TSPR Venus ISD - Chapter 4

Chapter 4
Financial Management

This chapter reviews the financial management and purchasing functions of the Venus Independent School District (VISD) in the following sections:

Organization and Management

Planning and Budgeting

Accounting and Payroll

Tax Collections

Purchasing Operations

Contract Management

Textbooks

E. PURCHASING OPERATIONS

An effective purchasing program provides quality materials, supplies, services and equipment in a timely manner at the lowest cost to districts. Purchasing includes activities associated with the acquisition of supplies, materials, services and equipment. Purchasing agents must balance the needs of customers while exercising sound stewardship of their limited resources and complying with any regulations. TEC 44.031 describes state purchasing regulations intended to provide the best value to school districts through a competitive procurement option. The law enumerates several options for competitive procurement available to school districts. When a district purchases items valued at $25,000 or more in aggregate or multiple like items with a cumulative value of more than $25,000 in a 12-month period, it must follow one of nine methods for purchasing (Exhibit 4-20).
Exhibit 4-20
TEC-Approved Competitive Procurement Options
As of 2002-03

Purchasing Method Method Description

Competitive Bidding Requires that bids be evaluated and awarded based solely upon bid specifications, terms and conditions contained in the request for bids, bid prices offered by suppliers and pertinent factors affecting contract performance. Forbids negotiation of prices of goods and services after proposal opening.

Competitive Sealed Proposals Requires the same terms and conditions as competitive bidding, but allows changes in the nature of a proposal and prices after proposal opening.

Request for Proposals Generates competitive sealed proposals and involves several key elements, including newspaper advertisement, notice to proposers, standard terms and conditions, special terms and conditions, a scope-of-work statement, an acknowledgment form/response sheet, a felony conviction notice and a contract clause.

Catalog Purchase Provides an alternative to other procurement methods for the acquisition of computer equipment, software and services only.

Interlocal Contract Provides a mechanism for agreements with other local governments, the state or a state agency to perform governmental functions and services.

Design/build Contract Outlines a method of project delivery in which the school district contracts with a single entity for both the design and construction of a project. (The “single entity” is usually a team of firms including a general contractor, architect and sometimes an engineer. One firm almost never does both the design and the construction.)

Job order Contracts Provides for the use of a particular type of contract for jobs (manual labor work) for minor repairs and alterations.

Construction Management Contracts Outlines the use of a contract to construct, rehabilitate, alter or repair facilities using a professional construction manager.

Reverse Auction Procedure Outlines a bidding process that involves submission of bids by multiple suppliers, unknown to each other, in a manner that allows the suppliers to bid against each other.

Source: TEA and Financial Accountability System Resource Guide.
In 1999, the Texas attorney general issued Attorney General Opinion OP JC-37, stating that school district procurement through an interlocal agreement or a cooperative purchasing arrangement satisfies competitive bidding requirements. Under an interlocal agreement, a district can contract or agree with another local government, including a nonprofit corporation created and operated to provide one or more governmental services, to purchase goods and any services reasonably required for the installation, operation or maintenance of the goods. Texas law also allows school districts to participate in catalog purchasing programs from the Texas Building and Procurement Commission and Qualified Information Services Vendors.

TEC also sets the timeline requirements for bid notices. Districts must advertise contracts valued at $25,000 or more once a week, for at least two weeks, in any newspaper published in the county where the school district’s central administration office is located.

Districts must advertise contracts for personal property worth between $10,000 and $25,000 over a 12-month period in two successive issues of a newspaper. The advertisements must specify the categories of property the district will purchase purchased and solicit bids from vendors who are interested in supplying the goods or services. Before making a purchase, the district must obtain written or telephone price quotations from at least three vendors on an approved list of vendors for that item. TEC states that the purchase shall be made from the lowest responsible bidder. In determining the lowest responsible bidder, the district may consider

purchase price;

reputation of the vendor and of the vendor’s goods and services;

quality of the vendor’s goods or services;

extent to which the goods or services meet the district’s needs;

vendor’s past relationship with the district;

impact on the ability of the district to comply with laws relating to historically underutilized businesses;

total long-term cost to the district to acquire the goods or services; and

any other relevant factor specifically listed in the request for bids or proposals.

