osc audit: oft procurement practices

8/2/2019 OSC audit: OFT procurement practices

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New York State Oce of the State Comptroller

Thomas P. DiNapoli

Division of State Government Accountability

Report 2010-S-71 February 2012

Procurement and Contracng

Pracces

Oce for Technology


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Division of State Government Accountability 1

Execuve SummaryPurposeTo determine whether the Oce for Technologys (OFT) procurement and contracng pracces

resulted in the best value for taxpayers, consistent with applicable legal, regulatory and ethical

requirements. The audit covers the period April 1, 2008 through December 2, 2011.

BackgroundOFT plays a highly signicant strategic and technology procurement role in State government.

The agency serves as one of the States principal technology procurement enes responsible for

what should be compeve and ecient procurement of some of the States largest non-capital

contracts. In October 2010, the State Comptroller rejected a contract submied by OFT for sta

augmentaon valued at $7.5 billion. The Comptroller cited awed cost evaluaon methodologies

in the rejecon and determined the value of the contract appeared to overstate IT consultant

spending in the State. As a result, the Comptroller ordered a full-scale independent audit of

OFTs contracng and procurement pracces be conducted by his Division of State GovernmentAccountability.

Key FindingsThis report provides details surrounding several major problems and potenal ethics violaons,

including how:

OFT Wasted $1.5 million in a Contract with McAfee;

Deputy CIO Rico Singleton Used His Ocial Posion in Apparent Violaon of the Public Ocers

Law;

Unfair bidding pracces and inappropriate negoaons with vendors regarding contract

terminaons; and

Discreonary Purchases Exhibit Disregard for Requirements.

Key RecommendaonsThe Comptroller has referred Mr. Singletons possible violaons of the Public Ocers Law to the

Joint Commission on Public Ethics. In addion, OFT should take signicant steps to change its

organizaonal culture and control environment to ensure that proper contracng and purchasing

pracces are put in place and complied with. This includes complying with exisng controls and

safeguards to prevent fraud, waste and abuse of State resources, and monitoring their actual

implementaon to ensure that unethical pracces will not occur in the future.

Other Related Audits/Reports of InterestOce of Mental Retardaon and Developmental Disabilies Preservaon Fund Procurement

Pracces at Springbrook NY, Inc., 2007-S-51,

Oce of Mental Retardaon and Developmental Disabilies Physical Plant Procurement Pracces

at Central New York Developmental Disabilies Services Oce, 2007-S-136,
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State of New York

Oce of the State Comptroller


February 28, 2012

Daniel C. Chan, Ph.D.

Acng Chief Informaon Ocer & Director of Oce for Technology

Empire State Plaza

P.O. Box 2062

Albany, NY 12220

Dear Dr. Chan:

The Oce of the State Comptroller is commied to helping State agencies, public authories

and local government agencies manage government resources eciently and eecvely and, by

so doing, providing accountability for tax dollars spent to support government operaons. The

Comptroller oversees the scal aairs of State agencies, public authories and local government

agencies, as well as their compliance with relevant statutes and their observance of good business

pracces. This scal oversight is accomplished, in part, through our audits, which idenfy

opportunies for improving operaons. Audits can also idenfy strategies for reducing costs and

strengthening controls that are intended to safeguard assets.

Following is a report of our audit of Unethical and Inecient Procurement and Contracng

Pracces. This audit was performed pursuant to the State Comptrollers authority under Arcle

V, Secon 1 of the State Constuon and Arcle II, Secon 8 of the State Finance Law.

This audits results and recommendaons are resources for you to use in eecvely managing

your operaons and in meeng the expectaons of taxpayers. If you have any quesons about

this report, please feel free to contact us.

Respecully submied,




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State Government Accountability Contact Informaon:

Audit Director: John Buyce

Phone: (518) 474-3271

Email:[email protected]:



110 State Street, 11th Floor

Albany, NY 12236

This report is also available on our website at: www.osc.state.ny.us

Table of Contents

Background 4

Audit Findings and Recommendaons 5

OFT Wasted $1.5 million in a Contract with McAfee 5

Deputy CIO Rico Singleton Used His Official Position in Apparent

Violation ofthe Public Officers Law 7

Discretionary Purchases Exhibit Disregard for Requirements 15

Recommendations 16

Next Steps 17

Audit Scope and Methodology 18Authority 18

Reporng Requirements 18

Exhibit A 20

Contributors to this Report 21

Agency Comments 22

State Comptrollers Comments 90
mailto:StateGovernmentAccountability%40osc.state.ny.us?subject=http://www.osc.state.ny.us/http://www.osc.state.ny.us/mailto:StateGovernmentAccountability%40osc.state.ny.us?subject=


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Background

The New York State Oce for Technology (OFT) plays a highly signicant strategic and technology

procurement role in State government. OFT is responsible for providing centralized informaon

technology services to the State and its governmental enes. OFT also sets statewide technologypolicy for all State government agencies, assists agencies with large technology procurements

and monitors all large technology expenditures in the State, seeking eciencies, lower costs, and

innovave soluons. With an annual budget of about $434 million, the agency serves as one of

the States principal technology procurement enes responsible for what should be compeve

and ecient procurement of some of the States largest non-capital contracts.

