Judicial Branch Procurement

7/29/2019 Judicial Branch Procurement

1/59

Judicial Branch Procurement

Six Superior Courts Generally Complied With the JudicialBranch Contracting Law, but They Could Improve SomePolicies and Practices

Report 2012-301

March 2013

COMMITMENTINTEGRITY

LEADERSHIP


2/59

Te rst ve copies o each Caliornia State Auditor report are ree. Additional copies are $3 each, payable by check

or money order. You can obtain reports by contacting the Caliornia State Auditors Oce at the ollowing address:

Caliornia State Auditor

555 Capitol Mall, Suite 300

Sacramento, Caliornia 95814

916.445.0255 or Y 916.445.0033

OR

Tis report is also available on the World Wide Web http://www.auditor.ca.gov

Te Caliornia State Auditor is pleased to announce the availability o an online subscription service.

For inormation on how to subscribe, please contact the Inormation echnology Unit at 916.445.0255, ext. 456,or visit our Web site at www.auditor.ca.gov.

Alternate ormat reports available upon request.

Permission is granted to reproduce reports.

For questions regarding the contents o this report ,

please contact Margarita Fernndez, Chie o Public Aairs, at 916.445.0255.


3/59

Doug CordinerChief DeputyElaine M. HowleState Auditor

5 5 5 C a pit o l Ma l l , Su i t e Sa c ra m ent o , C A 9 5 8 4 9 6 .4 4 5 . 5 5 9 6 . 7 . 9 fa x www.a ud it o r .c a .go v

March 19, 2013 2012-301

Te Governor o CaliorniaPresident pro empore o the SenateSpeaker o the AssemblyState CapitolSacramento, Caliornia 95814

Dear Governor and Legislative Leaders:

As required by Chapter 36, Statutes o 2011, the Caliornia State Auditor (state auditor)presents this audit report on a pilot audit assessing the compliance o six superior courtswith the requirements o the Caliornia Judicial Branch Contract Law (judicial contract law),

Public Contract Code, sections 19201 through 19210. We reviewed the extent to which theapplicable Judicial Branch Contracting Manual (judicial contracting manual) was consistentwith the Public Contract Code and substantially similar to the State Administrative Manualandthe State Contracting Manual, as required by law. We also assessed whether the AdministrativeOce o the Courts (AOC) Semiannual Report on Contracts for the Judicial Branch for theReporting Period January 1 Trough June 30, 2012 (semiannual report) to the Legislature andthe state auditor complied with the requirements o the judicial contract law.

Tis report concludes that the judicial contracting manual lacks policies related to the Statessmall business preerence or the procurement o inormation technology goods and servicesand noted several instances where data in AOCs semiannual report was inaccurate. Specifcally,we noted that in some cases the report did not include data describing the good or servicepurchased. We also noted other cases where the report included inaccurate data on the amountscourts paid or goods and services.

Further, the six courts in the pilot auditthe superior courts o Napa, Orange, Sacramento,Stanislaus, Sutter, and olo countiesgenerally complied with the judicial contract law.However, we identifed isolated instances where courts could improve. For example, we notedindividual procurements where court managers approved transactions valued above establishedauthorization levels. We also identifed instances where courts did not justiy using sole-sourcecontracts or did not advertise or competitive bids. Moreover, none o the six courts hadprocedures to implement the Disabled Veteran Business Enterprise program, as required by thejudicial contracting manual.

Respectully submitted,

ELAINE M. HOWLE, CPAState Auditor


4/59

California State Auditor Report 2012-301

March 2013

Contents

Summary 1

Introduction 5

Audit ResultsThe Judicial Branch Contracting Manual Does Not Include a

Small Business Preerence, and the Semiannual Report or the

Judicial Branch Can Be Improved 13

The Superior Courts Generally Demonstrated Good Internal

Controls and Compliance With State Procurement Requirements,

but Could Improve Local Policies 16

The Napa Court Could Improve Its Practices Relating to

Procurement Approvals 19

The Sacramento Court Could Improve Its Practices Related to

Authorization and Competition 20

The Stanislaus Court Did Not Always Follow Established Processes

Regarding Advertisement o Procurements 21

The Sutter Court Did Not Always Document Its Rationale or

SoleSource Procurements 22

The Yolo Court Did Not Always Research Multiple Vendors When

Using Leveraged Procurement Agreements 23

The Orange Court Generally Complied With the Judicial Branch

Contract Law 23

Recommendations 24

Responses to the AuditJudicial Council o Caliornia, Administrative Ofce o the Courts 27

Caliornia State Auditors Comments on the Response From

the Administrative Ofce o the Courts 31

The Superior Court o Napa County 33

The Superior Court o Orange County 35

Caliornia State Auditors Comment on the Response From

the Superior Court o Orange County 39


5/59


March 2013

viii

The Superior Court o Sacramento County 41

Caliornia State Auditors Comments on the Response Fromthe Superior Court o Sacramento County 45

The Superior Court o Sutter County 47

The Superior Court o Yolo County 51

Caliornia State Auditors Comments on the Response From

the Superior Court o Yolo County 53


6/59


March 2013

Audit Highlights . . .

Our pilot audit or the superior courts in

Napa, Orange, Sacramento, Stanislaus,

Sutter, and Yolo counties and our review

o the Judicial Branch Contracting Manual

(judicial contracting manual) highlighted

the ollowing:

The judicial contracting manual does

not require that court entities give

preerence to small businesses bidding on

inormation technology procurements,

which is inconsistent with the Public

Contract Code.

The Administrative Oce o the Courts

(AOC) Semiannual Report on Contracts

or the Judicial Branch or the Reporting

Period January 1 Through June 30, 2012

(semiannual report), was neither accurate

nor complete with respect to data rom

the superior courts.

Each o the six courts we visited generally

demonstrated good contracting practices

and complied with the judicial contract law.

Although the courts local manuals

generally comply with the judicial

contracting manual and state law, they

lack certain policies such as policies to

implement the Disabled Veteran Business

Enterprise program.

Some courts had isolated instances ononcompliance with their contracting

practices such as having no justifcation

or solesource procurements.

Summary

Results in Brief

In 2011 the State enacted the Caliornia Judicial Branch ContractLaw (judicial contract law). Tis law required the Caliornia StateAuditor (state auditor) to establish a pilot program to audit six trialcourts and to determine these courts compliance with the judicialcontract law. Te judicial contract law, among other things, requiredthe judicial branch to develop and adopt a contracting manual nolater than January 2012 that all judicial branch entitiessuch assuperior and appellate courtsmust ollow. Te manual was to beconsistent with the requirements ound in the Public Contract Codeand substantially similar to the provisions contained in the State

Administrative Manualand the State Contracting Manual.

Te judicial contract law urther specied that the state auditormust begin a pilot program to commence audits o six trial courtsby no later than December 15, 2012, and, based on the resultso the pilot program audits, audit every trial court at least onceevery our years. Tis audit report discloses the results o our pilotaudit or the superior courts in the ollowing six counties: Napa,Orange, Sacramento, Stanislaus, Sutter, and Yolo. During our audit,we assessed the extent to which theJudicial Branch ContractingManual(judicial contracting manual) complies with state law andwhether the Administrative Oce o the Courts (AOC) SemiannualReport on Contracts for the Judicial Branch for the ReportingPeriod January 1 Trough June 30, 2012 (semiannual report) to theLegislature and the state auditor accurately and completely refectsprocurement activity at the superior courts.

We ound that the judicial contracting manual does not requirethat court entities give preerence to small businesses bidding oninormation technology procurements. Because the Public ContractCode includes a small business preerence or the acquisition oinormation technology, we expected that the judicial contractingmanual would contain a similar provision. Te absence o such a

policy renders the judicial contracting manual inconsistent withthe Public Contract Code.

In addition, the AOCs semiannual report was neither accuratenor complete with respect to data rom the superior courts. Tejudicial contract law requires that the courts report twice annuallyto the Legislature and the state auditor on all procurements that

The judicial contract law is codied in the Public Contract Code, sections 19201 through 19210.

For our audit, we reviewed the portion o the Semiannual Report on Contracts for the JudicialBranch for the Reporting Period January 1 Through June 30, 2012 pertaining to the superior courts.All reerences here to a specic semiannual report reer to this report.