Attorney General Opinion DM-347 1995 states that insurance contracts are considered contracts for the purchase of personal property and must be made in accordance with Education Code §§ 44.031 and 44.033. In 1996, the Attorney General’s Office issued Attorney General Opinion DM-418 stating that a district may execute an insurance contract for a period longer than 12 months, if the contract contains either or both of the provisions regarding the contract is a commitment of the district’s current revenue only as follows: retains to the board the continuing right to terminate the contract at the expiration of each budget period during the term of the contract and is conditioned on a best efforts attempt by the board to obtain and appropriate funds for payment of the contract.

If the district executes a multi-year insurance contract, it need not advertise for insurance vendors until the 12-month period during which the district will be executing a new insurance contract.

Exceptions to the competitive bidding requirements include contracts for professional services rendered by architects, attorneys and fiscal agents. TEC also allows a district to purchase items that are available from only one source—sole-source purchases—if the purchase meets certain criteria, including:

an item for which competition is precluded because of the existence of a patent, copyright, secret process, or monopoly;

a film, manuscript or book;

a utility service including electricity, gas or water; or

a replacement part or component for equipment to a particular piece of equipment and not available from more than one vendor.

To properly use the sole-source arrangement, a school district must obtain and retain documentation from the vendor that clearly states the reasons the purchase must be made on a sole-source basis. The sole-source exception does not apply to mainframe data processing equipment and peripheral attachments with a single-item purchase price in excess of $15,000.

In addition to state purchasing laws, VISD board policy further requires that all purchases that cost or aggregate to a cost of $10,000 or more per year have board approval before a transaction can take place. The board has delegated to the superintendent, or designee, the authority to determine the method of purchasing and to make budgeted purchases.

The following process occurs when VISD obtains supplies and services. A requisition is completed at the school or department. The requisition includes the vendor, items ordered and the account code to which the order will be encumbered and then paid. The principal or department administrator approves or disapproves the requisition. If approved, the principal or administrator sends the requisition to the business manager for all general operating codes and the coordinator of Curriculum and Special Programs for all special revenue codes. The accounts payable/purchasing clerk enters all approved requisitions into the accounting system.

If funds are available, the accounts payable/purchasing clerk converts purchase requisitions to print purchase orders and sends one copy of the order to vendors. The accounts payable/purchasing clerk sends two copies of the purchase order to the school or department, one to be filed and retained and one to be used in verifying the receipt of merchandise. Upon receipt of the merchandise, the school or department checks the order and send one copy of the purchase order and the packing slip to the accounts payable/purchasing clerk so that the district can make proper payment.

FINDING

The district uses RSCCC online requisition software to facilitate the requisition and purchase order process. The software provides for requisition entry at the school or department level. A staff member enters the requisition; the system validates the account code, account balance and vendor upon entry. The system reserves funds (a soft encumbrance) while the requisition channels through the online approval process. The lines of approval are set in the system so that staff cannot convert the requisition to a purchase order without proper approval. Once the requisition is approved, it becomes a purchase order and the Business Office prints and disseminates it. Upon receipt of the ordered items, school or department staff record the delivery of the items online. When the district receives invoices, accounts payable processes the payment unless there is a discrepancy between the ordered items and received items.

The accounts payable/purchasing clerk enters and prints purchase orders, obtains the appropriate signatures from the business manager or the coordinator of Curriculum and Special Programs and distributes copies to the appropriate VISD offices and vendors. Prior to the online system, the accounts payable/purchasing clerk was responsible for coding and typing all purchase orders. Using an on-line purchase order system enables VISD to reduce processing time and provides more efficient service. This process has reduced the turn around time for purchase orders to be processed from weeks to one day.

COMMENDATION
By using an online purchase order system, VISD reduces processing time and provides more efficient service.

FINDING

VISD does not have a designated purchasing agent to direct the purchasing activity in the district. Even though the business manager reviews and approves purchase orders, the board has not formally authorized him to act as its representative on purchasing transactions.

A purchase order serves as a formal order for supplies or services from a vendor. Once approved, a purchase order serves as a binding commitment for a district to remit payment to the vendor after the district receives the order and invoice. Once issued, the purchase order encumbers funds and serves as an expenditure control mechanism. The lack of an expenditure control mechanism allows budgeted account codes to be over expended.

The district lacks oversight in ensuring compliance with the law and district policy. The district exceeded its 2001-02 budget at the functional level and its overall expenditure budget in the general operating fund by $139,279. According to the district’s audit management letter, the problem occurred because of coding errors that the district corrected during the external audit. VISD’s method of purchasing and lack of encumbrance accounting does not provide the necessary internal control to manage the budget.

