Financial Management Workshop for CILs…Regulations and Beyond
IL-NET presentation on May 25-27, 2016
Module 12: Elements of a Purchasing Plan

JOHN HEVERON: And so what you all have is the only thing with little spiral binding to it, and if you can find that came in your packets and flip over to page14.

I'm going to walk you through.

Just a little bit of this.

We won't take too much time.

But I really want to brag about this a bit.

I believe that it really encompasses everything that comes out of the new Uniform Guidance.

You have to have a written policy.

As you heard this morning, you've got a little bit of an additional extension of time to have this in place, but it's almost done for you.

You really don't need to deviate too much from this.

And I was sort of struggling finding somebody to review it and then coincidently, when our speaker from this morning developed their overview, they really talked about procurement rules, so I sort of took that as a second look at these standards here.

And I think they're going to work for you.

Obviously, you need to make sure that you're making this for your organization.

But again, starting over on page14, where it says purchasing policy, it starts with objectives, including limiting purchase to necessary items, minimizing the possibility of theft or misuse.

Control costs while ensuring quality, comply with federal and other regulations and identifying the nature and program or supporting service of the purchase.

And then some sections, you can just take and tack.

But I've got a section here, says all purchases will be approved by the Executive Director, and I might have a few Executive Directors saying, no, that's not me, I'm not the best person for that.

And we've delegated that to somebody who is closer to that, so make sure you make that appropriate for yourselves.

The next thing talks about ethical conduct in purchasing and you're going to see a theme of this.

This is really what's required by Uniform Guidance.

This is going to appear throughout the document but you need to eliminate any potential conflicts of interests, and you need to assure that proper ethics are followed in purchasing.

And so the next couple of sections talk about prohibitions against conflict of interest, and really, a definition of conflict of interest.

So it really can be a good training tool for anybody involved in purchasing here.

It also mentions some sanctions, any employee found guilty of a conflict will be subject to disciplinary action, and then actual and potential conflicts of interests involving federally funded activities must be reported to your federal funding agency.

You don't want to go there.

In fact, earlier, in the internal control section when we were talking about other types of theft, and misuse, I meant to mention, but on the Form 990 that you fill out now, there's a question, did you uncover a fraud during this year?

So if that's the case, you go very, very public with these things, because anybody on planet earth with access to a computer can see your 990, and if you answer yes, you have to elaborate on that schedule O at the back of the 990, so way, way better to avoid this than to try to work through it.

On the next page, we've listed general procurement standards.

Again, these come out of Uniform Guidance, purchases shall be treated consistently as direct or indirect.

Cost charged to federal and other awards, should be net of any applicable credits, all of these rules that you heard about today should be rolled in here.

That's not to say you can't add other things.

You can and you should if they're appropriate.

All solicitation should include a clear and accurate description of the technical requirements for the material, product, or service to be produced.

Page17 talks about competition.

And you shouldn't do anything to limit competition.

For example, specifying a particular brand of product or setting specifications so tightly that only one vendor could possibly qualify.

You just need to avoid that.

The next section is really new.

And if you haven't heard about this before, then you need to know about it.

But there are three levels of purchases now, and the standards that you follow for each of them are different.

So there's micropurchases, really little ones, $3,500 or less.

And we'll talk about what you do with those, but those are the smallest ones that require the least amount of oversight.

Small purchase requirements run from that level up to $150,000.

And then there are purchases in excess of that amount, so you've got the up to 3500, from 3500 to 150, and over 150.

And they all have different requirements, and they're all stipulated in here.

You may want to change the wording, but they're all stipulated in here.

Generally for those larger purchases you need competitive bidding, need to do lease purchase analysis and things of that nature.

But there are exceptions to competitive bidding.

There are circumstances where and again it might be an audit firm because there may not be many people qualified and familiar with and certified to do compliance auditing that you may require.

There's also requirement in Uniform Guidance that you make affirmative action to deal with minority and women-owned businesses and some of the things you might do is to break the contract down into components to facilitate that.

And then the final section on the next page deals with uncertainties and violations.

What you do if you're uncertain, whether there's a conflict or the procedure is proper, again, you need to possibly modify this to make it your own.

If you're not if you're going to the CEO or the CFO, but you need to have a written policy there.

And then finally, deliberate violations of any aspect of this policy will be subject to disciplinary action.

This isn't really very long.

But again, I believe it covers everything that you need to cover.

Didn't waste a lot of words, though.

I think everything in here is pertinent, so you really need to make sure that you as the leadership of your organization and the people involved with purchasing are thoroughly familiar with all aspects of this.

I also want to remind you that these dollar thresholds we talked about change periodically, and they actually already have changed.

Uniform Guidance is pretty new, but we were at, I believe it was $3,000, and Darrell spotted this for me first, but it went up to $3,500 already.

So you have to watch those changes, and update your policy when you become aware of those.

Any questions about this?

PAULA MCELWEE: While thinking about questions, remember, this is available already on the website on the link for this training in electronic format, so you don't have to retype it all.

You can cut and paste and edit and we've tried to make it as easy for you as we can.

Any questions about purchasing?

AUDIENCE MEMBER: Verify for me if you could, the $3,500 applies to what kind of purchases?

JOHN HEVERON: Well, we call it we call those micropurchases, applies to virtually any purchase under that level.

And so really you don't need to go through any analysis of that.

You can you can simply, what they recommend is that you rotate your purchases between vendors but that's not even a requirement.

But there would be $3,500 of anything, whether it be office supplies or anything of that nature.

PAULA MCELWEE: Is that through the period of a year?

If it's more than 3500 through period of year do you need to treat it at the next level?

I've never been sure about that.

JOHN HEVERON: If you will be purchasing from the, you know, if you have a contract that will cover the year, then the answer would be yes, but if these are individual things that will happen during the year, then it would be at the individual level.

