TSPR Audit Protocols - Purchasing and Warehousing

An effective purchasing system allows a school district to provide quality materials, supplies, and equipment in the right quantity in a timely, cost-effective manner.
Purchasing includes those activities involved in the identification and purchase of supplies, equipment and services needed by the district, as well as the storage and distribution of goods. Goods and services must be obtained according to the specifications of the users; at the lowest possible cost; and within state laws and regulations including the state’s General Government purchasing and bid requirements and the Texas Education Code.
This module focuses on the overall purchasing system including purchase order procedures, bidding practices, internal controls, warehousing, and integration of systems.

I. Purchasing Policies, Procedures, Planning, and Operations

A sound purchasing system begins with sound policies implemented through systematic procedures. Careful planning, strong internal controls and cost-efficient practices such as bulk purchasing and price/bid solicitation provide the framework for the efficient procurement of goods and services.
Data Needs

Federal, state and local laws, rules and regulations that pertain to purchasing
Purchasing policies, procedures, manuals and/or handbooks
Organization chart for Purchasing Functions
Job descriptions
Feasibility studies, including cost/benefit analyses
Statistical information on the number and type of purchase orders issued and requisitions filled, invoices paid or any other information that is readily available about workloads, process turnaround times
Vendor lists
Existing requisitions, purchase orders and contracts, particularly construction contracts
Copies of any contracts for services that are privatized (if applicable)
Information on automated purchasing systems
Shared services agreements
Memorandums of Understanding (MOUs)
Information about Regional Service Center assistance and agreements (if applicable)
Customer satisfaction surveys (if applicable)
Peer district information

Possible People to Interview
Superintendent
Assistant superintendent with assigned responsibility
Purchasing director/agent
Legal counsel (if applicable)
Finance/Budget director
Accounts Receivable and Accounts Payable representative(s)
Principals/campus-based personnel
Other selected department head(s) as applicable
I.A. Organization, Staffing and Budgeting
Activities to Perform

I.A.1 Examine the organization and staffing charts and job descriptions for purchasing and warehousing and interview staff to determine reporting arrangements, determine whether the organizational structure depicted on the chart reflects the actual organization of the department, and document if it has been changed recently or repeatedly in the recent past or is anticipated to change in the near future and explain the reasons for changes. If some purchasing functions are decentralized to other functional areas within the district such as food services, transportation and technology, show how they report within the organization and explain how these functions interact with the purchasing division to ensure statutory compliance.

I.A.2 Examine the staffing and budgets of purchasing and purchasing related functions such as warehousing and receiving and accounts payable and determine the ratio of total staff to staffing within the purchasing function. Compare the budget and staffing levels to industry standards.

Questions to Ask
Does the district have specific personnel assigned to perform the purchasing and warehousing function or is the operation primarily decentralized with purchases made by individuals or departments? Are management staff assigned specific monitoring activities for purchasing? Are the duties of individuals within the purchasing function sufficiently segregated to prevent abuses? Is supervision and monitoring of the purchasing and warehousing function sufficient to prevent abuses?
Are staffing levels within purchasing and warehousing established based upon a district staffing formula that is comparable to districts of similar size? What is the current workload of individuals within the department and how is productivity monitored? How is the workload distributed? Is the workload evenly distributed among staff?
Do job descriptions match the actual work being performed by the staff? Is staff compensation equitable and tied directly to the responsibility, expertise and experience needed for each position?
What types of in-service training are provided for all district staff involved in the purchasing process, including principals, campus based clerks, and the like? Do campus or departmental staff have access to purchasing manuals or handbooks that guide them through the purchasing processes?
What is the budget of the purchasing and warehousing function? How does this budget compare with the purchasing budgets of peer districts? What are the cost drivers in the budget and what has the department done to control those costs?
Does the district contract for services in support of the purchasing function such as technical advisors or consultants that assist with the purchasing of specific goods or services? How did the district determine that these services were best performed by individuals or firms outside the district?
Does the departmental budget provide funds for staff development? Are purchasing staff provided in-service training on changing requirements, laws and procedures? Are staff sent to appropriate state or regional purchasing seminars?
I.B. Policies and Procedures
Activities to Perform

I.B.1 Examine the district’s policies and procedures that relate to purchasing and note any variances from state law, either more or less restrictive. Document purchasing levels and types of purchases that require board approval, administrative approval, and the like. Review contracting patterns for evidence that districts are not unduly awarding contracts to local vendors that could be awarded for more advantageous terms.

