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ANTHONY S. COOPER DISTRICT OF COLUMBIA AUDITOR 001:98:DW:kp OFFICE OF THE DISTRICT OF COLUMBIA AUDITOR October 8, 1997
EXECUTlVE SUMMARYPURPOSE Councilmember Kevin P. Chavous, Chairman of the Committee on Education, Libraries, and Recreation for the Council of the District of Columbia, requested the District of Columbia Auditor to conduct an audit of the District of Columbia Public Library's (Library) procurement process. Councilmember Chavous also requested the D. C. Auditor to review the relationship between the Library and the D.C. Public Library Foundation (Foundation). CONCLUSION D. C. Public Library officials were very cooperative in providing information and responding to the Auditor's many requests during our audit. While the scope of the audit covered fiscal years 1995, 1996, and 1997 up through June 1997, the Auditor is encouraged that Library officials are making considerable improvements in the Library's procurement functions under its current leadership. According to the Library's acting director, several of the Auditor's recommendations have already been implemented. The Auditor acknowledges the Library's positive response to the findings, conclusions, and recommendations reflected in the audit report. Notwithstanding, the D.C. Public Library underspent its fiscal year 1996 appropriated budget by $899,787. D.C. Public Library officials failed to spend available appropriated funds while having $304,683 in unpaid vendor invoices. Even though the Library had $899,787 in unexpended fiscal year 1996 funds, the District did not allow it to pay $304,683 in outstanding invoices before the close of the fiscal year 1996 because the Library failed to establish obligating documents (purchase orders and contracts) in the District's Financial Management System (FMS) before ordering the goods and services. Library officials were negligent in ordering goods and services without establishing approved contracts and purchase orders, and properly entering those contracts and purchase orders into the District's FMS The Library's system of internal controls was deficient in that it allowed over 300 internal purchase requests for goods and services to remain unfilled at year's end while having $899,787 in spending authority available to it. These unfilled purchase requests had been properly completed with the appropriate approval signatures and submitted to the Library's procurement office. The Library's procurement office failed to convert the purchase requests into approved contracts and purchase orders before the end of the fiscal year. Poor managerial oversight and the lack of effective internal controls contributed to the Library's failure to procure the goods and services reflected on the 300 purchase requests. From October 1996 through June 1997, Library officials ordered and received another $856,912 in goods and services without benefit of established contracts and purchase orders, and in violation of District Financial Management and Control Order No. 96-02, dated February 21, 1996. With the $304,683 in unpaid vendor invoices for fiscal year 1996, and the $856,912 in unpaid vendor invoices for fiscal year 1997, the Library had a total of $1,161,595 of vendor invoices which officials in the D.C. Controllers Office, under the Office of the Chief Financial Officer, had not allowed it to pay. The delinquent unpaid vendor invoices resulted in the refusal of primary book vendors, such as Baker and Taylor, to deliver any further books to the Library until they (the vendors) were paid. Library officials sought several avenues to pay the invoices, including requesting emergency legislation. In June 1997, the Council of the District of Columbia declared an emergency existed at the D.C. Public Library and subsequently passed legislation allowing the Library to pay vendor invoices for goods and services ordered without contracts and purchase orders. The legislation was later approved by the Mayor and the District of Columbia Financial Responsibility and Management Assistance Authority (Control Board). Also, Library officials exceeded by $79,589.88 the spending ceiling of $673,409 approved for a firm fixed-price contract for book purchases. Further, vendor invoices revealed that Library officials had ordered goods and services from the book supplier five (5) months before the contract was officially approved. Library officials held in abeyance payment vouchers which had accumulated over a period of four (4) months