oversight

Review of Small Open Market Purchases, District of Columbia Government

Published by the Government Accountability Office on 1971-06-06.

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

Dear Mr. Washington:,

        The General Accounting Office has made a review of small open market
purchases made by the District       of Columbia Government.      We reviewed the
District-wide     policies  and procedures   that are to be used for such pur-
chases and tested the extent to which such policies         and procedures were
being followed     by examining selected procurement    transactions.

        In 1953 a procurement        office--   now designated      the Bureau of Procure-
ment, Department of General Services --was established                   for the expressed
purpose of obtaining        the maximum advantages of centralized                purchasing,
However, to accelerate         major procurement        and to minimize the volume of
minor procurement       transactions        in the Bureau, the heads of all District
departments     and offices      (agencies)     are authorized      to make purchases
directly    from vendors for supplies and services               within    certain    limitations.
These officials     may delegate         this authority      to other officials       within
their respective     agencies.        Information      provided    by the 3ureau of Procure-
ment in September 1970, showed that there were 61 agencies in the District
and that the authority         was delegated to over 300 District              employees.

        Bureau of Procurement statistics       show that small open market purchases
increased from $2.1 million        in fiscal   year 1965 to $5.6 million   in fis-
cal year 1969. The statistics         show that during fiscal   year 1968, District
agencies issued 38,675 purchase orders,          totaling about $4.6 million,    under
the authority     to purchase supplies and services on the open market.           For
our review, we examined about 5,300 of the fiscal          year 1968 purchase
orders totaling     $555,000.    These purchase orders were classified       by the
District     in commodity groups 53 - hardware and abrasives;       75 - office
supplies and,devices;       79 - cleaning equipment and supplies;      and 80 -
brushes, paints,     sealers,   and adhesives,

      Our review showed that District    agencies do not always adhere to
the established  policies  and procedures for small open market purchases
as discussed below.
OPEN MARKET PURCHASESOF ITEMS
AVAILABLE THROUGHFEDERAL OR
DISTRICT SUPPLY SOURCES

        The D.C. Procurement Manual states that all items that are available
through established       Federal or District      supply sources must be purchased
from those sources except (1) when the required            delivery time cannot be
met by those sources, or (2) when the amount of the purchase is not suf-
ficient    to justify   placing the order with such sources, or (33 when the
available    item will not effectively        meet the need. In all such cases,
however, the agencies are required          to obtain a waiver from the District's
procurement     officer   before purchasing     the item from an open market source.

       In our review of the 5,300 purchase orders we found that, generally,
the information     recorded by the agencies was not sufficient        to fully   iden-
tify the items purchased.       For example, items were described        as (1) office
supplies,    (2) maintenance items, and (3) miscellaneous     hardware supplies.
However, in instances       in which the items were fully  identified,       we com-
pared selected items purchased on the open market with those available
from Federal or District      sources such as GSA stock catalogs and D.C. term
contracts.

      We identified 45 line items that had been purchased on the open market
at a cost of about $22,185 that were identical      or similar  to items avail-
able from Federal or District    supply sources at a cost of $10,105, or at
an increased cost of 119.6 percent.     For example, one agency purchased
300 dozen ball point pens on the open market at $1.44 a dozen, or ,a total
cost of $432. The GSA stock catalog listed      ball point pens at 57 cents a
dozen, or a total cost of $171, -Had the agency purchased the ball point
pens through the General Services Administration,      it would have saved
$261.

       We found no evidence that the agencies had obtained required             waivers
from the procurement      officer     for any of the above items.     We queried
persons responsible     for procurement activities        in several District    agencies
as to the reasons certain         items were purchased on the open market,         They
gave various     reasons such as (1) items available        from GSA were inferior      in
quality,    (2) needed items sooner than they could be obtained from contract
source, and (3) items available          from established   sources did not meet
their requirements*       Since required     waivers were not prepared,     we could
not fully    evaluate the reasons given.


