Schools procurement clearinghouse broke procedure, comptroller’s audit finds

The Educational Services Commission of New Jersey failed to report contract awards and lacked documentation for contracts worth millions, the comptroller found. (Courtesy of the Comptroller's office)

One of the largest cooperative purchasing systems in the state awarded contracts worth roughly $14.6 million without properly following New Jersey procurement laws, the Office of the State Comptroller said in a new report released Wednesday .

The Educational Services Commission of New Jersey, a procurement cooperative that secures anything from utilities to cleaning supplies to computers for more than 700 school districts and local governments, could not provide documentation showing it obtained price quotes for health insurance and related services.

“The routine lack of compliance with procurement laws and sound financial controls is a red flag because it raises the risk of waste,” said acting State Comptroller Kevin Walsh.

The commission failed to show it obtained required compliance documents from the vendors, nor could it provide the resolutions that actually awarded the contracts for a range of insurance, professional, and lobbying services.

The clearinghouse also routinely failed to notify the comptroller’s office when awarding contracts worth more than $2.5 million or when soliciting bids for contracts worth more than $12.5 million.

State law requires contracting units to inform the comptroller’s office within 20 days of awarding contracts worth between $2.5 million and $12.5 million, and it requires procurers to provide 30 days’ notice before advertising bids for contracts worth at least $12.5 million.

The comptroller’s audit found the commission had not submitted a single awarded contract to his office since its creation in 2008 despite a 2017 letter warning the commission of its responsibility to notify.

The commission began reporting its contracts to the comptroller after receiving a draft of the comptroller’s report and, in a response to the comptroller, said it would offer additional training to its procurement staff.

“The Commission welcomes the guidance provided in the performance review.  The OCS report will help make us a stronger organization.  To that end, I express my appreciation for this independent assessment,” said Nadia Romano, the commission’s superintendent.

Walsh’s office estimated the commission failed to report 43 contracts worth more than $900 million combined during the 2021 and 2022 July-to-June fiscal years.

In at least one instance, the commission did not follow procedures that require it to list its members’ procurement needs in a bid and applied an improper procurement standard that would award public contracts to a contractor in the commission’s best interest instead of to the lowest responsible bidder, as state law requires for cooperative purchasing.

The audit also found the commission had ballooned its surplus to $69.6 million by the end of fiscal 2023. It said it needed the reserves to fund $29 million in capital projects, but lacked official approval for all but $10.5 million and had no process to set a target for its reserves.

“When an entity has tens of millions of dollars sitting around, along with these red flags, the potential for waste grows exponentially,” Walsh said.

The nearly $70 million surplus dwarfed those at other educational service cooperatives in the state.

The next runners-up, the Essex Regional Educational Services Commission and the Union County Educational Services Commission, had $15.8 million and $35.6 million, respectively, banked at the end of fiscal 2023. The state’s seven remaining educational service cooperatives averaged $4.6 million in reserves.

Because the commission draws its revenue from purchasing commissions and grant administration fees paid by its member districts, the burgeoning surplus raises costs for their taxpayers.

That revenue substantially exceeded the commission’s costs, the comptroller said, and the commission had no formal process to return funds it did not need to member districts, though it told the comptroller it is now developing such a policy.

The comptroller further found the commission would have saved roughly $1 million between fiscal years 2021 and 2023 by moving its workers onto the School Employees Health Benefits Plan instead of its self-insured plan, though the savings were not uniform across years.

The commission agreed it should annually review health insurance costs to identify potential savings, but warned those savings could be lessened by the need for collective bargaining over health benefits.

The commission broadly accepted the comptroller’s recommended changes, which include procedures to notify the comptroller on contract awards or bid solicitations, estimate contract costs, and better maintain compliance documents. It contested a finding that it overpaid its health insurance claims administrator by $343,000.

The commission’s corrective plan is due within 90 days of Wednesday.

SUBSCRIBE: GET THE MORNING HEADLINES DELIVERED TO YOUR INBOX

The post Schools procurement clearinghouse broke procedure, comptroller’s audit finds appeared first on New Jersey Monitor .