Special Report on Exempt Contracts and Under-encumbering Practices – September 2024


Date: September 4, 2024
Categories
  • Finance & Policy
Controller: Christy Brady
Tags
  • Procurement Department,
  • Special Exemption Contracts

Executive Summary


Why the Controller’s Office Conducted the Review
The Office of the City Controller (Controller’s Office) conducted a review of the bidding process for contracts that were awarded under the special exemption to determine whether contracts exempt from the public bidding process were being awarded properly and fairly as stipulated in the Charter. Additionally, we evaluated whether the contractual amounts encumbered in the city’s accounting system were reasonable and accurate.

What the Controller’s Office Found
We found that:

  •  Our review of 85 professional services contracts identified three departments – the Department of Aviation, the Managing Director’s Office, and the Office of the Chief Administrative Officer (CAO) – procured services under seven contracts initiated using the non-profit exemption, despite not being listed as exempt under Philadelphia Code § 17-1406 from the non-competitive bidding process. Between fiscal years 2021 and 2024, these departments spent over $15 million without adhering to the non-competitive bidding process.
  • Encumbrances were improperly recorded in the city’s accounting system. The encumbrances were initially recorded as one dollar rather than the contract amount.
  • For four out of 10 contracts tested for the Department of Behavioral Health and Intellectual disAbility Services (DBHIDS), DBHIDS encumbered almost $85 million less than total amount of the contracts.

What the Controller’s Office Recommends
We recommend the following:

  • The Procurement Department should establish a control procedure in ACIS to prevent non-exempt departments from creating encumbrances under contracts with a non-profit exemption.
  • City departments without a non-profit exemption should follow the non-competitive bidding process when procuring services from non-profit entities.
  • Departments should stop the practice of recording one-dollar encumbrances and instead encumber the full amount of potential expenditures once the contract is conformed.
  • The Procurement Department should establish control procedures in ACIS to prevent the practice of recording one-dollar encumbrance.