7/59


March 2013

2

had payment activity. Te six courts we reviewed all use thePhoenix accounting system, administered by the AOC, and

the AOC generated the semiannual report we reviewed with inputrom the courts. Te AOC ltered certain transactions out o thereport. In some cases these exclusions were appropriate but in othercases they were not. As an example o where these exclusions wereinappropriate, the AOC did not report contract activity or courtsecurity services, court reporters, and interpreters. We also notedinstances where the semiannual report was missing inormationdescribing the goods or services obtained by the courts, and wherethe semiannual report provided inaccurate cost data. Without anaccurate report o procurement transactions, the Legislature cannotmake inormed decisions regarding court procurements. Te AOCasserted that it has corrected the problems that caused these errors

and that they will not occur in uture semiannual reports.

Each o the six courts we visited generally demonstrated goodcontracting practices and complied with the judicial contract law.In particular, we noted that the courts assured adequate separationo duties when processing payments by ensuring that multipleindividuals reviewed invoices. Tis helps prevent raud and error inthe payment process. We also noted that the courts took advantageoleveraged procurement agreementsstatewide and multistateprocurement agreements that take advantage o the Statesbuying power to obtain lower pricing than an individual courtcould generally obtain on its ownto ensure that they obtainedreasonable prices while also satisying the States competitiveprocurement requirements. Finally, three o the courts we visitedthe superior courts o Napa, Yolo, and Sutter countiesrecentlybecame part o a shared procurement service administered by theSuperior Court o Riverside County, designed to help the smallercourts comply with state procurement requirements.

Although the courts local manuals generally comply with thejudicial contracting manual and state law, they lack certainpolicies. Specically, the judicial contracting manual requires thatlocal courts develop policies to implement the Disabled Veteran

Business Enterprise (DVBE) program, which requires entitiesto attempt to award at least 3 percent o their contract dollars tocertied businesses owned by disabled veterans. However, althoughone court includes the DVBE program in its local manual, noneo the courts we reviewed include procedures to implementthe program.

Further, some courts had isolated instances o noncompliancewith their contracting practices. For example, we ound thatmanagers approved transactions or amounts above their authority


8/59


March 2013

or one procurement we reviewed at the Superior Court o NapaCounty (Napa court) and one procurement we reviewed at the

Superior Court o Sacramento County (Sacramento court). Also,or a selection o procurements we reviewed, we noted two instanceswhere there was no justication or a solesource procurementone at the Superior Court o Sutter County (Sutter court)and one at the Sacramento court. Although the judicial contractingmanual allows procurements without competition in some cases,such as in an emergency or because the product is unique, itrequires courts to justiy the need or these exceptions. In addition,in one o the procurements we reviewed or the Superior Court oStanislaus County (Stanislaus court), the court did not advertise theprocurement as required. Finally, in one procurement we reviewedat the Superior Court o Yolo County (Yolo court), the court used

a leveraged procurement agreement without documenting that itresearched multiple vendors. Entities using such agreements muststillwith some exceptions that did not apply in this caseresearchmultiple vendors to ensure that they receive the best value. Each othe issues described here appears to be an isolated lapse in policyrather than a systemic ailure. However, when courts do not complywith the judicial contracting manual and other state procurementrequirements, they risk not receiving the best price or goodsand services.

We made several recommendations to the six courts we visited andto the AOC. For example, we recommended that the courts developpolicies to implement the DVBE program. Further, we recommendedthat the Sacramento and Napa courts ensure that managers donot sign transactions above their approved dollar limits. Also, werecommended that the Stanislaus court advertise solicitations asrequired by the judicial contracting manual and that the Sacramentoand Sutter courts justiy solesource procurements. Finally, werecommended that the AOC include all relevant procurementtransactions in its semiannual report and ensure that its processesor developing the semiannual report provide accurate inormation.

Agency Comments

Te superior courts and the AOC generally agreed with ourrecommendations; however, the Yolo court disagreed withour ndings and the Stanislaus court chose not to respond.


9/59


March 2013

4

Blank page inserted or reproduction purposes only.


10/59


March 2013

Introduction

Background

Caliornias judicial branch is a separate and independent brancho state government comprised o the superioror trialcourts,appellate courts, Supreme Court, and administrative and policyentities, including the Habeas Corpus Resource Center, the JudicialCouncil, and the Administrative Oce o the Courts (AOC).Te Caliornia Constitution requires the Judicial Council to surveyjudicial business practices and make recommendations to thecourts, the governor, and the Legislature regarding improvementsto judicial administration. In addition, the Judicial Council mayappoint an administrative director o the courts to perorm

unctions as delegated by the council. Te Judicial Council consistso the chie justice o Caliornia and one other Supreme Courtjustice, three judges o the courts o appeal, 10 superior court judges,our members o the State Bar o Caliornia, several nonvotingmembers, and a representative rom each house o the Legislature.Te Judicial Council perorms its constitutional and other unctionswith the support o its sta agency, the AOC. Figure 1 on theollowing page provides an overview o the structure o Caliorniasjudicial branch.

Caliornias judicial power is vested in the Supreme Court, appellatecourts, and superior courts. Te superior courtslocated in each othe States 58 countieshave original jurisdiction over most typeso cases, including civil and criminal cases. Parties to cases heardin superior court can generally appeal judgments to a designatedcourt o appeal. Ultimately, Caliornias Supreme Court has theauthority to review the judgments issued by appellate courts andhas appellate jurisdiction when a superior court has pronounced ajudgment o death.

Beore 1998 Caliornias constitution provided or municipaland superior courts. In June 1998 Caliornia voters approved aconstitutional amendment allowing the judges in each county

to vote to consolidate their municipal and superior courts intoa single superior court, which the Legislative Analysts Oceconcluded could result in savings and greater eciency by oeringgreater fexibility in case assignments, improved court recordmanagement, and reduced administrative costs. According to theAOC, judges in all 58 counties had voted to uniy their trial courtsby February 2001.


11/59


March 2013

6

Between 1997 and 2002, the State enacted a series o measuresintending to transer responsibility or unding the trial courts rom

each county to the State, establishing a new personnel system ortrial court employees, and initiating the transer o responsibilityor court properties rom the counties to the State.

Figure 1

The California Judicial Branch

Branch Administration

Judicial Branch

The Courts

Judicial Council:A constitutionally createdmultimember policy-makingbody of the courts.

Administrative Officeof the Courts (AOC):The staff agencyto the Judicial Council.

Supreme Court: Californias highestcourt has the discretionary authority toreview decisions of the courts of appeal anddirect responsibility for automatic appealsafter death penalty judgments.

Courts of Appeal: These courts review themajority of appealable orders or judgmentsfrom the superior courts.

Superior Courts: These courts havejurisdiction over all felony cases, all generalcivil cases, and juvenile and family law cases,as well as other case types. California has

one superior court in each of its 58 counties.

Source: Documents provided by the AOC.

Note: An additional entity within the judicial branch, the Habeas Corpus Resource Center, providescounsel to represent indigent men and women under sentence o death in Caliornia.

The Judicial Branch Contract Law

Te Public Contract Code generally governs how state entities enterinto contracts, solicit contracts or construction o state structures,and acquire goods and services, as well as how those entities shouldsolicit, evaluate, and award such contracts. However, until recentlythese requirements did not apply to the judicial branch. In 2011 the


12/59


March 2013

State enacted the Caliornia Judicial Branch Contract Law (judicialcontract law), which requires judicial branch entitiessuch as

superior courts, courts o appeal, the Supreme Court, and othersto ollow procurement and contracting policies that are consistentwith the Public Contract Code and that are substantially similarto those ound in the State Administrative Manualand StateContracting Manual. In addition, the judicial contract law requires,with limited exceptions, that judicial branch entities notiy theCaliornia State Auditor (state auditor) o all contracts enteredinto that exceed $1 million in estimated value. Te law urtherspecies that all administrative and inormation technology projectsexceeding $5 million be subject to the review and recommendationso the Caliornia echnology Agency.

Te judicial contract law also imposes other reporting requirementson judicial branch entities. Beginning in 2012 the judicial contractlaw requires the Judicial Council to submit semiannual reportsto the Legislature and state auditor itemizing most o the judicialbranchs contracting activities. Further, the judicial contract lawdirects the state auditor to establish an audit program to reviewevery trial courts implementation o the judicial contract law atleast once every our years and the Habeas Corpus Resource Center,AOC, and each appellate court once every two years.