until the obligating documents (purchase orders) could be officially entered into the District's Financial Management System. Library contract files were materially deficient in that the files did not contain supporting documentation for actions taken by Library officials. The Library's acting chief contracting officer stated that the requested information could not be found. The Library failed to obligate (spend) any of $500,000 in capital budget authority allotted to it by the District over a two year period, and the District rescinded the authority in June of 1996. Library officials were negligent and showed poor managerial oversight and a lack of good internal controls by failing to devise plans and take definitive action to spend $500,000 of capital budget authority on Library capital improvement projects. The D.C. Public Library (Library) and the D.C. Public Library Foundation (Foundation) worked together to promote the Library, and jointly participated in fund raising activities for the Library. The Foundation did not transfer funds directly to the Library but paid vendors and consultants directly for goods and services provided to the Library. The Library, on occasions, transferred contributions it received to the Foundation. MAJOR FINDINGS
RECOMMENDATIONS
PURPOSECouncilmember Kevin P. Chavous, Chairman of the Committee on Education, Libraries, and Recreation for the Council of the District of Columbia, requested the District of Columbia Auditor to conduct an audit of the District of Columbia Public Library's (Library) procurement process. Councilmember Chavous also requested the D. C. Auditor to review the relationship between the Library and the D.C. Public Library Foundation (DCPL Foundation). OBJECTIVES, SCOPE AND METHODOLOGYThe objectives of this audit were to determine:
In addressing the audit objectives, the Auditor reviewed District of Columbia Municipal The Auditor interviewed the acting director of the Library, the acting chief contracting officer, the budget and fiscal officer of the Library, the assistant director for library services, and other Library personnel. The Auditor also interviewed the president of the DCPL Foundation and the director of the certified public accounting firm which prepared financial reports for the Foundation. Additionally, the Auditor interviewed the president of the Federation of Friends (Friends) of the Library, and reviewed various documents provided by this organization. The Auditor reviewed District Financial Management System FMS reports of Library expenditures, purchase orders, requisitions, financial reports to the Library Board of Trustees, budget reports, capital funding expenditure reports provided by the Department of Public Works, in addition to internal Library documents and memoranda. The scope of the audit covered fiscal years 1995, 1996, and 1997 up through June 1997. The audit was conducted in accordance with generally accepted government auditing standards and included such tests of the records as deemed necessary under the circumstances. BACKGROUNDDistrict of Columbia Code, Section 37-101 states: "A free public library is hereby established and shall be maintained in the District of Columbia." The District of Columbia Public Library (Library) was created by an act of Congress in 1886 to furnish books and other printed matter and information convenient to the homes and offices of all residents of the District of Columbia. District of Columbia Public Library facilities include the Martin Luther King Memorial Library (MLKML), the central building, located at 901 G Street, N.W. The MLKML comprises over 400,000 square feet of space for books and reading rooms, administrative of fices, centralized support services, and exhibit halls. The Library system has seventeen (17) local branch libraries, four (4) regional branch libraries, four (4) community libraries, and one (1) kiosk, spread throughout the District of Columbia. The Library system also has a small bookmobile for senior citizens. The D.C. Public Library is administered by the Board of Library Trustees (Board), which is identified as a statutory independent agency of the D.C. government in D.C. Code, Section 1-299.6. The Board is composed of nine (9) members appointed by the Mayor of the District of Columbia, with the advice and consent of the Council of the District of Columbia. The Board's authority includes, but is not limited to, the following:
