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Joint Interim General Investigating Committee on State Contracting
Charges

Study and make recommendations regarding the prevention and detection of fraud in contracts with state agencies, including:

pre-contract procedures for investigating potential contractors' qualifications, background, and past performance, and developing clearly stated contract performance measures;

use of uniform contract terms by all state agencies to ensure full contractor performance and compliance with applicable state and federal standards;

payment of comparable amounts for comparable services;

proper methods of contract payment to ensure the state gets full value for taxpayer funds;

auditing of contractor performance and payment to contractors; and

methods for recovering improperly spent or overpaid funds.

Study and make recommendations regarding the effectiveness of state agencies' internal audit functions in preventing and detecting fraud.

Study and make recommendations regarding coordination among state agencies to prevent and detect fraud in contracts with state agencies through the use of information sharing, combined audit resources, and procedures to detect double billing.
Background

The state expends approximately one-third of its budget ($14 billion annually) through contracts. Contract procedures should adequate management, including monitoring of quality and delivery of services, enforcement of contract terms, and auditing of contract payments. The State Auditor's Office released a report in December 1995 on six state agencies, which cumulatively spend an estimated $627 million a year to administer the $13 billion in contracts. The audit highlighted many problems endemic in the ways contracts are handled by Texas state agencies. The work of the Joint General Investigating Committee in fulfilling its interim charges has built upon the work of the State Auditor's Office.
Recommendations

General Contract Management

  • Abolish the Texas Department of Criminal Justice's direct purchase authority (Sec. 496.051, Government Code).

  • Require the Office of the Comptroller to serve as the coordinating agency to formulate a contract management handbook, develop contract management training, coordinate monitoring efforts, and establish statewide standards to ensure efficient and effective state contracting.

  • Require the auditor to assess financial controls at all state agencies, particularly those which receive large increases in appropriations or federal funds; make recommendations to agencies to address shortcomings; and perform systematic follow-up.

  • Require the comptroller to establish a centralized contract management database.

  • Require agency boards to establish clearly stated, comprehensive contract management policies consistent with statewide standards.

  • Require agency management to perform annual risk assessments of contracts.

  • Require training for members of boards and commissions on contract management responsibilities.

  • Require agencies to make more effective use of resources allocated to contract management functions.

    Contractor Selection

  • Require agencies to enhance contractor selection procedures to increase competitive bidding; consider a contractor's past performance when selecting contractors; require contractors disclose subcontractors to help in evaluating a contractor's past performance; require contractors and subcontractors to disclose the names and addresses of directors, stockholders, or any other benefactors of their companies to help in evaluating a contractor's past performance; and make a formal assessment of the type of service to be solicited, and provide a clear definition of that service when soliciting bids or proposals prior to each new contract or contract renewal.

    Contract Provisions

  • Require agencies to: incorporate performance measure in all contracts; enhance contract oversight provisions, particularly in those instances where competition is absent in the selection process; create and incorporate a remedies schedule and/or graduated sanctions schedule, consistent with statewide standards, to hold contractors accountable without shrinking the pool of providers; ensure that contract provisions are applied to subcontractors; and require primary contractors to report subcontractor information to the agency.

  • Recommend agencies require business associations tocarry director or officer liability insurance coverage in an amount not less than the value of the contract.

    Payment/Reimbursement Methodology

  • Require the comptroller to conduct and state agencies to cooperate in an in-depth cost/benefit study of payment methodologies (cost reimbursement v. unit rate).

  • Require the comptroller and state agencies to consider the interaction of selection methodology and payment methodology in the development of contracts.

  • Require agencies to re-evaluate rates based on historical funding levels, formulas established by agency rule, and the rate-setting methodology to ensure that payment methodologies are appropriate.

    Contractor Oversight

  • Require agency management, under the direction of the comptroller, to assess annually the risk of fraud, abuse, or waste based on contractor selection, contract provisions, payment methodologies, and type of goods and/or services rendered.

  • Require state contract monitoring activities to ensure that all costs are reasonable and necessary.

  • Require agency boards and commissions to clearly define the roles of internal audit staff, inspector general staff, or other investigative or audit staff.

  • Require agencies to establish clear guidelines defining who has the responsibility for monitoring subcontractors (agency or primary contractor); make use of information from other agencies in planning and executing fiscal and program monitoring of contractors and subcontractors; design and implement procedures to detect and report instances of double-billing by contractors, and send the report to the auditor, the comptroller, the legislature, and any other state agency that paid the contractor in the double-billing incident; verify that comparable costs are charged for comparable services; provide contract management training for employees; evaluate the costs and benefits of implementing new technologies in fraud detection; and establish specific time lines for addressing deficiencies identified during monitoring.