Sunday, August 15, 2010

Monitoring On-Call Purchase Contracts

Public agencies that competitively bid and award on-call or blanket contracts for purchases of specific items should establish internal control mechanisms to ensure that invoice charges do not exceed the bid prices that were awarded to vendors.

Why Overcharges Occur:  Often, vendors may not have a sophisticated system to enable them to actually provide discounted prices to the public agency who awarded them an on-call contract, or they may invoice the agency for higher amounts, hoping that the agency is not monitoring whether the invoiced prices are consistent with the bid prices included in the contract.  Regardless of the reasons, it is important for public agencies to have systems in place to monitor payments and ensure they are consistent with the contract terms.

Audit Finds Overcharges on Office Supply Contract:  The Washington State Auditor's Office recently concluded a special investigation into whether the Department of General Administration was monitoring payments made under the state's office supply contract to Office Depot.  The auditor sampled a 12 week period in 2009 to test whether Office Depot was charging correctly.  They concluded that during the test period, the state paid more than $306,000 above what the contract terms provided.  The contract has been in place for four years, and the auditor noted that a comprehensive review of the $77 million spent to date would have revealed a significantly higher dollar amount of overcharging.  Click here to read the auditor's report.

Practical Tip:  Whether you have on-call contracts or contracts for specific goods, services, or construction, ensure that you have in place a clear process for reviewing and validating charges against the terms of the contract.  Maintain a separation of duties within your agency between those authorized to order goods or work, those who authorize payment, and those who actually make the payments.

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