In 1974, the Board hired Dr. Hardy R. Franklin as Librarian for the District of Columbia Public Library, and his title was later changed to Director. Dr. Franklin served the Library as its director for more than twenty-two (22) years before announcing his retirement on January 31, 1997. During his tenure, Dr. Franklin, along with John C. Hazel and Nora Drew Gregory, created the D.C. Public Library Foundation which was incorporated on November 25, 1985 as a not-for-profit, charitable organization established primarily to raise funds in support of activities and services of the Library. The Foundation appointed Dr. Franklin as Secretary-Treasurer, and he continued to serve in that capacity through June 1997, the completion of the Auditor's field work. Dr. Franklin was also elected president of the American Library Association for 1992 and 1993, and was president of the local D.C. Library Association during 1993. FINDINGSI. WEAK INTERNAL CONTROLS OVER PROCUREMENT AND FINANCIAL MANAGEMENT PRACTICES WITHIN THE D.C. PUBLIC LIBRARYA) The Library Underspent Appropriated $899,787 While Having $304,683 in Unpaid Vendor Invoices and Approximately 300 Unfilled Purchase Requests For Goods And Services The District of Columbia Public Library's (Library) appropriated budget for fiscal year 1996 was $19,839,000, as reflected in the District's Financial Management Report entitled, "Agency Summary of Budget vs Expenditures by Funding Type and Object." At the beginning of fiscal year 1996, the Library expected the District government to add an additional $1.2 million to its budget to cover the cost of pay adjustments, already instituted, for fiscal years 1994 and 1995. Several months into the fiscal year, the Library had not received the additional funding. Without the additional $1.2 million, Library officials options to reduce spending to avoid a year-end deficit. The Board of Library Trustees, the Council of the District of Columbia (the Council), Library officials, and the Federation of Friends of the D.C. Public Library lobbied the Control Board for assistance in obtaining the $1.2 million to cover the pay adjustments. In its "Report on Final Allocations of the District of Columbia's FY 1996 Budget," dated March 29, 1996, the Control Board added $1,000,000 to the Library's FY 1996 budget which increased the Library's fiscal year 1996 budget to $20,839,000. Budget reductions of $85,000 reduced this figure to $20,754,000, as verified in the District's Financial Management System FMS report entitled, "Agency Summary of Budget vs Expenditures by Funding Type and Object (RRPG-446) for fiscal year ending September 30, 1996." The D.C. Public Library underspent its fiscal year 1996 budget by $899,786.55 as reflected in the District's FMS RRPG-446 year-end report. Year-to-date expenditures totaled $19,854,213.45 out of the Library's total appropriated budget of $20,754,000. D.C. Public Library officials failed to spend $899,786.55, of its fiscal year 1996 appropriated budget while having $304,683.37 in fiscal year 1996 vendor invoices which it failed to pay before the close of fiscal year 1996. Of this amount, $104,345.00 must be paid from the Library's fiscal year 1997 appropriated budget. In comparison, the Library underspent its fiscal year 1995 budget by $27,116.11. With the $304,683 in unpaid vendor invoices for fiscal year 1996, and another $856,912 in unpaid vendor invoices for fiscal year 1997, Library officials had a total of $1,161,595 of vendor invoices which the D.C. Controller, under the Office of the Chief Financial Officer, had not allowed it to pay. The delinquent unpaid vendor invoices resulted in the refusal of primary book vendors, such as Baker and Taylor, to deliver any further books to the Library until they (the vendors) were paid. Library officials sought several avenues to get the unpaid vendor invoices paid, including requesting emergency legislation. In June 1997, the Council of the District of Columbia declared an emergency existed at the D.C. Public Library and subsequently passed legislation allowing the Library to pay vendor invoices for goods and services ordered without contracts and purchase orders. The legislation was later approved by the Mayor and the Control Board. In addition to underspending its fiscal year 1996 budget, the Library had over 300 purchase requests for supplies, materials, and equipment that it failed to establish contracts and purchase orders for by the end of the fiscal year. These 300 plus unfilled purchase requests for fiscal year 1996 impacted the Library's fiscal year 1997 appropriated budget.