According to the semiannual report the Judicial Council providedto the Legislature or the period January 1 through June 30, 2012,the superior courts executed contracts and amendments valuedat nearly $165 million during the sixmonth period. Te reportalso states that the superior courts made a total o $176 millionin payments to vendors.

State Contracting Requirements

Te judicial contract law requires the Judicial Council to adoptand publish aJudicial Branch Contracting Manual(judicialcontracting manual) incorporating policies and procedures

consistent with the Public Contract Code and substantially similarto the provisions contained in the State Administrative Manualand State Contracting Manual. Further, the judicial contract lawrequires that each judicial branch entity develop and adopt itsown local manual. Te State Administrative Manualprovidesgeneral scal and business policy guidance to state agencies, whilethe State Contracting Manualprovides more specic proceduresin the areas o procurement and contract management. For

For our audit, we reviewed the portion o the Semiannual Report on Contracts for the JudicialBranch for the Reporting Period January 1 Through June 30, 2012pertaining to the superior courts.All reerences here to a specic semiannual report reer to this report.


13/59


March 2013

8

example, the State Contracting Manualand the Public ContractCode include competitive bidding requirements and certain

confictointerest considerations.

In enacting the Public Contract Code, the Legislature intendedto achieve certain objectives, such as ensuring that state agenciescomply with competitive bidding requirements; providing allqualied bidders with a air opportunity to enter the biddingprocess; and eliminating avoritism, raud, and corruption inthe awarding o public contracts. With certain exceptions, thePublic Contract Code requires state agencies to secure at leastthree competitive bids or proposals or each contract.

Te Public Contract Code also describes certain conditions

under which a contract may be awarded without obtainingat least three competitive bids or proposals, and the StateContracting Manualprovides guidelines or these circumstances.For example, the State Contracting Manualallows solicitationo bids rom a single source or transactions o less than $5,000when the contracting entity determines that the pricing is airand reasonable, either by comparing price or catalog costs orthrough past experience. Similarly, the judicial contracting manualexempts procurements o less than $5,000 rom competitivebidding requirements. Other circumstances in which the Statesprocurement rules do not require three competitive bids includewhen a contract is necessary or the immediate preservation opublic health, when the contract is with a state agency or otherlocal governmental entity, and other instances as dened by theDepartment o General Services (General Services).

Based on its authority under the Public Contract Code, GeneralServices exempts state departments and agencies rom obtainingcompetitive bids or proposals when the state entity uses avendor through an approved leveraged procurement agreement.According to the State Contracting Manual, leveraged procurementagreements are statewide agreements awarded by General Servicesto consolidate the needs o multiple state agencies and to leverage

the States buying power. Tere are various types o leveragedprocurement agreements, including master service agreements,Caliornia Multiple Award Schedules, and others. Te judicialcontracting manual also recognizes the potential use o leveragedprocurement agreements by judicial branch entities and devotesa chapter to the topic. Te manual includes a process or usingleveraged procurement agreements that requireswith someexceptionscomparing the oerings o multiple vendors to ensurethat the judicial branch entity is receiving the best value.


14/59


March 2013

Scope and Methodology

We conducted this audit pursuant to the audit requirementscontained in the Public Contract Code, Section 19210. Te judicialcontract law requires the state auditor to establish a pilot programto audit six trial courts implementation o the judicial contract law.For the pilot program, the judicial contract law requires the stateauditor to select two courts rom counties with a population o750,000 or greater, two courts rom counties with populationsgreater than 200,000 and less than 750,000, and two courtsrom counties with populations o 200,000 or less, and to usethe results o the pilot to develop an audit program or reviewingeach o the States 58 superior courts once every our years. Oureldwork included work at the superior courts o Napa, Orange,

Sacramento, Stanislaus, Sutter, and Yolo counties. able 1 providesbackground inormation on the six courts. Although state lawdoes not require the state auditor to include the AOC in thepilot audit, we examined the judicial contracting manual and itssemiannual report or the period January 1 through June 30, 2012,or compliance with state requirements. able 2 on the ollowingpage lists the audit objectives we developed and the methods weused to ulll those objectives.

Table 1

Relative Size and Workload Data for Six County Superior Courts

COUNTY SUPERIOR COURT

NAPA ORANGE SACRAMENTO STANISLAUS SUTTER YOLO

County population ,55 ,55, ,5,5 5, 5,5 ,

Population size category Small Large Large Medium Small Medium

County area in square miles ,5 ,

Expenditures, scal year * $,, $,5, $,, $,, $,5, $,,

Cases adjudicated ,5 , , ,55 ,5 ,5

Procurement Activity

Reported payments, January through June $, $,, $5,, $,, $, $,,

Reported procurements, January through June $, $,, $,, $, $, $,

Judges 5 5

Support sta , 5 5

Sources: Department o Finance population projections, county Web sites, theJudicial Branch Semiannual Report on Contracts for the Judicial Branchfor the Reporting Period January Through June , (semiannual report), and inormation provided by senior court sta.

Notes: The inormation in this table is or inormational purposes to provide context or the relative size and diversity o the courts we audited.Numbers are rounded where indicated.

* Expenditure data is unaudited and was provided by each courts senior accounting or scal sta. Amounts are rounded to the nearest $,.

Procurement activity gures are based on the semiannual report. Amounts are rounded to the nearest $,.


15/59


March 2013

10

Table 2

Methods to Assess the Judicial Branchs Implementation of the California Judicial Branch Contract Law

AUDIT OBJECTIVE METHOD

Determine whether theJudicial Branch

Contracting Manual(judicial contracting manual)

is consistent with the requirements set orth in

the Caliornia Judicial Branch Contract Law

(judicial contract law).

We reviewed and evaluated the April version o the judicial

contracting manual or conormance with the judicial contract law, the

State Administrative Manual, and the State Contracting Manual.

Determine the accuracy and completeness o

data related to the superior courts rom the

Semiannual Report on Contracts for the Judicial

Branch for the Reporting Period January Through

June , (semiannual report), submitted

by the Administrative Ofce o the Courts (AOC)

to the Joint Legislative Budget Committee andthe Caliornia State Auditor (state auditor).

To assess accuracy, we selected procurement and payment records

rom the semiannual report to veriy against inormation in the courts

les. To assess completeness, we haphazardly selected procurement

and payment les to veriy that they were included in the semiannual

report, i appropriate. We conducted accuracy testing at the superior

courts o Sacramento, Napa, and Yolo counties and completeness

testing at the superior courts o Sacramento and Napa counties. Wecould not conduct completeness testing at the Yolo court because the

court does not maintain consistent paper les; the court stores many

records electronically. Additionally, upon completion o our eldwork

at the Sacramento, Napa, and Yolo courts, we determined that we

had identied sufcient concerns with data reliability that we did not

pursue testing in the remaining three courts.

Determine whether each court has developed

its own local contracting manual, and assess its

conormance to the judicial contracting manual.

We obtained each courts local contracting manual and compared

the local manual to certain key and mandatory requirements in the

April revision o the judicial contracting manual.

Assess each courts internal controls over

contracting and procurement practice and

determine whether the court ollowed

those controls.

We interviewed key procurement sta members, reviewed desk

procedures and local contracting manuals, and identied key internal

controls. We determined whether the court ollowed these key controls

by reviewing a selection o procurements.

5 Assess each courts compliance with key

elements o the States contracting and

procurement requirements, including those

related to competitive bidding, solesource

contracting, and payment and deliverable

review and oversight.

Using the semiannual report, we selected certain procurement and

payment records and then reviewed each courts procurement les

to understand how the courts initiated procurements and authorized

payments. During our review o each courts procurement les, we

examined whether the court competitively bid the selected contracts

and, i not, whether it had a reasonable explanation or not doing so.

Finally, our review o each courts payments to its vendors involved

determining whether the court ensured that it had received the goods

or services and that the appropriate level o management approved

payments to vendors.

Evaluate each courts contracts to determine

whether there is risk o inappropriately splitting

contracts in order to avoid necessary approvalsor competitive bidding requirements.

We identied the thresholds beyond which courts must seek

competitive bids and we identied the approval levels or each

court. We reviewed the semiannual report to identiy potential splittransactions and reviewed those transactions in detail. We did not

identiy any split transactions.

Review the appropriateness o transactions

made with the state credit card (CALCard) or

other courtissued cards when those transactions

exceeded a total o $, or percent o

all reported transactions in January through

June .

