officials and their
comments, which appear in Appendix A, have been considered in preparing this report. Except as
specified in Appendix A, Town officials generally agreed with our recommendations and indicated
they planned to take corrective action. Appendix B includes our comment on the issues raised in the
Town’s response letter.




____________________
1
    An abstract is an approved list of claims.



      6           OFFICE OF THE NEW YORK STATE COMPTROLLER
                                 Introduction

Background                The Town of Rye (Town) is located in Westchester County
                          approximately 24 miles north of New York City. The Town
                          provides various services to its residents including maintenance and
                          improvements of Town roads, snow removal, and general government
                          support. These services are financed mainly by real property taxes,
                          sales tax distributed by the County, and State aid. The Town Board
                          (Board) is the legislative body responsible for overseeing the Town’s
                          operations and finances. In addition, the Board has appointed a
                          Town Comptroller (Comptroller) who is responsible for examining,
                          auditing, and approving claims against the Town.

                          The Town Supervisor (Supervisor) serves as both the chief executive
                          officer and chief fiscal officer. As chief fiscal officer he is responsible
                          for collecting, receiving, and maintaining custody of the Town’s funds.
                          He also is responsible for making payments on claims and keeping
                          accurate and complete accounts of all receipts and disbursements.
                          The Supervisor has appointed a confidential secretary/Director of
                          Purchasing (Director) who is responsible for making all purchases for
                          supplies, materials, and equipment for the Town. The Town’s budget
                          for 2006 was more than $3.5 million.

Objective                 The objective of this audit was to evaluate the Town’s purchasing
                          practices. Our audit addressed the following related question:

                             •   Are controls over purchasing adequate to ensure that goods
                                 and services were purchased in compliance with applicable
                                 laws and Town policies and procedures?

Scope and                 We examined the Town’s purchasing practices and procedures for the
Methodology               period January 1, 2005 to September 30, 2006.

                          We conducted our audit in accordance with generally accepted
                          government auditing standards (GAGAS). More information on such
                          standards and the methodology used in performing this audit are
                          included in Appendix C of this report.

Comments of               The results of our audit and recommendations have been discussed
Local Officials and        with Town officials and their comments, which appear in Appendix
Corrective Action         A, have been considered in preparing this report. Except as
                          specified in Appendix A, Town officials generally agreed with our
                          recommendations and indicated they planned to take corrective
                          action. Appendix B includes our comment on the issues raised in the
                          Town’s response letter.

                     DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                 77
                    The Board has the responsibility to initiate corrective action. Pursuant
                    to Section 35 of the General Municipal Law (GML), the Board
                    should prepare a plan of action that addresses the recommendations
                    in this report and forward the plan to our office within 90 days.
                    For guidance in preparing a plan of action, the Board may refer to
                    applicable sections in the publication issued by the Office of the State
                    Comptroller entitled Local Government Management Guide. We
                    encourage the Board to make this plan available for public review in
                    the Town Clerk’s office.




8   OFFICE OF THE NEW YORK STATE COMPTROLLER
                                     Purchasing

                            An important part of the Board’s responsibility is to establish,
                            implement, and monitor procurement policies to help ensure that
                            the Town obtains goods and services of the required quantity and
                            quality at competitive prices, and to protect against favoritism,
                            extravagance, fraud, and corruption. Effective purchasing programs
                            adopt and comply with a procurement policy; evaluate all purchase
                            options; require staff to advertise for competitive bids, when required;
                            and avoid conflict of interest situations. A good system of internal
                            control over purchasing consists of policies and procedures that allow
                            an organization to provide reasonable assurance that it is using its
                            resources effectively.

                            Although the Town has adopted policies and procedures to help guide
                            its procurement activities, the Supervisor did not properly oversee and
                            monitor the Director to ensure that the policies were implemented.

Purchasing Practices        General Municipal Law (GML) requires the Board to adopt written
                            procurement policies and procedures that help Town officials meet
                            competitive bidding requirements, use State and County contracts,
                            obtain written proposals, document purchase decisions, justify and
                            document why officials award contracts to someone other than the
                            lowest responsible bidder, and conduct an annual review of the
                            Town’s policies and procedures.

                            The Town’s Director reviews and approves all procurement requests,
                            and then purchases the requested goods or services. The Director
                            expended $738,284 for goods and services in 2005, and $753,270 in
                            2006. The Comptroller is required to audit claim vouchers prior to
                            payment and to prepare an abstract of the claims to be paid.

