FINANCIAL MANAGEMENT
This chapter reviews financial management in the Veribest Independent School District (VISD) and includes the following sections:
- A. Accounting Procedures
- B. Asset and Risk Management
- C. Purchasing
C. PURCHASING
Processes should be in place to ensure that supplies, equipment and services vital to the school system's education mission are purchased from the right source, in the right quantity, at the lowest price and properly stored and delivered in a timely manner to the appropriate location. These criteria should be met for each purchase without sacrificing quality or timeliness.
In 1995, the TEC was revised to expand school district purchasing options by addition three new methods of competitive procurement: design-build contract, competitive sealed proposal and request for proposals for personal property and construction contracts. In 1997, the legislature included two additional methods: job order contracts and contracts using construction managers. In 2001, the legislature added yet another method of competitive procurement: reverse auction procedure. With these additions, school districts can select among nine methods for competitively purchasing goods valued at $25,000 or more (or multiple like items with a cumulative value of more than $25,000 in a twelve-month period). These nine methods are listed below:
- Competitive bidding: Vendors submit written bids; negotiation of prices of goods and services after bids are opened by the district is not allowed.
- Competitive sealed proposals: Vendors submit a written bid, and all submitted bids are opened publicly to ensure fairness in the bidding process. Changes in the nature of a proposal and prices after proposal opening are allowed.
- Requests for proposals: Vendors submit a written bid, and all bids submitted are opened as they come in.
- Catalog purchase: Vendors that have completed competitive bid requirements at the state level can sell products directly to districts.
- Inter-local contract: With this method, school board-approved agreements with a local entity allow a district to purchase specific items from that entity's bid.
- Design/build contract: A vendor is selected for a competitive bid to complete an entire project. It is the vendor's responsibility to obtain merchandise for the project.
- Job order contract: Provides for the use of a particular type of contract for jobs for minor repairs and alterations.
- Construction management contracts: Outlines the use of a contract to construct, rehabilitate, alter or repair facilities using a professional construction manager.
- Reverse auction: A bidding process that involves the submission of bids by multiple suppliers, unknown to each other, in a manner that allows the suppliers to bid against each other.
In 1999, the Office of the Attorney General issued an opinion (Op. JC-37) stating that school district procurement through an inter-local agreement or a cooperative purchasing arrangement satisfies competitive bidding requirements.
School districts must advertise for bids worth more than $25,000 at least once a week for two weeks in any newspaper published in the county where the district is located. Those bids between $10,000 and $25,000 must be advertised in two successive issues of any newspaper in the district's county. TEC requires advertisements to specify the categories of property to be purchased and to solicit vendors that are interested in supplying them.
Exceptions to competitive bidding requirements include contracts for professional services including architect fees, attorney fees, and fees for fiscal agents. TEC also allows a district to purchase items that are available from only one source ("sole-source" purchases) including:
- An item for which competition is precluded because of the existence of a patent, copyright, secret process or monopoly;
- A film, manuscript or book;
- A utility service that provides electricity, gas or water; or
- A captive replacement part or component for equipment (specific to a particular piece of equipment and not available from more than one vendor).
TEA's Financial Accountability System Resource Guide (FASRG) outlines purchasing and reporting requirements for Texas schools.
A purchasing department's responsibilities should include the major function of purchasing all materials, supplies, equipment and services for a school district. The purchasing department should also be responsible for upholding the integrity of the district's competitive bidding process. VISD's purchasing responsibility is under direction of the superintendent.
FINDING
VISD does not seek competitive bids in accordance with TEA guidelines or board policy. VISD's superintendent said that the district has not obtained formal bids on items in several years. A review of financial data shows that items costing $25,000 or more, either individually or in the aggregate, were purchased without formal bids.
A review of vendor purchases for September 2000 through March 2001 shows the following items were purchased without formal bids or quotes:
- District vehicle;
- Food items for cafeteria operations;
- Computers and equipment;
- Furniture; and
- Instructional materials.
The external auditor has noted the district's deficiency in soliciting bids and quotes for purchases. In the August 31, 2000 audit report, the auditor states:
Criteria:However, the district still has not complied with state purchasing laws.
Section 44.033 of the Texas Education Code states that a vendor's list should be created from which quotes for purchases between $10,000 and $25,000 can be obtained.Condition:
Advertising for and creation of a vendor's list was not done.Auditor's Recommendation:
The district should become knowledgeable about the state purchasing laws and comply with them.Administration's Response:
The district will become knowledgeable about the state purchasing laws and comply with them.The goal of a purchasing function is to obtain the best goods available for educational needs at the best prices. By obtaining bids and quotes for purchased goods and services, the district will ensure that its purchasing practices are fair, that they meet the purchasing requirements set out by state law and that the district obtains items at reasonable prices.
Two options available to districts are cooperative purchasing agreements and catalog purchasing. TEA's FASRG describes trends in cooperative purchasing, including purchases through the Texas
General Services Commission (GSC), education service centers, cities, counties and colleges. The FASRG suggests school districts use the following criteria to decide whether to participate in cooperative purchasing:
- Variety of products and services offered;
- Cost of these products and services compared with other cooperatives or the school district's individual ability to buy these products or services;
- Timing and method of delivery;
- Participation charges, including administrative and operating costs;
- Reputation for overall service delivery, including problem resolution; and
- Administrative requirements placed on member districts, including paperwork or related issues.
Port Arthur ISD (PAISD) uses the GSC to purchase special items that would be difficult to purchase locally such as buses, tires and refrigerants. Also, PAISD participates in an inter-local cooperative purchasing agreement with the Regional Education Service Center (RESC). The district uses the RESC's catalogue of supplies, furniture and equipment when the competitive purchasing procedures would be difficult and time-consuming for district staff.
It is convenient to purchase from vendor catalogs, since they include a picture and description of items for sale. School personnel said they like the convenience of making routine and small purchases from catalogs. Also, a school can take advantage of seasonal sales offered by catalog vendors that are even lower than their discounted rates.
Although PAISD is a larger district, smaller ones like VISD can also benefit from these types of purchasing agreements.
Recommendation 34:
Establish procedures to comply with state purchasing laws.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. During budget planning stages, the superintendent determines items for which the district may need to obtain bids or quotes and researches cooperative purchasing possibilities through the GSC and RESC. October 2001 2. The superintendent monitors district purchases to determine when items need to be bid. Ongoing 3. The superintendent issues formal bids or obtains quotes for pricing information in accordance with state law. Ongoing FISCAL IMPACT
VISD can implement this recommendation with existing resources.