Questions to Ask
Does the district have a board approved policy designating signature and general purchasing authority to certain district personnel at specified spending thresholds? Does board policy specify strong punitive measures for non-compliance with purchasing laws, rules and regulations? How are those policies implemented and what procedures are in place to ensure that policies are carried out?
Does the district policy call for obtaining written price quotations for purchases between $10,000 and $25,000 for non-federally funded personal property? Is there a policy defining purchase level thresholds for each purchasing method that also defines who is authorized to purchase goods and services at a particular threshold and who approval authority at each threshold level?
Does policy define and control purchases that can be made outside the established purchasing system such as emergency purchases, open purchase orders, petty cash, etc.?
Does the district have a conflict of interest policy preventing or restricting district employees and/or relatives from providing goods or services for the district? Are board members prohibited by policy from doing business with the district? Do board members with a substantial interest in a business file affidavits declaring their interest? Do board members refrain from voting on transactions that might involve their business or the business of a family member? How has the board removed any perception that they are benefiting financially from purchasing transactions of the district? Does the district appear to be unduly restricting contracts to local vendors that could be awarded for more advantageous terms?
How has the district enforced established internal and external mandated ethical requirements governing purchasing procedures including:

An updated conflict of interest statement from the Board of Trustees?
Updated conflict of interest statements from key management personnel (at least the superintendent, assistant superintendents, directors, and responsible purchasing personnel)?
Periodic staff training programs presented to all appropriate personnel regarding the legal and ethical procedures in dealing with vendors?
A person independent of the purchasing function periodically evaluating the reasons for limited bid responses from vendors?

What competitive bidding requirements are stipulated in policy? Does policy address interlocal agreements requirements and board authorization? Design/build procedures and guidelines? Competitive sealed proposal/Request for Proposals requirements, including the evaluation process? Catalogue purchase procedures?
I.C. Operations
Activities to Perform

I.C.1 Create a process flow chart showing how purchases are initiated, processed, ordered, received, warehoused, and ultimately delivered to the originating department or campus. Show points in the process where signoffs are required, the time lapse between each step in the process, where paperwork is entered into or produced from computerized systems, and how and where computer systems interact. The process flow should include orders from the supply warehouse, if one exists, as well as orders from external vendors.

I.C.2 Prepare a process flow chart of the bidding and contracting process used by the district and compare the process to the stated policies and procedures. Sample the contracts issued for the last year and determine whether the appropriate bidding or solicitation procedures were followed based on the dollar amount of each contract.

I.C.3 Determine the total cumulative purchases by commodity for the last year and determine whether the district is following the appropriate bidding or solicitation procedures based on the cumulative dollar amount of each commodity. Examine the purchasing system to determine that sufficient controls exist to ensure that cumulative purchases in excess of statutory limits are appropriately bid.

I.C.4 Prepare a chart listing all shared or cooperative purchasing arrangements in which the district participates showing, by arrangement, the types of goods or services obtained, other participants, and estimated frequency of use. Interview staff to determine what decision-making process was used to make these arrangements, what benefits they believe have been achieved as a result, and what problems they have experienced, if any, with each arrangement.

I.C.5 Obtain a listing of vendor purchases sorted by vendor name.

Questions to Ask
Does the bidding process provide for:

Preparing specifications in a manner that does not limit competitive procurement procedures to a specific vendor or item?
A standardized bidding process coordinated by the Purchasing Department?
Preparing and soliciting bids according to local policy, state and federal laws and regulations; and other volume purchases where bidding is the best purchasing practice?
Obtaining competitive prices for those items not bought by formal bid through requesting price quotations from vendors?
Follow-up procedures with vendors not submitting bids?

