oversight

Procurement and Supply Functions

Published by the Farm Credit Administration, Office of Inspector General on 2000-03-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

    FCA's Supply and
Procurement Functions

              AOO-01

Farm Credit Administration	                         Office Of 'lSpec·o· Gerera
                                                    15"1 farrl ,>,,'dlt Dnve
                                                    McLear, Virginia 2210:':--5090
                                                    (703) 883-4038




 March 29,2000


 Michael M. Reyna, Chairman and
  Chief Executive Officer
 Farm Credit Administration
 McLean, Virginia

 Dear Mr. Reyna:

 The Office of Inspector General has completed an audit of the Procurement and Supply
 Activities at the Farm Credit Administration (FCA or Agency). The objectives of this
 audit were to evaluate the efficiel1 cy of FCA's procuremer.t and supply activities and
 users' satisfaction with these services. .

 Our review found that staff are generally satisfied with the services provided; however
 costs to the Agency could be reduced without diminishing the service. OIG and
 management came to agreement en 12 actions that would improve the efficiency of both
 functions. Two proposals by OIG are stated as recommendations.

 We conducted the review in accordance with Government Auditing Standards issued by
 the Comptroller General for audits of Federal organizations, programs, activities, and
 functions. Fieldwork was conducted from November 18, 1999 through December 23,
 1999. An entrance conference was held on November 17. We provided an initial draft
 report to program officials on February 4, 2000. An exit conference was held with
 program officials on February 28, 2000 and a final drafL report was provided to
 management for comment on March 1, 2000.

 We thank the Director of the Human and Administrative Resources and his staff, as well
 as the participants in the credit card program and contracting process whom we surveyed,
 for their input. If you or your staff have any questions about this audit, we would be
 pleased to meet with you at your convenience.
                     7
                                 Table of Contents




Background                                                                                            1


Objective, Scope and Methodology                                                                      1


Observations, Conclusions and Recommendations


      Staff are generally satisfied with the services provided by both

      the supply room and procurement personnel.                                                     2


      Costs can be reduced in the Agency's supply and procurement

      functions without diminishing services                                                         2

                                                                                                     .,

      Information in procurement databases is incomplete and unreliable.    ........................ oJ



      There needs to be a separation of incompatible duties in ordering,

      receiving and disbursing supplies ordered from GSA                                             5


      Administrative help is needed in ASB.                                                          5


      Delivery dates should be noted on all orders                                                   6


      Better records are needed for tracking supplies                                                6


      Procurement forms should be consolidated                                                       7


      Contract and interagency files are incomplete                                                  7



Management's Response
                                FCA Office of Inspector General

                        Audit AOO-O I: Procurement and Supply Activities




BACKGROUND

The Farm Credit Administration (FCA or Agency) is an independent Federal financial
regulatory agency of the United States government with regulatory, examination and
supervisory responsibilities over the Farm Credit System (FCS) banks, associations, and
related institutions charted under the Farm Credit Act of 1971, as amended.

The Administrative Services Branch (ASB) performs contracting and procurement
services for the Agency. The Support Services Section of ASB is responsible for supply
and mail distribution and administration as well as the Agency's supply room and
receiving function, among other things. ASB is organized within the Human and
Administrative Resources Division (HARD), Office of Resources Management (aRM).
ASB staff consists of the branch chief, one contract specialist, one purchasing specialist,
one support services supervisor, one supply technician, two mail clerks and one support
services assistant (new position-unfilled). The supply technician is under the direct
supervision of the support services supervisor and has primary control and responsibility
over the supply room and receiving functions.

The FCA makes purchases under the' guidelines set forth in the Federal Acquisition
Regulations (FAR), Title 48, Code of Federal Regulations. The FAR contain uniform
policies and procedures applicable to Federal agencies in buying personal property and
nonpersonal services.

In 1989, the General Services Administration (GSA) contracted for the use of a
commercial credit card service for government agencies to use for rnicropurchases (under
$2,500).   In February of 1998, the FCA decentralized the authority to make
micropurchases by issuing government credit cards and checks to staff throughout the
Agency. As of November 1999, 36 employees take part in this buying program. These
employees have delegated procurement authority for their respective offices up to $2,500
per purchase. Payment for training, which previously needed the issuance of purchase
orders by ASB, has also been decentralized to credit cardholders.


