Response to the Audit
Judicial Council of California
November 15, 2017
Elaine M. Howle, CPA
California State Auditor's Office
621 Capitol Mall, Suite 1200
Sacramento, California 95814
Dear Ms. Howle:
I am in receipt of your draft audit report, dated November 13, 2017, regarding your office’s statutory audit of the Judicial Council of California’s (Judicial Council) procurement and contracting practices. The audit is required under the California Judicial Branch Contract Law, as specifically codified in Public Contract Code, Section 19210(c). I would like to thank your auditors for their professionalism and for their work in providing additional accountability over the Judicial Council’s contracting and procurement practices.
Overall, I am pleased with your draft audit report’s two primary conclusions: the Judicial Branch Contracting Manual is substantially similar to the State’s contracting requirements, and the Judicial Council’s staff generally complied with these requirements. As your auditors noted in Table 1 of the draft report, the vast majority of the contracts and purchase orders reviewed during the audit complied with key procurement policies. Further, I am also pleased that 57 of the 60 payments you tested also complied with applicable contracting and payment requirements. Despite the limited number of errors noted during the audit, the Judicial Council is committed to continual improvement and will re-evaluate its existing practices based on your draft report’s recommendations, which my staff have specifically addressed in the comments below.
DRAFT RECOMMENDATIONS
1. To help ensure that it obtains the best value for the goods and services it purchases and that its staff take the necessary steps to comply with the judicial contracting manual, the Judicial Council should continue to reinforce with staff through management memos, training, or other formal means the need to:
- Ensure that the person with the appropriate level of authority approves purchases.
- Obtain authorized approvers’ signatures for noncompetitive procurements.
- Properly document justification for noncompetitive procurements.
- Not exclude potential vendors from bidding based on assumptions about their prices.
Response:
The Judicial Council’s staff agree with the recommendation and will reinforce existing policies through a variety of means, such as through additional training for procurement staff. Striving to consistently achieve 100% compliance on all procurement transactions is a laudable goal; nevertheless, the Judicial Council’s staff believe the limited errors identified by the auditors—as noted in Table 1—represent rare instances when policies were not strictly followed and is otherwise indicative of a generally strong and well-functioning procurement process.
For additional context on the auditors’ findings in support of this recommendation, some of the errors identified—while legitimate and worthy of closer review—present limited risk to the Judicial Council’s procurement activities. For example, as the auditors note in the draft report, one contract supervisor exceeded his authority when approving a purchase for networking equipment; however, the Local Contracting Manual (LCM) was clarified in early June 2017 to clarify his signature authority for both purchase orders and contracts at $500,000, which would have covered the referenced transaction. Judicial Council staff notes that this change to the LCM was implemented before and not in response to the audit. This increase was pre-planned and reflected the Judicial Council’s business needs and perceptions of the contract supervisor’s qualifications to make such procurement decisions. The auditors do not challenge the contract supervisor’s qualifications in the draft report.
In another example, the auditors raise concerns over whether a former vendor had a fair opportunity to enter the bidding process and whether the Judicial Council’s staff obtained “best value” on a particular procurement. For context, it is important to recognize that Judicial Council staff had already obtained a sufficient number of bids and the auditors agreed in the report that the procurement “was still competitive according to the [ Judicial Branch Contracting Manual].” Furthermore, Judicial Council staff did not formally request a bid from the referenced vendor as the Program Manager determined prior to the bidding phase that the contractor had changed its service model from a “purchase hardware once and software is free” to a “cloud based system,” which requires an ongoing yearly subscription and additional fees per user if you exceed the base usage. The Program Manager wanted to continue with a non-cloud based solution (and one-time purchase of hardware/software). All of the vendors that were included in the bidding process for this solution provided products that were one-time purchases (non-cloud-based) with no yearly subscription fees. The Judicial Council’s staff provided this perspective and related documents to the auditors in early October 2017. Judicial Council staff believe the circumstances described above reasonably minimize any potential concern over not obtaining best value. Notwithstanding this additional context, the Judicial Council’s staff agree in principal with the audit recommendation, particularly with respect to enhancing our existing policies over non-competitive procurements.
2. To better align the judicial contracting manual with state requirements and to make certain that it receives the best value for services, the Judicial Council should update by March 2018 the judicial contracting manual’s guidance on contract splitting and sole-source procurements to reflect the more specific definitions in the SCM [State Contracting Manual].
Response:
The Judicial Council’s staff sees merit in further considering the auditor’s recommendation to further clarify our existing prohibitions oncontract splitting and our definition of sole-source procurements.