Does the district periodically identify and evaluate alternative purchasing methods such as joint purchasing with the state, other districts or through the region service center?
How does the district evaluate competitive practices and innovative purchasing or service arrangements? How does the district evaluate whether there are goods or services that can be obtained from another public entity or the private sector at a lower cost, higher quality or both?
How does the district monitor vendor performance and document performance problems for follow-up?
How does the district coordinate technical purchases for user divisions? Are specifications for the bids defined by those who are responsible for using the purchased materials with review by purchasing as appropriate?
II.D. Purchasing Technology
Activity to perform

I.D.1 Prepare a process flow chart showing the technologies used to support the purchasing and warehousing functions showing connectivity with user divisions or campuses and with the finance and accounts payable systems. Determine how, where and when the purchasing system interacts with budget and appropriations control mechanisms. In the process, examine and evaluate the technology used to support the purchasing system, including the supply ordering and requisitioning systems and identify areas, if any, where improvements are needed or internal controls are weak.

Questions to Ask
How is the procurement program integrated into the budgeting/encumbrance system? Are all purchase requisitions reviewed for budget authorization before purchase orders are prepared? Are periodic (preferably monthly) budget-to-actual expenditure reports issued to all user departments and to the department responsible for purchasing? Is a periodic budget-to-actual expenditure report produced that includes an explanation of variances? Does the district’s designated budget officer review this variance report, and are periodic reports presented to Board of Trustees?
Does the purchasing system (either automated or manual) provide for:

Automatic reorder points for stock replenishment?
Follow-up on back orders and partial shipments to assure receipt of proper quantities?
Monitoring open purchase orders?
Matching purchase orders and receiving documentation for verification of receipt of material to ensure proper payment of invoices?
Ensuring charges are made to the proper account code?
An approved vendor file and history?

Does the district have a centralized purchasing system that:

Provides for a requisition form that states suggested vendor, account code, delivery point, and description of item(s) to be purchased with related costs?
After approval of the requisition, a purchase order is issued with appropriate copies provided to the vendor, to the requesting department or campus, and to accounts payable with one copy retained by purchasing (if applicable)?

II. Warehousing Policies, Procedures, Planning, Operations and Staffing

Data Needs:

Federal, state and local rules and regulations
Policies and procedures
Organization chart (department)
Job descriptions
Inventory and equipment lists
Statistical information on number and type of supplies maintained in the warehouse inventory orders issued and requisitions filled, computing reorder quantities, frequency of shelve restocking or "picking," frequency of supply delivery to users or any other information that is readily available about workloads (if traditional warehousing function)
Location, size and primary usage of warehouse facilities in the district
Copies of just-in-time (JIT) delivery model agreements/contracts
Customer satisfaction surveys or comment cards (if applicable)

Possible People to Interview
Assistant superintendent with assigned responsibility
Warehouse director/supervisor
Purchasing director/agent (if applicable)
Principals/campus-based personnel
Other selected department head(s) as applicable
Activities to Perform

II.A.1 Tour the warehouse(s) and evaluate the maintenance of inventories, general cleanliness, the "picking systems," that facilitate removing stock from shelves to fill orders, equipment such as forklifts, and security for high theft items.

II.A.2 Prepare a staffing chart of all warehouse, receiving and delivery personnel and determine, based on peer district comparisons and/or industry standards, whether the staffing is appropriate.

II.A.3 Prepare a list of vehicles, machinery and equipment used by the warehouse and determine the age; mileage (as applicable); how it is maintained, whether on contract or by district personnel; and the budgeted replacement schedule.

II.A.4 Diagram the paperwork and process flow within the warehouse system including the supply requisition and delivery system, the receiving system, the delivery system, and the technology used to support the ordering, receiving and warehousing functions and show how the warehousing function is technologically connected to user departments. Show time lapses between processes and to the extent possible determine the average time to deliver supplies to the users from the time the order is submitted.