OBJECTIVE, SCOPE AND METHODOLOGY

The objectives of this audit were to evaluate FCA's procurement practices by performing
an analysis of the number and size of contracting, small purchase, and supply room
transactions and to measure operational effectiveness, efficiency and customer
satisfaction with how these services are carried out. To perform the analysis of the
procurement and supply transactions, we interviewed aRM staff and reviewed database
records and procurement files. We also analyzed the cost-benefit relationships of the
charges for salaries, benefits and space to the transactions performed by procurement
personnel. We measured customer satisfaction through a standardized questionnaire sent
to FCA and Farm Credit System Insurance Corporation employees having primary




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                        Audit AOO-O!: Procurement and Supply Activities



responsibility for ordering supplies, services and equipment for their offices. We also
reviewed ASB's customer survey results received from users of their services.


OBSERVATIONS, CONCLUSIONS AND RECOMMENDATIONS

Staff are generally satisfied with the services provided by both the supply room and
procurement personnel.

We sent thirty-two questionnaires to the most frequent users of these services. Twenty­
nine responses were received. Results conftrm general satisfaction with the accuracy,
clarity, courtesy, timeliness, and responsiveness of individuals providing these services.
Fourteen questionnaires were sent to staff involved in the formal contract process over
the past three years. Respondents (six) ranked the procurement staffs performance as
either generally or very good. Some respondents on small purchases noted the need for
procurement staff to be more proactive by providing status and clarifying information on
purchases without the requesting office having to initiate it. Staff also expressed the need
for the supply room to either be open longer or ensure the supply technician is available
during hours advertised as open for services. In addition, it was also noted that it would
be more customer-friendly if the supply technician were physically located where he
could see customers when they come to get supplies.

Agreed Upon Action

1.	 ASB will make changes to the procurement and supply functions to make them
    more user-friendly and service oriented.


Costs can be reduced in the Agency's supplY and procurement functions without
diminishing services.

The number of centralized purchases processed by ASB has decreased significantly over
the past three years--from around 714 in ftscal year (FY) 1997 to approximately 429 in
FY 99. Sixty-four percent of the purchases in FY 99 were made with a credit card. This
total includes both small purchases (up to $25,000) and those requiring more formal
contracting methods (over $25,000). ASB states that they have processed 513
transactions in FY 99; however, based on reports provided to us by ASB, we cannot
conftrm that number. Even though this volume averages around two transactions per
working day, two full-time staff members and three others on a part-time basis are
involved in this process. The total cost for salaries, beneftts and office space for these
individuals is roughly $202,850, for FY 99 purchases.

Using the ASB's higher transaction number (513 versus 429), the cost per transaction for
processing small purchases is approximately $198. The cost to process formal contracts
and interagency agreements is approximately $2,149 per transaction.




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                                FCA Office ofInspector General

                        Audit AOO-O I: Procurement and Supply Activities



We do not think purchasing should be contracted out because the Agency would still
need a liaison with the contractor as well as someone to process credit card purchases
over the micropurchase limit. However, we think that one employee could perfonn all
the current centralized procurement workload. This would save $110,437 annually,
assuming continuation of the median salary of existing staff, related benefits and the cost
of office space.

Four employees currently work in FCA's supply function on a part-time basis. The
annual cost of applicable salaries and benefits for these four employees and the cost of
space to house the stockroom total $87,948. Abolishing the supply room and setting up
blanket purchase orders with commercial office supply firms could eliminate these costs,
There are many office supply companies that will accept orders by telephone or Internet
and guarantee next-day delivery. Each FCA office has authorized credit cardholders who
already make most of the micropurchases for their office. Forty-seven percent of the
credit cardholders we surveyed said they would prefer to buy their supplies direct and not
go through the supply room. Any purchases over $2,500 would continue to be made
through central purchasing. Such an arrangement would not only eliminate significant
costs without loss of service but would also provide direct access to a much wider
selection of supplies than is available in the supply room. Decentralization of supply
purchasing would also cut out the cost'and delay associated with the current practice of
mailing supplies to field offices.

Recommendations

1.   The central purchasing function should be streamlined.

2.   The supply room should be eliminated.


If either of these two functions is retained in-house, the following 11 agreed upon actions
will improve the current process.