None o the six courts had credit card payments totaling more than

$, or representing more than percent o all payments, as

reported in the semiannual report or the period January through

June .

Sources: Chapter , Statutes o , and the Caliornia State Auditors analysis o inormation and documentation identied in the table columntitled Method.


16/59


March 2013

Te scope o our report is limited. Although the judicialcontracting manual became eective October 1, 2011, the AOC

made substantial revisions to the manual and published a newversion on April 24, 2012. As a result, our audit was limited to theprocurements and payments entered into in May and June 2012.We did not select transactions beyond June 2012 because thesemiannual report that we used to select transactions or reviewincluded only transactions rom January through June 2012. Tisresulted in a small population o transactions, especially at small andmediumsized courts. As such, our selections o procurementsand payments to review were also small, as shown in able 3.

Table 3

Number of Procurement and Payment Transactions Reviewed in the Pilot Audit

COUNTY

SUPERIOR COURT

NUMBER OF

PROCUREMENTS REVIEWED

NUMBER OF

PAYMENTS REVIEWED

Napa

Orange

Sacramento 5

Stanislaus

Sutter

Yolo

Source: Caliornia State Auditors analysis based on theJudicial Branch Semiannual Report onContracts for the Judicial Branch for the Reporting Period January Through June , .

Assessment of Data Reliability

During the course o our audit, we relied on the AOCs semiannualreport or the period January 1 through June 30, 2012, to selectprocurement transactions or review. As described in able 2, weselected various records rom the semiannual report to test theaccuracy and completeness o the inormation in that report orthree county courts. We stopped testing when it became clear that

the report contained a number o inaccuracies.

Te AOC generates the semiannual report or the superior courtsvia the Phoenix nancial system. Te six courts we reviewed use thePhoenix system to conduct and record their procurement activity.However, because state law limits the scope o this pilot audit tothe procurement practices at six local court entities, and since

The AOC published another revision to the judicial contracting manual in late August 2012.Unlike the revisions resulting in the April 2012 version o the manual, these revisions to the

judicial contracting manual did not aect our work.


17/59


March 2013

12

the AOC, and not the individual courts, administers the Phoenixsystem, we did not pursue a complete review o the Phoenix system,

its reliability, or its controls. Nevertheless, we describe concernsthat arose rom our review o data reliability at the three courtswhere we perormed this work. Further, we anticipate conductinga review o the Phoenix system concurrent with our audit o theAOCs procurement practices at a uture date.


18/59


March 2013

Audit Results

The Judicial Branch Contracting Manual Does Not Include a SmallBusiness Preference, and the Semiannual Report for the Judicial

Branch Can Be Improved

TeJudicial Branch Contracting Manual(judicial contractingmanual) did not include a preerence or small businesses biddingon inormation technology procurements. Because the CaliorniaGovernment Code, and not the Public Contract Code, establishes ageneral bidding preerence or small businesses, the general policywould not apply to the courts. However, while the Public ContractCode includes a provision requiring this preerence or inormationtechnology procurements, the judicial contracting manual does

not. Additionally, we identied errors in the courts SemiannualReport on Contracts for the Judicial Branch for the Reporting PeriodJanuary 1 through June 30, 2012 (semiannual report), that aectedthe reports accuracy in describing the goods or services procuredand the amounts paid or goods and services. Te AOC stated itcorrected these errors or uture reports; however, we did not veriythe corrections as they occurred ater our audit period. Further, weanticipate examining the semiannual report in the uture as part oour required audits o court procurement practices.

The Judicial Contracting Manual Does Not Include the States Small

Business Preerence

Te Caliornia Government Code and one provision o the PublicContract Code require that contracting entities give preerence tocertied small businesses when evaluating certain bids. Generally,a statecertied small business may claim a 5 percent reductionin its bid amount or increase in its scoring calculation during theStates process or determining which bidder should be awardedthe contract. Te provisions o the Public Contract Code applyonly to inormation technology acquisitions, while the GovernmentCodes small business preerence mandate applies to acquisitions

o goods, inormation technology, services, and construction ostate acilities.

According to legal counsel at the Administrative Oce o theCourts (AOC), the Judicial Council is not required to implementthe small business preerence because it is a Government Codeprogram not intended to apply to the Judicial Branch. Because thePublic Contract Code does not contain a small business preerence

5 For our audit, we reviewed the portion o the Semiannual Report on Contracts for the JudicialBranch for the Reporting Period January 1 Through June 30, 2012pertaining to the superior courts.All reerences here to a specic semiannual report reer to this report.


19/59


March 2013

14

or the acquisition o goods, services, and construction, we agreethat the small business preerence contained in the Government

Code is largely inapplicable to the judicial branch. However, becausethe Public Contract Code includes a small business preerenceor the acquisition o inormation technology, we expected thejudicial contracting manual to include a similar policy. Te absenceo a small business preerence or inormation technology purchasesmakes the judicial contracting manual inconsistent with the plainlanguage o the Public Contract Code.

The AOC Inappropriately Excluded Some Transactions From Its

Semiannual Report

Te AOC excluded certain classes o expenditures rom thesemiannual report, based on how the courts classiy thesetransactions in the AOCs accounting system. When preparing thesemiannual report, the AOC extracted nancial inormation romeach court and excluded expenditures that the courts have classiedunder certain general ledger codes. Some o these excludedcategories make sense because they are not procurementsor example, expenses or salaries and benets. Other categories,such as costs or court construction, were excluded because theyare excluded rom the Caliornia Judicial Branch Contract Law(judicial contract law).

However, in some cases, excluding an entire category o costsincreased the risk that a procurement transaction would beexcluded inappropriately. For example, the semiannual reportsdata or the Sacramento court did not include a payment o$17,500 or the purchase o parking stickers rom SacramentoCounty because it was recorded as a travel cost, one o the excludedcategories. We recognize that this particular transaction is likelya low risk, and that only the county can provide county parkingpasses; however, excluding transactions other than court personnelcosts and construction costs unnecessarily increases the risk thatprocurement transactions will accidentally be excluded rom the

semiannual reports.

Te AOC also excluded certain contracts and procurementspertaining to court security services, court reporters, and courtinterpreters rom the semiannual report. Te AOC clearlyacknowledged these exclusions in the report and explained themby indicating that these transactions are unique to the courts andall under other, more specic, statutory schemes outside o thejudicial contract law. In particular, the AOC reerenced dierentportions o the Government Code. In these instances, we believethe AOC has a valid argument or excluding the transactionsrom the substantive provisions o the judicial contract law.

The absence o a small businesspreerence or inormation

technology purchases makes

the judicial contracting

manual inconsistent with the

plain language o the Public

Contract Code.


20/59


March 2013

Nevertheless, we believe the semiannual reporting requirementsdescribed in the Public Contract Code were intended to serve as a

tool to aid the Legislatures budget oversight and to provide greatertransparency or the public with regard to the judicial branchscontracting and procurement activities. As such, we believe thesetransactions should be included in the semiannual reports to theLegislature when such services result in payment by a judicialbranch entity to a vendor or contractor.

The AOCs Semiannual Report Contained Inaccurate Inormation

Our review o the transactions or the superior courts o thecounties o Sacramento (Sacramento court), Yolo (Yolo court), and

Napa (Napa court) included in the semiannual report ound thatthe report was inaccurate. As a result, given the number o errorsin the report, we did not continue our testing at the superior courtso the counties o Stanislaus (Stanislaus court), Sutter (Suttercourt), and Orange (Orange court). Specically, we noted instancesin which the eld in the report describing the item or serviceprocured was blank, while in other instances the reported valueor the payment totals or certain records was incorrect. We notedthat 11 o the 92 records we tested rom the semiannual reportor 12 percent o the records testedcontained at least one error.Te AOC acknowledged some o these errors when we broughtthem to its attention, and in some cases indicated that the errorswere the result o faws in its data extraction process that it hassince corrected.

Although the Public Contract Code requires that the semiannualreport identiy the type o good or service provided or each distinctcontract, we ound that or three o the 33 records we reviewed atthe Sacramento court, and three o the 30 records reviewed at theNapa court, the eld describing the item or service procured didnot contain any data. Ater we discussed this issue with the AOC,it ound 229 instances, o a total o 6,343 records or all superiorcourts, in which a record lacked a description o the goods or

services purchased. According to the AOC, the program used toextract the courts data contained a programming error that hassince been corrected, and it expects that uture reports will containinormation on the item or service provided.

