TSPR Higher Education Protocols- Chapter 7

Chapter 7
Purchasing and Warehousing

An effective purchasing system allows a college or university 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 institution, as well as the storage and distribution of goods. An institution of higher education may acquire goods or services by the method that provides the best value to the institution. (Consider HB1545).
This module focuses on the overall purchasing system including purchase order procedures, bidding practices, internal controls, warehousing, and integration of systems in the following areas:
Part 1
7.A. Organization and Staffing
7.B. Policies and Procedures
7.C. Operations and Bid Processes
7.D. Management Tracking, Monitoring and Oversight
Part 2
7.E. Warehouse Operations (Central Stores)
7.F. Contracting Process
7.G. "Yellow Pages" Test

PART 1
A sound purchasing system begins with sound policies implemented through systematic procedures. Careful planning, strong internal controls and cost-efficient practices such as group purchases and cooperative buying and competitive price/bid solicitation provide the framework for the efficient procurement of goods and services.
7.A. Organization and Staffing
Data Needs

Organization chart for Purchasing Functions
Job descriptions
State law on training

Possible People to Interview
System administrator with assigned responsibility
President
Vice president with assigned responsibility
Purchasing director/agent
Employees involved with purchasing in various departments
Purchaser from other departments if decentralized
HUB coordinator
Accounts payable representative
Activities to Perform

7.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 institution 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.
7.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 institution have specific personnel assigned to perform the purchasing and warehousing function or is the operation primarily decentralized with purchases made by campuses 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 an institution staffing formula that is comparable to institutions 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? Are there performance evaluation criteria established to evaluate staff?
What types of in-service training are provided for all institution staff involved in the purchasing process, including deans, 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 institutions and departments? What are the cost drivers in the budget and what has the institution or department done to control those costs?
How is the departmental budget tied to the institution's strategic plan? What is the process for assuring that departmental funds are budgeted in accordance with the institution's strategic plan?
Does the institution 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 institution determine that individuals or firms in the private sector best performed these services?
Does the departmental budget provide funds for staff development? Are purchasing staff provided in-service training on changing requirements, laws and procedures? Is staff sent to appropriate state or regional purchasing seminars?
Are procurement cards authorized? Are there policy and procedures? Are there procedures for the distribution, tracking and training of cards?
7.B. Policies and Procedures
Data Needs

Federal, state and local laws, rules and regulations that pertain to purchasing (some higher education institutions have unique purchasing laws that pertain only to them and therefore additional research may be needed to determine which purchasing laws are relevant to this review.) Higher Education is exempt from state purchasing statutes. Look specifically at Texas Education Codes 51.9335 and 73.115. Also review HB1545 from the 77^th legislature.
Purchasing policies, procedures, manuals and/or handbooks
Pertinent internal audit reports

Possible People to Interview
System administrator with assigned responsibility
President
Vice president with assigned responsibility
Purchasing director/agent
General counsel (if applicable)
Finance/Budget director
Accounts Receivable and Accounts Payable representative(s)
Deans/campus-based personnel
Other selected department head(s) as applicable
Internal auditor
Activities to Perform

7.B.1. Examine the institution'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 administrative approval. Review contracting patterns for evidence that institutions are not unduly awarding contracts to local vendors that could be awarded for more advantageous terms.

Questions to Ask
Does the institution have a board-approved policy designating signature and general purchasing authority to certain institution 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?
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 has 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 institution have a conflict of interest policy preventing or restricting institution employees and/or relatives from providing goods or services for the institution? Are Regents prohibited by policy from doing business with the institution? Do Regents with a substantial interest in a business file affidavits declaring their interest? Do Regents 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 institution? Does the institution appear to be unduly restricting contracts to local vendors that could be awarded for more advantageous terms?
How has the institution enforce established internal and external mandated ethical requirements governing purchasing procedures including:

An updated conflict of interest statement from the Board of Regents?
Updated conflict of interest statements from key management personnel (at least the president, vice presidents, 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?
7.C. Operations and Bid Processes
Data Needs

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 (state university construction may be covered by system policy not institution policy)
Copies of any contracts for services that are outsourced (if applicable)
Information on automated purchasing systems
Shared services agreements/purchasing pool agreements and summary list of purchases made through these arrangements
Memorandums of Understanding (MOUs)
Information about participating purchasing cooperatives (if applicable)
Customer satisfaction surveys (if applicable)
Peer institution information
Internal audit reports

Possible People to Interview
System administrator with assigned responsibility
Purchasing director
Physical Plant director
Finance/Budget director
Accounts Receivable and Accounts Payable representative(s)
Deans/campus-based personnel (Administrative Assistant)
Other selected department head(s) as applicable
HUB coordinator
Vendors
Internal auditor
Activities to Perform

7.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.
7.C.2. Prepare a process flow chart of the bidding and contracting process used by the institution 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.
7.C.3. Determine the total cumulative purchases by commodity for the last year and determine whether the institution 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.
7.C.4. Prepare a chart listing all shared or cooperative purchasing arrangements in which the institution 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.
7.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?
Using a group purchasing program?
Cooperative buying power?
The utilization of just-in-time deliveries?

Does the institution periodically identify and evaluate alternative purchasing methods such as joint purchasing with the state, other institutions or through the region service center? Does the institution purchase items electronically?
How does the institution evaluate competitive practices and innovative purchasing or service arrangements? How does the institution 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 institution monitor vendor performance and document performance problems for follow-up?
How does the institution 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?
Is there a board approved policy for HUB coordinator contracts? Are HUB contracts tracked and monitored?
7.D. Management Tracking, Monitoring and Oversight
Data Needs

Standard reports from Automated Purchasing System
Quarterly HUB reports
Outstanding invoice reports
Reports concerning payment to vendors
USAS reports
Pertinent internal audit reports

Possible People to Interview
System administrator with assigned responsibility
Budget offices staff
Director of Technology
Internal auditor
Activity to perform

7.D.1. Prepare a process flow chart showing the technologies used to support the purchasing and warehousing functions showing connectivity with user departments 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. Determine if the institution uses USAS as the internal accounting system or only for state reporting.

Questions to Ask
What is the level of automation? How is the procurement program integrated into the budgeting/encumbrance system? Are all purchase requisitions reviewed for budget authorization before purchase orders are prepared? Does the institution use procurement cards? Open POs? What is the limit?
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 institution 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)?
What is the process by which transactions are entered into USAS? Does each department responsible for purchases enter data into USAS or is information consolidated on a campus or institutional level?

7.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.
7.C.2.	Prepare a process flow chart of the bidding and contracting process used by the institution 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.
7.C.3.	Determine the total cumulative purchases by commodity for the last year and determine whether the institution 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.
7.C.4.	Prepare a chart listing all shared or cooperative purchasing arrangements in which the institution 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.
7.C.5.	Obtain a listing of vendor purchases sorted by vendor name.