Information in procurement databases is incomplete and unreliable.

Information Resources Division developed two databases for ASB in 1997. The first was
initially intended to track requisitions from receipt through to payment. The second, a
vendor file, is intended to list all companies the Agency does business with as well as
those seeking placement of their company on the file.

Requisition Tracking System

The requisition tracking system is not used consistently by ASB employees.
Procurement actions are not always entered and data that is entered is not done so in a
timely manner. Also, a single database listing all procurement transactions in ASB does
not exist. Therefore, we were unable to obtain an accurate count of the number of the
total orders processed by ASB. We reviewed a random sample of twenty purchase orders



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                                 FCA Office ofInspector General

                         Audit AOO-O I: Procurement and Supply Activities



and their corresponding requisitions. Of those, eleven orders (55%) referenced either an
incorrect requisition number or contained no requisition number at all. We also reviewed
a separate random sample of twenty requisitions and each corresponding purchase order
and found that ten of those requisitions (50%) referenced an incorrect purchase order or
no number at all. This sampling was a little over two percent of the total orders
processed during the reporting period.

The receiving function also uses the requisition tracking system to retrieve paperwork
when deliveries are received. However, because purchase orders are not always entered
accurately or timely, this system is not a useful tool, resulting in delays in retrieval of
paperwork and the eventual delivery of orders. Corresponding supplies and equipment
may sit undelivered in the supply room for extended periods of time. This problem was
also mentioned on questionnaire responses received during this audit from frequent users
as well as in an OIG management letter dated March 31, 1999 entitled Securitv of Supplv
Area.

The entry of data from reqUlsltlOn to payment has never been fully developed and
utilized; therefore, the full benefit of this system has never been realized. It was intended
that requesting offices would be able to have "read only" access to get the current status
of any requisition through to payment, rather than having to call Fiscal Resources
Division (FRD) or ASB to obtain this information. With the steady decrease in
centralized purchase orders, a conscious decision should be made by ORM management
about the value of using this system to its full capabilities versus the time expended
entering data and manually researching inquiries from end-users by staff

Agreed Upon Action

2.	 The automated acquisition requisition tracking system will contain accurate, timely
    data and provide reliable information to management and end-users or will be
    replaced with another automated system compatible with the financial management
    system.


Vendor File Database

The vendor file database contains general information on vendors that have asked to be
placed on the database, some of those who have done business previously with FCA, or
those sending brochures to the ASB for goods or services that may be needed by the
Agency in the future. The ASB chief (or support staff from the mailroom) enters vendors
into this database as time permits. Some of the information contained in this database
(i.e. phone and fax numbers, addresses, and tax identification numbers needed for
payment) would be very useful for not only ASB staff but FRD as well. If this database
were kept current, staff would be able to process orders more expeditiously. Due to the
lack of administrative support for data entry, as well as the fact that most ASB staff
generally do not refer to the database when working on requisitions, this database is not
effectively utilized and consequently not kept current.



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                                FCA Office ofInspector General

                        Audit AOO-O I: Procurement and Supply Activities



Agreed Upon Action

3.	 The vendor file database will be kept current and all those processing requisitions
    use it as a reference tool.


There needs to be a separation of incompatible duties in ordering, receiving and
disbursing supplies ordered from GSA.

The supply technician is responsible for ordering, recelvmg, stocking and disbursing
supplies. Items for the supply room are ordered by both the supply technician and the
support services supervisor. The support services supervisor places orders for supplies
not stocked by GSA by using his Agency purchase card. The supply technician orders
supplies from GSA by completing an order form and presenting it to the support services
supervisor for review and approval. However the form is usually not signed off on by the
supervisor. The supply technician then places orders for supplies from GSA over the
phone. The supply technician is also responsible for receiving, stocking and disbursing
all supplies.

The procedures in place for preventing the concentration of all parts of this operation
from being performed by the same person are adequate. However, they are not always
being followed.

Agreed Upon Action

4.	 The support services supervisor will ensure that all orders for supplies placed by the
    supply technician are reviewed and signed off on prior to placing the order with
    GSA.


Administrative help is needed in ASB.

For several years ASB has not had an administrative person to handle mail receipt and
distribution, filing, typing, answering phones, and other administrative tasks. Staff
members have each been responsible for handling their own administrative workload.
The purchasing specialist receives some backup from support services staff in processing
small purchases, performing data entry and filing. Support services staff also provide
limited data entry support to the Chief of ASB.

