A Summary of Results from Contracting Audits


An overview of the State Auditor's Office results reported for audits of state agencies' and higher education institutions' contracting processes from March 2016 through November 2019.


Lisa R. Collier, CPA, CFE, CIDA
First Assistant State Auditor

A Summary of Results from Contracting Audits

Overview

This summary report provides an overview of the State Auditor’s Office (SAO) results reported for audits of state agencies' and higher education institutions' contracting processes from March 2016 through November 2019. During this time period, the SAO issued 42 audit reports with a significant focus on the State's contracting activities.

Agencies in the State of Texas use contracts as a mechanism to accomplish many of the State's basic and critical functions, including:

  • health care services to children and young adults with disabilities,
  • foster care services,
  • education services,
  • highway construction and maintenance, and
  • state information technology services.

These contracts can be large and complex, span multiple years, and require vendors or subcontractors to perform the critical functions.

Due to the State's reliance on contracting for the delivery of critical services, the SAO has conducted a series of audits on this topic. SAO audits have identified deficiencies at many state agencies and higher education institutions and in all phases of the contracting process.

Audit results are organized by General Appropriations Act article, state entity, and audit report within each contracting phase.

Each audit report included in the summary is hyperlinked to the full report available on the SAO’s Web site. In addition, each chapter/sub-chapter is hyperlinked to the applicable section of the audit report. Additional SAO reports are available via the SAO’s online report search tool at https://www.sao.texas.gov.

This information is subject to change because it is updated periodically to incorporate the results from SAO reports with a significant focus on contracting activities as they are released. The reports discussed in this summary reflect the results of audits whose primary objectives related to contracting and do not reflect the entire scope of work performed by the SAO on contracting activities in the state.


Background

Contracting requirements are intended to help state entities promote competition, obtain the best price or best value, and contract with the most qualified vendors.

Several state agencies are charged with developing guidance and providing oversight of the State’s contracting activities. The Office of the Comptroller of Public Accounts (Comptroller) includes the Chief Procurement Officer for the State, who publishes the State of Texas Procurement and Contract Management Guide to provide contracting guidance and a framework for procurement professionals in state government. The Comptroller also provides training on contract management. State statute authorizes several state entities to monitor and provide oversight of various contracting activities, including the SAO, Comptroller, Legislative Budget Board, Department of Information Resources, Contract Advisory Team, and Quality Assurance Team.

Contracting Cycle

The State of Texas Procurement and Contract Management Guide, Version 1.1, organizes the contracting process into five distinct phases as defined below.

Define the business need and establish the procurement procedures.

Identify the appropriate procurement method and, if applicable, issue a solicitation.

Fairly and objectively select the vendor that provides best value to the State.

Ensure that the awarded contract complies with applicable procurement law and contains provisions that achieve the procurement objectives.

Administer and enforce the terms of the contract.

The Contracting Process

Audit Results

Highlights

The SAO released 42 reports of audits on state agencies and higher education institutions with a significant focus on contracting activities from March 2016 through November 2019.

The objective(s) and scope of every audit are based on a risk assessment and can vary among the contracting audits. Therefore, the SAO may not test all contracting phases in every audit, with the high-risk and high-impact processes, controls, and contracts being tested more frequently. In addition, the results compiled for this summary are intended to present the most common and significant findings discussed in SAO contracting audits.

The charts below provide highlights of the results reported in SAO contracting audits. After those charts are descriptions of the most common weaknesses identified for each phase of the contracting cycle.

Audit Reports by Contracting Phase

The chart below shows the number of SAO audit reports released from March 2016 through November 2019 that contained contracting results by contracting phase. As SAO audits often address many phases of the contracting cycle, a report could be captured in multiple phases in the chart below. The Management and Oversight phase was addressed most frequently in SAO audit reports. Click on the contracting phase for additional information.

Issue Ratings in Contracting Audit Reports

The chart below shows the significance of the results reported in SAO contracting audits released from March 2016 through November 2019. As indicated below, the most common issue rating in SAO contracting audit reports was medium. Individual results contribute to the overall chapter/sub-chapter issue ratings in each audit report. See the Issue Ratings section for a description of each rating.

Click on each issue rating category below to view the applicable chapter(s)/sub-chapter(s) in the corresponding audit reports by state entity.

Audit Reports by Contracting Phase and Issue Rating

The chart below shows the number of SAO audits released from March 2016 through November 2019 that reported results by phase of the contracting cycle and captures the significance of those results by issue rating. SAO audits often address many phases of the contracting cycle and report results across the ratings scale; as a result, a report and rating could be captured in multiple phases in the chart below. The planning and vendor selection phases had the most significant (priority rated) issues. Priority rated issues if not addressed could critically affect the state entity’s ability to effectively administer the function audited.