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III

      PURCHASESEXCEEDED DOLLAR LIMITATIONS

            Under the small purchase procedure the agencies'       authority   to purchase
      on the open market is limited    to $500 ($1,000 for repair parts) in any u3ne
      day from any one vendor.    We found 21 instances where the agencies made
      open market purchases which exceeded the dollar     limitations.       The amounts
      of these purchase orders ranged from $508 to $3,992 and totaled          $23,255..

              In addition,   we found 14 instances where purchases from a single
      vendor were split apparently       in order to stay under the applicable   dollar
      limitation,       These purchases resulted  in the issuance of 33 purchase orders
      totaling    $17,171.    For example, one agency within a three day period,
      issued five purchase orders ranging from $183 to $492 to the same vendor
      for like items.

      POSSIBLE SAVINGS AVAILABLE THROUGH
      INCREASED CENTRALIZED PROCUREMENT

            The Bureau of Procurement estimates that the cost of items purchased
      on the open market in small quantities     is generally    from 20 to 60 percent
      higher than when the same items are purchased centrally         through bulk pro-
      curement contracts.   The D.C. Procurement Manual states that the small
      purchase procedures will not be used when (1) the total annual usage of
      the items involved  would justify   their inclusion     in a planned procurement
      and 12) when the total annual requirements       of an agency for the item to be
      purchased,  either by itself   or in combination    with other items available
      from the same sources of supply, are more than $2,500.

            We found that of the $555,000 of small open market purchases r'eviewed,
      items costing $143,000, or about 26 percent,     were purchased from 18 vendors.
      The extent to which these purchases might have been consolidated          could only
      have been determined  through a detailed  analysis    of the items purchased.
      While we did not make such an analysis,   we believe    that the large amount
      purchased from only 18 vendors indicates   a potential     for consolidated    pro-
      curement, thereby resulting   in savings to the District.

            The District's procurement officer  informed us that substantial
      improvements have been made in this area in recent years.     He agreed        with
      us, however, that there is room for further     improvements.




                                                                               -3-
       Certain actions have been taken by the District              to improve its supply
management system, of which small open market purchases is an integral
part.    In June 1969, a contract was awarded to the National                Institute    of
Governmental    Purchasing,      Inc., to study, among other things,           the feasi-
bility   and desirability      of establishing        a centralized   supply managernent
system within    the District.        Also, in July 1970, a contract         was awarded
to Dooz, Allen, and Hamilton,           Inc., to develop an inventory        control   system
for the Department of Sanitary            Engineering    which may be used as a model
system for other District          agencies.

        As a result of the recommendations          from these groups, we were in-
formed that the District        plans to move toward an optimal District-wide
inventory     control  system.     The initial    steps planned for implementing
such a system include:         (1) developing     an effective    manual inventory     con-
trol system in each agency, augmented by computer programs to provide
management reports and to continuously            update reorder points and quan-
tities;    (2) developing    a District-wide      cataloging    system which would in-
crease unification      of purchasing;       and (3) developing     centralized  control
of purchasing      and supply for certain       supply categories.

       Since a District-wide        inventory     control  system, if properly    imple-
mented, should greatly         reduce the need for small open market purchases,
we are making no recommendations             concerning   changing the procedures     that
have been established        for control      of such purchases.     We were informed,
however, that the District          was several years away from full        implementa-
tion of this system.         Meanwhile, we recommend that you make the findings
in this report available          to all agency heads and request that they take
the action necessary to assure compliance with District-wide                 procedures
dealing with small open market purchases.

      We believe that the large number of officials      involved   in making
open market purchases increases the possibility      of not following      District-
wide procedures  in making such purchases.     Accordingly,     we suggest that
you have each agency review the number of officials         to whom authority      for
making small open market purchases has been delegated with a view to re-
ducing this number.

      We wish to express our appreciation     for the cooperation    which District
personnel   gave to our representatives   during the review.      We shall appre-
ciate being advised of the future actions taken on our recommendations,
and other action taken to improve the supply system.


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            Copies of this   report are being sent ta the Director,    Department
     of General Services,     and to the Associate Director,  Office   of Municipal
     Audits.

                                             Sincerely   yours,




                                             Assistant   Director


     The Honorable Walter E. Washington
     Commissioner of the District of
       Columbia
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