B) The Library Failed to Pay $304,683 in Fiscal Year 1996 Vendor Invoices of Which $104,345 Must be Paid from Its Fiscal Year 1997 Budget The D.C. Public Library failed to pay $304,683 in fiscal year 1996 vendor invoices. Prior to September 30, 1996, the end of the fiscal year, the Library's budget and fiscal office processed $200,337.64 of the unpaid vendor invoices on FMS 430 payment vouchers and entered them into the District's Financial Management System (FMS) as "X" vouchers. The X vouchers were established in the FMS under retainage which allowed the dollar amount of each voucher to be charged against the Library's fiscal year 1996 budget balance. X vouchers were used for goods and services received by the Library during the fiscal year, that were ordered without first establishing approved purchase orders and contracts and entering them into the District's FMS. During the period of our field work as of June 1997, the District had not paid the X vouchers. Poor management and a lack of good internal controls resulted in unauthorized Library employees placing telephone orders for supplies, materials, and equipment without going through the Library's established procurement process. Library officials violated the Library's internal agency procurement regulations by allowing unauthorized employees to purchase goods and services without approval authority and without authorized contracts and purchase orders. Section 4301.5 of the District of Columbia Municipal Regulation (DCMR), Title 19, "District of Columbia Public Library: Procurement," states:
Additionally, Library officials violated the Library's small purchase procedures. As reflected in Table I, the cumulative invoice dollar amount for each of nine (9) vendors, such as Ambassador Book Service, Chadwych, and Demco, totaled less than $10,000, which is the ceiling on small purchases. DCMR, Title 19, Section 4302.1 states that:
Further, Section 4302.3 states that:
There was no documentation in the vendor invoice files indicating that Library officials solicited quotations from at least three sources to promote competition before ordering the goods and services. The fiscal year 1996 X vouchers, which remained unpaid as of June 1997, are reflected in Table I, along with vendors' names and amounts owed each vendor. TABLE I
Source: D.C. Public Library The Library's budget and fiscal office had not processed FMS payment vouchers for the remaining $104,345.28 in unpaid vendor invoices for fiscal year 1996, and they remained unpaid as of June 1997.
C) The library's Procurement Office Failed In Process Over 300 Approved Internal Purchase Requests For Goods And Services Before The Close Of Fiscal Year 1996 The D.C. Public Library had over 300 purchase requests from branch librarians and division chiefs which went unfilled during fiscal year 1996. The completion and submission of Library Form 456 (purchase requests) is the initial step department heads, branch librarians, and division chiefs must take in ordering supplies, materials, and equipment. The Form 456 has an "approval" box with a signature for the agency director/division head, and a line for the department head. After the purchase request is completed with proper signatures, the request is forwarded to the Library's budget and fiscal office to ensure proper funding is available, and to the procurement branch where the purchase requests are converted into contracts and purchase orders. Even though the Library had $899,787 in unspent appropriated budget authority for fiscal year 1996, the procurement branch failed to process over 300 purchase request for a variety of supplies, materials, and equipment. Critical items for the Library, such as supplies, contractual maintenance items, and equipment, were not ordered or received during fiscal year 1996. Additionally, repairs to leaky roofs, automatic doors, boilers, and carpeting were not made because purchase requests were not acted upon in a timely fashion. Poor management and the lack of effective internal controls were primary contributors to the Library's failure to properly procure the supplies, materials, and equipment reflected on the 300 purchase requests. A sample of unfilled purchase requests are listed in Appendix I which reflects the purchase request number, suggested vendors, the supplies, materials, or equipment requested, the estimated amount, and the date the purchase request was submitted.
D) The Library Continued Ordering Goods and Services in Fiscal Year 1997 Without Establishing Contracts and Purchase Orders Library officials ordered and received approximately $856,912 in books and other supplies and materials without establishing contracts and purchase orders from October 1996 through June 1997. The District had not allowed the Library to process FMS 430 vouchers to pay vendor invoices because the Library was in violation of District Financial Management and Control Order No. 96-02, dated February 21, 1996, which states, in part, that:
Library officials did not issue contracts or purchase orders to the vendors for the $856,912 in books and other supplies and materials it received. Library officials called vendors for the items they wanted and the vendors delivered the items. Invoices received from vendors reflected: (1) agency purchase order numbers which were from a prior fiscal year, (2) contained order numbers that had no relationship to official purchase order numbers issued by the Library, or (3) related to purchase order numbers that the Library had prepared and issued to vendors but had not entered into FMS the goods and services were ordered. Other vendor invoices reflected the names of specific department managers in the Library, but did not reference a purchase order number. The Library's procurement branch failed to issue contracts and purchase orders for the $856,912 in vendor invoices for books, supplies, and materials. The Library's budget and fiscal office did not enter any obligating documents into the District's FMS to cover the $856,912 costs of the books, supplies, and materials. Table II reflects a sample of the 133 vendors from which Library officials systematically, over a period of nine (9) months, ordered and received books and other goods and services without establishing valid, authorized purchase orders and contracts in the District's Financial Management System. TABLE II
Source District of Columbia Public Library Additionally, Library officials the Library's internal agency procurement regulations by allowing unauthorized employees to purchase goods and services without approval authority and without an authorized contract. District of Columbia Municipal Regulation (DCMR), Title 19, "District of Columbia Public Library: Procurement", Section 4301.5 states:
Library officials violated its small purchase procedures. DCMR, Title 19, Section 4302.1 states that:
Further, Section 4302.3 states that:
One hundred and eight (108) of the 133 vendors, from which Library officials procured goods and services without establishing valid purchase orders and contracts, had invoices totaling less than $10,000. The goods and services were procured by Library officials without benefit of competition. There were no records in the files indicating that Library officials obtained quotations from at least three (3) sources before ordering the goods and services.