II.A.5 By examining the latest inventory records and determining the inventory turnover or annual usage rates for sample items (if available), evaluate whether inventory items are being ordered in the right quantities and at the right intervals to control the amount of inventory on hand without experiencing an out of stock condition.

Questions to Ask
How do users rate the warehousing function? Does the district provide users an opportunity to comment on the service provided by the warehouse and delivery operation?
What kinds of inventories are stocked in the warehouse? Are these the items that are most frequently asked for by users? Does a traditional central receiving and warehouse model for all goods serve users best or should the school district adopt a just-in-time (JIT) delivery model for some or all items?
Does the warehousing/purchasing system (either automated or manual) provide for:

Automatic reorder points for stock replenishment?
Follow-up on back orders and partial shipments to assure receipt of proper quantities?
Matching purchase orders and receiving documentation for verification of receipt of material to ensure proper payment of invoices?

Are inventories physically safeguarded with fenced compounds, storerooms, cribs, or similar areas with restricted access and security?
Do warehousing and inventory controls provide for:

Receipt of incoming goods with appropriate receiving documentation?
Timely reporting to purchasing and/or accounts payable regarding materials received?
Notification to the ordering department and subsequent disposition or delivery?
Inventory control to accurately account for items received and disbursed?
Monitoring of inventory turnover with legal disposition of items that are inactive. (Items that are inactive for twelve months should be considered for disposal)?
Warehouse space planning that uses available space efficiently (such as ten-foot aisles)?
Proper segregation of duties of warehouse personnel that seeks to prevent sole custody of inventories? (One person is not responsible for receiving, disbursement, and preparation of transaction documentation.)
Previously transferred/shipped materials and supplies that were not used by the ordering department to be returned to the warehouse inventory?
Separate areas for receiving, storing, and shipping of inventories?
Periodic (at least annual) physical inventories as an independent means of establishing accountability for the inventories that should be on hand?
Physical inventory adjustments to be reviewed and approved by persons who do not have sole custody of inventories?

IIII. Textbook Operation Policies, Procedures, Planning, Operations and Staffing

Data Needs:

Federal, state and local rules and regulations
Policies and procedures
Organization chart (department)
Job descriptions
Textbook policies, practices and procedures including information on lost textbooks
Customer satisfaction surveys (if applicable)
Peer district information

Possible People to Interview:

Superintendent
Assistant superintendent with assigned responsibility
Textbook Coordinator
Warehouse director/supervisor (if applicable)
Principals/campus-based personnel
Activity to Perform

III.A.1 Prepare a diagram or process flow chart showing the process for ordering, distributing, warehousing, retrieving, and reconciling textbooks in the district and for payment of lost textbooks.

III.A.2 Prepare a chart by campus showing the textbook losses for the last three years and determine the cause for any higher than average losses by campus.

III.A.3 Examine or create an organization chart showing the functional organization that supports the textbook ordering and distribution process including the role and responsibility of the textbook coordinator.

Questions to Ask
Are procedures established for textbook inventory, issuance and replacement including:

Maintaining a comprehensive textbook inventory?
Properly accounting for funds for replacement books?
Assigning responsibility for lost textbooks?
Accurately reporting of all textbooks to administration by each campus?
Issuing textbooks to schools?
Issuing of instructor manuals for individual teachers?
Assuring that students have textbooks available to take home to study from or to do homework assignments?

Does the district have written policies and/or procedures for the textbook selection process?
Are there written local procedures for selecting specific textbook publishers to use for each subject area? Does the district have a policy regarding the acceptance of gifts from textbook publishers generally given to encourage selection?
Does the central office or individual campuses have automated textbook tracking systems to assist the district in maintaining its textbook inventory? How are textbook overages and shortages at given campuses handled at the beginning of each school year or semester? How long does it take for campuses to obtain the additional textbooks they need if enrollments exceed projections? Has the district ever purchased used textbooks? If so, how do they insure that the textbooks are Texas adopted versions?
What is the procedure for ordering replacements for lost textbooks?
Does the district have a policy that designates the department or fund from which textbook replacement funds will come?

