Report 2012-301 Summary - March 2013

Judicial Branch Procurement

Six Superior Courts Generally Complied With the Judicial Branch Contracting Law, but They Could Improve Some Policies and Practices

HIGHLIGHTS

Our pilot audit for the superior courts in Napa, Orange, Sacramento, Stanislaus, Sutter, and Yolo counties and our review of the Judicial Branch Contracting Manual (judicial contracting manual) highlighted the following:

The judicial contracting manual does not require that court entities give preference to small businesses bidding on information technology procurements, which is inconsistent with the Public Contract Code.
The Administrative Office of the Courts' (AOC) Semiannual Report on Contracts for the Judicial Branch for the Reporting Period January 1 Through June 30, 2012 (semiannual report), was neither accurate nor complete with respect to data from the superior courts.
Each of 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 of noncompliance with their contracting practices such as having no justification for sole-source procurements.

RESULTS IN BRIEF

In 2011 the State enacted the California Judicial Branch Contract Law (judicial contract law). This law required the California State Auditor (state auditor) to establish a pilot program to audit six trial courts and to determine these courts' compliance with the judicial contract law.¹ The judicial contract law, among other things, required the judicial branch to develop and adopt a contracting manual no later than January 2012 that all judicial branch entities—such as superior and appellate courts—must follow. The manual was to be consistent with the requirements found in the Public Contract Code and substantially similar to the provisions contained in the State Administrative Manual and the State Contracting Manual.

The judicial contract law further specified that the state auditor must begin a pilot program to commence audits of six trial courts by no later than December 15, 2012, and, based on the results of the pilot program audits, audit every trial court at least once every four years. This audit report discloses the results of our pilot audit for the superior courts in the following six counties: Napa, Orange, Sacramento, Stanislaus, Sutter, and Yolo. During our audit, we assessed the extent to which the Judicial Branch Contracting Manual (judicial contracting manual) complies with state law and whether the Administrative Office of the Courts' (AOC) Semiannual Report on Contracts for the Judicial Branch for the Reporting Period January 1 Through June 30, 2012 (semiannual report) to the Legislature and the state auditor accurately and completely reflects procurement activity at the superior courts.²

We found that the judicial contracting manual does not require that court entities give preference to small businesses bidding on information technology procurements. Because the Public Contract Code includes a small business preference for the acquisition of information technology, we expected that the judicial contracting manual would contain a similar provision. The absence of such a policy renders the judicial contracting manual inconsistent with the Public Contract Code.

In addition, the AOC's semiannual report was neither accurate nor complete with respect to data from the superior courts. The judicial contract law requires that the courts report twice annually to the Legislature and the state auditor on all procurements that had payment activity. The six courts we reviewed all use the Phoenix accounting system, administered by the AOC, and the AOC generated the semiannual report we reviewed with input from the courts. The AOC filtered certain transactions out of the report. In some cases these exclusions were appropriate but in other cases they were not. As an example of where these exclusions were inappropriate, the AOC did not report contract activity for court security services, court reporters, and interpreters. We also noted instances where the semiannual report was missing information describing the goods or services obtained by the courts, and where the semiannual report provided inaccurate cost data. Without an accurate report of procurement transactions, the Legislature cannot make informed decisions regarding court procurements. The AOC asserted that it has corrected the problems that caused these errors and that they will not occur in future semiannual reports.

Each of the six courts we visited generally demonstrated good contracting practices and complied with the judicial contract law. In particular, we noted that the courts assured adequate separation of duties when processing payments by ensuring that multiple individuals reviewed invoices. This helps prevent fraud and error in the payment process. We also noted that the courts took advantage of leveraged procurement agreements—statewide and multistate procurement agreements that take advantage of the State's buying power to obtain lower pricing than an individual court could generally obtain on its own—to ensure that they obtained reasonable prices while also satisfying the State's competitive procurement requirements. Finally, three of the courts we visited—the superior courts of Napa, Yolo, and Sutter counties—recently became part of a shared procurement service administered by the Superior Court of Riverside County, designed to help the smaller courts comply with state procurement requirements.

Although the courts' local manuals generally comply with the judicial contracting manual and state law, they lack certain policies. Specifically, the judicial contracting manual requires that local courts develop policies to implement the Disabled Veteran Business Enterprise (DVBE) program, which requires entities to attempt to award at least 3 percent of their contract dollars to certified businesses owned by disabled veterans. However, although one court includes the DVBE program in its local manual, none of the courts we reviewed include procedures to implement the program.

Further, some courts had isolated instances of noncompliance with their contracting practices. For example, we found that managers approved transactions for amounts above their authority for one procurement we reviewed at the Superior Court of Napa County (Napa court) and one procurement we reviewed at the Superior Court of Sacramento County (Sacramento court). Also, for a selection of procurements we reviewed, we noted two instances where there was no justification for a sole-source procurement— one at the Superior Court of Sutter County (Sutter court) and one at the Sacramento court. Although the judicial contracting manual allows procurements without competition in some cases, such as in an emergency or because the product is unique, it requires courts to justify the need for these exceptions. In addition, in one of the procurements we reviewed for the Superior Court of Stanislaus County (Stanislaus court), the court did not advertise the procurement as required. Finally, in one procurement we reviewed at the Superior Court of Yolo County (Yolo court), the court used a leveraged procurement agreement without documenting that it researched multiple vendors. Entities using such agreements must still—with some exceptions that did not apply in this case—research multiple vendors to ensure that they receive the best value. Each of the issues described here appears to be an isolated lapse in policy rather than a systemic failure. However, when courts do not comply with the judicial contracting manual and other state procurement requirements, they risk not receiving the best price for goods and services.

We made several recommendations to the six courts we visited and to the AOC. For example, we recommended that the courts develop policies to implement the DVBE program. Further, we recommended that the Sacramento and Napa courts ensure that managers do not sign transactions above their approved dollar limits. Also, we recommended that the Stanislaus court advertise solicitations as required by the judicial contracting manual and that the Sacramento and Sutter courts justify sole-source procurements. Finally, we recommended that the AOC include all relevant procurement transactions in its semiannual report and ensure that its processes for developing the semiannual report provide accurate information.

AGENCY COMMENTS

The superior courts and the AOC generally agreed with our recommendations; however, the Yolo court disagreed with our findings and the Stanislaus court chose not to respond.

¹ The judicial contract law is codified in the Public Contract Code, sections 19201 through 19210.

² For our audit, we reviewed the portion of the Semiannual Report on Contracts for the Judicial Branch for the Reporting Period January 1 Through June 30, 2012 pertaining to the superior courts. All references here to a specific semiannual report refer to this report.