Te semiannual report also contained errors in a eld that reports thevalue o contracts. Specically, we ound that or two o the 33 recordswe reviewed related to the Sacramento court, the eld describingthe value o the contract contained an inaccurate amount. In thesetwo instances, the AOC stated that a programming error caused thisproblem. Te AOC claimed that its process or generating the reportnow identies these circumstances and that the issue has been xed.

Based on our review o the

transactions at three courts,

we ound the AOCs report was

incomplete in describing some o

the goods or ser vices procured and

inaccurate in reporting some o the

amounts paid or them.


21/59


March 2013

16

In addition, the AOCs semiannual report included incorrectpayment inormation. At the Napa court, we observed

three instances, o the 30 records we reviewed, in which theamount the court paid or goods or services was lower thanthe amount listed on the semiannual report. wo instances weredue to the court paying lower than expected sales tax. In thethird instance, the court received a lower price on some computermonitors and amended the purchase order. Te semiannual reportlisted a payment amount o almost $3,000. However, this amountrefects the value o the original purchase order, and not the nearly$2,400 that the Napa court actually paid. As a result, the amountincluded in the semiannual report was overstated by roughly $600.According to a senior manager at the AOC, a programming errorcaused this problem. He stated that this error has been xed and

that uture reports will contain correct payment inormation. Errorso this nature create the risk that policy makers using the report toinorm decisions will base those decisions on inaccurate data.

The Superior Courts Generally Demonstrated Good Internal Controls

and Compliance With State Procurement Requirements, but Could

Improve Local Policies

Each o the six courts we reviewed demonstrated adequateto strong internal controls over procurement transactionsand generally complied with state law. able 4 summarizesthe six courts perormance in our key areas. However, weound that the courts we visited did not have procedures inplace to implement the Disabled Veteran Business Enterprise(DVBE) program.

Te courts we visited practiced strong separation o duties whenprocessing payments. At each court, one individual reviewedinvoices to acknowledge that goods or services were receivedand indicate that the invoices were ready or payment. A dierentindividual then reviewed invoices and released them or paymentin the courts accounting system. For example, or a payment or

computer monitors at the Sacramento court, an ocer in theinormation technology department approved the invoice orpayment, while an accounting supervisor reviewed and posted theinvoice or payment in the courts accounting system. Requiring thatmultiple individuals be involved with a payment reduces the risk oerror or raud and is a sound management practice.

Additionally, some o the courts we visited made use o leveragedprocurement agreements that can, according to the StateContracting Manual, potentially streamline the procurementprocess and result in lower prices. Tese agreements are describedin the Introduction. According to the Public Contract Code and the

The courts we visited requiredthat multiple individuals be

involved when processing

payments, which reduces the risk

o error or raud and is a sound

management practice.


22/59


March 2013

State Contracting Manual, entities using a leveraged procurementagreement do not have to undertake a competitive bidding process,

potentially saving time and expense. Further, state requirementsallow entities to make purchases without competitive bidding invarious other instances, such as when purchases are under $5,000or when the good or service is unique in some way. Tese are callednoncompetitive procurements.

Table 4

Status of Key Procurement Practices in Six Superior Courts

PROCUREMENT PRACTICES

COUNTY

SUPERIOR COURT

COURTS LOCAL PROCUREMENT

MANUAL IS CONSISTENT WITH

APPLICABLE STATE LAW

COURT DEMONSTRATED

EFFECTIVE CONTROL OVER

PURCHASING APPROVAL

COURT PROMOTED COMPETITION

AMONG BIDDERS OR HAD

ADEQUATE JUSTIFICATION FOR

NONCOMPETITIVE PROCUREMENTS

COURT DEMONSTRATED

EFFECTIVE CONTROL OVER THE

RECEIPT OF GOODS OR SERVICES

AND THE ISSUANCE OF PAYMENT

Napa

Orange

Sacramento

Stanislaus

Sutter

Yolo

Source: Caliornia State Auditors analysis o procurement and payment records at each superior court.

= Strong PracticesThe courts practices were consistent with theJudicial Branch Contracting Manualand its own policies, and were substantially consistent withapplicable state standards. We noted no errors or deviations in our testing o selected procurements.

= Adequate PracticesOur review o selected procurements demonstrated isolated instances o decient practices that warrant corrective action.

= Weak PracticesOur review o selected procurements revealed systemic problems that warrant corrective action in order to comply with state law.

Further, the Napa, Sutter, and Yolo courts are part o a group o18 courts sharing procurement services coordinated by the SuperiorCourt o Riverside County (Riverside court). Te purpose o theshared procurement service is to provide ulltime proessionalprocurement services to each participating court in a concertedeort to obtain the best possible products and services or thebest value, in accordance with the judicial contracting manualand each courts local contracting manual. According to theagreements between these three courts and the Riverside court,the Riverside court will provide the services o a procurementspecialist, conduct competitive procurements, assist the courts innalizing procurement documents, acilitate nalizing contracts


23/59


March 2013

18

and purchase orders, and provide the Riverside courts localmanual and orms as templates or the participating courts to

use i they so desire. Te participating courts retain ull and nalresponsibility or all procurements, including decisionmakingauthority and responsibility or procurementrelated activities. Teshared procurement service agreements run rom July 2012 throughJune 2013, and the Riverside court is providing the services at no costduring that year.

Also, each o the six courts have developed a local manual thatgenerally meets the requirements in the judicial contractingmanual. State law requires that each judicial branch entity, such assuperior courts, develop a local procurement manual. Tese localmanuals must be consistent with the Public Contract Code and be

substantially similar to the State Administrative Manualand theState Contracting Manual. Te judicial contracting manual urtherrequires that the local manuals include the entitys organizationalstructure and established levels o approval authority or enteringinto agreements. Although the length and detail o the localmanuals varies considerablyrom 162 pages at the Orange courtto ve pages at the Yolo courtthe local manuals or each o thesix courts contain the mandatory elements outlined in the judicialcontracting manual or make reerence to that document.

Further, in some cases the courts have included additionalpolicies and procedures in their local manuals. For example, theSacramento courts local manual provides a table o lead times,such as 48 hours or standard oce supplies and our to six weeksor service contracts not requiring a ormal solicitation process.Such a table assists court sta in minimizing unnecessary delaysin receiving needed goods. Te Sacramento courts manual alsoincludes examples o orms the court uses or procurement andseveral fowcharts showing the courts procurement processes,which acilitate understanding o the courts practices among itssta. In addition, all o the local manuals we reviewed describe thecircumstances under which procurements require a legal review;the judicial contracting manual recommends but does not require

such a policy. By ensuring that contracts receive a legal reviewwhen necessary, the courts reduce the risk that they will legallybind themselves in an inappropriate manner or ail to complywith the judicial contracting manual.

Finally, although the local manuals we reviewed generallycomply with state requirements, they all lack policies relatedto state programs targeting specic types o businesses. Aswe discussed earlier, none o the six courts had procedures toimplement the States small business preerence or inormationtechnology procurements. Additionally, only the Orange courtsmanual includes policies related to the DVBE program. Te States

Although the local manuals we

reviewed generally comply with state

requirements, they all lack policies

related to state programs targeting

specic types o businesses.


24/59


March 2013

DVBE program generally requires that entities attempt to awardat least 3 percent o their annual contract dollars to certied

businesses owned by disabled veterans. According to the judicialcontracting manual, each judicial branch entity must develop oradopt a set o rules and procedures or implementing the DVBEprogram. Te Orange courts local manual essentially copies thetext and guidance rom the judicial contracting manual and lacksspecic procedures describing the courts implementation o theprogram. According to the Orange courts chie nancial ocer,the court will implement the DVBE program prior to the end oscal year 201213. Te Stanislaus court intends to adopt a policyin the near uture, according to the courts senior accountant.She stated that, as existing contracts are renewed or the courtsolicits a request or price or inormation, the court will include

DVBErelated language in the contracts or solicitation documents.Te Napa, Sutter, and Yolo courts expect that their participation inthe shared procurement service with the Riverside court will helpto address DVBE requirements. Finally, the Sacramento courtslocal manual includes a placeholder indicating where it expectsto include DVBE policies in the uture. Unless local courts adoptpolicies related to the DVBE program, as required by the judicialcontracting manual, they cannot demonstrate their intentionto target some procurement unds to businesses owned bydisabled veterans.