IV. Contracting Process

Data Needs

Copies of all service contracts
Status reports on services performed
Feasibility studies
Cost benefit analyses
Performance data
Copies of MOUs
Copies of shared services or inter-local agreements

Staff to Interview
Assistant superintendent with assigned responsibility
Business or finance director or manager
Purchasing department
Legal counsel
Activities to Perform

IV.A.1 Compile all major contracts with external entities including but not limited to contracts for depository banks, legal services and external auditing services; contracts for outsourced operations or management services for operations such as maintenance, food service, transportation, printing, and the like; shared services contracts and memorandas of understanding (MOUs), and ongoing consulting contracts. Prepare a table listing the general service provided through the contract, contract expiration date, the total contract amount and/or annual payment amounts, the department or individual assigned to oversee the contract, and briefly describe general terms and conditions. Note any areas of overlap or contracts that are currently under renegotiation.

Questions to Ask Bid process
If any services performed or contracted for through private companies or interlocal agreements, was a cost benefit analysis and feasibility study performed prior to bidding the service and entering into the contract? What was bidding process used? Did it comply with state law? Was a written bid used? Did face-to-face negotiation occur? Were all stakeholders in the service represented in the negotiation and in the evaluation? Did vendor due diligence occur as part of the evaluation process? How were bid proposals evaluated?
Were vendor references checked? Were quantitative and qualitative measures used in evaluating each proposal? Did vendor presentations or interviews take place and how was this information used in the bid process? Did staff document the evaluation process and make written recommendations?
Contract negotiation
Was a contract awarded to the lowest viable vendor? Was the contract written by the district or by the vendor or collectively? Were the terms and conditions negotiated? Was purchasing and finance involved in the evaluation? Did a district employed or district hired attorney draft or review the final contract prior to signature? Were all relevant documents referenced in the contract for future reference? What are the basic terms and conditions of the contract? Is the contract written?
Did both the district and the vendor sign the contract? Does the district have a way to shift services back in-house should in-house operations prove the most efficient way to do things? Is the contractor required to report regularly to the board? To the administration? If so, how do they report? If so, are they reporting as required? Does the contract include a contract change mechanism? Did the contract include all relevant terms and conditions required by board policy, local, state and federal law and the uniform commercial code? Are specific steps outlined in the contract for dispute resolution? What is the district’s liability and what is the vendor's liability? When does the contract expire?
Contract management
Did the district dedicate correct and sufficient contract management resources to the contract? Who is responsible for managing the contract in the district? Does this person have the authority to enforce or change the contract? Does the contract include the name of the contract manager and who represents the district as the final authority for contract disputes? What reports does the vendor have to provide the district and when do they have to be provided?
What mechanisms are in the contract for providing the vendor with feedback on its performance? Does the vendor have to account for any cost changes to the district? Does the district require the vendor to notify the district in the event the vendor changes suppliers for items included in the service agreement? Does the contract outline how the district can terminate the contract for poor performance or failure to perform without liability to the district? How are risks to the district managed by the contract?
Vendor performance evaluation
Is a specific individual responsible for reviewing and documenting vendor performance? Does the contract specifically outline minimum and preferred performance standards? Can the standards be measured objectively by the district? Does the contract describe each service to be performed in sufficient detail? Does the contract describe specific levels of performance the vendor must meet in performing the service? Are these performance measures tracked by the district or by the vendor?
How is performance measured relative to payment? Does the contract include remedies in the event the vendor fails to perform the contract or fails to perform acceptably? What types of options does the district have in remedying poor performance or terminating the contract? Is payment tied to performance? Are performance measures related to quality and quantity of activities performed by the vendor? Does the contract include specific periods in which the service must be performed?
Contract costs
Are escalator clauses tied directly to changes in the market that effects the vendor’s costs? Are increases in contract costs tied directly to rising labor or supply costs? Are terms of the contract favorable in comparison to market rates for services? Are cost controls part of the contract and are costs monitored for changes?
Contract re-negotiation
Are their options to renew or renegotiate the contract as the period of performance ending? Are there options to renegotiate the contract in the event of changes in district needs or market conditions?

