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Financial Management: Procurement. Procurement Overview. Procurement Procedures Contract Administration and Awards Internal Controls and Documentation. Page 2. Procurement. Inventory management and disposition

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Procurement overview

  • Procurement Procedures

  • Contract Administration and Awards

  • Internal Controls and Documentation

Page 2


  • Inventory management and disposition

  • Link to appropriate state and federal policies, statutes, and guidelines (e.g., competitive vs. non-competitive, conflict of interest)

Page 3

Procurement regulations
Procurement Regulations

  • EDGAR, CFR 34, Parts 74-86 and 97-99


Page 4

Procurement definitions and terms
Procurement: Definitions and Terms

  • Competitive Sealed Bid – method of procurement where sealed bids are publicly solicited and a firm fixed price contract is awarded to the responsible bidder whose bid, conforming with all material terms and conditions of the invitation for bids is the lowest in price


Page 5

Procurement definitions and terms1
Procurement: Definitions and Terms

  • Competitive Proposals – method of procurement where proposals are requested from a number of sources, is publicized, and either a fixed price or a cost reimbursement type contract is awarded


Page 6

Procurement definitions and terms2
Procurement: Definitions and Terms

  • Conflicts of Interest – occur when the individuals responsible for determining bid/proposal responsiveness are over- ruled by other individuals within the organization or individuals responsible for determining responsiveness (or any members of his or her family) has any personal or corporate ties or any financial interest in any of the firms offering a bid/proposal


Page 7

Procurement definitions and terms3
Procurement: Definitions and Terms

  • Cost Analysis – evaluating the separate cost elements that make up the total price


Page 8

Procurement definitions and terms4
Procurement: Definitions and Terms

  • Cost Plus a Percentage of Cost or Cost Plus a Percentage of Income – an agreement in which the contractor/vendor is provided a specified percentage of profit over and above the actual costs of construction. This type of contract arrangement is not permitted because the contractor/vendor has little incentive to hold down costs

  • Equipment – tangible, non-expendable, personal property with a useful life of more than one year and having an acquisition cost of $5,000 or more per unit


Page 9

Procurement definitions and terms5
Procurement: Definitions and Terms

  • Non-Competitive Proposals – procurement through solicitation of a proposal from only one source, or after solicitation of a number of sources, competition is deemed inadequate

  • Price Analysis – evaluating the total price; comparing price quotes, market prices, and/or similar information


Page 10

Procurement definitions and terms6
Procurement: Definitions and Terms

  • Procurement – process of obtaining goods and/or services in accordance with applicable rules and regulations

  • Small Purchase Procedures – simple, informal procurement procedures that are used to secure services, supplies, or other property that do not cost more than an established threshold


Page 11

Procurement definitions and terms7
Procurement: Definitions and Terms

  • Small Purchase Threshold – threshold established to determine whether an informal or formal procedure should be used for securing services, supplies, or other property

  • Standards of Conduct – written code or standards of conduct governing the performance of officers, employees, or agents engaged in the awarding and administration of contracts


Page 12

Procurement definitions and terms8
Procurement: Definitions and Terms

  • Supplies – all tangible personal property other than equipment

  • Suspension – either the: 1) temporary withdrawal of the authority to obligate grant funds pending corrective action by the grantee or subgrantee or a decision to terminate the grant or 2) action taken by a suspending official in accordance with agency regulations to immediately exclude a person from participating in grant transactions for a period, pending completion of an investigation


Page 13

Procurement making sure you are in compliance
Procurement: Making Sure You are in Compliance

  • Ensuring purchases are necessary

  • Open competition

  • Procurement procedures

  • Vendor selection process

  • Inventory management


Page 14

Procurement ensuring purchases are necessary
Procurement: Ensuring Purchases are Necessary

  • All costs have to be necessary for the performance or administration of the federal grant


Page 15

Procurement ensuring purchases are necessary1
Procurement: Ensuring Purchases are Necessary

  • All proposed purchases must be reviewed to avoid unnecessary or duplicative items:

    • Surplus property

    • Structure procurement to obtain most economical purchase

    • Intergovernmental agreement for common goods or services

    • Lease vs. purchase


Page 16

Procurement open and full competition
Procurement: Open and Full Competition

  • All procurement transactions shall be conducted in a manner to provide full and open competition to the maximum extent possible:

    • Entity involved in drafting solicitation may not compete for procurement


Page 17

Procurement open and full competition1
Procurement: Open and Full Competition

  • Solicitations shall clearly establish all requirements the bidder must fulfill in order for the bid to be evaluated


