By: Paul Emanuelli
This article is an excerpt from the 2021 edition of The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its December 2019 audit, the California State Auditor found that the Judicial Council of California was not complying with the contract reporting requirements mandated by state law and was not following proper signing authority protocols. As the State Auditor determined, the Judicial Council failed to include legally required information regarding its contracting activities in its semi-annual reports:
The Judicial Council did not include all legally required information on the contracting activities of the Judicial Branch of California (Judicial Branch) in its semi-annual reports for fiscal years 2017–18 and 2018–19. Specifically, the Judicial Council did not include in the semi-annual reports information regarding the Judicial Branch’s payments and the contract amendments that the Judicial Branch made during the reporting periods. The Judicial Council did not include the information for various reasons, including its own inconsistent entry of information and limitations of the publicly available Financial Information System for California (FI$Cal) website, which lacks up‑to‑date data. By not including this information, the Judicial Council failed to comply with state law and did not provide the Legislature with complete information.
The State Auditor also found that, similar to its prior 2017 audit, the Judicial Council once again failed to follow its own procurement policies since it failed to obtain the appropriate levels of approval for five information technology contracts that exceeded delegated spending approval levels:
The Judicial Council did not always follow its policies when procuring goods and services. Specifically, two supervisors—who each had Judicial Council authorization to approve procurements with costs up to $500,000—approved five procurements for information technology (IT) goods or services, legal services, or fees paid to a national organization, with costs ranging from $572,000 to $2.7 million. By approving procurements that they should not have, staff bypassed one of the controls the Judicial Council put in place to reduce the risk of fraud and to ensure that it procures goods and services at the best value for the State. This finding is similar to one we included in our 2017 report, Judicial Council of California: It Needs to Follow Competitive Bidding Processes More Consistently and Establish Clear Guidance for Invoice Processing, Report 2017‑302.
In failing to follow the proper contract approval rules, the State Auditor found that the Judicial Council undermined the oversight mechanisms that were established to reduce the risk of fraud and ensure value for money. The State Auditor also noted that the appropriate approvals could have been obtained had they been requested as required by applicable oversight rules:
Without obtaining the appropriate approvals, the Judicial Council bypassed one of the controls intended to reduce the risk of fraud and ensure the Judicial Council only procures appropriate goods and services at the best value. When the Judicial Council procures goods or services without the appropriate approvals, it increases the risk that the terms of those procurements may not be optimal or that the procurements may be inappropriate. Further, when the Judicial Council’s staff do not obtain approval for procurements from the appropriate individuals, it increases the possibility of misuse of public funds. At our request, the principal manager over procurement, who could have approved the five procurements we identified, reviewed those procurements and determined that he would have approved them if Judicial Council staff had routed them to him.
The State Auditor also expressed concern that, given its similar prior transgressions, the Judicial Council’s response to the ongoing contracting irregularities was inadequate to effectively address the non-compliance issues without implementing stronger internal governance controls:
The Judicial Council staff were able to procure the goods and services without appropriate approval because the Judicial Council does not include a step in its procurement process to ensure that staff obtain appropriate approvals. The Judicial Council acknowledged that the two supervisors who approved the five procurements did not have sufficient signing authority to do so. According to the principal manager of audit services, it was an error that the staff and supervisors did not obtain the appropriate approvals that occurred because the Judicial Council had a vacancy in a mid‑level manager position at the time of the procurements. After we informed the Judicial Council of the inappropriate approvals, the principal manager over procurement stated that he addressed the issue by holding a discussion with supervisory staff to ensure that they clearly understood the approval authority policy, and by sending an email to supervisory and management staff to remind them of the policy and its location in the local manual.
Nevertheless, we question whether a discussion with staff and an email reminder will adequately address the issue because we reported a similar finding in our 2017 audit. At that time, we found that one of the Judicial Council’s contract supervisors who had approval authority limited to less than $50,000 approved a procurement costing $345,000. Because of the potential consequences of the Judicial Council’s staff procuring goods and services without the appropriate approvals, and because we found additional instances that occurred during the period covered by this audit, the Judicial Council should establish stronger controls to prevent this problem in the future. For example, the Judicial Council could require those individuals approving entries of procurements in FI$Cal to verify that appropriate managers or supervisors approved the procurements and signed the hard copy contracts.
The State Auditor therefore recommended that the Judicial Council implement stronger procurement governance and oversight measures to avoid future transgressions and better ensure that staff properly report their contracting activities and obtain the approvals mandated by applicable state laws.
