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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.
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