In August 2009, the Oce of the State Comptrollers Bureau of State Expenditures found that

OFT lacked complete procurement records containing informaon necessary to support eight of

the nine contracts then under review. In October 2010, the State Comptroller rejected a contract

submied by OFT for sta augmentaon valued at $7.5 billion. The Comptroller cited awed costevaluaon methodologies in the rejecon and determined the value of the contract appeared

to overstate IT consultant spending in the State. As a result, the Comptroller ordered a full-scale

independent audit of OFTs contracng and procurement pracces be conducted by his Division

of State Government Accountability.

OFT, like other State agencies, must abide by the State Finance Law, which requires agencies

to protect the interests of the State and its taxpayers by promong fairness in contracng with

the business community; conducng formal compeve procurements to the maximum extent

praccable; and documenng the determinaon of the method of procurement and the basis of

the award in the procurement record. For purchases up to $50,000, New York State Procurement

Guidelines require agencies to ensure that the commodies and services acquired meet theirform, funcon and ulity needs, and document and jusfy both the selecon of the vendor and

the reasonableness of the price.

In procurement maers, as in all their acons, OFT employees must conform their conduct to

the ethical standards contained in the New York State Public Ocers Law which requires that an

ocial solely use his or her authority in a manner which serves the public and directs the ocial

to avoid any actual and apparent conicts of interest.

In addion, OFT has developed its own purchasing and ethics policies. The Oces Purchasing

Policy states: The procurement process should result in a soluon that best meets the agencys

needs, and guards against favorism, fraud and collusion. The Ethics Policy provides, Ocers

and employees of State government may not engage in acvies that would create or appear

to create a conict with their public dues and State ocers and employees should conduct

themselves in ways to avoid suspicion among the public that the employees are likely to be

engaged in acts that are in violaon of the publics trust.


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Audit Findings and Recommendaons

We found a culture, emanang from the highest levels of the agency, that disregarded the New

York State Finance Law, the States Procurement Guidelines and OFTs own procurement policies.

This did not result in the best value for the taxpayers, but instead led to a waste of substanal

public resources. Moreover, in several notable instances, transgressions appear to have beenmovated by personal gain and may violate the ethics standards contained in the New York State

Public Ocers Law.

In responding to our dra report, OFT acknowledges the serious misconduct by its former

execuves as detailed in the following secons of this report, which they characterize as total

derogaon of authority and intenonal disregard of ethics training. At the same me, ocials

say that these deeds are aributable to just one person and his supervisor, who they say ignored

and outed recognized contracng, procurement and ethical guidelines. They assert that our

audit conclusions mischaracterize current operaons and fail to acknowledge correcve acons;

parcularly those taken since the new Chief Informaon Ocer was appointed in April 2011,which they believe has resulted in signicant cultural and organizaonal change.

We are heartened by this new administraons stated commitment to ethics and integrity, which

includes a collaborave environment, an open door policy and reduced reliance on contracts that

deviate from normal procurement processes. However, these abuses were agrant, signicant

and not well hidden; yet no one stepped forward to queson these acons, clearly indicang that

the tone set by these top ocials had permeated the organizaons understanding of what type of

behavior was acceptable. Despite new managements best eorts, such atudes and behaviors

do not change overnight. Indeed, even aer the departure of Mr. Rico Singleton on December 16,

2010, present OFT sta including the General Counsel connued to seek monetary credits from

Computer Associates Inc. as recently as November 2011 despite OSC legal representaons thatsuch acons are inappropriate. Therefore, while we support managements new direcons, we

will also connue to monitor and scrunize OFT procurement acvity in the foreseeable future to

ensure that similar problems do not recur.

OFT Wasted $1.5 million in a Contract with McAfee

We found OFT ocials wasted at least $1.5 million in State money on one contract. In March

2009, OFT entered into a $5.7 million three year agreement with a soware security rm (McAfee)

that was supposed to provide cost savings by combining the use of an-virus, security, and other

related products across agencies. The agreement provided unlimited licenses and maintenancefor State agencies and localies, with certain exclusions. OFT paid $1.9 million upfront for the

rst year cost of the contract and planned to recoup these costs by reselling the licenses to other

agencies. However, in the end, OFT recouped less than $400,000.

According to the former Deputy CIO of Shared Services, this agreement failed because of a

disconnect between projected demand and actual demand. OFT sent surveys to various state

enes to determine what security products they used, when they expired, and how much they


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cost. In addion, they asked if agencies were interested in parcipang in an agreement for

McAfee endpoint total protecon products. About 78 percent of the 41 enes said they would

be interested in parcipang. However, aer the agreement was signed, other survey results

showed about one-third of the 60 enes responding were not interested in parcipang in the

agreement.