Planning

Planning is the first phase in the contract management process. Proper planning involves development of several elements to help state entities consider all of the factors necessary to achieve the desired outcomes from the contract through the following:

Training and Certification

Ensuring that contract and purchasing staff and members of the governing body, if applicable, are adequately trained, qualified, and/or certified to complete their responsibilities related to the contract.

Required Planning and Documentation

Conducting the required planning steps, including a needs assessment and cost estimate.

Other

Complying with additional requirements, such as ensuring that policies and procedures to guide the state entity’s activities during the planning phase are in place and align with the State of Texas Procurement and Contract Management Guide.

Audit Reports With Identified Planning Weaknesses

The chart below shows the number of SAO audit reports that identified weaknesses in planning that were rated medium, high, or priority. The most prevalent planning weaknesses identified in SAO reports were related to required planning and documentation. SAO audits address many elements of contracting requirements; therefore, a report could be listed for multiple areas in the chart below.

In addition to the weaknesses noted above, 14 reports contained results for the planning phase that were rated low, which indicates that auditors identified strengths or issues that do not present significant risks.

To view the results related to planning in SAO contracting audit reports, click on the button below.

Procurement

Procurement is the second phase in the contracting cycle. The primary purpose of this phase is to select the appropriate procurement method, define the statement of work for the contract, and obtain the necessary approvals for the contract solicitation through the following:

Solicitation Process

Selecting the appropriate procurement method, such as a request for proposal or invitation for bids, advertising the solicitation, and public bid opening, if applicable.

Statement of Work

Developing key solicitation documentation and a clearly defined statement of work. This should include contractor qualifications, proposal submission requirements, methods for monitoring contractor performance, and criteria for determining satisfactory contract completion.

Other

Complying with additional requirements, such as ensuring that policies and procedures to guide the state entity’s activities during the procurement phase are in place and align with the State of Texas Procurement and Contract Management Guide.

Audit Reports With Identified Procurement Weaknesses

The chart below shows the number of SAO audit reports that identified weaknesses in procurement that were rated medium, high, or priority. The most prevalent procurement weaknesses identified in SAO reports were related to solicitation process. SAO audits address many elements of contracting requirements; therefore, a report could be listed for multiple areas in the chart below.

In addition to the weaknesses noted above, 8 reports contained results for the procurement phase that were rated low, which indicates that auditors identified strengths or issues that do not present significant risks.

To view the results related to procurement in SAO contracting audit reports, click on the button below.

Vendor Selection

Vendor Selection is the third phase in the contracting cycle. This phase helps to ensure that contract proposals are evaluated in a fair and transparent manner and decisions are adequately supported through the following:

Evaluation and Scoring

Ensuring that scoring criteria is consistently applied and scores are accurately tabulated during the evaluation process.

Conflicts of Interest and Other Required Disclosures

Ensuring that the state entity’s purchasing and contract management personnel, the bid evaluation team, and the vendor complete conflict of interest and other required disclosures.

Non-scored and Non-competitive

Ensuring that contracts exempt from competitive bidding, such as emergency purchases and if the agency received only one bid in response to the bid solicitation, comply with applicable requirements.

Other

Complying with additional requirements, such as ensuring that policies and procedures to guide the state entity’s activities during the vendor selection phase are in place and align with the State of Texas Procurement and Contract Management Guide.

Audit Reports With Identified Vendor Selection Weaknesses

The chart below shows the number of SAO audit reports that identified weaknesses in vendor selection that were rated medium, high, or priority. The most prevalent vendor selection weaknesses identified in SAO reports were related to conflicts of interest and other required disclosures. SAO audits address many elements of contracting requirements; therefore, a report could be listed for multiple areas in the chart below.

In addition to the weaknesses noted above, 13 reports contained results for the vendor selection phase that were rated low, which indicates that auditors identified strengths or issues that do not present significant risks.

To view the results related to vendor selection in SAO contracting audit reports, click on the button below.

Formation

Formation is the fourth phase in the contracting cycle. During this phase, contract negotiations occur, terms are finalized, and a contract is executed. This phase helps ensure that the State’s interests are protected through the following:

Contract Terms

Including key contract elements, such as a scope of work, defined deliverables, dispute resolution, price, right to audit, specifications, and indemnification.

Contract Execution

Ensuring the contract is reviewed by appropriate personnel.

Reporting

Complying with requirements related to contract notification and reporting to the Legislative Budget Board and other oversight entities and posting contract information on the state entity’s Web site, if applicable.

Contract Amendments and Changes

Having a formal contract amendment or change management process to ensure that amendments receive proper approval, changes are within the scope of the solicitation, and changes are initiated by appropriate personnel.