V. Yellow Pages Test

Comptroller Rylander says that all goods and services should be put to the "Yellow Pages test." Government should do no job if there is a business in the Yellow Pages that can do that job better and at a lower cost. Whether a district has decided to contract out the operation of some function in its entirety, contract for management services, or conduct all phases of the operation in-house, regular evaluation is necessary to ensure that the highest quality services are delivered at the lowest price. Simply put, when analyzing the operations of the various functional areas, regular cost/benefit analyses are needed to evaluate whether there are goods or services that can be obtained from the private sector at a lower cost, higher quality or both. The evaluation of current contracts to determine whether the district could perform these functions better in-house is addressed in Section IV. Contracting Processes shown above.
Data Needed
In applying the "Yellow Pages" test to any operation, the following critical pieces of information should be examined in-house:

Cost of materials
Cost of labor including benefits
Cost of overhead including utilities, management oversight, facilities, maintenance and custodial services, and the like
Quality of service provided in-house as evidenced by the product produced
Quantity and type of service provided as evidenced by annual productivity reports
Availability of staff as evidenced by turnover rates, current or ongoing vacancies, and substitute needs
Training or certification requirements of staff
Customer satisfaction as evidenced by and user surveys
Organizational stability

People to Interview
Board members
Assistant superintendent for the area under review
Managers and supervisors for the area under review
Workers in the area under review
Users or customers
External vendors
Customers of vendors
Activities to Perform
Before beginning to perform this evaluation, some preliminary work will need to be accomplished to determine if there are vendors capable of providing all or part of these services should the results of the analysis prove that contracting is a viable alternative. If there are no vendors available, STOP HERE.

V.A.1 Through interviews with board members, users and staff compile a list of the critical success factors for the area under review. These success factors will vary by area, but should be the five to ten critical elements that must be met for this area to be deemed successful. For example, for transportation, a critical success factor might be that children arrive to school on time, that children are transported safely, and so forth. In food service a critical success factor might be that food is nutritious. Based upon quantifiable and supported documentation gathered from the Data Needs shown above and compare the current operations of the area or department to the critical success factors and note any area where performance falls short of success.

V.A.2 Obtain copies of budgets and staffing information for the area under review and determine, to the extent possible, the fully loaded cost for the services being provided in-house. Where possible reduce that cost to a per unit produced number. For example, in a print service that might end up being a cost per impression. In an alternative education program it may be the annual or daily cost per student served in the program.

V.A.3 Contact external vendors and provide them the data compiled in V.A.1 and V.A.2 above, and ask them for an informal, non-binding proposal for the cost of delivering similar services that addresses the following:

Cost of services
Types of services available
Ability of the vendor to handle emergency or change orders
Comparable quality of service
Contract oversight

