A newly released internal audit warns that a lack of oversight and accountability in key procurement and contracting processes at the Department of Education opens up the agency to a risk of theft.
DOE officials say they are working with their internal auditor to implement recommendations from the report, which urges the department to implement stricter controls, beef up training, improve monitoring of purchases and penalize schools or offices that fail to follow procurement rules.
Edwin Koyama, accounting director, said the DOE’s Office of Fiscal Services is working with the internal audit section to "address and resolve their findings."
He added, "We know that this is a very important area."
The report is the first issued by the DOE’s auditing arm since it was revamped late last year to respond more quickly to agency needs and take a bigger role in analyzing DOE spending, management and problem areas.
The audit also comes in the wake of several high-profile theft cases involving DOE employees, including one earlier this year that involved a Fern Elementary School secretary who pleaded guilty to stealing nearly $15,000 from various school accounts over the course of two years.
The audit does not make clear whether the DOE could have prevented previous thefts by addressing procurement and contracting issues earlier.
AUDIT’S RECOMMENDATIONS
A new internal audit of Department of Education procurement and contracting processes found several areas of concern. The report recommended:
>> Mandatory training for all staff handling procurement functions at schools and offices.
>> Periodic spot checks to ensure proper procurement procedures are followed.
>> Regular reviews of documents before purchases are made.
>> Using violation reports as a tool to understand policies, and implement consequences for schools or offices not following requirements.
>> Continuous monitoring of transactions to reduce the risk of noncompliance.
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But the report notes that a lack of oversight and monitoring of procurement and contracting could "lead to unauthorized purchases which may result in improper use of funds and a financial loss to DOE."
The audit found:
» A "lack of accountability" for small purchases (under $25,000) completed at the school and office level. In many instances, schools had not filled out required forms for purchases or received three price quotes.
Small purchases are actually a big-ticket item for the DOE. The department spent $789 million on small purchases from July 1, 2010, to Dec. 31, 2011, the procurement period reviewed in the audit.
» Concerns with controls for so-called "purchasing cards" — credit cards used in small purchases. P-cards are aimed at cutting bureaucracy, but the review notes that stricter monitoring is needed to ensure P-cards are being used properly and that schools follow procurement rules.
In several cases, for example, the DOE did not take the names of employees who had resigned, been transferred or been terminated off lists of who would be allowed to use the cards.Also, schools were able to make purchases even if they didn’t secure pre-approvals or complete proper procurement forms. They were also allowed to exceed purchasing limits.
"It appears that a common practice at the DOE is ‘purchase first, review later,’" the audit said. "Payments for P-card purchases are made … regardless of whether schools and offices" turn in proper documentation.
The limit for each P-card holder is $25,000.
» Schools or offices that fail to meet procurement or contracting regulations face no consequences. The audit recommends instituting a new set of guidelines outlining how the DOE will respond to violations, and suggested a zero tolerance or three-strikes policy.
Wesley Lo, chairman of the Board of Education’s Finance and Infrastructure Committee, said the audit is part of a push by the BOE and department to better understand the agency’s risks — and control them.
He said while the audit was helpful in pinpointing problems with procurement, he’s more interested in the follow-up.
Lo said he’ll want to get updates over the next several months on how the DOE is implementing the auditor’s recommendations.
"It’s this continuous monitoring," he said.
Lo added the auditing function at DOE is "not meant to be a witch hunt."
"It’s meant to make processes better," he said.
The audit follows a spate of thefts at the DOE over the past several years.
In the Fern Elementary case, former secretary Williamina Muranaka pleaded guilty in May to 13 counts of theft and bribery.
Several of the theft charges were for checks Muranaka wrote from 2007 to 2010 for rent at a public housing project. The bribery charge, meanwhile, was because Muranaka accepted gift cards worth more than $2,000 from Reliable Printing solutions for ordering supplies for the school at high rates.
Also this summer, former Waipahu High business manager Warren Harada began a 10-year prison sentence for stealing nearly $500,000 from the school over a five-year period.
Harada was the fourth public school employee since 2010 prosecuted for stealing school money but the first to go to prison.
The three previous cases involved school secretaries.