Some OFT ocials told us they had expressed concerns about the agreement, but they were

ignored. These ocials felt former Deputy CIO Rico Singleton wanted to get the project done as a

quick win. In addion, McAfee ocials also noted that former CIO Melodie Mayberry-Stewart

had declared that they did not have me to engage in a compeve bidding process, even

though negoaons began in August 2008 and documentaon provided by McAfee indicates the

negoated pricing was available unl the end of March 2009 over seven months later.

We also found that once the agreement was signed, two important issues sll had not been

resolved. First, there were disagreements on whether or not the agreement would apply to

operang systems other than Windows. Although enes were eventually able to apply the

agreement to other operang systems, this issue should have been decided before the contractwas signed. Second and more importantly, it became clear that McAfee could not meet OFTs

Minority- and Women-Owned Business Enterprise (MWBE) goal requirements. In fact, MWBE

parcipaon was not addressed in the contract at all. McAfee ulmately sought a waiver of

the requirements, and received it months later aer much discussion between the two pares.

However, according to documentaon provided by McAfee, its sta was told by an OFT Contract

and Procurement Supervisor that they could solve the problem simply by providing incorrect

informaon, as long as the MWBE form was lled out and submied.

There are also other indicaons that OFT was not prepared to implement this project at the me

the contract was signed. McAfee ocials told us that OFT did not have the technical experse

needed to handle the distribuon of the McAfee products. Specically, OFT lacked an eecve

system to manage the products being purchased, or to perform necessary billing. McAfee ocials

noted that they oered to build a program to manage the project and perform billing, but OFT

ocials did not want to make the investment and rejected the oer. Even aer McAfee oered to

build a program for free, OFT sll rejected it. McAfee also told us that OFT needed professional

help to facilitate the implementaon of some of the products. Again, McAfee originally oered to

provide these services for a fee, but was rejected. McAfee eventually oered to do the rst ve

agencies for free, but was again rejected by OFT ocials.

The agreement was ulmately terminated aer the rst year. In the end, OFT recouped only

$376,886 of its costs through other enes and more than $1.5 million already paid to McAfee asupfront fees for the various products was wasted.

This is not the rst me that a major OFT iniave has fallen short of expectaons due to poor

management. OFT previously had a $42 million agreement with another soware vendor for

acquision, subscripon, licensing, and support for their programs. In 2006, this arrangement

was invesgated by the New York State Inspector General, who found inadequate oversight

of the mul-million dollar transacon. At the me, OFT assured the Inspector General that new


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procedures had been implemented to provide for more eecve oversight. However, we found

some of the same issues in our examinaon of the McAfee agreement. According to an OFT sta

member, both the prior failed agreement and the Inspector Generals recommendaons were

pointed out to Mr. Singleton by senior management sta, but these warnings were ignored.

Deputy CIO Rico Singleton Used His Ocial Posion in ApparentViolaon of the Public Ocers Law

As previously noted, the McAfee agreement on which OFT wasted over $1.5 million was

substanally negoated by Deputy CIO Rico Singleton. We found Mr. Singletons behavior

during and immediately aer negoaons with McAfee raises serious quesons regarding his

movaons. In fact, on several occasions throughout the negoaons and implementaon

of this mul-million dollar contract with McAfee, it appears Deputy CIO Singleton violated the

publics trust.

We determined that Mr. Singleton developed a friendship with the McAfee account manager

and then appears to have used his posion of authority with OFT to obtain a job with McAfee for

his girlfriend immediately aer the agreement was signed. Compounding this apparent misuse

of his public oce, Mr. Singleton himself solicited and later interviewed, in their Atlanta oces,

for a posion with McAfee, within a month of when the company was paid $1.9 million dollars.

According to McAfee ocials, his airfare and hotel were paid for by the vendor.

Specically, the Public Ocers Law provides that no public ocer or employee:

should use or aempt to use his or her ocial posion to secure unwarranted

privileges or exempons for himself or herself or others, including but not limited to,

the misappropriaon to himself, herself or to others of the property, services or otherresources of the State for private business or other compensated non-governmental

purposes (74(3)(d));

should not by his conduct give reasonable basis for the impression that any person can

improperly inuence him or unduly enjoy his favor in the performance of his ocial

dues, or that he is aected by the kinship, rank, posion or inuence of any party or

person (74(3)(f));

shall, directly or indirectly solicit, accept or receive any gi having more than a nominal

value, whether in the form or money, service, loan, travel, lodging, meals, refreshments,

entertainment, discount, forbearance or promise, or in any other form, under circumstances

in which it could reasonably be inferred that the gi was intended to inuence him, or

could reasonably be expected to inuence him, in the performance of his ocial dues or

was intended as a reward for any ocial acon on his part. (73(5)(a))

Moreover, in all their acons, state employees must, under Public Ocers Law74(3)(h), endeavor

to pursue a course of conduct which will not raise suspicion among the public that they are likely

to be engaged in acts that are in violaon of their trust.