PAULA MCELWEE: Each purchase would count separately.

Other questions about purchasing?

Got one back here.

AUDIENCE MEMBER: The policy that you have talks about minority businesses and women-owned businesses.

Is it okay to say that when possible we're going to specifically go to a business run by a person with a disability or who has a family member with a disability instead of getting quotes from other companies?

JOHN HEVERON: Absolutely.

Absolutely you can make that a policy.

PAULA MCELWEE: It becomes your own policy but it's certainly in keeping with the spirit of this.

AUDIENCE MEMBER: Do the purchasing thresholds apply to consultants?

Contractors?

JOHN HEVERON: They do.

They do.

But again, more often, you're going to have exceptions to competitive bidding there too.

It really depends.

So for example, if you're doing a, you know, a looking for an architect to design a building, you really going to be a little bit more limited because you want to deal with somebody who is very familiar with accessibility.

So you won't have quite as many people available in that pool, but it does apply, yes.

PAULA MCELWEE: Those exceptions to needing to bid were real important ones too.

There were quite a few things to look at there that are exceptions where you don't have to bid.

AUDIENCE MEMBER: Just to follow up, I'm asking because we have been dealing with an outside consultant for consumer satisfaction surveys that receives all the data and compiles it all and prepares a report and a couple years ago decided in consultation with that individual that we might get a lot better return if phone calls were also made before the written surveys went out, that she calls 50 people, she calls however many it takes to get to do the survey with 50 people, and then the rest of the folks on the list get the written survey, and when we did that, her fee went up, obviously.

And it would not feel effective or appropriate or useful to me to bid that out because of the history and the involvement and particular skills.

She previously worked for the R&T center in our state and now retired.

So we can make an exception in our policy for things like that, right?

JOHN HEVERON: Well, first of all, you don't always need to go to you don't always need to go to competitive bidding at that level.

Let me read this small purchase requirements.

They apply when purchases are between 3500 and 150,000.

Index for inflation.

Micropurchases shall be distributed among qualifying suppliers but don't generally require competitive quotations.

Small purchases will be made only after price or rate quotations are obtained from an adequate number of sources.

But prices can be obtained from published or online prices.

So you really it's not like you need to request competitive bids.

You might go to Amazon and they may have several vendors for something, and you know, you really are looking at multiple prices just by doing that.

Situation you described, though, is a little more unique and specialized and may qualify for an exception.

I mean, you need to evaluate whether there are other people who provide this sort of service.

It doesn't sound like something that you find on most street corners, so it is sort of unique.

But the issue is, you have a policy, now you need to put some justification that we went back to you know, P & J because they're the only firm that we're aware of in this area that provides this service, and their service quality has been consistently good, and what they do helps us in the administration of our program.

Get that documentation.

PAULA MCELWEE: Specific expertise, because of their experience with you.

Yeah.

Bob?

I think.

AUDIENCE MEMBER: Thanks.

The earlier this morning they said there's a two year window, one extended, the other one in terms of getting these policies in compliance with UGG.

However, let's just assume you're a real barn burner and I guess my point is, so you have to, within the two year period, get this stuff in place and be in operating that.

There's nothing that would prevent you from going back this summer and having a picnic and draft up your policies and get it done by mid-July and then you could start utilizing the new policies practices and most flavorful here is your procurement stuff.

Is that correct?

One, you have to within two years, but as soon as you get it in place as to how your process is and how you mindfully accomplish that, that's the start date?

And the third part to that question, which I think was answered but I like asking, did you retroactive policies, since the UGG was available since, oh, whatever, December, whatever it was, can you get a board to approve those policies back retroactively?

Thank you.

JOHN HEVERON: Well, first of all, I think it's very important to understand that there wasn't a two-year deferral of Uniform Guidance, of the implementation for that.

Uniform Guidance is in place for all of us right now.

Procurement policies were deferred for two years, and then, as you heard this morning, for another six months, I think he said, to July of 2017, so they were deferred to December of '15 and then to December of '16.

And now to July 1 of '17.

But not Uniform Guidance.

Uniform Guidance is here, folks.

It applies for any new funding that you receive.

And by the way, the way that's being interpreted, Federal agencies interpret this as if you get an extension of your prior contract but they have the right to change it.

Even if they don't, then that's considered new funding, so we're we're into it now.

You can delay the implementation of a procurement policy, but no, you don't have to, and the rest of it is honest now.

PAULA MCELWEE: That retroactive piece, what about that?

I was making a face when you were saying it, Bob.

JOHN HEVERON: So what you really should have had is a process for internal controls over Federal awards.

That should have been in place.

Did you have one?

Probably, I hope.

Was it fully comprehensive?

Probably not.

If you haven't already, you're going to formalize it.

I think it would be very wise to say, while we've had a process to assure controls over federal and other awards, we're now formalizing these.

I certainly would never back date a document.

I will tell you, from my perspective as an auditor, and I said this in my office, you know, we spend a lot of time on this stuff when it first came out, and learned a lot about it, and what you can do and can't do.

And I said, wouldn't it be a shame, though, if because we know this so well, our clients are at the disadvantage because we're going to pick up on wrongdoing quicker than most firms would in our community.

That would be a horrible way to to share our expertise.

So we really feel that the first time around is an educational process, and after that, it's an implementation, and you know, we need to call it what it is at that point in time.

PAULA MCELWEE: Nothing prohibits you from adopting your version of these policies as soon as you can.

JOHN HEVERON: So really, the thing that should have been in place, as I said, was controls over administration of Federal awards, and I'm sure you had them, but you need to enhance them and formalize them, and it should be dated.

It should be in the board minutes.

That's the date that it will be formally approved.