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Acquisition Management: Oversight and Monitoring Would Improve Compliance with Policies for Sole-Source Purchases (OIG-A-16-10, September 28, 2016)

What OIG Did

The objective of this audit was to assess the extent to which the Smithsonian’s controls over purchase orders are effective in ensuring compliance with key Smithsonian policies and procedures. The audit focused on policies and procedures governing sole-source purchase orders, which are awarded without competition; training of procurement personnel; and segregation of duties related to purchasing.

Background

The Smithsonian uses purchase orders as a way to acquire goods and services needed to achieve its mission. For example, purchase orders can be used for engaging contractors to transport artwork, to plan and execute events, and to buy supplies. The Smithsonian’s purchase orders in fiscal year 2014 totaled nearly $177 million. Competition is recognized as a way to pay a fair and reasonable price for goods and services. With limited exceptions, Smithsonian policy requires competition for purchase orders exceeding $10,000.

The Office of the Inspector General (OIG) conducted this audit because the Smithsonian’s procurement process is decentralized, and there is minimal centralized oversight.

What OIG Found

According to officials at the Smithsonian Institution’s (Smithsonian) Office of Contracting and Personal Property Management (contracting office), sole-source purchasing should be the exception, not the norm, for purchase orders that exceed $10,000. Nevertheless, based on a sample of fiscal year 2014 purchase orders, OIG estimated that half of those exceeding $10,000 were sole-source awards. In addition, 38 percent of the sole-source purchase orders had missing or inadequate documentation or approvals to justify their award without competition.

As part of the Smithsonian’s internal controls, the contracting office is required to conduct compliance reviews of units’ purchase order processes every 3 to 5 years. The Smithsonian Astrophysical Observatory (SAO) also is required to conduct compliance reviews every 3 to 4 years. However, OIG found that neither the contracting office nor SAO has conducted compliance reviews since the requirement was established in 2011. The contracting office also did not ensure that sole-source purchase orders awarded to former employees or other related parties (e.g., advisory board members) received proper legal review and approval to avoid potential conflicts of interest. And the contracting office did not have effective procedures in place to ensure that contract specialists and unit procurement delegates involved with processing purchase orders in fiscal year 2014 met their training requirements.

Segregating – or separating – responsibilities related to the purchase order process reduces the risk of fraud. When duties cannot be fully segregated due to circumstances such as limited staff, unit management officials are required to obtain a waiver and implement alternative controls to ensure proper oversight of purchase order processing. OIG did not find evidence of fraud but identified 11 individuals in seven Smithsonian units who performed all three purchasing roles. For 7 of the 11 individuals performing all three purchasing duties, unit management implemented the alternative controls documented in their approved waivers. However, for 3 of the 11 individuals, unit managers did not implement the alternative controls, and another individual did not have a waiver. OIG also found that the Office of Finance and Accounting did not follow its procedures to ensure that individuals with segregation of duty waivers continued to need them or that alternative controls were in place.



What OIG Recommended

OIG made 11 recommendations to enhance monitoring and oversight for the purchase order process. Management agreed with all 11 recommendations.












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