Suffice it to say, within any organization, public or private, there are and forever will be those who will not hesitate to take advantage of any opportunity to "beat the system;" to exploit any weakness in established process or procedure to protect the integrity of that system. I contend that the exploitation of such a weakness in a public sector system--specifically a public sector purchasing system--where public monies (local, federal or state taxes, fees, surcharges, grants, public/private co-op funding) are expended, is a crime of higher order than those perpetrated upon private sector entities. I contend that the fiduciary responsibility to protect the best interests of "the people," rather than the best interests of the corporation, is tantamount.
Part I of this post provided an overview of the alleged fraud that occurred at Denver International Airport, presumably within the Airport's Technical Services Purchasing Section. The alleged fraud, discovered by internal auditors, appears to have amounted to $50,000 in overcharges just this year. The alleged fraud has, apparently, been ongoing for up to seven years. One employee has been placed on investigatory leave and the currently known facts have been submitted to the Denver District Attorney's Office. A forensic accountant has been brought on-board to delve further into the matter and, hopefully, to determine the chain of failed responsibility that led to the breakdown in process/procedure; where, ultimately, the buck stops.
Part I also noted that the alleged fraud involved purchases from one or more of the companies owned by Richard S. Joselit who, in 2002, pleaded guilty to Petit Larceny in connection with a similar scheme perpetrated against (and with the assistance of some employees of) the New York Mets. The fraud against the Mets amounted to $2Million. Mr. Joselit, by the way, was sentenced to "Conditional Discharge," on October 15, 2003. I am not aware of the "conditions" related to Mr. Joselit's discharge. One would think, however, that one of those conditions was that he cease perpetrating or enabling fraud.
Since these kinds of posts seem to go on and on and on (who really has that much time to read this stuff) let me confine this post to some of the basics that, I suggest, need to be understood before one can make any conclusions about the chain of responsibility for what allegedly occurred at Denver International Airport.
The City and County of Denver operates under a codified central purchasing function, that requires all agencies (except those defined as "Independent" agencies by the City's Charter) to route requests (requisitions) for goods and services (excluding some "professional" services--the definition of "professional" remaining intentionally vague) through the Central Purchasing Division of the Department of General Services. The Purchasing Division procures--via requisitions, annual or term bids, "piggy-backing" on State, Federal or Cooperative contracts--in excess of $150Million in goods and services per year. Denver International Airport is NOT an "independent" agency, as defined by the Charter, and is subject to applicable law, policy and procedure as defined in the City Charter, the Denver Revised Municipal Code (RMC) and Executive Order(s) relating to the purchase of goods and services. (Note: Denver International Airport is further defined as an "Enterprise Fund" agency, which means--in general terms--that it's operational funding does NOT come from the City and County of Denver's General Fund. It is important to note also that Denver International Airport--most management and supervisory personnel--have been foaming out both sides of their mouths for years for the opportunity to become disconnected from the City and County of Denver and the oversight/control therefrom, by becoming a Port Authority, much like Denver Health and Hospitals became an independent authority (Denver Health Medical) in the mid to latter '90s.)
Mayoral Executive Orders can be described as documents which provide the essential detail, process and procedure for Charter or RMC mandates, imperatives. For those Charter and RMC sections that related to the purchase of goods/services, Executive Order No. 33 is applicable.
Part of Executive Order No. 33 relates to what is called "Delegated Purchasing Authority (DPA)." This authority is defined in XO33 as:
Delegated Purchasing Authority (DPA): The authority provided by the Director of Purchasing to agencies under the Mayor to conduct small dollar and contract-based procurements without the necessity to requisition through the Purchasing Division.The alleged fraud that occurred at Denver International Airport was, without a doubt, perpetrated under the DPA authority described above. Let me end Part II of this multi-part post by noting the chain of responsibility promulgated in Executive Order No. 33 with regard to DPA and the process/procedure set forth to safeguard the integrity of the DPA program:
6.1 Agency Head/Expending Authority DPA Responsibility:Part III of this ongoing post will, most likely, concentrate on the most likely breakdown of responsibility at Denver International Airport that contributed to and provided the opportunity for the alleged fraud.
Notwithstanding anything in this Memorandum, the Agency Head or the Agency’s Expending Authority shall be ultimately responsible for Delegated Purchasing Authority within their agency. DPA responsibility encompasses tracking, appropriateness of purchases, centralized documentation of purchases, reporting, due diligence reviews of all DPA purchases and the agency management and utilization of PCards in conjunction with the use of DPA . The Agency Head or Expending Authority shall be responsible for establishing clearly articulated internal processes and procedures to assure that DPA purchases at the agency are in the best interests of the City and in support of the mission of the agency.
It is the responsibility of the Agency Head to assure that utilization of DPA is administered and conducted with the utmost integrity. The practical application of that delegation of authority must adhere, without exception, to all legally mandated, policy and procedural rules and regulations established:
1. through legislative processes, or
2. mayoral fiat, or
3. established by the Director of Purchasing pursuant to this Executive Order.