The Napa Court Could Improve Its Practices Relating to

Procurement Approvals

Although the Napa court generally demonstrated adequate internalcontrols and procurement practicesas discussed earlierone othe our procurements we reviewed was approved by the courtsexecutive ocer or an amount exceeding his authority. Accordingto the courts local contracting manual, the executive ocer mayauthorize general procurements o less than $20,000, and the CourtExecutive Committee (executive committee)which consists o theexecutive ocer, presiding judge, and assistant presiding judge

must authorize general procurements greater than or equal to$20,000. We noted that the executive ocer signed an inormationtechnology services agreement or $30,000; however, there was noevidence that the executive committee approved the agreement.According to the executive ocer, he did not obtain executivecommittee approval beore signing this contract. He urtherstated that $30,000 is the maximum that would be paid under thiscontract; the court does not necessarily envision expending themaximum amount unless there are extenuating circumstances.Nevertheless, when individuals approve purchase transactionsbeyond their delegated authority, there is a risk that the presidingjudge will be unaware o signicant purchases or transactions.

We noted that the executive

ofcer at the Napa court signed an

inormation technology services

agreement or $30,000; however,

there was no evidence that the

executive committee approved

the agreement, as required by the

courts policy.


25/59


March 2013

20

While this was an isolated incident in our testing, our sample sizewas small, and thus the presiding judge or court management

should take corrective action.

Further, the Napa court did not maintain evidence o executivecommittee approval when it was required to do so. According to thepresiding judges delegation letter dated July 20, 2011, the executiveocer may approve purchases at the request o the executivecommittee. However, according to the executive ocer, the courtdid not ormally document these requests. Instead, the executivecommittee members work in the same building and see one anotheron a daily basis, and the approval process was inormal. Withoutevidence o executive committee approval, the court cannotdemonstrate that it is implementing its policy requiring dierent

levels o approval or larger procurements. Such approvalrestrictions promote responsible stewardship o public unds byensuring multiple levels o review. Subsequent to our audit, the courtdeveloped a orm or documenting executive committee approval.

The Sacramento Court Could Improve Its Practices Related to

Authorization and Competition

A manager at the Sacramento court approved a purchase aboveher authorized dollar amount. Each year the courts presidingjudge designates individuals to approve transactions based oncertain dollar thresholds ranging rom $50,000 to $250,000, withhighervalue transactions requiring increasingly higher levelso management approval. For one o the 16 procurements wereviewedan order initiated in July 2011the chie technologyocer signed a purchase request or over $100,000, well abovethe $50,000 amount delegated by the courts presiding judge or thetype o transaction involved. Te courts contract services managerstated that this was an anomaly and not indicative o the courtsnormal practice, and explained that it likely occurred becauseo the courts amiliarity with the vendor and because the courtrenews the contract annually. Further, this particular transaction

involved the procurement o telecommunications services under aleveraged procurement agreement. Nevertheless, when individualsapprove purchase transactions beyond their delegated authority,the presiding judge runs the risk that senior managers are unawareo the courts signicant purchases or transactions. Althoughthis was an isolated incident in our testing, our sample size wassmall, and thus the presiding judge or court management shouldtake corrective action. One such action might include requiringthe courts contracting and purchasing unit to veriy that theappropriate individual has authorized the purchase beore actuallybuying the goods or services.

For one o the 16 procurements

we reviewed, the chie technology

ofcer signed a purchase request

that was well above the amount

delegated by the courts presiding

judge or that type o transaction.


26/59


March 2013

Our review also noted one instance in which the Sacramentocourt did not document its justication or a noncompetitive

procurement. In June 2012 the court began the process o obtaininginternal approvals or an upgrade to its existing InteractiveVoice Response Jury System. Te upgrades, anticipated to costapproximately $13,000, would expand the unctionality o theexisting system to allow jurors to selprocess disqualicationsrom service, among other actions. According to internal emails,the courts executive management wanted the unds encumberedby the end o the scal year. Te courts contract services managerresponded that it was possible to encumber the unds as long asthere was a completed contract request orm and documentationo competitive bidding or approval rom the courts managementor not doing so. However, the procurement le did not include

evidence o competitive bidding or evidence that court executiveshad approved a noncompetitive procurement. According to theSacramento courts chie technology ocer, the procurementneeded to be rom that particular vendor because the sotwarewas proprietary to that vendor. Although the Sacramento courtmay have had valid justication or not competitively bidding thecontract, the courts policies nevertheless require that the courtdocument its justication or using a solesource vendor selectionand receive approval rom senior sta prior to the procurement.

The Stanislaus Court Did Not Always Follow Established Processes

Regarding Advertisement of Procurements

Although the Stanislaus courts procurement controls and practiceswere generally adequateas we discussed earlierin one onine procurements reviewed, the Stanislaus court did not advertisea solicitation or inormation technology services valued at nearly$14,000. According to the judicial contracting manual, courtsmust advertise solicitations or inormation technology servicesi the total procurement value is $5,000 or more. According tothe court executive ocer, the courts need was urgent. Te buyerindicated that purchasing had 25 days to locate vendors, gather

quotes, and execute this purchase. Te courts executive ocerurther stated that, although the buyer elt he did not have timeto advertise, the buyer did search the Internet and reach out tomultiple vendors. Nevertheless, the judicial contracting manualrequires courts to advertise procurements o this size to helpensure the courts receive the best possible value.

According to the judicial

contracting manual, courts

must advertise solicitations or

inormation technology services

i the total procurement value is

$5,000 or more.


27/59


March 2013

22

The Sutter Court Did Not Always Document Its Rationale for

SoleSource Procurements

Although the Sutter courts procurement controls and practiceswere generally adequate, our review ound Sutter did notcompetitively bid in one instance o the 10 procurements wereviewed. However, the Sutter court subsequently corrected thisoversight. According to the courts scal manager, the court wasreviewing its prioryear contracts and was aware that it would beusing the Riverside courts shared procurement service to prepare acompetitive bid or printing services or the coming year. In order tocontinue business without interruption, the court issued a purchaseorder based on the prior years expenditures with its thencurrentvendor until the competitive process was completed. Te Riverside

courts shared procurement service subsequently conducted acompetitive procurement o printing services or the Sutter court,and the court selected a new vendor. Te court had expended lessthan $500 o the unds encumbered by the rst purchase orderand canceled the remaining balance. However, the courts decisionto conduct the rst procurement without competition was notnoted in the procurement le, nor was there documentationdemonstrating approval by the appropriate decision maker.Without such approval and documentation, the court cannotdemonstrate that it considered whether there was an opportunityto competitively bid the procurement, even temporarily.

Our review also ound that the Sutter court did not document itsjustication or a solesource procurement, a type o noncompetitiveprocurement, or one o 10 procurements we reviewed. According tothe judicial contracting manual, the appropriate court manager mustapprove a solesource request and the solesource request shouldinclude, among other things, a description o the goods and servicesto be procured, an explanation o why the goods and servicescannot be procured competitively, and documentation that thepricing oered is air and reasonable. According to the courts scalmanager, this solesource procurement was or maintenance o thecourts interactive voice response system, and because the systems

vendor owns the sotware code, only the vendor can support thesystem. Te scal manager also stated that the court did not preparea solesource justication because, at the time the court was stillin the process o developing procedures and internal orms. Sheurther indicated that the current process includes a signed purchaserequisition ollowed by the solesource procurement orm that goesto her or review. Given this explanation, the courts decision tosolesource this procurement appears to be reasonable. However,without appropriate justication and approval or a solesourcepurchase, the court cannot demonstrate that it considered whetherthere was an opportunity or competition.

Without appropriate justication

and approval or a solesource

purchase, the Sutter court cannot

demonstrate that it considered

whether there was an opportunity

or competition.