E) The Library Exceeded By $79.590 The Spending Ceiling Established on a Firm Fixed-Priced Contract by Submitting Two Purchase Orders for the Same Contract Library officials awarded a firm fixed-priced contract in the amount of $673,409 to Baker and Taylor, a primary book vendor. Library officials made payments on this contract totaling $752,998.88. Library officials exceeded the contract ceiling by $79,589.88. The contract terms provided that the period of performance shall commence on February 1, 1996 and shall remain in effect until January 31, 1997, with renewable two-year options, not to exceed thirty-six (36) months in duration for the entire contract period. Library officials made payments against the contract before the contract period began on February 1, 1996. Library officials entered purchase order number CE-960271 into the District's Financial Management System (FMS) on January 1, 1996 in the amount of $80,000. There was no reference to the contract on the face of the purchase order (P.O.). The article or service column contained the word "Books." FMS 430 voucher payments processed by the Library against this purchase order contained vendor invoices dating back to August 1995, four (4) months before the P.O. was entered into FMS and five (5) months before the contract period began. Library officials violated District Financial Management and Control Order No. 96-02, dated February 21, 1996, which states, in part, that the following actions are in violation of District contracting regulations...: "Issuance of contracts or purchase orders to vendors before the obligating documents are accepted into FMS." Library officials increased the spending level on this purchase order (CE-960271) by $273,400 in August 1996, bringing the total dollar amount to $353,400. The Library processed 206 FMS- 430 payment vouchers for a total payment against the P.O. of $352,998.88. Library officials entered a second purchase order (CE-960097) into the FMS on April 10, 1996 in the amount of $200,000, against the same contract. Library officials increased this purchase order (CE- 960097) by $200,000 on June 21, 1996, increasing the total spending level on the P.O. to $400,000. Library officials processed 199 FMS-430 payment vouchers through the FMS, expending the total amount ($400,000) of the purchase order. The Library should not have submitted two purchase orders for the same contract. The first purchase order (CE-960271) should have been modified only to the limit of the firm fixed-price contract of $673,409.
In addition to exceeding the dollar amount on the Baker and Taylor (B/T) contract by $79,590, Library officials processed FMS-430 miscellaneous direct payment vouchers (VMSE) in the amount of $58,027.01 to cover additional B/T invoices above those already paid against the contract. Miscellaneous payment vouchers are used to process payments for goods and services ordered without approved contracts or purchase orders. The District did not allow Library officials to pay $29,152.57 of the in outstanding vendor invoices. The Library continued to seek an avenue whereby this voucher, and others like it, could be paid. Library officials exhibited poor management and negligence in submitting two purchase orders against the same contract which exceeded the spending ceiling of a firm fixed-priced contract. Library officials were also negligent in purchasing an additional $58,027 in goods and services from the same vendor without an approved contract which had been properly entered into the District's Financial Management System. Library officials' failure to pay all of the Library's fiscal year 1996 expenditures from its fiscal year 1996 appropriated budget will impact its fiscal year 1997 appropriated budget.