Each Agency Head must develop, institute and maintain a formally documented and widely disseminated system of internal due diligence “checks and balances” for DPA. The Agency Head must assure that these processes and procedures are fully understood and faithfully followed by agency personnel who conduct or are responsible for purchasing activities.
6.2 DPA Authorization: Delegated Purchasing Authority shall be authorized for an individual only if the agency head or designee approves that individual by their signature on the Delegated Purchasing Authority document PURDIVDPA#1, Exhibit 1B. Requests for changes or deletions to those authorized to participate in Delegated Purchasing Authority must be made to the Purchasing Division by memorandum to the Director of Purchasing.
Prior to any individual being authorized to use DPA, that individual must successfully complete DPA training provided by the Purchasing Division or under the auspices of the Purchasing Division. Temporary approval of a DPA number may be granted with the written approval of the Director of Purchasing. Successful completion of DPA training shall require that the individual receive a score of at least 70% on a written examination given at the conclusion of the training session.
7.0 DPA Due Diligence:
The delegation of Purchasing Authority requires conscientious efforts by the user-agency to assure that misuse or abuse of that authority is prevented. If misuse or abuse occurs, it must be remedied appropriately. Whether an agency utilizes the traditional “vouchering” method of payment or the PCard program, the following suggested “best practices” are provided as guidance for establishment of internal Due Diligence processes and procedures.
7.1 Monthly Random Review of Transactions: Review of at least ten (10) per cent of all DPA purchases made at your agency to ensure they are proper. Some items you may wish to look for are:
a) Was the purchase of an item utilized in the purchaser’s area of responsibility?
b) Was there a second authorized signature (supervisor) approving the purchase?
c) Did someone other than the purchaser authorize payment for the purchase?
d) Did the purchase follow internal and city policy and procedure?
All persons at an agency who are authorized to utilize DPA must be made aware that a random audit can and will be conducted on their DPA transactions.
7.2 Non-Random Selected Transaction Review: Review transactions in specific area of the agency to determine if:
a) Is the purchase normally made in the purchaser’s functional (job-related) area? Example: It is expected that a mechanic will buy tires or car parts, while administrative or clerical support personnel will, most likely, not have a legitimate reason to purchase tires or car parts;
b) Is the purchase for consumables? If so, is there an Official Function Form included in the documentation? The purchase of coffee for the office, or donuts for the staff, or pizza for a retirement luncheon is not an appropriate use of DPA;
c) Does the vendor that was utilized provide what is typically needed in the DPA user’s area of responsibility. Example: A trades worker’s purchase from a hobby shop is more likely to be questioned than a Recreation Center Director making the same purchase;
d) Are the required/proper signatures on the documentation? If a PCard is being used, is someone other than the person to whom the PCard has been issued using the card?
e) Look for purchases that are consistently from the same vendor in a relatively short timeframe, with the same dollar amount. This is a good indication that the DPA user is “splitting” purchases or conducting “repetitive” purchases in violation of this Executive Order;
f) Did someone other than or in addition to the purchaser authorize payment for the purchase?
7.3 Audit of Agency Due Diligence Procedures and Transactions: The Auditor of the City and County of Denver has the authority and has been requested by the Purchasing Division to audit agency due diligence procedures and/or actual PCard transactions on a semi-annual basis.
7.4 On-Request/Quarterly Review of Due Diligence Procedures: Agencies shall be required to comply with any request for information or any request for documentation made by the Purchasing Division for the purpose of reviewing, clarifying or auditing agency due diligence procedures and/or actual PCard transactions. Additionally, agencies shall, on a quarterly basis, provide the completed Exhibit 3B to the Director of Purchasing to document their DPA Due Diligence procedures.
8.0 Suspension or Termination of DPA Authority:
If an agency has not developed, instituted and/or maintained an effective “due diligence” program to assure Delegated Purchasing Authority is being conducted according to all applicable law, policy and procedure, the Director of Purchasing may suspend or terminate the agency’s Delegated Purchasing Authority as provided in Section 12 of this Memorandum 33A.
9.0 Purchasing Contact Representative (PCR):
The Agency Head or Expending Authority shall appoint, per the requirements of this Executive Order, Memorandum 33A, Section 2 a Purchasing Contact Representative (PCR) who shall be the liaison between the agency and the Purchasing Division with regard to the administration of DPA at the agency level. The PCR shall report to the Purchasing Division any opportunities to incorporate DPA procurement of goods or services into annual bids and/or other competitive purchasing best practices. The PCR shall also be responsible for providing any necessary coordination between the agency’s PCard Coordinator and the Purchasing Division and/or the PCard Administrator. The PCR shall also be responsible for maintaining or coordinating the maintenance of justification documentation for audit review of categories of authorized DPA purchases that require a written justification as provided in Section 2.0.