PERFORMANCE AUDIT
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SPECIAL AUDIT OF THECOMMONWEALTH OF PENNSYLVANIACONTRACTOR RESPONSIBILITY PROGRAMJULY 1, 1997 TO DECEMBER 31, 1999SPECIAL AUDITOF THECOMMONWEALTH OF PENNSYLVANIACONTRACTOR RESPONSIBILITY PROGRAMJuly 1, 1997 to December 31, 1999COMMONWEALTH OF PENNSYLVANIACONTRACTOR RESPONSIBILITY PROGRAMJuly 1, 1997 to December 31, 1999TABLE OF CONTENTSPageLetter to the Governor.................................................................................................................... 1Background .................................................................................................................................... 3Audit Objective, Scope, and Methodology..................................................................................... 6Executive Summary ....................................................................................................................... 7Finding No. 1 - The Commonwealth's Internal Controls Over the ContractorResponsibility File Are Seriously Deficient ...................................................................................9Finding No. 2 - The Contractor Responsibility Program Failed to Detect or Prevent theAwarding and Payment of Commonwealth Contract Funds to NonresponsibleContractors Owing Millions in Uncollected Liabilities to the Commonwealth .........................23Finding No. 3 - Significant Documentation and Control Weaknesses Exist in theContractor Responsibility Program............. ...
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SPECIAL AUDIT OF THE
COMMONWEALTH OF PENNSYLVANIA
CONTRACTOR RESPONSIBILITY PROGRAM
JULY 1, 1997 TO DECEMBER 31, 1999
SPECIAL AUDIT
OF THE
COMMONWEALTH OF PENNSYLVANIA
CONTRACTOR RESPONSIBILITY PROGRAM
July 1, 1997 to December 31, 1999
COMMONWEALTH OF PENNSYLVANIA CONTRACTOR RESPONSIBILITY PROGRAM July 1, 1997 to December 31, 1999
TABLE OF CONTENTS
Page
Letter to the Governor.................................................................................................................... 1
Background .................................................................................................................................... 3
Audit Objective, Scope, and Methodology..................................................................................... 6
Executive Summary ....................................................................................................................... 7
Finding No. 1 - The Commonwealth's Internal Controls Over the Contractor Responsibility File Are Seriously Deficient...................................................................................9
Finding No. 2 The Contractor Responsibility Program Failed to Detect or Prevent the -Awarding and Payment of Commonwealth Contract Funds to Nonresponsible Contractors Owing Millions in Uncollected Liabilities to the Commonwealth .........................23
Finding No. 3 - Significant Documentation and Control Weaknesses Exist in the Contractor Responsibility Program..............................................................................................27
Finding No. 4 The Contractor Responsibility Program Oversight Committee is Deficient in Overseeing the Program ...........................................................................................34
Observations ................................................................................................................................. 39
Audit Distribution List ................................................................................................................. 43
The Honorable Mark S. Schweiker Governor Commonwealth of Pennsylvania Harrisburg, Pennsylvania 17120
Dear Governor Schweiker:
The Department of the Auditor General has completed a special audit of the Commonwealth’s Contractor Responsibility Program (CRP) for the period from July 1, 1997 to December 31, 1999. We performed this special audit under authority derived from Section 402 of The Fiscal Code, which states: “Special audits of the affairs of all departments, boards, commissions, or offices, may be made whenever they may, in the judgment of the Auditor General, appear necessary . . . .
Our audit was performed in accordance withGovernment Auditing Standards, issued by the Comptroller General of the United States. Our audit consisted of tests and procedures which we considered necessary under the circumstances to evaluate compliance with applicable laws and regulations governing the CRP, the adequacy of internal controls, and whether the CRP was operating effectively to ensure that the Commonwealth was only contracting with responsible vendors. Our approach included reviews of documentation and interviews with the members of the statewide CRP Oversight Committee, along with management and staff from various Commonwealth agencies participating in the CRP, to obtain an understanding of applicable policies, procedures, regulations, and internal controls. As part of this audit, we also examined the statewide Contractor Responsibility File (CRF) database, the separate databases from various Commonwealth agencies providing input into the CRF, and agency contract files.