F) The Library Exceeded a Sole-Source Contract Award Ceiling by $82,245.83 And Its Contract Files Did Not Contain Supporting Documentation Library officials prepared a Determination and Findings (D&F) statement in support of a negotiated procurement for contract No. 960674 which was awarded on a sole-source basis. The D&F was signed by the Library's contracting officer on August 9, 1996. The Library's chief of budget and fiscal recommended approval of the D&F on the same date. The D&F stated, in part, that: The proposed contract covers the procurement of materials of various titles from Book Wholesalers for the District of Columbia Public Library (Library). The estimated amount of this requirement is $55,000. The District's Financial Management System (FMS) revealed that Library officials established the purchase order, CE-960674, on June 10, 1996 in the amount of $340.10. The FMS also revealed that Library officials modified this purchase order on September 5, 1996, increasing the amount by $ 175,000. Immediately after the modification increasing the P.O. by $ 175,000 was accepted into the FMS, Library officials processed FMS payment vouchers totaling $137,245.83 on September 6, 1996, which exceeded the $55,000 estimated amount of the sole-source procurement by $82,245.83. The Library's official contract files did not contain a copy of the original sole-source contract, a copy of the original purchase order for $340.10, or a copy of the $175,000 purchase order modification. The contract files also did not contain documentation to justify and support increasing the sole-source contract by $175,000. These documents should have been included in the contract files in accordance with DCMR Title 19, Chapter 43 District of Columbia Public Library: Procurement, Section 4308.7 which states that:
The Library's official contract files were materially deficient and void of critical information. This information was requested from the Library's acting chief contracting officer (CCO) who stated that the requested information could not be found.
G) The Library Incurred $107,358 in Expenditures Before the Contract Was Officially Approved And Accepted Into the District's Financial Management System Library officials obtained $107,358.66 in maintenance services, including labor, parts and other services, for its computer equipment from October 1, 1996 through February 10, 1997 without an approved contract in effect and before the purchase order was accepted into the District's Financial Management System (FMS). The Library's failure to have an officially approved contract in place and to have the purchase order accepted into the FMS violated District Financial Management and Control Order No. 96.02, dated February 21, 1996, which states, in part, that:
The Control Board approved the maintenance contract on April 1, 1997, and the purchase order (CE-970207) was accepted into the FMS on the same date in the amount of $167,834.88. On that same date, Library officials processed and entered into FMS a payment voucher in the amount of $103,224.65. This payment included $4,900.63 in late fees imposed by the vendor because the Library could not pay the vendor on a monthly basis until the contract was approved and the purchase order was accepted into the FMS. Library officials exhibited poor managerial oversight and a lack of effective internal controls in its failure to properly procure a maintenance contract and enter the obligating document (purchase order) into the FMS until six months after the services began.
H) The Library Failed To Spend $500,000 in Capital Budget Authority And the District Rescinded the Authority On May 24, 1992, the then-Director of the D.C. Public Library requested $500,00 in capital budget authority for the Library. The Director stated, in part, that:
Financial Management System documentation provided by the Department of Public Works' acting chief of its capital division revealed that the Library's supplemental capital budget request for $500,000 was approved and was reflected in its fiscal year 1994 capital budget authority. Library officials failed to establish approved contracts and failed to enter obligating documents (purchase orders) into the District's Financial Management System against any of its $500,000 in capital budget authority from 1994 through the close of fiscal year 1996. Because the Library failed to initiate any spending against its capital budget over a two year period, the District rescinded the Library's entire $500,000 in capital budget authority. Library officials failed to properly utilize $500,000 in available resources allotted to the Library for non- structural small capital projects. Library officials exhibited poor management and a lack of good internal controls in failing to devise plans and take definitive action to address critical Library capital improvement projects using the $500,000 in capital budget authority made available to it.