When a district purchases items valued at $25,000 or more in aggregate, or multiple like items with a cumulative value of more than $25,000 over a 12-month period, it must use one of the nine TEC methods for purchasing. Districts must make aggregate purchases of $10,000 but less than $25,000 over a 12-month period by soliciting vendors and obtaining quotes. VISD board policy further requires that all purchases that cost or aggregate to a cost of $10,000 or more per year must have board approval before a transaction can take place. VISD’s informal purchasing process leaves the district at risk of violating board policy and state law.

The Regional Educational Service Centers and TASBO offer training opportunities through workshops and online courses that provide valuable instruction on school district purchasing procedures and state purchasing law.

Recommendation 27:

Designate the business manager as the purchasing agent and train the manager and purchasing clerk on state purchasing laws and school district purchasing procedures.

VISD needs to coordinate and centralize all of the purchasing functions of the district through the business manager to ensure districtwide compliance. District staff and vendors need to know who has the authority to act on behalf of the board involving purchasing transactions. Without a designated purchasing agent knowledgeable in state purchasing laws and district policies, the district cannot ensure that its purchasing transactions follow the required laws and policies. In addition, the vendor community does not know who has the authority to represent the district in purchasing activity and to legally bind the district in purchasing transactions.

IMPLEMENTATION STRATEGIES AND TIMELINE

1. The superintendent designates the business manager as purchasing agent. September 2003

2. The business manager determines the availability of training opportunities with the regional educational service centers and TASBO. September 2003

3. The business manager obtains approval from the superintendent to take appropriate purchasing workshops. October 2003

4. The business manager and purchasing clerk attend selected training workshops on school district purchasing procedures and state purchasing laws. November 2003

5. The superintendent sends written notification to all staff members that all purchases must flow through the business manager. November 2003

6. The business manager monitors continuing compliance with the district’s purchasing policy and state law. Ongoing

FISCAL IMPACT

The cost of two-day TASBO training workshops is $200 for member districts. The fiscal impact assumes the business manager and the accounts payable/purchasing clerk will attend two purchasing related workshops annually beginning in 2003-04 ($200 x 2 staff x 2 workshops).

Recommendation 2003-04 2004-05 2005-06 2006-07 2007-08

Designate the business manager as the purchasing agent and train the manager and purchasing clerk in state purchasing laws and school district purchasing procedures. ($800) ($800) ($800) ($800) ($800)

FINDING

VISD does not have a purchasing procedures manual to establish purchasing controls and rules and provide guidance to school district employees in making authorized district purchases. The district does not ensure that district staff understands who has the authority to make purchases and how state law and board policy affect those purchases. VISD does not conduct staff training on purchasing policies and procedures. District staff lacks awareness of guidelines, laws and policies regarding purchasing. District employees currently make purchases without a duly executed purchase order.

VISD does not have procedures that outline the purchasing process. A purchasing procedure manual explains allowable purchasing thresholds, allowable purchases and the approval process. The district does not have procedures for the receiving and distribution process for received orders.

VISD receives orders in the Business Office. Business Office staff open the shipment, copy the packing slip and send the order with the copy of the packing slip to the requesting site. The Business Office also receives invoices. The district does not reconcile the purchase order, packing slip and invoice prior to payment. By not having a defined receiving function, the district is at risk of paying for damaged or lost items and paying for items never shipped. In addition, the lack of control creates opportunities for theft.

The use of the procedures manual promotes consistency in purchasing applications throughout the district. A comprehensive purchasing manual includes the following topics:

purchasing goals and objectives;

statutes, regulations and board purchasing policies;

purchasing authority or agent for the district;

requisition and purchase order processing;

competitive procurement requirements and procedures;

vendor selection and relations;

receiving;

distribution;

disposal of obsolete and surplus property; and

consequences for noncompliance with the district’s established procedures.

Recommendation 28:

Develop and implement a comprehensive purchasing procedures manual.

The purchasing manual will assist VISD personnel in understanding the laws, rules and guidelines that govern all district purchases. Having a comprehensive and up-to-date purchasing procedures manual is vital if VISD is to ensure compliance and financially competitive purchases. The manual should establish rules for initiating, reviewing and approving requisitions. The manual should also explain how to receive goods and reconcile and process invoices. The district should provide the manual to vendors to acquaint them with the district’s policy and practice.