                            Requests for Proposals — The Town’s purchasing policy requires
                            Town personnel to use requests for proposals (RFPs) when procuring
                            professional services. We examined payments totaling $971,009 made
                            for the 21-month period from January 1, 2005 to September 30, 2006
                            to eight professional service vendors for legal, accounting, consulting,
                            and administrative services. The Director did not use an RFP process
                            to select any of the eight vendors and did not maintain documentation
                            about the process used to obtain the vendors. The Director told us that
                            he does not use RFPs but instead relies on recommendations from
                            other municipalities to find vendors. The Supervisor interviews the
                            professionals to select vendors.




                       DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                  99
                     Because the Director failed to issue RFPs when procuring professional
                     services, Town officials cannot be sure that the Town is receiving
                     needed services at a reasonable price and that they are expending
                     public funds in a fair and equitable manner.

                     Written Quotes — The Town’s procurement policy requires Town
                     personnel to seek three written quotes when procuring goods and/or
                     services that cost between $1,000 and $5,000. Also, the procurement
                     policy requires Town personnel to obtain more than three written
                     quotes when procuring goods and/or services that cost between
                     $5,000 and $9,999. The Town’s policy requires the Supervisor to
                     meet with the Director periodically to ensure that he is implementing
                     the Town’s policy.

                     We examined 68 purchases the Director made from four vendors
                     totaling $215,288 that required written quotes. Items purchased
                     included electrical services and supplies ($81,327), technical services
                     and supplies ($29,166), and cleaning supplies ($104,795). Of these
                     68 purchases, 54 purchases were for amounts between $1,000 and
                     $5,000 and required three quotes. Four additional purchases were for
                     amounts between $5,000 and $9,999 and required that the Director
                     obtain at least four written quotes. The Director did not obtain the
                     necessary written quotes for 44 of the 68 purchases totaling $111,467.
                     Although the Director told us that he obtained written quotes for the
                     cleaning supplies purchases, he did not provide us with documentation
                     to support this statement.

                     The Town’s procurement policy also requires the Director to obtain
                     three written quotes for public work contracts that cost between
                     $5,000 and $10,000 and more than three written quotes for public
                     work contracts that cost between $10,000 and $19,999. We examined
                     82 payments totaling $305,257 made to five vendors for public work
                     contracts, which included landscaping ($146,676), snow removal
                     ($67,810), plumbing ($45,849), air-conditioning maintenance services
                     ($9,317), and park consulting services2 ($35,606). The Director did
                     not obtain written quotes when procuring public work contracts from
                     four of the five vendors who received payments totaling $294,017.
                     The Director stated that one of these four vendors, the landscaper,
                     is the only vendor in the Town who can remove snow early in the
                     morning. However, he did not provide us with documentation to
                     support this statement.

                     ____________________
                     2
                      The park consulting services included an evaluation of a Town park. The consultant
                     advised Town officials on which trees needed grooming, removal, and pruning, and
                     on what types of flowers or shrubbery they should plant in certain park areas. The
                     consultant provided services similar to that of an agronomist; he did not perform
                     the actual labor.

10   OFFICE OF THE NEW YORK STATE COMPTROLLER
                         The Director failed to obtain RFPs and written quotes and the
                         Supervisor did not properly oversee and monitor the Director. As a
                         result, the Town cannot be sure that it has procured goods and services
                         in the most economical manner.

Written Contracts        Written agreements between the Town and professional service
                         providers provide both parties with a clear understanding of the
                         services the professionals are expected to provide and how they
                         will be compensated for these services. Therefore, it is important
                         for Town officials to enter into written agreements with professional
                         service providers that indicate the contract period, the services to be
                         provided, and the basis for compensation for those services.

                         We examined five vendors that the Town paid $305,257 for public
                         work services that included landscaping, snow removal, plumbing,
                         air-conditioning maintenance services, and park consulting and found
                         that the Director did not obtain written contracts from any of the five
                         vendors.

                         The lack of written agreements with professional service providers
                         deprives the Town of protection in the event that these professionals
                         default on their obligations. In addition, without written agreements,
                         there is no clear understanding of what compensation these
                         professionals are entitled to and the extent of the services that they
                         are obligated to provide for which they will receive compensation.