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Notably, these ethical restricons have specically been found to prohibit State ocials from

solicing private sector employment with an enty that has a maer pending before the State

agency unl a 30 day cooling o period has expired (See Ethics Comm. Advisory Opinion No. 06-

01). Indeed, such a solicitaon for post-government employment could be considered a reward

for ocial acon (or inacon) . . . and also raises the appearance that the State employees interest

with such an acvity is in substanal conict with the proper discharge of his or her dues in thepublic interest under New York State law.

Similarly, OFTs Ethics Policy provides:

Ocers and employees of State government may not engage in acvies that would

create or appear to create a conict with their public dues.

A gi is anything of more than nominal value, in any form, given to a State ocer or

employee. Gis include, but are not limited to, money, service, loan, travel, lodging,

meals, refreshments, entertainment, discount, forbearance or promise. Nominal value

is considered such a small amount that acceptance of an item of nominal value could not

be reasonably interpreted or construed as aempng to inuence a State employee orpublic ocial.

Using or aempng to use their ocial posions to secure unwarranted privileges or

exempons for themselves or others.

As discussed in more detail below, Mr. Singletons apparent use of his State posion for personal

gain during the course of negoang this lucrave State contract raises the appearance of a

conict of interest thereby diminishing the publics trust in the legimacy of his acons.

See Exhibit A for a comprehensive meline of events.

A. Mr. Rico Singleton Uses His Posion to Help Secure Employment for His Live-in Girlfriend

Mr. Singleton was employed by OFT from September 2007 through December 2010. Between

August 2008 and March 30, 2009, Mr. Singleton personally negoated the agreement with

McAfee. During the course of those negoaons, Mr. Singleton developed a friendship with

the New York State McAfee account manager, one of the primary McAfee contacts during the

negoaons. Emails between the two, as well as interviews with McAfee sta, reveal that Mr.

Singleton and this account manager socialized on many occasions.

In December 2008, during the midst of the negoaons, McAfee was seeking to hire an Associate

Account Manager. As the following emails demonstrate, Mr. Singleton requested that the account

manager consider Mr. Singletons girlfriend, with whom he was living, for the posion. She was

ulmately hired and assigned to work in the New York State Government sector of McAfee.


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8/2008 12/10/2008 12/17/2008 3/30/2009 5/18/2009 8/12/2009

McAfee

contractsigned

Girlfriend

hired byMcAfee

$1.9 million

paid toMcAfee

Mr. Singleton

tries to get

his girlfriend

a job atMcAfee

McAfee begins

negotiationswith OFT

Girlfriend

interviews

with McAfee

Documentaon shows Mr. Singleton was persistent in having McAfee hire his girlfriend. According

to documentaon received from McAfee, the account manager and his immediate supervisor did

not feel that they could turn him down.


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[McAfee Account Manager]

[McAfee Manager]

[McAfee Manager]

[McAfee Supervisor]


[McAfee Supervisor]


[McAfee Supervisor]


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[McAfee Manager

As the meline shows, Mr. Singleton requested reimbursement from McAfee for incidental

expenses during his trip to Atlanta. Subsequent to the Las Vegas and Atlanta conferences,

Mr. Singletons girlfriend, whom he had helped secure a posion with McAfee, also requested

reimbursement for his airfare. Due to the ming of the request, we queson if this reimbursement

was for the Las Vegas or Atlanta ight. While McAfee ocials stated that they paid for Mr.

Singletons expenses from the Vegas trip, we were unable to denively verify this claim.


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Unfair Bidding Pracces

As part of OFTs oversight of State agency technology plans, individual agencies are required to

submit a Plan to Procure for parcular technology acquisions. OFT reviews the Plans to Procureto ensure they are in line with the agencys goals, and to determine if there are opportunies to

collaborate between and among agencies to enhance eciency and realize cost savings.

In October 2008, Mr. Singleton began discussions with Computer Associates, Inc. (CA) to revamp the

Plan to Procure system. Aer personally negoang directly with CA for many months, including

negoang price, Mr. Singleton advised CA that OFT wanted to involve a parcular reseller in the

project, Currier, McCabe, and Associates (CMA). A reseller is an alternate distribuon source for

the contractor under a contract. Resellers must be preapproved by the State and the contractor is

liable for the resellers performance and compliance with the contract. Notably, CMA only became

a cered reseller for CA products the month before the bidding process, adding further queson

to the legimacy of the transacon. According to a former CA employee and as conrmed byemail evidence, Mr. Singleton arranged for a phone conference for CA, CMA and OFT, rather than

an in-person meeng, prior to any bidding to avoid any percepon of impropriees from people

seeing them together.