As noted in the draft report, the Judicial Branch Contracting Manual’s definition of contract splitting currently “reflects state law,” but does not incorporate certain clarifying guidance contained in the State Contracting Manual (SCM). The Judicial Branch Contract Law only requires the judicial branch to develop procurement policies that are substantially similar to the SCM and other guidance; regardless, the Judicial Council’s staff will develop potential revisions for stakeholder input. It is important to recognize that the Judicial Council’s staff cannot unilaterally change the Judicial Branch Contracting Manual to implement this recommendation. Instead, the concurrence of stakeholders from different judicial branch entities—all of which follow the manual—would be required, followed by a vote of the entire Judicial Council to formally adopt any changes.
3. To ensure that Judicial Council staff have the information they need to process invoices appropriately and to comply with the judicial contracting manual, the Judicial Council should develop, by June 2018, one document with clear invoice-processing procedures for its accounting staff. This document should define the steps for processing invoices related to different types of purchase agreements and common exceptions to the typical process, including instructions for handling invoices processed on behalf of other Judicial Branch entities.
Response:
The Judicial Council’s staff agrees with the recommendation to centralize invoice-processing procedures into a single document. Accounting staff plan to centralize existing procedures by April 2018. Branch Accounting and Procurement staff process over 165,000 financial transactions each year and it is not feasible to create a single document that completely covers each and every type of transaction. However, the auditor’s point is well-taken and accounting staff will identify common transactions (such as travel, utilities, and facility maintenance expenses) for inclusion in a new consolidated document. Accounting staff will also consult with other stakeholders regarding joint and individual responsibilities when Judicial Council staff process payment requests initiated by other judicial branch entities.
4. By June 2018, the Judicial Council should fully implement the State Auditor’s recommendation from 2013 related to controls over information systems.
Response:
The Judicial Council’s staff agrees with the recommendation and expects to have fully implemented the State Auditor’s recommendations by June 2018. Substantial effort has been made towards this end, with the establishment of a standardized framework of information systems controls for the judicial branch, and the establishment of a standardized set of information security policies that serve to enact this framework. Further, mechanisms for the periodic review and update of these documents have been put in place, with current revisions to the original documents nearing completion. While we are cognizant of the extended duration of this effort, for compliance to be both meaningful and effective, it was important that our efforts in this area be part of a larger focus within the Judicial Branch to establish overarching strategic and tactical plans for technology that were inclusive of information security. In this fashion, our work would not just be a short-term objective to achieve compliance, but rather, an ongoing focus provided within the context of IT operations as a whole. In support of the State Auditor’s recommendation, Information Technology staff plans to address action items from the Judicial Council’s current IT risk assessment and to finalize updates to the current security framework and information technology policy manual by June 30, 2018.
5. To prevent misinterpretation of policies governing its procurement practices, the Judicial Council should reissue its local manual by June 2018, incorporating all updates made since the 2011 version of the manual.
Response:
The Judicial Council’s staff agrees with this recommendation and expects to have an updated local manual in place by June 2018. Judicial Council staff primarily rely on the 264-page Judicial Branch Contracting Manual, which is periodically updated. However, the State Auditor correctly points out that the Judicial Council previously issued its seven-page local procurement manual in 2011 and released two subsequent memos in 2016 and 2017. Judicial Council staff will make consolidating the local manual and the two subsequent memos a priority.
6. To help ensure that the Judicial Council complies with state reporting requirements related to conflicts of interest, it should report to the appropriate authority any staff who do not file statements of economic interests after reasonable attempts to prompt them to file, as described in guidance from the Fair Political Practices Commission. Further, the Judicial Council should complete its procedures to improve compliance and implementation beginning in January 2018.
Response:
Judicial Council staff agree with this recommendation and Human Resources is in the process of documenting its procedures for addressing situations when required filers do not submit their Form 700 – Statements of Economic Interest in a timely manner (estimated completion by February 2018).
Thank you again for your effort and assistance in helping the Judicial Council improve upon its existing practices. Should you have any additional questions or require further information regarding this response, please contact Grant Parks – Principal Manager, Audit Services at (916) 263-1321.
Sincerely,
Martin Hoshino
Administrative Director
Judicial Council
MH/GP
cc: Jody Patel, Chief of Staff, Judicial Council
John Wordlaw, Chief Administrative Officer, Judicial Council
Doug Kauffroath, Director, Branch Accounting and Procurement, Judicial
Council
Aurora Rezapour, Director, Human Resources, Judicial Council
Robert Oyung, Director, Information Technology, Judicial Council
Grant Parks, Principal Manager, Audit Services, Judicial Council