IMPLEMENTATION STRATEGIES AND TIMELINE

1. The business manager obtains sample purchasing procedures manuals from other districts, Region 11 and TASB. September 2003

2. The business manager submits a completed draft of the purchasing procedures manual to the superintendent for input and approval. October 2003

3. The superintendent informs all district staff of the district’s official purchasing manual and requires signature acknowledgement by all employees. November 2003

4. The business manager maintains a central file of the manual and distributes it to district staff while providing simultaneous training on its contents and related district procedures. November – December 2003

5. The business manager posts the manual on the district’s Web site. December 2003

6. The business manager ensures district compliance with the purchasing manual’s requirements by monitoring all purchases. Ongoing

FISCAL IMPACT

This recommendation can be implemented with existing resources.

FINDING

The district does not make use of purchasing cooperatives (co-ops) and other mechanisms that would allow the district to procure goods and services at competitive prices without having to go through the bidding process. The district previously had an agreement for cooperative purchasing with Region 11 for the period from January 1, 2002 through December 31, 2002. The district did not renew it. VISD did not train campus staff to use the purchasing cooperative. VISD’s employees make purchases from the vendors of their choice.

TEA PEIMS data shows the district spent $669,476 on general supplies for classrooms and offices in 2001-02. Cooperative agreements allow districts to take advantage of pricing discounts. They also reduce purchasing administrative costs since they satisfy TEC competitive bid provisions and eliminate the need for district personnel to perform some of the competitive solicitation activities.

TEC § 44.031(a)(5) allows Texas school districts to use an interlocal contract with purchasing cooperatives and other entities in lieu of obtaining competitive bids and quotes. Cooperative purchasing arrangements allow school districts to partner with other entities to procure goods and services. The cooperative entity performs the complete bidding process so that school districts do not have to bid items. Regional Education Service Centers, multi-regional cooperatives, TBPC and the Texas Association of School Boards are several of the purchasing cooperatives available to Texas school districts. TASB and other vendors offer online ordering through purchasing cooperatives.

TASB administers a just-in-time online purchasing system called The BuyBoard. The BuyBoard uses Internet-based technologies to create a single source for products and awarded contract information. The BuyBoard allows members to make confident buying decisions and streamline the purchasing process. The simple format allows point-and-click access to detailed product descriptions, part numbers and images. BuyBoard follows Texas statutes to competitively bid and award all items and catalogs posted on the site.

Advantages of using purchasing cooperatives include:

greater efficiency and economy in acquiring goods and services;

innovative purchasing procedures to ensure the most competitive contracts;

competitive price solicitation and bulk purchasing for multiple government entities that yields economic benefits that cannot be obtained by individual entities;

quick and efficient delivery of goods and services by contracting with high-performance vendors;

equitable purchasing power for smaller entities that cannot command the best contract for themselves;

credibility and confidence in business procedures by maintaining open competition for purchases and by complying with purchasing laws and ethical business practices; and

assistance in maintaining the essential controls for budget and accounting purposes.

Districts that use cooperative purchasing arrangements have more efficient procurement practices because they eliminate or reduce the need for obtaining competitive bids and quotes. Many districts in Texas participate in cooperative purchasing programs, including Del Valle ISD, United ISD, Midland ISD, Spring ISD, Kingsville ISD and Tyler ISD. The savings achieved through the use of purchasing cooperatives can be substantial. Del Valle ISD estimates that it saved about $250,000 between June 1998 and October 2000 by participating in purchasing cooperatives. Spring ISD’s estimates that it save between 6 to 23 percent on tire purchases through purchasing cooperatives.

Recommendation 29:

Reduce purchasing costs by engaging in cooperative purchasing.

Participation in purchasing cooperatives will not altogether eliminate the need for or the use of competitive bidding, but will reduce administrative time and reduce costs.

IMPLEMENTATION STRATEGIES AND TIMELINE

1. The business manager contacts cooperatives concerning the purchasing services they can offer. September 2003

2. The business manager develops a list of purchasing cooperative options, including the services/goods offered by each cooperative and their annual membership prices. October 2003

3. The business manager determines the purchasing cooperatives that would best serve VISD. October 2003

4. The business manager completes applications to participate in the purchasing cooperatives. October 2003

5. The business manager requests that the board review and approve VISD participation in the purchasing cooperatives. November 2003

6. The board approves participation. November 2003

7. The business manager distributes purchasing cooperative instructions and provides training on the cooperatives to all district staff responsible for purchasing. November – December 2003

8. The district begins using cooperative purchasing. January 2004

FISCAL IMPACT

VISD spent $669,476 on general supplies in 2001-02. The review team conservatively estimates that purchasing cooperatives can save VISD 5 percent on these purchases. This creates an annual savings for the district of $33,474 ($669,476 x 5 percent). The estimated cost of participating in a cooperative is $20,084 ($669,476 x 3 percent). The district’s total annual savings would be $13,390 ($33,474 savings – 20,084 costs).