28/59


March 2013

The Yolo Court Did Not Always Research Multiple Vendors When Using

Leveraged Procurement Agreements

Te Yolo court had one leveraged procurement agreement orwhich it had not documented that the court received the best value.Te judicial contracting manual allows courts to use a variety otypes o leveraged procurement agreements. When a court uses aleveraged procurement agreement, the judicial contracting manualgenerally requires the court to identiy at least three vendors andlist them or comparison against one another to determine whichvendor provides the best value. In one procurement we reviewedat the Yolo court, the court purchased specialized urnishings andaudiovisual equipment or $58,900 through a vendor listed on theederal General Services Administrations award schedule. We

asked the court whether it had researched additional vendors todemonstrate that the selected agreement provided the best value.According to the courts chie nancial ocer, the court was notaware o a requirement to compare prices o multiple vendors whenpurchasing rom a General Services Administration contract. Shestated there were no instructions in the judicial contracting manualor the State Contracting Manualspecic to leveraged purchaseagreements through the General Services Administration, whichrequires the court to compare multiple vendors. Further, she statedthat this was a specialized purchase and the court did look to seei other vendors oered the product and ound none; however,the court did not document this research. Te court is correctthat the judicial contracting manual does not contain specicguidance related to comparing vendors or purchases via a GeneralServices Administration agreement. Despite the lack o specicguidance in the judicial contracting manual, and given the manualsgeneral guidance to seek best value, we believe the Yolo court couldhave been more prudent with its limited unds had it documentedits review o multiple vendors, considering the size o the contract.

The Orange Court Generally Complied With the Judicial Branch

Contract Law

As we noted earlier, the Orange court generally had adequatepractices and controls related to procurements. Except or theissue related to the DVBE program previously discussed, we didnot observe any issues with the transactions we reviewed at theOrange court.

According to the courts chie

nancial ofcer, there were

no instructions in the judicial

contracting manual or the

State Contracting Manual specic

to leveraged purchase agreements

through the General Services

Administration, which requires the

court to compare multiple vendors.


29/59


March 2013

24

Recommendations

o comply with state requirements, the Judicial Councilshould include policies in the judicial contracting manualregarding the States small business preerence or inormationtechnology procurements.

o ensure complete reports to the Legislature, the AOC shouldreview and modiy its methodology or excluding certaintransactions rom the semiannual report to ensure that the AOCis not inadvertently excluding legitimate procurements. Further,the AOCs methodology should ensure that all procurements orcontractssuch as those related to court security, court reporters,and interpreters when such services result in payment by a judicial

branch entity to a vendor or contractorare included in thesemiannual report unless specically excluded by state law.

o ensure accurate reports to the Legislature, the AOC shouldensure that its process or extracting data rom the courts commonaccounting system provides accurate inormationincluding, butnot limited to, data describing the item or service procured anddata refecting the amount courts actually paid to vendorsor usein the semiannual report.

o ensure that transactions refect the States priorities regardingbusinesses owned by disabled veterans, and to comply withrequirements in the judicial contracting manual, the courtswe reviewed should develop ormal policies to implement theDVBE program.

o ensure that court executive management is aware o and approveslarge purchases, the Napa courts sta should restrict approvals toestablished dollar levels. Further, to demonstrate adherence to itsapproval policies, the court should implement its new procedure torecord executive committee approvals in the procurement le.

Te Sacramento court should ensure that managers restrict

their approvals to established dollar levels so that managers withsucient knowledge o the courts resources approve purchases.

o ensure that the Sacramento court receives the best valueor the goods and services it procures, the court should justiyall solesource or noncompetitively bid purchases according toits policies.

o ensure that the Stanislaus court receives the best value orthe goods and services it procures, the court should advertise itssolicitations o goods and services when required by the judicialcontracting manual.


30/59


March 2013

o ensure that the Sutter court receives the best value or thegoods and services it procures, the court should justiy decisions to

make solesource purchases and document that justication in theprocurement les.

o ensure it receives the best value, the Yolo court shoulddocument that it compared the oerings o multiple vendorswhen using leveraged procurement agreements unless the judicialcontracting manual or guidance on the particular leveragedprocurement agreement does not require such comparison.

We conducted this audit under the authority vested in the Caliornia State Auditor by Section 8543et seq. o the Caliornia Government Code and according to generally accepted government

auditing standards. Tose standards require that we plan and perorm the audit to obtain sucient,appropriate evidence to provide a reasonable basis or our ndings and conclusions based on ouraudit objectives specied in the scope section o the report. We believe that the evidence obtainedprovides a reasonable basis or our ndings and conclusions based on our audit objectives.

Respectully submitted,

ELAINE M. HOWLE, CPAState Auditor

Date: March 19, 2013

Sta: Grant Parks, Principal AuditorJohn Lewis, MPAAndrew Jun LeeGenti Droboniku, MPPChuck Kocher, CIA, CFEDanielle NovokolskyMaya Wallace, MPPA

Legal Counsel: Donna Neville, Esq., Chie Counsel

Stephanie RamirezRidgeway, Esq.

For questions regarding the contents o this report, please contactMargarita Fernndez, Chie o Public Aairs, at 916.445.0255.


31/59


March 2013

26



32/59


March 2013

(Agency comments provided as text only.)

Judicial Council o CaliorniaAdministrative Oce o the Courts

455 Golden Gate Avenue

San Francisco, CA 94102-3688

March 7, 2013

Ms. Elaine M. Howle*

Caliornia State Auditor

Bureau o State Audits


Sacramento, Caliornia 95814

Re: Response to Drat Audit Report on Judicial Branch Procurement, Audit #2012-301

Dear Ms. Howle:

Thank you or the opportunity to respond to portions o the drat audit report the Bureau o State Audits

(Bureau) prepared under Public Contract Code section 19210, which requires the Bureau to establish a pilot

program to audit six trial courts and to assess the implementation o the Caliornia Judicial Branch Contract

Law1 (judicial contract law). As part o its compliance assessment, the Bureau considered whether (1)

theJudicial Branch Contracting Manual(judicial contracting manual) complies with state law, and (2) the

semiannual report that the Judicial Council provided to the Legislature and State Auditor or the period

January 1 through June 30, 2012, accurately and completely reected procurement activity at the six trial

courts that were audited as part o the pilot program. Because the portions o the drat audit report the

Bureau provided to the Administrative Oce o the Courts (AOC), the sta agency to the Judicial Council

o Caliornia, or review were limited to the Bureaus audit o the AOCs activities to implement the judicial

contract law, this response is accordingly limited to the AOC and does not address the Bureaus audit o the

six trial courts that participated in the pilot program.

The Judicial Council had a compressed time rame to adopt and publish the judicial contracting manual by

January 1, 2012, as required by Public Contract Code section 19206. The task was completed in six months,

with the judicial contracting manual taking eect on October 1, 2011the operative date o the substantive

requirements o the judicial contract lawso that judicial branch entities covered by the law would have

the beneft o the guidance reected in the manual as early as possible. The judicial contracting manual

was to be consistent with the requirements ound in the Public Contract Code and substantially similar tothe provisions contained in the State Administrative Manualand the State Contracting Manual. Given the

compressed time rame or adopting and publishing the judicial contracting manual, I am pleased that the

Bureau has had an overall avorable impression o the judicial contracting manual and has determined it

to be consistent with the requirements ound in the Public Contract Code and substantially similar to the

provisions contained in the State Administrative Manualand the State Contracting Manual, except as noted in

the Bureaus three recommendations directed to the AOC as the sta agency or the Judicial Council. Each

o these recommendations is set orth below verbatim, ollowed by the response on behal o the AOC.

* Caliornia State Auditors comments appear on page .

Senate Bill 78 (Comm. on Budget and Fiscal Review; Stats. 2011, ch. 10), which took eect on March 24, 2011. The Caliornia Judicial BranchContract Law is at Public Contract Code sections 1920119210. The law was amended by Senate Bill 92 (Comm. on Budget and Fiscal

Review; Stats. 2011, ch. 36), eective June 30, 2011.


33/59


March 2013

28

Recommendation 1: To comply with state requirements, the Judicial Council should include policies

in the judicial contracting manual regarding the States small business preerence or inormation

technology procurements.

Response 1: Because the Caliornia Technology Agency (CTA) is the entity authorized to review and

recommend on inormation technology projects o the judicial branch as provided in Public Contract

Code section 19204 and Government Code section 68511.9, the AOC will consult with CTA regarding

the Bureaus recommendation to include policies in the judicial contracting manual about the states

small business preerence or inormation technology procurements. The AOC will thereater present theBureaus recommendation and the results o the AOCs consultation with CTA to the Judicial Council or its

consideration. The Judicial Council will decide what action, i any, is appropriate with respect to revisions to

the judicial contracting manual, given the councils authority and responsibility under Public Contract Code

section 19206 to adopt and publish the manual.