Shortly thereaer, OFT twice solicited other resellers through a bidding process that gave

potenal bidders an extremely short response me only three and seven days respecvely.

Given the extremely short response me aorded potenal bidders and the prior negoaons

with CA and CMA, it is not surprising that CMA was the only vendor to respond each me. Both

responses were deemed invalid; the rst because it exceeded a mandatory budget cap and the

second because it failed to include a mandatory form. At that point, OFTs Director of Contracts

and Procurement called sta at the Oce of the State Comptroller to explain the two failed bids

and the limited response. According to OFT documentaon, the State Comptrollers sta agreed

that OFTs process would adequately support issuing a Purchase Order to CMA, provided OFT

could prove a level playing eld for all bidders and that the cost was reasonable.

However, since CMA had already aended meengs regarding the project at which the price


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was discussed, the two bidding processes appear to be nothing more than a pretense to give the

appearance that OFT conducted a compeve procurement. At a minimum, it is clear that other

potenal bidders were never aorded a fair opportunity or level playing eld and that CMA had

a compeve advantage in seeking the contract award.

Inappropriate Negoaons with Vendors Regarding Contract Terminaons

OFTs Director of Contracts and Procurement claimed that OFT sought out CA because of

how congurable its product was to the States needs. However, aer lengthy and signicant

modicaons, the product was sll not suited to OFTs expectaons. In this regard, it should be

noted that the statements of work agreed to between CA and CMA (the product vendor and

reseller) and CMA and OFT (the reseller and the State agency) diered dramacally. According to

OFT documentaon, the project ulmately failed.

Aer the project failed, Mr. Singleton informed both CMA and CA that the agency was terminang

the contract for cause as to both companies. OFT conrmed its terminaon for cause in a leer(s)

from Mr. Singleton to CMA and CA in December 2009, cing a series of failures to perform work.Nevertheless, in April 2010, OFT approached the State Comptrollers legal division to seek advice

about a potenal deal discussed between OFT and CA, whereby OFTs for cause nding would

be dropped in exchange for CA providing OFT a total of approximately $350,000 in credits. (The

$350,000 in credits was a downward adjustment from OFTs original March 2, 2010 request of CA

for $1.1 million.) OFT cited the loss of one storage device (thumb drive) containing condenal

informaon and CAs failures to adequately perform under the contract. Between April and June

4, 2010 (the date of the Comptrollers legal divisions wrien response), OFT indicated to OSC that

it had decided not to enter into the selement with CA but, sll wished to learn OSCs opinion

on the legality of this type of selement.

The State Comptrollers legal division advised OFT in wring that (i) using credits from one

contract for a contract that OFT was not currently ulizing would raise procurement issues; (ii)

any such agreement that involves an amount of money over the statutory approval threshold in

State Finance Law secon 112 would be subject to prior approval by the Comptroller; and (iii) it is

quesonable whether the provision of credits by CA would provide a legal basis for OFTs decision

to rescind its prior terminaon for cause.

Indeed, a for cause determinaon bears serious consequences for a vendor because this

designaon nds that the terminaon is the fault of the vendor. The vendor is required to report

this nding to other agencies in connecon with future bids for State business. This reporng

requirement serves a public interest by ensuring that agencies are aware of problemac vendorsin the future. Agency ocials can ulize this informaon when determining whether a potenal

vendor is responsible before comming public resources to a contract.

Subsequent to OFTs inial outreach, OFT expressly informed OSC that it did not intend to pursue

this arrangement as memorialized in OSCs June 4, 2010 response. However, contrary to what

OFT informed the Comptrollers oce, our audit revealed that OFTs former General Counsel and

CA had, in fact, by the me the Comptroller advised them that it was improper, already entered


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into an agreement. Notably, the leer from the Comptrollers legal division was addressed to the

member of OFTs legal sta who served as the notary on the executed agreement between CA

and OFT. CA ocials related that they felt they were being held hostage by these terms, but

they eventually relented and agreed to provide OFT with $222,743 in credits, parally towards an

unrelated procurement, in May 2010. We found that OFTs General Counsel oered a similar deal

to CMA, in return for $225,000 in credits for unrelated procurements. CMA ocials said they feltthis was extoron and refused to provide credits to OFT.

Discreonary Purchases Exhibit Disregard for Requirements

We found several OFT ocials violated OFTs procurement policies and the New York State

procurement guidelines. These ocials awarded contracts to selected vendors and failed to

determine if they were obtaining the best value for the services, or if the price the State was

paying was reasonable. Addionally, we found a lack of compeon and skirng State Comptroller

oversight of such discreonary contracts.

Generally, under State law, purchases above $50,000 must be compevely bid and are subject to

approval by the State Comptroller. Discreonary purchases are any purchases below $50,000 and

do not need to be formally bid or approved by State Comptroller. In addion, OFTs Procurement

Policy requires it to analyze whether the price is reasonable for all discreonary procurements.