We found that the CRP Oversight Committee and the various Commonwealth agencies participating in the CRP failed to properly administer the program, and that the Commonwealth may be losing or not recouping significant funds as a result. There was little contact between the CRP Oversight Committee and the senior managers within the various Commonwealth agencies responsible for implementing the CRP. This lack of communication is especially troubling in light of the changes made to the CRP in April 1999. We found that the CRP was not preventing the Commonwealth from contracting with non-responsible contractors. Specifically, we found about 1,130 non-PADOT and over 350 PADOT contractors who owed millions in unpaid liabilities to the Commonwealth during our audit period. We also found serious deficiencies in the CRF database and major control weaknesses in agency procedures which prevented the
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agencies from properly identifying and selecting contractors who were responsible. In addition, we noted nearly $2 million in contract payments to a debarred contractor without proper documentation to justify this course of action.
Based on the evidence reviewed, we have concluded that management failed to exercise sufficient diligence and care in its implementation of the CRP. Furthermore, it has failed to adequately safeguard taxpayer dollars in awarding millions of dollars in state contracts to entities owing millions of dollars in liabilities to the Commonwealth.
The auditors’ findings and recommendations for improvement were discussed with representatives from the CRP Oversight Committee and from the various agencies charged with implementing the CRP in the contracting process. We hope these findings will be seriously considered and our recommendations implemented promptly so that the Commonwealth’s commitment to contract with responsible vendors and safeguard Commonwealth funds will be met more effectively and efficiently in the future.
I would like to thank the management and staff of the Commonwealth agencies involved in this audit for the assistance extended to the auditors working on this audit. Unfortunately, some of the key information and documentation needed to complete this audit was not provided to us in a timely manner, which caused a considerable delay in the release of this report.
Sincerely,
Robert P. Casey, Jr. Auditor General
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COMMONWEALTH OF PENNSYLVANIA CONTRACTOR RESPONSIBILITY PROGRAM July 1, 1997 to December 31, 1999
BACKGROUND
Governor’s Executive Order (EO) 1990-03, dated June 29, 1990, established the statewide Contractor Responsibility Program (CRP) to “identify, evaluate, and sanction appropriately, contractors that do not meet the standards of responsibility, that render deficient performance, or that engage in wrongdoing or other activity adversely affecting their fitness to contract with Commonwealth agencies. (See Exhibit 1) Commonwealth Management Directive (MD) 215.9 was issued by the Governor’s Office on July 17, 1990 in order to implement the CRP within the Commonwealth as directed by EO 1990-03. The stated purpose of MD 215.9 was“To ensure that the Commonwealth’s contractors are competent and responsible and that the contracting process is free of fraud, waste, and abuse. To identify, declare ineligible, and sanction contractors that have rendered deficient performance or engaged in other activities that adversely affect their fitness to contract with Commonwealth agencies.This MD applied to all departments, boards, and commissions (hereafter referred to as agencies) under the Governor’s jurisdiction. The stated objectives of MD 215.9 included: a. To mandate the reporting by Commonwealth agencies of instances where a contractor is not responsible. b. To provide for the securing of information on contractor responsibility received from other sources such as the federal government, other states, local governments and private industry. c. To provide procedures for agencies to investigate allegations that a contractor is not responsible. d. and procedures to ensure agencies determine, prior to the award of aTo provide standards contract, that the contractor is responsible or declared ineligible, which shall include accessing the central Contractor Responsibility File (CRF). e. To provide for the imposition of appropriate sanctions (e.g., debarment or suspension) against contractors that have rendered deficient performance or have engaged in other activities that adversely affect their fitness to contract with Commonwealth agencies. f. the centralized collection and dissemination of information of contractorTo provide for misconduct and deficient performance as well as sanctions imposed against contractors through the use of the CRF.