II. THE RELATIONSHIP BETWEEN THE D.C. PUBLIC LIBRARY AND THE DC PUBLIC LIBRARY FOUNDATIONThe D.C. Public Library Foundation, Inc. was incorporated on November 25, 1985 as a not-for-profit charitable organization consistent with the provisions of the District of Columbia Non-Profit Corporation Act and Section 501(c)(3) of the Internal Revenue Code of 1954, as amended. According to its articles of incorporation, the Foundation was organized and operated exclusively for charitable purposes to support the District of Columbia Public Library. At its board of directors meeting on February 5, 1997, the Board agreed that although the Foundation and the Library are legally separate entities for tax reasons, and have separate managements, the Foundation works closely with the Library and, in that sense, does not act "independently" of the Library or its trustees. Since 1986, the Foundation has sponsored or co-sponsored, along with the Library, fundraising campaigns to raise funds for specific projects of the D.C. Public Library. Annually, the Foundation and the Library co-sponsored the Dr. Martin Luther King, Jr. Leadership Awards Gala. In 1994, according to audited financial statements, the Foundation raised $55,312 for the King Awards Gala. The Foundation did not sponsor a King Awards Gala for 1995, and the certified public accounting firm had not completed the Foundation's financial statements for fiscal year 1996. In addition to the King Awards Gala, the Foundation also received support and revenue from the MLK Commission, General Foundation, Endow- A-Book, Bowerman Trust, Literacy Fund, Warner Memorial, Mayo Memorial, and investment interest income. For years, the Library had maintained a contributions box in the main lobby of the Martin Luther King Library. Periodically, the Library's previous director, the Foundation's Secretary/Treasurer, would retrieve the collection box or have a Library staff member retrieve the box from the lobby, bring the box to the director's office where the director would count the contributions and deposit the funds into the Foundation's bank account. This procedure lacked good internal controls encompassing accountability and separation of duties. The Foundation's Secretary/Treasurer should not have performed all three functions, retrieving the collection box, counting the funds, making out the deposit slip and depositing the funds. The Library's current acting director removed the contribution box from the lobby of the MLK Library in March 1997. Appendix II reflects an example of a fund-raising activity (a brochure) utilized by the Foundation and the Library in their solicitation of contributions. The Foundation's Secretary/Treasurer deposited contributions received by the Foundation into its banking account. The Foundation's end-of-the year fund balance for fiscal year 1995 was $493,560. The Foundation has been using funds collected as an endowment. Foundation directors stated that the directors intended not to spend more than the annual interest income from its investments in order to preserve the endowment's principal. The Foundation held investments of $371,077 in certificates of deposits (CD's), $12,105 in a money market account, $112,878 in its bank checking account, and $2,500 in accounts payable as of October, 1995. A copy of the Foundation's audited financial statements for fiscal years 1994 and 1995 are shown in Appendix III. The Foundation did not transfer funds directly to the Library. The Foundation paid vendors and consultants who provided a specific product or service to the Library. For example, the Foundation paid a consultant who served as Centennial Director for the Library's 100-year centennial celebration in 1996. Foundation expenditures for fiscal years 1994 and 1995, which were grouped under the sponsored program specific expenses related to, are reflected in its audited financial statements in Appendix III. Foundation expenditures for the period of September, 1995 through December, 1996 are reflected in Table III. Foundation checks were made payable to individuals, associations, and companies for services rendered during this period. TABLE III
Source: D.C. Public Library Foundation Checks for expenses were written against the Foundation's checking account and only required the signature of one individual, the Foundation's Secretary/Treasurer. The previous director of the Library continues to serve on the Foundation's board as its Secretary/Treasurer. The Foundation did not have any specific written internal controls related to procedures utilized for the receipt and deposit of contributions received by the Foundation, and the writing of checks for expenditures for the Foundation. The Foundation's president stated that Foundation board members rely on its annual audit report to ensure the proper accounting of all income and expenses of the Foundation are properly accounted. The Library has transferred monetary gifts to the Foundation for deposit into the Foundation's bank account. For example, in 1991 the Library received a $10,000 contribution from a supporter of the Library. The previous director of the Library, the Foundation's Secretary/Treasurer, requested permission from the supporter to deposit his contribution in the Foundation account rather than in the Library's account maintained by the District. The Foundation's