Claims Processing        Town Law requires the Comptroller to prepare an abstract3 of audited
                         claims that specifies the number of claims, names of the claimants,
                         amounts allowed, funds and appropriation accounts chargeable, and
                         any other information deemed necessary or essential. The abstract
                         of the audited claims provides town boards and supervisors with the
                         details of the payments to be made and the purpose for which these
                         payments are to be made. The Comptroller is required to send the
                         abstract to the Supervisor authorizing him to pay the claimants.

                         We examined 83 claim vouchers totaling $535,533 and found that
                         the Comptroller properly audited the claim vouchers, but did not
                         prepare abstracts of the audited claims as required by law. Although
                         the Comptroller did not prepare abstracts of the audited claims, he
                         does prepare a monthly report of the checks that the Town paid to
                         vendors and other individuals who make claims on the Town through
                         the month. The Comptroller told us that he believes the process of
                         preparing an abstract is an unnecessary step and that the monthly
                         report of checks that he prepares is sufficient. The Supervisor stated
                         that he reviews the monthly report prepared by the Comptroller.
                         ____________________
                         3
                             An abstract is an approved list of claims.

                    DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                 11
                                                                                          11
                         The Comptroller prepares the monthly report after the Town has
                         issued the checks. Because the purpose of an abstract is to notify the
                         Supervisor which claims should be paid and the amount to be paid,
                         the Supervisor’s office should have the abstract before the checks are
                         issued. Also, the monthly report does not include the corresponding
                         claim numbers, as is required by Town Law. Claim numbers are
                         used to help determine whether claims are paid in a timely manner
                         and to follow up on any gaps in the claim number sequence. If the
                         Comptroller prepared abstracts, the Supervisor could use them to
                         match claim information with the corresponding check numbers.

                         Although we did not find discover any inappropriate payments, when
                         the Comptroller does not prepare abstracts he increases the risk that
                         the Town may make incorrect or inappropriate payments and that
                         potential errors or irregularities may not be detected in a timely
                         fashion.

Recommendations          1. The Board and the Supervisor should provide proper oversight
                            and ensure that the Director implements the Town’s procurement
                            policy and complies with GML requirements.

                         2. The Director should use RFPs and obtain written quotes as
                            required by the Town’s policy. If the Director does not use the
                            RFP process, he should document the process that he uses to
                            select vendors.

                         3. The Director should develop written agreements with all
                            professionals that clearly define the amount of compensation, and
                            type of services and duration of the work to be performed.

                         4. The Comptroller should prepare abstracts of approved claims as
                            required by Town Law.

                         5. The Supervisor should obtain and review the abstracts before
                            paying claims.




 12      OFFICE OF THE NEW YORK STATE COMPTROLLER
                                          APPENDIX A

                        RESPONSE FROM LOCAL OFFICIALS

The local officials’ response to this audit can be found on the following pages.




                          DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY    13
                                                                                   13
                                          APPENDIX B

                   OSC COMMENT ON THE TOWN’S RESPONSE

Note 1

Town Law Section 119(2) expressly requires that after claims are audited, the town comptroller “shall”
prepare an abstract “directed to the supervisor of the town, authorizing and directing him to pay”
the claims. For additional guidance on the preparation of abstracts, Town officials can refer to the
publication titled Information for Town Officials issued by the Office of the State Comptroller.




  16        OFFICE OF THE NEW YORK STATE COMPTROLLER
                                          APPENDIX C

                     AUDIT METHODOLOGY AND STANDARDS

During this audit, we examined the purchasing activities and practices of the Town for the period
January 1, 2005 to September 30, 2006. To accomplish our audit objective and obtain relevant audit
evidence, our procedures included the following:

   •   We interviewed Town officials regarding policies and procedures related to the Town’s
       purchasing practices, and procedures for claims processing and approval.

   •   We reviewed the Town’s financial records and reports, tested selected records and transactions,
       and examined pertinent documents. For example, we reviewed vendor files for the existence of
       bid advertisements, RFPs/RFQs, and written quotations.

   •   We reviewed claims paid by the Town for the fiscal years 2005 and 2006 to determine whether
       they were properly supported, approved, and recorded in accordance with the Town’s policy
       and Town Law.

We conducted our audit in accordance with generally accepted government auditing standards
(GAGAS). Such standards require that we plan and conduct our audit to adequately assess those
municipal operations within our audit scope. Further, those standards require that we understand the
municipality’s management controls and those laws, rules and regulations that are relevant to the
municipality’s operations included in our scope. An audit includes examining, on a test basis, evidence
supporting transactions recorded in accounting and operating records and applying such other auditing
procedures as we consider necessary in the circumstances. We believe that our audit provides a
reasonable basis for the findings, conclusions, and recommendations contained in this report.