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COMMONWEALTH OF PENNSYLVANIA CONTRACTOR RESPONSIBILITY PROGRAM July 1, 1997 to December 31, 1999
g. application of sanctions by all agencies.To provide for consistent h. To ensure that the information reported on the CRF is considered confidential and protected from disclosure. In order to carry out these stated objectives, MD 215.9 identified specific responsibilities for various agencies that are required to participate in the CRP. It also identified detailed procedures that must be followed by these agencies for individual contracts in excess of $5,000 or when the aggregate amount of a series of contracts exceeded $15,000 in a fiscal year. Some of these key responsibilities included: The Department of General Services (DGS) and Office of the Budget (OB) were responsible for joint development, oversight, and on-going monitoring of the statewide CRP, including the creation of a centralized CRF to collect and disseminate reports of contractor non-responsibility, deficient performance, as well as sanctions imposed. DGS was required to obtain suspension and debarment lists from the federal government, other states, and other appropriate outside sources for use in the CRP. The Department of Transportation (PADOT) was required to both utilize and update the CRF as necessary concerning all its contractors, both prequalified and non-prequalified. The various agency heads were given the primary responsibilities to implement the CRP in the contracting process and to determine and report instances of non-responsibility. Each agency head was required to designate a senior manager to carry out the agency’s specific CRP responsibilities in its contracting procedures. During our audit period, on April 16, 1999, MD 215.9 was amended. The amended directive included the following changes: The creation of a new CRP Oversight Committee, comprised of representatives from the Office of General Counsel (OGC), Office of Inspector General (OIG), DGS, and OB, and other agencies as may be directed by the Governor, to assume the overall responsibilities for monitoring the CRP within the Commonwealth, including management of the statewide CRF. $10,000 both the $5,000 contract threshold and the $15,000 aggregateAmending to contracting threshold mentioned above.
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COMMONWEALTH OF PENNSYLVANIA CONTRACTOR RESPONSIBILITY PROGRAM July 1, 1997 to December 31, 1999
Specifically requiring both the Departments of Revenue (DOR) and Labor and Industry (L&I) to provide information on outside entities who have liabilities and tax delinquencies (including tax liabilities and non-filers) owed to the Commonwealth for inclusion in the CRF.
Establishing specific responsibilities for Commonwealth agencies, including a search of the CRF before processing invoices over $10,000, to offset the amount of any tax or other Commonwealth liability owed by a contractor against any payments due the contractor.
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COMMONWEALTH OF PENNSYLVANIA CONTRACTOR RESPONSIBILITY PROGRAM July 1, 1997 to December 31, 1999
AUDIT OBJECTIVE, SCOPE, AND METHODOLOGY
Our audit of the CRP covered the period from July 1, 1997 to December 31, 1999. Our audit objectives were to determine whether the Commonwealth complied with applicable laws, regulations, and policies governing the CRP, whether adequate internal controls were in place within the CRP, and whether the CRP was operating effectively to ensure that the Commonwealth was only contracting with responsible vendors. Our audit methodology in support of our objectives included the following: Conducting interviews with Oversight Committee members, agency senior managers, Comptroller Office representatives, and other Commonwealth personnel as deemed necessary; Reviewing applicable laws, regulations, policies, and procedures governing the CRP; and evaluating the responsibilities and performance of the CRP OversightReviewing Committee, including its training and monitoring process within the CRP; Evaluating the effectiveness of procedures and controls in place at the largest contracting agencies responsible for carrying out the CRP requirements. We sampled the following six Commonwealth agencies in this testwork: Department of Labor and Industry (L&I) Department of Transportation (PADOT) Department of Public Welfare (DPW) Department of Education (PDE) Department of Community and Economic Development (DCED) Department of General Services (DGS) Sampling agency contracts and payments and examining supporting documentation to determine compliance with MD 215.9 and to verify agencies are contracting with responsible contractors; electronic data matches to evaluate the integrity of the Commonwealth CRFPerforming database for completeness and accuracy, and to determine whether the Commonwealth is contracting with vendors who are not responsible.
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