In most cases, this involves obtaining three quotes from vendors and lling out a Reasonableness

of Price form.

The State Comptrollers Bureau of State Expenditures performed a review of OFTs discreonary

contracts in 2009 and found that OFT did not adequately conduct its procurement process in

accordance with the Law and Guidelines for eight of the nine procurements examined. Our review

of discreonary purchases shows OFT has clearly not xed the problems cited in the August 2009report. Between April 1, 2008 and May 1, 2011, OFT made 23 discreonary purchases totaling

$891,618. We reviewed each one and found only six were supported by adequate and proper

documentaon. The other 17, totaling $699,248, were not. Seven of these 23 procurements

occurred aer the Comptrollers previous review, but only four of these were appropriately

supported. The other three, including the most recent one, had incomplete procurement records

and demonstrated problems similar to those found in 2009. As a result, we could not determine

if these purchases resulted in the best value for New York State taxpayers.

Five of the 23 procurements we examined represented stop gap contracts. Stop gap contracts

are used as a bridge between a contract that is ending and a new contract that has yet to be

implemented in order to not lose service during the interim. Stop gaps occur when the agencydoes not begin negoaons on the new procurement early enough to allow the bidding process to

occur in a mely fashion. If monitored correctly, contract ending dates should come as no surprise.

In the past, we found OFT sta somemes needed to issue stop gap contracts to prevent the loss

of service and cited the need as an emergency. However, urgency caused by poor planning does

not constute an emergency and results in lack of compeon and potenally paying more for

the service. During the period of the new stop gap, the State may not be receiving the best value,

since it is not the result of a compeve procurement.


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Our review of contract les also disclosed numerous instances of improper purchasing, including

apparent favorism shown to certain vendors and nine contracts where OFT did not demonstrate

that the price was reasonable, as required by its own policy. In addion, OFT split purchases

on four of the 23 contracts so the price would remain below $50,000 and allow the agency to

circumvent the Comptrollers approval. One OFT sta member noted that, if the margin is close,OFT will urge the vendor with the lowest quote to reduce their price below $50,000. This results in

more contracts under the discreonary level and not subject to the State Comptrollers oversight.

Some examples of the issues we found are described below.

A contract with New Concepts Consulng (New Concepts) for $49,999 for products

including web design, two videos and a newsleer appears to have been awarded based

upon favorism. This company previously did work for an Ohio Foundaon chaired by CIO

Mayberry-Stewart prior to her New York State employment. We found no documentaon

that other vendors were solicited and no documentaon of reasonableness of price.

Further, current OFT sta interviewed could not tell us why this vendor was used. However,

according to a former OFT employee, New Concepts originally submied a proposal toOFT for web design work. When the employee informed New Concepts that OFT had no

use for these services at that me, Ms. Mayberry-Stewart asked the employee to take

another look at the proposal. Again, the employee informed Ms. Mayberry-Stewart that

there was no need for New Concepts services. OFT eventually contracted with and paid

New Concepts $33,000, even aer repeated objecons by this sta member. However,

the product delivered was substanally less than agreed upon, in part because OFT

decided not to have New Concepts supply the newsleer. The website design had to be

replaced aer the service was provided because OFT ocials were not sased with the

end result. In addion, according to the State Comptrollers Bureau of State Expenditures,

OFT terminated this contract aer quesoning by one of the State Comptrollers auditors.

A contract with Securitas Security Services was executed for $42,051. Securitas was

providing this service previously; however it did not submit a proposal for a new security

contract, even when new bids were requested. According to OFT sta, ve days aer bids

were due, the Director of Contracts and Procurement, asked Securitas if it could meet

the best price submied. Securitas was thus provided an unfair advantage over all other

vendors.

Two contracts with Microknowledge were for training services for two consecuve years.

The contracts were worth $49,999 and $40,000. The deliverables under the contracts are

for substanally the same service; both are primarily to provide Microso Oce 2007

training to various OFT sta members. They also avoided Comptroller approval since they

were issued for under $50,000.

Recommendaons

OFT should take signicant steps to change its organizaonal culture and control environment to

ensure that proper contracng and purchasing pracces are put in place and complied with. This

includes complying with exisng controls and safeguards to prevent fraud, waste and abuse of


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State resources, and monitoring their actual implementaon to ensure that unethical pracces

will not occur in the future. We note that a new execuve team was appointed to head OFT in

April 2011. We recommend the following specic acons be taken to begin this change in culture:

1. Provide ethics training to all sta, including senior and execuve management.

2. Ensure that all senior ocials and contract management sta receive up-to-date training in

New York State procurement laws and OFT procurement policies.

3. Develop a standard business case analysis to be performed for all purchases. To ensure

transparency, the analysis should document:

the planning and preparaons performed before entering into any agreement or contract,

the compeon or bidding that took place,

the logic behind selecng winning bidders, and

the reasons why losing bidders are not chosen.