Other

Complying with additional requirements, such as ensuring that policies and procedures to guide the state entity’s activities during the formation phase are in place and align with the State of Texas Procurement and Contract Management Guide.

Audit Reports With Identified Formation Weaknesses

The chart below shows the number of SAO audit reports that identified weaknesses in contract formation that were rated medium, high, or priority. The most prevalent formation weaknesses identified in SAO reports were related to contract terms.

In addition to the weaknesses noted above, 15 reports contained results for the formation phase that were rated low, which indicates that auditors identified strengths or issues that do not present significant risks.

To view the results related to formation in SAO contracting audit reports, click on the button below.

Management and Oversight

Management and Oversight is the final phase in the contracting cycle. The primary purpose of this phase is to monitor and enforce the terms of the contract to ensure a satisfactory outcome through the following:

Fiscal Monitoring

Ensuring that payments to the vendor are approved, timely, adequately supported, and comply with contract terms.

Performance Monitoring

Completing a monitoring risk assessment, monitoring key deliverables and performance metrics, and requiring corrective action, when necessary.

Vendor Performance Reporting

Reporting vendor performance to the Comptroller, as required.

Contract Close Out

Verification that contract obligations have been met.

Other

Complying with additional requirements, such as ensuring that policies and procedures to guide the state entity’s activities during the management and oversight phase are in place and align with the State of Texas Procurement and Contract Management Guide.

Audit Reports With Identified Management and Oversight Weaknesses

The chart below shows the number of SAO audit reports that identified weaknesses in management and oversight that were rated medium, high, or priority. The most prevalent management and oversight weaknesses identified in SAO reports were related to performance monitoring. SAO audits address many elements of contracting requirements; therefore, a report could be listed for multiple areas in the chart below.

In addition to the weaknesses noted above, 19 reports contained results for the management and oversight phase that were rated low, which indicates that auditors identified strengths or issues that do not present significant risks.

To view the results related to management and oversight in SAO contracting audit reports, click on the button below.

Other

The Other category captures the results related to contracting that fall outside the scope of a standard SAO contracting audit. The SAO issued 9 audit reports that fall into this category, which includes:

Managed Care Organization

Audit reports of the Health and Human Services Commission’s contracts with managed care organizations (MCOs) and audits of MCO vendors. The SAO has conducted a series of MCO-related audits and identified these separately due to their unique design, complexity, and approach.

Other

Additional requirements that are not addressed in the contracting phases above.

To view the results related to other in SAO contracting audit reports, click on the button below.

Contracting Audit Reports

The State Auditor's Office released 42 audit reports at state agencies and higher education institutions with a significant focus on contracting activities from March 2016 through November 2019. The results in each report are noted by contracting phase below. Individual results contributed to the overall chapter/sub-chapter issue ratings and the most significant rating included in the report for each phase is listed.

See the Issue Ratings section for additional information about the rating categories.

Report Title Report Number Release Date Planning Procurement Vendor Selection Formation Management and Oversight Other
An Audit Report on the Health and Human Services Commission's Use of Remedies in Managed Care Contracts 20-008 11/1/2019
 
An Audit Report on Hurricane Harvey Disaster Recovery Funds Administered by the General Land Office 20-006 10/25/2019
 
 
An Audit Report on Facilities-related Contracts at the Department of Transportation 19-050 8/28/2019
 
 
 
 
 
 
An Audit Report on Contracting at the Juvenile Justice Department 19-043 7/25/2019
 
 
 
 
 
An Audit Report on the Vendor Performance Tracking System at the Office of the Comptroller of Public Accounts and Its Use by the Texas Workforce Commission and the Parks and Wildlife Department 19-042 7/18/2019
 
An Audit Report on Contracting at the Texas Tech University System 19-041 7/15/2019
 
 
 
 
 
An Audit Report on the Texas Peer Assistance Program for Nurses 19-036 6/11/2019
 
 
An Audit Report on Selected Contracts at The University of Texas System 19-032 2/26/2019
 
 
 
 
An Audit Report on Selected Contracts at the Department of Motor Vehicles 19-029 2/13/2019
 
 
 
An Audit Report on the Health and Human Services Commission's System of Contract Operation and Reporting 19-028 2/5/2019
 
An Audit Report on Medicaid Managed Care Contract Processes at the Health and Human Services Commission 19-025 1/29/2019
 
An Audit Report on Information Technology Contract Oversight at the Department of Transportation 19-024 1/30/2019
 
An Audit Report on Selected Contracts at the Historical Commission 19-023 1/22/2019
 
 
 
 
 
An Audit Report on Selected Capitol Complex Project Contracts at the Texas Facilities Commission 19-016 12/20/2018
 
 
 
 
 
An Audit Report on Amerigroup Texas, Inc. and Amerigroup Insurance Company, a Managed Care Organization 19-011 11/27/2018
 