Recommendation 2: To ensure complete reports to the Legislature, the AOC should review and modiy its

methodology or excluding certain transactions rom the semiannual report to ensure that the AOC is not

inadvertently excluding legitimate procurements. Further, the AOCs methodology should ensure that all

procurements or contractssuch as those related to court security, court reporters, and interpreters when

such services result in payment by a judicial branch entity to a vendor or contractorare included in the

semiannual report unless specifcally excluded by state law.

Response 2: The AOC will review its methodology or excluding certain transactions rom the semiannual

reports with the goal o ensuring that the AOC is not now inadvertently excluding legitimate procurements

and will not in the uture inadvertently exclude legitimate procurements.

I am pleased that the Bureau agrees that the AOC has a valid argument or excluding certain court reporter,

court interpreter, and court security services rom the substantive provisions o the judicial contract law

given the existence o more specifc statutory provisions applicable to those services. With respect to the

Bureaus specifc recommendation to include procurements or contracts related to court security, court

reporters, and interpreters that result in payment by a judicial branch entity to a vendor or contractor in

the semiannual report, I note that court reporters who are court employees are paid as employees or

the activity o recording a proceeding and, thus, such payments to a court reporter employee would notappear in the semiannual report. In contrast, or purposes o producing a written transcript rom the

courtroom recording, the court reporters are independent contractors with the resulti the Bureaus

recommendation is implementedthat payments or transcripts would appear in the payment report

even though the court reporter is an employee or purposes o recording the proceeding. Moreover, with

respect to court interpreters, provision 3 o Item 0250-101-0932 o the Annual Budget Act (see, e.g., Assem.

Bill 1464; Stats. 2012, ch. 21) already requires the Judicial Council to report annually on expenditures on

court interpreters, including amounts spent on independent contractor interpreters in each county. As a

result o the passage o the Superior Court Security Act o 2012 (Gov. Code, 69920 et seq.), the trial courts

are by statute generally no longer responsible or paying the sheri or court security service delivery. Even

in the circumstance where a trial court might be paying the sheri or some limited services or equipment

under Government Code section 69923(b), the Legislature presumably intended the provisions o the

Ms. Elaine Howle

March 7, 2013

Page 2


34/59


March 2013

Superior Court Security Act to apply to such agreements. The AOC will, nonetheless, present the Bureaus

recommendation to the Judicial Council or its consideration as to whether to include in the semiannual

report payments related to those transactions with court reporters, court interpreters, and sheris that are

currently excluded rom the semiannual report.

Recommendation 3: To ensure accurate reports to the Legislature, the AOC should ensure that its process

or extracting data rom the courts common accounting system provides accurate inormationincluding

but not limited to data describing the item or service procured and data reecting the amounts courts

actually paid to its vendorsor use in the semiannual report.

Response 3: The semiannual report that the Bureau reviewed was the Semiannual Report on Contracts or the

Judicial Branch or the Reporting Period January 1 Through June 30, 2012. This semiannual report was the frst

report that covered a complete six-month period ollowing enactment o the judicial contract law. Since the

time that this particular semiannual report was prepared, the AOC has addressed the programming issues

that resulted in the errors in certain felds in the semiannual report that were highlighted by the Bureau in

its drat audit report. Semiannual reports to be prepared in the uture should contain data describing the

item or service procured and data reecting the amounts courts actually paid to vendors. In addition, the

AOC, together with the trial courts, will continue to review the methodology or developing the semiannual

report and strive to minimize the possibility o inaccuracies in the preparation o uture semiannual reports

to be presented by the Judicial Council to the Joint Legislative Budget Committee and the State Auditor.

Thank you or the time and eort o your oce in reviewing the judicial contracting manual or compliance

with state law and identiying ways to improve the semiannual report so that it can be a more eective tool

in providing transparency with regard to the judicial branchs contracting and procurement activities.

Very truly yours,

(Signed by: Steven Jahr)

Steven Jahr

Administrative Director o the Courts

Ms. Elaine Howle

March 7, 2013

Page 3


35/59


March 2013

30



36/59


March 2013

Comments

CALIFORNIA STATE AUDITORS COMMENTS ON THERESPONSE FROM THE ADMINISTRATIVE OFFICE OFTHE COURTS

o provide clarity and perspective, we are commenting on theAdministrative Oce o the Courts (AOC) response to our audit.Te numbers below correspond to the numbers we have placedin the margin o the AOCs response.

Te AOCs statement that theJudicial Branch Contracting Manual(judicial contracting manual) took eect on October 1, 2011, ailsto mention that the judicial contracting manual underwent a

major revision in 2012. As we discuss on page 11 in the Scope andMethodology, although the judicial contracting manual took eectin October 2011, the Judicial Council approved and published amajor revision to the manual in April 2012. As such, we used theApril 2012 revised manual to measure the courts complianceagainst and, thereore, we limited our review period to May andJune 2012.

Regardless o the results o its consultation with the Caliorniaechnology Agency, the AOC should develop policies to implementthe small business preerence or inormation technologypurchases. Because the Caliornia Judicial Branch ContractLaw requires judicial branch entities to ollow procurement andcontracting policies that are consistent with the Public ContractCode, and the Public Contract Code requires contracting entitiesto give preerence to certied small businesses or inormationtechnology acquisition, the judicial contracting manual shouldinclude a similar requirement.


37/59


March 2013

32



38/59


March 2013

(Agency comments provided as text only.)

Superior Court o CaliorniaCounty o Napa

825 Brown Street

Napa, CA 94559-3031

March 7, 2013

Elaine M. Howle

State Auditor

Caliornia Bureau o State Audits


Sacramento, CA 95814

VIA E-mail and U.S. Mail

Dear Ms. Howle,

The Napa Superior Court has received and reviewed the BSAs audit report o our courts procurement

policies, practices and procedures. In response, we have just a ew comments that we have summarized

in the attached document. In this document, we have re-stated BSAs two recommendations or the Napa

Superior Court and provided our response to each o those recommendations. Please be aware that the

Court has already taken action on both recommendations to comply with the Judicial Branch Contract Law.

We have also added some clariying inormation regarding one o your fndings.

I would like to recognize the proessional approach o your audit sta, in particular John Lewis. Mr. Lewis

was always responsive to our questions and requests, and we greatly appreciate the eective manner by

which he coordinated the audit activities with our sta.

I you have questions or need any additional inormation regarding our responses, please contact Chie

Financial Ocer, Lisa Skinner, at 707-299-1248.

Sincerely,

(Signed by: Richard D. Feldstein)

Richard D. FeldsteinCourt Executive Ocer

Encl.


39/59


March 2013

34

Responses to Recommendations to the Napa Superior Court

from The Bureau of State Audits

BSA Recommendation #: To ensure transactions reect the states priorities regarding businesses owned

by disabled veterans, and to comply with requirements in the judicial contracting manual, the courts we

reviewed should develop ormal policies to implement the DVBE program.

Court Response to Recommendation #: The Court has entered into a shared services procurement

arrangements, along with several other small and medium courts, with the Riverside Superior Court.

Riverside provides a dedicated procurement proessional to all o the courts participating in this agreement.

Using the Bid Sync system to conduct the procurements, the DVBE inormation is collected or all vendors.

Court Comment on the BSAs Finding and Recommendations Regarding Napas Procurement Approval

Process: The BSA correctly states that the Court Executive Ocer exceeded his approval policy with regard

to one contract with a maximum limit o $30,000. However, urther clarifcation o the contract is necessary.Specifcally, this contract was intended to act as a blanket agreement or specifc projects and services

requested on a periodic and as-needed basis during the year. The court requires the vendor to provide an

individual estimate or each project or service beore it is initiated. This estimate is approved at appropriate

levels in the organization, in accordance with approval limitations, beore the vendor begins any work.

Should any such estimate exceed $20,000, it would be approved by the courts Executive Committee,

although this has not yet been necessary. This is because expenditures rom this contract have historically

been minimal. For example, in FY 11-12, the total amount paid to the vendor was only $6,225. For the

current year, only $4,388 was expended or the frst hal the fscal year. As noted in the report, however,

the court has already implemented approval procedures and saeguards that are consistent with the BSAs

recommendations on this matter.

BSA Recommendation # Revised language (based on e-mail received from John Lewis on March

, stating that the recommendation will be changed to the following): To ensure court executive

management is aware o and approves large purchases, the Napa courts sta should restrict approvals

to established dollar levels. Further, to demonstrate adherence to its ap