Currently, one mail clerk provides administrative support to both ASB and the supply
clerk. She also provides support to others in HARD as well as performs her own duties
in themailroom.Itis sometimes difficult for her to separate her mail clerk duties and
responsibilities from those support services she provides to others and to accomplish all
of them in an efficient manner.




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                                FCA Office of Inspector General

                         Audit AOO-Ol: Procurement and Supply Activities



Agreed Upon Action

5. More resources will be devoted to administrative functions in ASB.


Delivery dates should be noted on all orders.

When requisitions are processed in ASB and result in a purchase order, memorandum of
call, Standard Form 1 (Government Printing Office request), or other official
procurement document [collectively, hereafter, referred to as orders], two copies of each
order are sent to the supply technician. Upon receipt they are filed by the mail clerk in
one of two binders, based on the delivery date noted on the order. When the items are
delivered, one copy of the order is pulled and the supply technician or the mail clerk
obtains signatures noting receipt. The paperwork noting the original signature is then
sent to FRD with a copy going back to ASB.

Many of the ordering documents do not contain a delivery date. Therefore, staff
performing the receiving function have no idea when to expect deliveries. Maintaining
two copies of each order appears to be time-consuming with no real value added.

Agreed Upon Actions

6. All orders will state a delivery date.

7. One copy ofeach order will be maintained in the supply room.


Better records are needed for tracking supplies.

When supplies are needed from GSA, the supply technician writes up an order and
presents it to the mail clerk for data entry into an automated system. When the items
ordered are received from GSA, the order is then filed in the sequence in which it is
filled. If someone needs to research a specific delivery order, unless they know the exact
date the entire order was completed, they have to look at every order to fmd the correct
one. Since the order is already in a database, the delivery information could be added to
this, thereby making retrieval of delivered orders much more streamlined. Also, the way
the files are organized now, we were unable to get an exact count on the number of
supply requests filled. The best "guestimate" was 15 per day but there was no systematic
basis for this number.

ASB has purchased a software package that will provide a user friendly, windows-based
format for recording and tracking supply information about orders, shipping receipts, and
current levels on hand. It has the ability to value supply stocks and determine reorder
points for standard items, and can also be used as an inventory and internal control tool.
When implemented, this should meet the requirements of Agreed Upon Action #8.




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                                FCA Office ofInspector General

                        Audit AOO-O I: Procurement and Supply Activities


Agreed Upon Action

8.	 The filing system for supply orders placed by the supply technician will be
    reorganized or further automated.


Procurement forms should be consolidated.

Currently ASB staff must complete two separate forms; one entitled "Abstract of
Proposals/Quotations" and the other "Small Purchase Pricing Memorandum." Current
procedures require procurement staff to complete both forms for every negotiated order
over $2,500. It would be more efficient to combine the information contained on these
forms into one.

Agreed Upon Action

9.	 One form will be developedfor use on orders over $2,500.


Contract and interagency files are incomplete.

A review of the formal contract and interagency agreement files found that the Agency
has issued five formal contracts and 46 interagency agreements in FY 97, 98 and 99. The
formal contract files were not complete in that none contained copies of invoices. One
had no reference to the use of a panel in making the selection, a requirement in the FAR.

Interagency agreement files were also incomplete. FCA entered into 46 interagency
agreements in FY 97, 98, and 99. According to aRM DivisionlRegion Directive #1, a
requisition, Office of General Counsel (OGC) review and clearance, and transmittal
memo are required for each agreement. Only seven of the 46 agreements (15%) we
reviewed contained a requisition. One contained certification of OGC review and
clearance (.02%), and one contained a transmittal memo (.02%). ASB did provide copies
evidencing the existence of these documents for some agreements; however, they should
be retained in one central place as the official Agency contract file.

Agreed Upon Actions

10.	 FRD will send copies ofinvoices on contracts to ASB after payment is made.

11.	 A selection panel will be used on all formal contracts issued, when required by the
     FAR. This process will be noted in the contract files.

12.	 Official interagency agreement files will include the approved requisition, a
     transmittal memo and certification of OGe. review and clearance or the office
     directive will be revised to reflect the new requirements.




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