Ask them to note any areas where they could not do what the district is doing now, or where they could improve upon what the district is doing. Compare the results to district run operations and determine if contracting is a viable option.
Additional Questions to Ask
What internal conditions exist that are not necessarily financial in nature that might make it desirable for the district to examine contract opportunities for the area of district operations? What internal conditions exist that, despite the financial considerations, would make it difficult for the district to consider contract opportunities for the area of district operations?
What contracting opportunities are peer districts using that are not being used by this district? Are these arrangements working well in those districts? What elements of the contracting arrangement are peers having difficulty with?
Has the district attempted to contract for these specific services in the past? If so, what caused the district to reverse the decision?
If a decision is reached that contracting is a viable option, how will the district ensure that current employees are treated appropriately in the transition? What processes would be necessary to bring employee organizations and community groups into the decision-making process? What information will the board need to help them understand the issues and make a fact-based decision?
Steps in the Process
Step 1: Clearly define the component activity.
A clear definition of the component activity should include a description of its current budget and staffing, existing performance measurements, if they exist, the location of the function on the district's organizational chart and a description of the product or service delivery standards that are currently demanded.
This step also should include the determination of specifications to be required of potential vendors, based on the expected levels of service needed to meet or exceed the district's standards.
Step 2: Determine total in-house costs.
In determining in-house costs, the district should use generally accepted accounting principles; maintain extensive documentation of all calculations and assumptions; include anticipated increases or decreases in future costs; include all costs, regardless of where they are located for budgeting or appropriation purposes; and include all costs whether or not the cost would be avoided if the service was outsourced.
In addition, an analytical framework for comparing costs can be enhanced by including a cost analysis of the past fiscal year and estimated (or budgeted, if available) costs for the next two years.
The following formula, which borrows heavily from the Council on Competitive Government cost methodology, illustrates the methodology to use for determining total in-house costs:
Total In-House Costs = Direct Costs + Department Indirect Costs + District Indirect Costs
Direct costs, as defined by the TCCG, include salaries and wages (including overtime pay), fringe benefits and allowances, supplies and materials, rent, telecommunications, utilities, equipment maintenance and repair and the depreciation of assets.
Indirect costs include appropriate percentages of costs for items such as district central support activities, personnel and legal services, as well as equipment and TAFR services. In addition, any administrative services provided by the department that contains the component activity also should be considered, such as the percentage of costs for a department director with direct oversight of the staff performing the function.
Indirect costs can be allocated using one of several approaches, including the simplified method, a multiple base method, a single step-down method or a multiple step-down method. Again, the state's competitive cost methodology should be consulted for further direction on the appropriate approach to use.
Step 3: Request proposals for alternative providers of service.
After the determination of in-house costs, the district should make additional determinations of factors such as its ability to step in quickly if a vendor fails to perform and reasonable yet substantive liquidated damages for such failures. At that point, the component activities to be put up for competitive bidding should be advertised to the general public and the community of vendors identified on the Ameritech web site. While the district should create appropriate standards for the sake of fair evaluation, a reasonable amount of creativity should be allowed so that vendors can propose creative new methods for service delivery that meet or exceed current standards. In addition, existing employees should be allowed time and access to internal resources to prepare bids for alternate, more efficient and effective methods of delivering services.
Step 4: Determine total cost to contract.
The formula given in the TCCG methodology for determining the total cost to contract is:
Total Cost to Contract = Contractor Cost + Contract Administration Cost + One-Time Conversion Costs + Unavoidable District Costs + Loss on Assets — Gain on Assets
Contractor costs are, of course, the fees and expenses proposed by a qualified vendor to provide the service being considered. Administration costs are the expenses involved in negotiating, executing, monitoring and evaluating the contract, including personnel costs as well as facility and equipment charges, maintenance and other costs.
Unavoidable costs are those that will continue to be borne by the district even if a particular component activity has been outsourced. An example might be the costs of a divisional supervisor who oversees a specific component activity. If that particular activity is outsourced, the services and therefore costs of the supervisor may still be required to continue other functions.
The gain or loss on assets, such as building space or equipment that is unnecessary after a successful outsourcing, also should be included in the final cost determination.
Step 5: Request Proposals from Vendors.
RFPs should be prepared for component activities offering significant potential for savings and/or service improvements. Both private and public potential vendors should be solicited. All competitive cost review information about the specific service should be made public. Vendors should be allowed a large degree of flexibility in providing creative solutions towards accomplishing the recognized performance standards for the particular service and asked to create performance measurements that can be developed into eventual contractual obligations should the service be outsourced.
Step 6: Determination of Savings.
Savings are the difference between total in-house costs, both direct and indirect, and the total cost to contract, which is determined if and when a qualified vendor is selected and the service is performed for at least one year.
Additional Resources:
National Association of Purchasing Management http://www.napm.org/