Page 18

Procurement open and full competition2
Procurement: Open and Full Competition

  • Awards must be made to the bidder or offeror whose bid is responsive and most advantageous to the recipient, price, quality, and other factors considered


Page 19

Procurement open and full competition3
Procurement: Open and Full Competition

  • Internal controls require that districts operate within state and federal laws

  • Don’t skip the rules

    • Unreasonable requirements on vendors to qualify to do business

      • Pre-qualified lists should not limit competition


Page 20

Procurement open and full competition4
Procurement: Open and Full Competition

  • Requiring unnecessary experience or excessive bonding

  • Noncompetitive pricing practices

  • Noncompetitive awards to consultants on retainer

  • Organizational conflicts of interest

  • Specifying a brand name

  • In-state or local preferences


Page 21

Procurement conflict of interest
Procurement: Conflict of Interest

  • Shall have written standards of conduct governing the performance of employees engaged in the award and administration of contracts – standards must include sanctions for violations


Page 22

Procurement conflict of interest1
Procurement: Conflict of Interest

  • Conflict situations:

    • Financial interest

    • Acceptance of items of monetary value from contractors (can accept unsolicited gifts of nominal value)


Page 23

Procurement written procurement procedures
Procurement: Written Procurement Procedures

  • Shall have written procedures that include (at a minimum):

    • Measures for avoiding the purchase of unnecessary items

    • Measures to compare lease vs. purchase (where appropriate)


Page 24

Procurement written procurement procedures1
Procurement: Written Procurement Procedures

  • When developing solicitations, the Requests for Proposals (RFPs) should include all of the information a bidder needs to respond to the solicitation


Page 25

Procurement written procurement procedures2
Procurement: Written Procurement Procedures

  • Draft solicitations should include:

    • A clear and accurate description of technical requirements

    • Evaluation factors

      • Functions to be performed

    • Features of brand names that bidder must meet (when applicable)


Page 26

Procurement written procurement procedures3
Procurement: Written Procurement Procedures

  • Acceptance of any products/services in metric system of measurement

  • Preference for products that conserve natural resources (as feasible)

  • Positive efforts for minority-owned/ women businesses (as feasible)


Page 27

Procurement cost price analysis
Procurement: Cost/Price Analysis

  • Shall perform a cost or price analysis in connection with every procurement action:

    • Price analysis generally means evaluating the total price – compare price quotes, market prices, or similar information


Page 28

Procurement cost price analysis1
Procurement: Cost/Price Analysis

  • Cost analysis generally means evaluating the separate cost elements that make up the total price (including profit)

  • Goal is to determine reasonableness

  • 9/12/2008

    Page 29

    Procurement type of procurement instruments
    Procurement: Type of Procurement Instruments

    • The type of procurement instrument used is determined by the recipient, but must be:

      • Appropriate for the particular procurement; and

      • Promote the best interest of the program

        Remember: Cannot use “Cost Plus” Contracts!


    Page 30

    Procurement noncompetitive contracts
    Procurement: Noncompetitive Contracts

    • As a practical matter, non-competitive contract raises “red flags”

      • Ensure that documentation of the contract justifies non-competition (sole source justification)

      • Role of cost/price analysis even more important


    Page 31

    Procurement noncompetitive contracts1
    Procurement: Noncompetitive Contracts

    • Generally, noncompetitive proposals appropriate only when:

      • The good or service is available only from a single source (sole source)

      • There is a public emergency

      • The awarding agency (MDE) authorizes

      • After soliciting a number of sources, competition is deemed inadequate


    Page 32

    Procurement awards
    Procurement: Awards

    • Awards must be made to the bidder whose bid is:

      • Responsive to the solicitation; and

      • Is most advantageous to the recipient considering price, quality, and other factors


    Page 33

    Procurement awards1
    Procurement: Awards

    • Awards must be made to responsible contractors who possess the potential ability to perform successfully:

      • Contractor integrity

      • Past performance

      • Financial and technical resources


    Page 34

    Procurement suspension debarment

    • Cannot contract with vendor who has been suspended or debarred

    • Must verify if contract is $25,000 or more



    Page 35

    Procurement inventory management
    Procurement: Inventory Management

    • Different rules for equipment and supplies

    • Equipment

      • Federal definition of equipment

        • Tangible personal property

        • Useful life of more than one year

        • Acquisition cost of $5,000 or more


    Page 36

    Procurement inventory management1
    Procurement: Inventory Management

    • State and federal programs may use an expanded definition, as long as it

      • includes all property described previously

  • Supplies

    • Everything else

  • 9/12/2008

    Page 37

    Procurement use of equipment
    Procurement: Use of Equipment

    • Must use for the program for which it was acquired – even after federal funding for program ceases