                          DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                  17
                                                                                                 17
                                           APPENDIX D

           HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT

To obtain copies of this report, write or visit our web page:




                             Office of the State Comptroller
                             Public Information Office
                             110 State Street, 15th Floor
                             Albany, New York 12236
                             (518) 474-4015
                             http://www.osc.state.ny.us/localgov/




  18        OFFICE OF THE NEW YORK STATE COMPTROLLER
                                                    APPENDIX E
                             OFFICE OF THE STATE COMPTROLLER
                              DIVISION OF LOCAL GOVERNMENT
                               AND SCHOOL ACCOUNTABILITY
                                            Steven J. Hancox, Deputy Comptroller
                                            John C. Traylor, Assistant Comptroller

                                      LOCAL REGIONAL OFFICE LISTING
BUFFALO REGIONAL OFFICE                                      GLENS FALLS REGIONAL OFFICE
Robert Meller, Chief Examiner                                Karl Smoczynski, Chief Examiner
Office of the State Comptroller                               Office of the State Comptroller
295 Main Street, Room 1050                                   One Broad Street Plaza
Buffalo, New York 14203-2510                                 Glens Falls, New York 12801-4396
(716) 847-3647 Fax (716) 847-3643                            (518) 793-0057 Fax (518) 793-5797
Email: Muni-Buffalo@osc.state.ny.us                          Email: Muni-GlensFalls@osc.state.ny.us

Serving: Allegany, Cattaraugus, Chautauqua, Erie,            Serving: Clinton, Essex, Franklin, Fulton, Hamilton,
Genesee, Niagara, Orleans, Wyoming counties                  Montgomery, Rensselaer, Saratoga, Warren, Washington
                                                             counties

ROCHESTER REGIONAL OFFICE                                    ALBANY REGIONAL OFFICE
Edward V. Grant, Jr., Chief Examiner                         Kenneth Madej, Chief Examiner
Office of the State Comptrller                                Office of the State Comptroller
The Powers Building                                          22 Computer Drive West
16 West Main Street – Suite 522                              Albany, New York 12205-1695
Rochester, New York 14614-1608                               (518) 438-0093 Fax (518) 438-0367
(585) 454-2460 Fax (585) 454-3545                            Email: Muni-Albany@osc.state.ny.us
Email: Muni-Rochester@osc.state.ny.us
                                                             Serving: Albany, Columbia, Dutchess, Greene,
Serving: Cayuga, Chemung, Livingston, Monroe,                Schenectady, Ulster counties
Ontario, Schuyler, Seneca, Steuben, Wayne, Yates
counties
                                                             HAUPPAUGE REGIONAL OFFICE
SYRACUSE REGIONAL OFFICE                                     Richard J. Rennard, Chief Examiner
Eugene A. Camp, Chief Examiner                               Office of the State Comptroller
Office of the State Comptroller                               NYS Office Building, Room 3A10
State Office Building, Room 409                               Veterans Memorial Highway
333 E. Washington Street                                     Hauppauge, New York 11788-5533
Syracuse, New York 13202-1428                                (631) 952-6534 Fax (631) 952-6530
(315) 428-4192 Fax (315) 426-2119                            Email: Muni-Hauppauge@osc.state.ny.us
Email: Muni-Syracuse@osc.state.ny.us
                                                             Serving: Nassau, Suffolk counties
Serving: Herkimer, Jefferson, Lewis, Madison,
Oneida, Onondaga, Oswego, St. Lawrence counties

BINGHAMTON REGIONAL OFFICE                                   NEWBURGH REGIONAL OFFICE
Patrick Carbone, Chief Examiner                              Christopher Ellis, Chief Examiner
Office of the State Comptroller                               Office of the State Comptroller
State Office Building, Room 1702                              33 Airport Center Drive, Suite 103
44 Hawley Street                                             New Windsor, NY 12553-4725
Binghamton, New York 13901-4417                              (845) 567-0858 Fax (845) 567-0080
(607) 721-8306 Fax (607) 721-8313                            Email: Muni-Newburgh@osc.state.ny.us
Email: Muni-Binghamton@osc.state.ny.us
                                                             Serving: Orange, Putnam, Rockland, Westchester
Serving: Broome, Chenango, Cortland, Delaware,               counties
Otsego, Schoharie, Sullivan, Tioga, Tompkins
counties



                                  DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                             19
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