Recommendation 2003-04 2004-05 2005-06 2006-07 2007-08

Cooperative purchasing savings $33,474 $33,474 $33,474 $33,474 $33,474

Estimated cost of Region 11 cooperative ($20,084) ($20,084) ($20,084) ($20,084) ($20,084)

Net Savings/(Costs) $13,390 $13,390 $13,390 $13,390 $13,390

Purchasing Method	Method Description
Competitive Bidding	Requires that bids be evaluated and awarded based solely upon bid specifications, terms and conditions contained in the request for bids, bid prices offered by suppliers and pertinent factors affecting contract performance. Forbids negotiation of prices of goods and services after proposal opening.
Competitive Sealed Proposals	Requires the same terms and conditions as competitive bidding, but allows changes in the nature of a proposal and prices after proposal opening.
Request for Proposals	Generates competitive sealed proposals and involves several key elements, including newspaper advertisement, notice to proposers, standard terms and conditions, special terms and conditions, a scope-of-work statement, an acknowledgment form/response sheet, a felony conviction notice and a contract clause.
Catalog Purchase	Provides an alternative to other procurement methods for the acquisition of computer equipment, software and services only.
Interlocal Contract	Provides a mechanism for agreements with other local governments, the state or a state agency to perform governmental functions and services.
Design/build Contract	Outlines a method of project delivery in which the school district contracts with a single entity for both the design and construction of a project. (The “single entity” is usually a team of firms including a general contractor, architect and sometimes an engineer. One firm almost never does both the design and the construction.)
Job order Contracts	Provides for the use of a particular type of contract for jobs (manual labor work) for minor repairs and alterations.
Construction Management Contracts	Outlines the use of a contract to construct, rehabilitate, alter or repair facilities using a professional construction manager.
Reverse Auction Procedure	Outlines a bidding process that involves submission of bids by multiple suppliers, unknown to each other, in a manner that allows the suppliers to bid against each other.

1. The superintendent designates the business manager as purchasing agent.	September 2003
2. The business manager determines the availability of training opportunities with the regional educational service centers and TASBO.	September 2003
3. The business manager obtains approval from the superintendent to take appropriate purchasing workshops.	October 2003
4. The business manager and purchasing clerk attend selected training workshops on school district purchasing procedures and state purchasing laws.	November 2003
5. The superintendent sends written notification to all staff members that all purchases must flow through the business manager.	November 2003
6. The business manager monitors continuing compliance with the district’s purchasing policy and state law.	Ongoing

1. The business manager obtains sample purchasing procedures manuals from other districts, Region 11 and TASB.	September 2003
2. The business manager submits a completed draft of the purchasing procedures manual to the superintendent for input and approval.	October 2003
3. The superintendent informs all district staff of the district’s official purchasing manual and requires signature acknowledgement by all employees.	November 2003
4. The business manager maintains a central file of the manual and distributes it to district staff while providing simultaneous training on its contents and related district procedures.	November – December 2003
5. The business manager posts the manual on the district’s Web site.	December 2003
6. The business manager ensures district compliance with the purchasing manual’s requirements by monitoring all purchases.	Ongoing

1. The business manager contacts cooperatives concerning the purchasing services they can offer.	September 2003
2. The business manager develops a list of purchasing cooperative options, including the services/goods offered by each cooperative and their annual membership prices.	October 2003
3. The business manager determines the purchasing cooperatives that would best serve VISD.	October 2003
4. The business manager completes applications to participate in the purchasing cooperatives.	October 2003
5. The business manager requests that the board review and approve VISD participation in the purchasing cooperatives.	November 2003
6. The board approves participation.	November 2003
7. The business manager distributes purchasing cooperative instructions and provides training on the cooperatives to all district staff responsible for purchasing.	November – December 2003
8. The district begins using cooperative purchasing.	January 2004

Recommendation	2003-04	2004-05	2005-06	2006-07	2007-08
Cooperative purchasing savings	$33,474	$33,474	$33,474	$33,474	$33,474
Estimated cost of Region 11 cooperative	($20,084)	($20,084)	($20,084)	($20,084)	($20,084)
Net Savings/(Costs)	$13,390	$13,390	$13,390	$13,390	$13,390