4. Ensure that no one individual has the ability to inuence or control the procurement process

for any contracts or purchases and that full disclosure and/or recusal is required of all OFT

employees in the case of a potenal conict of interest or the appearance thereof.

5. Establish monitoring procedures to ensure all sta comply with procurement and contracng

laws.

6. Create a process to beer monitor contract end dates and thereby reduce the Oces reliance

on stop gap contracts.

7. Disconnue abusive pracces to avoid compeon that would otherwise be required and

appropriate.

8. Ensure all sta comply with their responsibility to provide unfeered access to all necessary

informaon requests by OSC in the conduct of its independent audits.

Next Steps

In addion to making the above recommendaons, OSC has referred the possible violaons of

the Public Ocers Law to the Joint Commission on Public Ethics for invesgaon. For its part,

OSC will connue to monitor and scrunize OFT procurement and contracng acvies. OSC also

advises that senior management at OFT take steps to ensure that all OFT sta are fully aware of

their responsibilies to comply with the requirements of independent audits as conducted by

this Oce. Providing anything less than unfeered access to documents and sta raises further

quesons as to accountability and transparency of OFT.


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Audit Scope and Methodology

The objecve of our audit was to determine whether OFTs procurement and contracng pracces

for the period April 1, 2008 through December 2, 2011 resulted in the best value for taxpayers,

consistent with applicable legal, regulatory and ethical requirements.

To achieve our objecve, we interviewed current and former OFT personnel and reviewed

contracts and other supporng documentaon provided by OFT. We also reviewed relevant State

laws and OFTs own procurement and ethics policies and procedures. We selected a judgmental

sample of 53 contracts that were acve during our audit period. We also interviewed vendors

and subpoenaed and reviewed supporng documentaon related to contracts entered into with

OFT. In addion, we reviewed electronic records from OFT computers.

During our audit, ocials from OFT specically impeded auditor access to sta, electronic data,

and les necessary to the audit. Some documentaon from OFT was delayed to such an extent

that auditors had to put in addional, costly and me consuming steps to determine that thedocumentaon was reliable. This lack of access to sta and informaon raises serious concerns

as to whether other abuses might exist but have yet to be discovered.

We conducted our performance audit in accordance with generally accepted government auding

standards. Those standards require that we plan and perform the audit to obtain sucient,

appropriate evidence to provide a reasonable basis for our ndings and conclusions based on

our audit objecves. We believe that the evidence obtained provides a reasonable basis for our

ndings and conclusions based on our audit objecves.

In addion to being the State Auditor, the Comptroller performs certain other constuonally and

statutorily mandated dues as the chief scal ocer of New York State. These include operangthe State's accounng system; preparing the State's nancial statements; and approving State

contracts, refunds, and other payments. In addion, the Comptroller appoints members to

certain boards, commissions and public authories, some of whom have minority vong rights.

These dues may be considered management funcons for purposes of evaluang organizaonal

independence under generally accepted government auding standards. In our opinion, these

funcons do not aect our ability to conduct independent audits of program performance.

Authority

This audit was done according to the State Comptrollers authority as set forth in Arcle V, Secon1 of the State Constuon and Arcle II, Secon 8 of the State Finance Law.

Reporng Requirements

We provided a dra copy of this report to OFT ocials for their review and comment. Their

comments were considered in preparing this nal report and are aached in their enrety, along


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with State Comptrollers Comments, at the end of the report. OFT ocials acknowledge the

serious cases of misconduct detailed in this report and expressed their appreciaon for our

recommendaons, which they indicate will help improve internal controls over contracng and

procurement. However, they also believe our overall conclusions about organizaonal culture

mischaracterize current operaons and fail to acknowledge signicant changes made since the

new Chief Informaon Ocer was appointed in April 2011.

Within 90 days aer nal release of this report, as required by Secon 170 of the Execuve Law,

the Chief Informaon Ocer of the Oce for Technology shall report to the Governor, the State

Comptroller, and the leaders of the Legislature and scal commiees, advising what steps were

taken to implement the recommendaons contained herein, and where recommendaons were

not implemented, the reasons why.


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Exhibit A

Chronology of Ethically Quesonable Events Involving the OFT Contract with McAfee


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Andrew A. SanFilippo, Execuve Deputy Comptroller

518-474-4593, [email protected]

Elliot Pagliaccio, Deputy Comptroller

518-473-3596, [email protected]

Jerry Barber, Assistant Comptroller

518-473-0334,[email protected]

Vision

A team of accountability experts respected for providing informaon that decision makers value.

Mission

To improve government operaons by conducng independent audits, reviews and evaluaons

of New York State and New York City taxpayer nanced programs.

