City of Richmond departments routinely circumvented procurement rules for small purchases, limiting competition for public business, according to an audit released Tuesday.
City policy requires departments to seek multiple bids for goods if the cost exceeds $5,000. But as many as 1 in 5 purchase orders city auditors reviewed during the last fiscal year did not comply with the guidelines, leading to what are called split purchases.
A split purchase occurs when a department divides a transaction into two or more purchase orders to the same vendor to stay under the $5,000 threshold that triggers additional oversight. Purchases above that figure require departments to seek additional quotes and secure approval from the Department of Procurement Services.
In practice, splitting purchases limits competition for public dollars, and could result in the city not getting a good deal, said Betty Burrell, director of procurement services.
“Best value means you ought to be looking for more than one vendor,” Burrell told the Richmond Audit Committee during a presentation of the findings on Tuesday. “A vendor that knows they’re locked in may not give the city the best prices.”
Burrell’s department is the central purchasing hub for the city, but it does not oversee or approve purchase orders for goods or services less than $5,000; that occurs within the department making the purchase.
The auditors reviewed 26,540 purchase orders departments approved totaling $404.5 million during the fiscal year that ran from July 1, 2017, through June 30, 2018. Of those, 22,920 totaling $27.1 million were for $5,000 or less.
Auditors analyzed 8,900 of the orders and determined about 1,900 as “possible split purchases,” according to the report.
For example, a department approved three purchase orders of $5,000 pertaining to paint for the same vendor in a two-week period. Based on the $15,000 price tag, the department should have sought at least three quotes for the work and approval from procurement services under city policy. The report does not name the department or vendor in question.
Further review identified as split purchases 140 transactions totaling $536,000 during the period. The report states the findings are not exhaustive, but auditors deemed them “a sufficient basis for conclusions.”
In those cases, auditors asked departments to explain why they split the purchases. In some cases, staff said they did not consider the transactions out of line with existing rules. But in most instances, staff said the transactions stemmed from a need to purchase on a rolling basis while a contract had not been established or already expired.
Auditors found 11 vendors that received a cumulative $1.4 million worth of city business through small purchase orders, rather than competitively bid contracts that are required of any vendor receiving more than $50,000 worth of work.
The auditors credited Burrell with taking a “proactive” approach to the findings, saying she had already begun reaching out to departments about the practice. They issued four recommendations, including monitoring the practice more closely to cut down on it.
The administration agreed to implement three of the report’s recommendations by year’s end and the fourth by next February.