      • May use for other programs if such use is incidental and does not interfere with the original program


    Page 38

    Procurement use of equipment1
    Procurement: Use of Equipment

    If no longer needed:

    • First transfer to another federal program

    • Disposition instructions from U.S. Department of Education

      • EDGAR, CFR 34, Part 80.32


    Page 39

    Procurement tracking equipment
    Procurement: Tracking Equipment

    • Property records

      • Description, serial number, or other identification, source of the equipment (specify federal grant award), title information, use and condition, and ultimate disposition


    Page 40

    Procurement tracking equipment1
    Procurement: Tracking Equipment

    • Physical inventory

      • At least every two years

      • All discrepancies must be investigated

    • Control system to prevent loss, damage, theft

      • All incidents must be investigated


    Page 41

    Procurement supplies
    Procurement: Supplies

    • Must use for the program for which it was acquired

    • If no longer needed, and if residual value of unused supplies is more than $5,000 (aggregate value):

      • First transfer to another program

      • Compensate U.S. Department of Education for its share


    Page 42

    Procurement tracking supplies
    Procurement: Tracking Supplies

    • EDGAR does not set out any specific tracking requirements

    • But, as a practical matter, US Department of ED expects subgrantees to track all property purchased with federal funds in order to prove there has been an allocable benefit to the program


    Page 43

    Procurement allowable costs
    Procurement: Allowable Costs

    • Costs need to have been incurred during the grant period in the grant approval letter

    • Costs need to be eligible under the terms of the funding source and programs listed in the approved application


    Page 44

    Procurement allowable costs1
    Procurement: Allowable Costs

    • Funding sources must be identified separately in the accounting records by project and grant fiscal year


    Page 45

    Procurement critical elements
    Procurement: Critical Elements

    • Necessary Purchases

    • Competition

    • Conflict of Interest

    • Written Procedures

    • Competitive vs. Noncompetitive Contracts

    • Awarding


    Page 46

    Procurement critical elements1
    Procurement: Critical Elements

    • Suspension/Debarment

    • Contract Administration

    • Documentation

    • Inventory Management

    • Tracking of Equipment & Supplies – Retention & Disposal

    • Internal Control(s)


    Page 47

    Procurement faqs
    Procurement: FAQs

    • What is the difference between competitive and noncompetitive bidding?

    • What is a small purchase threshold?


    Page 48

    Procurement faqs1
    Procurement: FAQs

    • What are allowable costs?

    • What are potential conflicts of interest?

    • What are Standards of Conduct?


    Page 49

    Procurement other resources
    Procurement: Other Resources

    • Excluded Parties List System (suspension and debarment):

    • EDGAR §80 – Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments


    Page 50

    Procurement more information
    Procurement: More Information

    • Contacts

      • MDE: Specific Program Office

      • ISD:


    Page 51

    Financial management procurement

    LEA Fiscal

    Review Tool

    Lea fiscal review tool
    LEA Fiscal Review Tool

    • Developed by MDE staff responsible for federal and state fund management

    • Lists major elements reviewed during an audit performed by MDE state auditors

    Lea fiscal review tool1
    LEA Fiscal Review Tool

    • Lists all items contained within the FMS Self-Assessment Survey and reflected in the Professional Development modules

    • Purpose

      • To assist an LEA in the development of its own plan for improvement of its FMS


    All resources identified in this Professional Development module are available on:

    Michigan LearnPort

    Collaboration Center

    Community Room

    LEA Financial Management Resources

    Financial management procurement



    Mde maisa monitoring and compliance committee
    MDE/MAISA Monitoring and Compliance Committee

    • Becky Rocho, Calhoun ISD, (269) 781-5141

    • Patty Cantú, MDE, Office of Career and Technical Education, (517) 373-3373

    • Mary Ann Chartrand, MDE, Grants Coordination and School Support, (517) 373-8862

    • Terri Lynn Giannola, MDE, Office of Career and Technical Education, (517) 373-4670

    Procurement subcommittee
    Procurement Subcommittee

    • Tom Bean, ISD Chair Calhoun ISD


    • Dan Hanrahan – MDE Chair MDE – State Aid and School Finance

      (517) 335-0521;

    • Gus Bishop Charlevoix-Emmet Intermediate School District

      (231) 547-9947;

    • Steve Ezikian Wayne RESA

      (734) 334-1451;

    • Cheryl Schubel MDE- Grants Coordination and School Support

      (517) 241-2597;