I.C.1	Create a process flow chart showing how purchases are initiated, processed, ordered, received, warehoused, and ultimately delivered to the originating department or campus. Show points in the process where signoffs are required, the time lapse between each step in the process, where paperwork is entered into or produced from computerized systems, and how and where computer systems interact. The process flow should include orders from the supply warehouse, if one exists, as well as orders from external vendors.
I.C.2	Prepare a process flow chart of the bidding and contracting process used by the district and compare the process to the stated policies and procedures. Sample the contracts issued for the last year and determine whether the appropriate bidding or solicitation procedures were followed based on the dollar amount of each contract.
I.C.3	Determine the total cumulative purchases by commodity for the last year and determine whether the district is following the appropriate bidding or solicitation procedures based on the cumulative dollar amount of each commodity. Examine the purchasing system to determine that sufficient controls exist to ensure that cumulative purchases in excess of statutory limits are appropriately bid.
I.C.4	Prepare a chart listing all shared or cooperative purchasing arrangements in which the district participates showing, by arrangement, the types of goods or services obtained, other participants, and estimated frequency of use. Interview staff to determine what decision-making process was used to make these arrangements, what benefits they believe have been achieved as a result, and what problems they have experienced, if any, with each arrangement.
I.C.5	Obtain a listing of vendor purchases sorted by vendor name.

II.A.1	Tour the warehouse(s) and evaluate the maintenance of inventories, general cleanliness, the "picking systems," that facilitate removing stock from shelves to fill orders, equipment such as forklifts, and security for high theft items.
II.A.2	Prepare a staffing chart of all warehouse, receiving and delivery personnel and determine, based on peer district comparisons and/or industry standards, whether the staffing is appropriate.
II.A.3	Prepare a list of vehicles, machinery and equipment used by the warehouse and determine the age; mileage (as applicable); how it is maintained, whether on contract or by district personnel; and the budgeted replacement schedule.
II.A.4	Diagram the paperwork and process flow within the warehouse system including the supply requisition and delivery system, the receiving system, the delivery system, and the technology used to support the ordering, receiving and warehousing functions and show how the warehousing function is technologically connected to user departments. Show time lapses between processes and to the extent possible determine the average time to deliver supplies to the users from the time the order is submitted.
II.A.5	By examining the latest inventory records and determining the inventory turnover or annual usage rates for sample items (if available), evaluate whether inventory items are being ordered in the right quantities and at the right intervals to control the amount of inventory on hand without experiencing an out of stock condition.

III.A.1	Prepare a diagram or process flow chart showing the process for ordering, distributing, warehousing, retrieving, and reconciling textbooks in the district and for payment of lost textbooks.
III.A.2	Prepare a chart by campus showing the textbook losses for the last three years and determine the cause for any higher than average losses by campus.
III.A.3	Examine or create an organization chart showing the functional organization that supports the textbook ordering and distribution process including the role and responsibility of the textbook coordinator.

V.A.1	Through interviews with board members, users and staff compile a list of the critical success factors for the area under review. These success factors will vary by area, but should be the five to ten critical elements that must be met for this area to be deemed successful. For example, for transportation, a critical success factor might be that children arrive to school on time, that children are transported safely, and so forth. In food service a critical success factor might be that food is nutritious. Based upon quantifiable and supported documentation gathered from the Data Needs shown above and compare the current operations of the area or department to the critical success factors and note any area where performance falls short of success.
V.A.2	Obtain copies of budgets and staffing information for the area under review and determine, to the extent possible, the fully loaded cost for the services being provided in-house. Where possible reduce that cost to a per unit produced number. For example, in a print service that might end up being a cost per impression. In an alternative education program it may be the annual or daily cost per student served in the program.
V.A.3	Contact external vendors and provide them the data compiled in V.A.1 and V.A.2 above, and ask them for an informal, non-binding proposal for the cost of delivering similar services that addresses the following: Cost of services Types of services available Ability of the vendor to handle emergency or change orders Comparable quality of service Contract oversight