An Audit Report on Selected Contracts at the Health and Human Services Commission 19-010 11/26/2018
 
 
 
 
 
An Audit Report on A Selected Contract at the University of North Texas System 19-001 9/4/2018
 
 
 
 
An Audit Report on Selected Contracts at the Texas Education Agency 18-044 8/31/2018
 
 
 
 
 
An Audit Report on Scoring and Evaluation of Selected Procurements at the Health and Human Services Commission 18-038 7/13/2018
 
An Audit Report on the Health and Human Services Commission's Family Violence Program 18-028 5/11/2018
 
 
An Audit Report on a Selected Contract at the Department of State Health Services 18-025 4/12/2018
 
 
 
 
 
An Audit Report on Selected Facilities Support Services Agreements and Special Projects at Selected Universities in the Texas A&M University System 18-024 4/12/2018
 
 
 
An Audit Report on Foster Care Redesign at the Department of Family and Protective Services 18-022 3/12/2018
 
An Audit Report on the Health and Human Services Commission's Management of Its Medicaid Managed Care Contract with Superior HealthPlan, Inc. and Superior HealthPlan Network, and Superior's Compliance with Reporting Requirements 18-015 1/25/2018
 
An Audit Report on Contracting Processes in the Parks and Wildlife Department's Infrastructure Division 18-008 12/15/2017
 
 
 
 
An Audit Report on Selected Contracts at Stephen F. Austin State University 17-042 7/27/2017
 
 
 
 
 
An Audit Report on Selected Contracts at the Commission on State Emergency Communications 17-041 7/27/2017
 
 
 
 
 
An Audit Report on Selected Contracts at the Office of the Attorney General 17-039 6/14/2017
 
 
 
 
 
An Audit Report on Selected Contracts at the Department of Information Resources 17-038 6/14/2017
 
 
 
 
An Audit Report on Selected Contracts at the Department of Criminal Justice 17-032 5/2/2017
 
 
 
 
 
An Audit Report on Selected Contracts at the Commission on Environmental Quality 17-029 3/28/2017
 
 
 
 
An Audit Report on HealthSpring Life and Health Insurance Company, Inc., a Medicaid STAR+PLUS Managed Care Organization 17-025 2/15/2017
 
An Audit Report on Selected Texas Education Agency Contracts and Grant with Education Service Centers 17-013 11/30/2016
 
 
 
An Audit Report on the Texas Multiple Award Schedule (TXMAS) Contracts Program at the Office of the Comptroller of Public Accounts 17-010 10/20/2016
 
 
 
 
An Audit Report on Medicaid Managed Care Contract Processes at the Health and Human Services Commission 17-007 10/13/2016
 
An Audit Report on Human Resources Contract Management at the Health and Human Services Commission 17-004 10/10/2016
 
 
 
 
An Audit Report on the Texas Education Agency's Procurement and Oversight of Texas Virtual School Network Contracts 17-002 9/12/2016
 
 
 
 
 
An Audit Report on Selected Design-build Contracts at the Department of Transportation 16-037 8/22/2016
 
 
 
 
 
An Audit Report on a Selected Contract at the Department of State Health Services 16-031 6/28/2016
 
 
 
 
An Audit Report on the Texas Lottery Commission's Administration of Selected Instant Ticket Contracts 16-028 5/20/2016
 
 
 
 
An Audit Report on Selected Contracts at the Department of Public Safety 16-023 5/3/2016
 
 
An Audit Report on Selected Agencies' Use of Department of Information Resources Information Technology Staffing Services Contracts 16-020 3/29/2016
 
 
 
 

Issue Ratings

Auditors use professional judgement to rate the audit findings identified in certain audit reports. For each report, the issue ratings are summarized in the report chapters/sub-chapters. Auditors determine the ratings based on the degree of risk or effect of the findings in relation to the audit objective(s).

Low

The audit identified strengths that support the audited entity’s ability to administer the program(s)/function(s) audited or the issues identified do not present significant risks or effects that would negatively affect the audited entity’s ability to effectively administer the program(s)/function(s) audited.

Medium

Issues identified present risks or effects that if not addressed could moderately affect the audited entity’s ability to effectively administer program(s)/function(s) audited. Action is needed to address the noted concern(s) and reduce risks to a more desirable level.

High

Issues identified present risks or effects that if not addressed could substantially affect the audited entity’s ability to effectively administer the program(s)/function(s) audited. Prompt action is essential to address the noted concern(s) and reduce risks to the audited entity.

Priority

Issues identified present risks or effects that if not addressed could critically affect the audited entity’s ability to effectively administer the program(s)/function(s) audited. Immediate action is required to address the noted concern(s) and reduce risks to the audited entity.