An audit released by the Long Beach City Auditor’s Office that examined some of the city’s contract work agreements showed that the city lacks a meaningful way of measuring the consistency and completeness of the work it’s paying for, with the city sometimes paying more than what was originally approved within the terms of its contracts.
The 13-page report gave an overview of some of the city’s inadequacies when it comes to monitoring the contracts it enters, which may have cost taxpayers more money for services than were approved by the city council.
The limited-scope audit involved nine administration audits from the 2016 fiscal year combined with previously completed audits between 2012 and 2016 of contracts that amounted to nearly $66 million. The contracts covered a variety of departments including public works, the airport, the Long Beach water and fire departments and the city’s Department of Parks, Recreation and Marine.
The audit found recurring patterns of risk across several city departments including two primary issues; the city lacks an effective contract monitoring system and city staff lacked guidance or training on how to manage those programs. The problems spanned from work performed not being verified to departments overpaying for work, paying for work on contracts that had expired and the scope of contracts being expanded—as well as their costs—after they had been approved by a council vote.
Some examples listed in the report were the Long Beach Water Department having paid higher rates than outlined on 65 percent of the occurrences for its contract for miscellaneous security services. However, a water department representative noted that that figure amounted to what the auditor' office characterized as "immaterial difference in costs".
In other examples the city either failed to properly outline the scope of projects thus leaving them open to ambiguous work expectations and costs, and regarding Shaffer Psychological Institute and the park maintenance program, costs were miscalculated which led to incomplete maintenance of parks and the funds for Shaffer being burned through six months into a two-year term.
Long Beach Gas and Oil was found to have added $1.3 million worth of work on its consulting contract for its advanced metering system. The report noted that because the project was amended after the vote and the price was negotiated between the department and the contractor instead of competitively bid, there was the chance that the city did not receive the best value.
The report also stated that the staff report presented to the council for a vote did not accurately represent the process that led to Utiliworks, the company that ultimately won the contract from the city, and its non-participation in the bid process.
It said that the staff report noted that a bid process had been undertaken but left out that Utiliworks did not submit a bid. The report suggested that all staff reports presented to city council be transparent and accurately describe the vendor contract history and how competitive pricing was determined.
Long Beach City Auditor Laura Doud said that this report did not show that this was a large problem, adding that this was a limited-scope audit so it’s hard to say whether it is or is not a pervasive issue with city contracts. Doud said the largest problem her office found was the lack of training for staff that were overseeing contracts as their expertise was usually related to the department they served in and not in financial management.
“That’s their expertise, and what we found was those people with those specialized skills—recreation, fitness, health, medical—they were also overseeing a financial contract,” Doud said. “That was one of our recommendations, that they get proper training so that someone with training or a background in contract management could oversee it. It seemed to make more sense to us that the city would have better oversight on these contracts with that.”
It also recommended the city seek out a technological fix to its lax oversight by creating a central database where key provisions of contracts could be stored for easy access. Currently the extent of the data that is readily available on the city clerk’s system is the contract number and vendor name with further information requiring requests from individual departments.
Doud said the city has hired a consultant since the findings were shared with the city manager’s office and the various departments encompassed in the audit to help ensure that these types of oversight do not happen again in the future.
“They took immediate action which is really good from our point of view,” Doud said. “Going forward, the city does a lot of work with contracts for goods and services, we’re talking millions of dollars, and they know the seriousness of it and want to ensure that the city is receiving those goods and services at a fair price.”
In a memo dated March 30, City Manager Pat West recounted the numerous cuts to city staffing levels and the purge of general fund expenditures undertaken during the recession, noting that it had come at a great cost to the city’s administrative functions.
West went on to detail the steps that had been taken since earlier revelations from the auditor’s office had pressed the city into action to ensure that city contracts were being executed and had appropriate oversight. That included a contract management training course offered by the city’s financial management department and currently bidding out a contract for a data platform as recommended by the city auditor’s report.
He also cited a previous audit of the city’s job order contracts, a two-year review that found the city had paid over $1.9 million than contractually obligated for routine maintenance, stating that the city had made fixes to that process to ensure that issues raised in the May 2016 audit would not be repeated.
“Again, I want to thank the city auditor for highlighting the need for improvement in our contract management abilities, and we will continue to take steps to strengthen them,” West concluded.
[Editors note: the original version of this story stated 65 percent of security contracts at the Long Beach Water Department were paid at higher than agreed to rates, the story has been updated to reflect a smaller scope.]