Contributors to this Report

John Buyce, Audit Director

Brian Reilly, Audit Manager

Nadine Morrell, Audit Supervisor

Lynn Freeman, Examiner in Charge

Corey Harrell, Examiner in Charge

Joseph Robiloo, Sta Examiner

Michele Krill, Sta Examiner

Thomas Sunkel, Sta Examiner

Donald Cosgrove, Sta Examiner

Melissa Davie, Sta Examiner

Nelson Sheingold, Counsel for Invesgaons

Stephanie Kelly, Invesgave Auditor

Sue Gold, Report Editor
mailto:asanfilippo%40osc.state.ny.us%0D?subject=mailto:epagliaccio%40osc.state.ny.us?subject=mailto:jbarber%40osc.state.ny.us?subject=mailto:jbarber%40osc.state.ny.us?subject=mailto:epagliaccio%40osc.state.ny.us?subject=mailto:asanfilippo%40osc.state.ny.us%0D?subject=


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Agency Comments

* See State Comptrollers Comments on page 90.

*Comment

1

*Comment

2


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*Comment

3



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*Comment

2

*Comment

4



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*Comment

5

*Comment

6

*Comment

7

* See State Comptrollers Comments on page 90-91.


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*Comment

8

*Comment

9



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*Comment

10



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*Comment

11



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State Comptrollers Comments

1. We are heartened by this new administraons stated commitment to ethics and

integrity, which includes a collaborave environment, an open door policy and reduced

reliance on contracts that deviate from normal procurement processes. However, these

abuses were agrant, signicant and not well hidden; yet no one stepped forward toqueson these acons, clearly indicang that the tone set by these top ocials had

permeated the organizaons understanding of what type of behavior was acceptable.

Despite new managements best eorts, such atudes and behaviors do not change

overnight. Therefore, while we support managements new direcons, we will also

connue to monitor and scrunize OFT procurement acvity in the foreseeable future

to ensure that similar problems do not recur.

2. OFT ocials point out that we found problems with only 2 of 19 non-discreonary

procurements. They add that these transacons took place in 2009 and were aributable

to Mr. Singleton. We nd it unacceptable that fully 10 percent of the procurements weexamined exhibited signicant problems, including management override of established

procedures, loss of state money, unfair bidding pracces and inappropriate negoaons

with vendors. Moreover, the issues surrounding the CA/CMA contract connued to be

mismanaged long aer Mr. Singleton le OFT employment (See page 13). As our audit

report points out, in May 13, 2010, the former General Counsel signed an agreement

between OFT and CA whereby OFT improperly obtained $222,743 in credits from CA.

3. We acknowledge that OFT provided sta, including Mr. Singleton, with ethics training

in the past. However, we queson the eecveness of this training when high level

people can commit agrant acts and not be reported or otherwise called to account for

their acons by other employees and training parcipants. As our report points out,other high level OFT sta, including the CIO and General Counsel had knowledge of and

played a role in the improper transacons we have idened. (see pp. 6, 15, 16).

4. As noted elsewhere in this report, OFT ocials were not always forthcoming with

informaon during our audit. We requested a lisng of all Enterprise License Agreements

(ELAs) in which OFT was involved. We were informed by management that there were

only two such ELAs, neither of which was with IBM. Had we been made aware of this

procurement, we would have reviewed it.

5. Our recommendaon is meant to provide addional guidance for OFT to consider in

implemenng future procurements.

6. Our audit rearms the problems found in 2009 and shows that they connued for

periods beyond then. We examined seven discreonary purchases that occurred

subsequent to the 2009 audit and found connuing problems such as favorism, split

ordering, and failure to document the reasonableness of price.


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7. We considered the informaon provided in OFTs response and now conclude that

there are three cases where the procurement record is incomplete. None of these les

contain support for OFTs eorts to establish the reasonableness of the price paid in the

procurement. We have revised our report accordingly.

8. For this transacon, OFT asked vendors for proposals on a Friday, with their responsesdue the following Monday; only one business day later. This hardly allows for eecve

compeon. While OSC sta told OFT they would not require addional documentaon

be submied to OSC, this does not release OFT from its responsibility to adequately

address the reasonableness of the price paid.

9. Once again, there was no documentaon to support that OFT had assessed the

reasonableness of the purchase price.

10. We acknowledge that ve of the transacons date back to 2008 and we have revised

our report accordingly.

11. We strongly disagree with OFTs asseron that there were only a few isolated document

producon delays. Subsequent to our dra report being issued, we provided OFT

ocials with three representave examples of obstacles we encountered. However,

throughout the process our sta faced many other delays and roadblocks. For example,

OFT ocials insisted on reviewing all documents and emails before they were provided

to our auditors. Further, OFT sta were not allowed to meet with our auditors unless

a management representave, such as the General Counsel or the Director of Internal

Audit, was present. Each of these obstacles increases the level of risk with respect

to the veracity of the informaon that the auditors ulmately received. Consequently

auditors had to perform addional costly and me consuming steps to establish a basis

for reliance. This lack of access to sta and informaon raises addional concerns that

auditors may have been precluded from idenfying addional abuses that may have

existed during the audit period.

osc audit: oft procurement practices

Documents