Secretary/Treasurer deposited the $ 10,000 contribution into the Foundation's bank account on January 23, 1991. The Auditor did not find that any D.C. appropriated funds were transferred from the Library to the Foundation. CONCLUSIOND. C. Public Library of finials were very cooperative in providing information and responding to the Auditor's many requests during our audit. While the scope of the audit covered fiscal years 1995, 1996, and 1997 up through June 1997, the Auditor is encouraged that Library officials are making considerable improvements in the Library's procurement functions under its current leadership. According to the Library's acting director, several of the Auditor's recommendations have already been implemented. The Auditor acknowledges the Library's positive response to the findings, conclusions, and recommendations reflected in the audit report. Notwithstanding, the D.C. Public Library underspent its fiscal year 1996 appropriated budget by $899,787. D.C. Public Library officials failed to spend available appropriated funds while having $304,683 in unpaid vendor invoices. Even though the Library had $899,787 in unexpended fiscal year 1996 funds, the District did not allow it to pay $304,683 in outstanding invoices before the close of fiscal year 1996 because the Library failed to establish obligating documents (purchase orders and contracts) in the District's Financial Management System FMS before ordering the goods and services. Library officials were negligent in ordering goods and services without establishing approved contracts and purchase orders, and properly entering those contracts and purchase orders into the District's FMS The Library's system of internal controls was deficient in that it allowed over 300 internal purchase requests for goods and services to remain unfilled at year's end while having $899,787 in spending authority available to it. These unfilled purchase requests had been properly completed with the appropriate approval signatures and submitted to the Library's procurement office. The Library's procurement office failed to convert the purchase requests into approved contracts and purchase orders before the end of the fiscal year. Poor managerial oversight and the lack of effective internal controls contributed to the Library's failure to procure the goods and services reflected on the 300 purchase requests. From October 1996 through June 1997, Library officials ordered and received another $856,912 in goods and services without benefit of established contracts and purchase orders, and in violation of District Financial Management and Control Order No. 96-02, dated February 21, 1996. With the $304,683 in unpaid vendor invoices for fiscal year 1996, and the $856,912 in unpaid vendor invoices for fiscal year 1997, the Library had a total of $1,161,595 of vendor invoices which officials in the D.C. Controllers Office, under the Office of the Chief Financial Officer, had not allowed it to pay. The delinquent unpaid vendor invoices resulted in the refusal of primary book vendors, such as Baker and Taylor, to deliver any further books to the Library until they (the vendors) were paid. Library officials sought several avenues to pay the invoices, including requesting emergency legislation. In June 1997, the Council of the District of Columbia declared an emergency existed at the D.C. Public Library and subsequently passed legislation allowing the Library to pay vendor invoices for goods and services ordered without contracts and purchase orders. The legislation was later approved by the Mayor and the Control Board. Also, Library officials exceeded by $79,589.88 the spending ceiling of $673,409 approved for a firm fixed- price contract for book purchases. Further, vendor invoices revealed that Library officials ordered goods and services from the book supplier five (5) months before the contract was officially approved. Library officials held in abeyance payment vouchers which had accumulated over a period of four (4) months until the obligating documents (purchase orders) could be officially entered into the District's Financial Management System. Library contract files were materially deficient in that the files did not contain supporting documentation for actions taken by Library officials.. The Library's acting chief contracting officer stated that the requested information could not be found. The Library failed to obligate (spend) any of $500,000 in capital budget authority allotted to it by the District over a two year period, and the District rescinded the authority in June of 1996. Library officials were negligent and showed poor managerial oversight and a lack of good internal controls by failing to devise plans and take definitive action to spend $500,000 of capital budget authority on Library capital improvement projects. The D.C. Public Library (Library) and the D.C. Public Library Foundation (Foundation) worked together to promote the Library, and jointly participated in fund raising activities for the Library. The Foundation did not transfer funds directly to the Library but paid vendors and consultants directly for goods and services provided to the Library. The Library, on occasions, transferred contributions it received to the Foundation. Respectfully submitted, |
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