TAO Performance Audit reviews DoH purchase procedures

Pago Pago, AMERICAN SAMOA — “After-the-Fact Purchases” and “Vendor’s Advance Payments” were among the issues raised in findings outlined in the Performance Audit report by the Territorial Audit Office (TAO) of the more than $14 million in federal CARES Act funding awarded to the Health Department (DoH) during the COVID pandemic.

The review period covered in the 60-page report — submitted recently to Gov. Lemanu P. S. Mauga — is from Mar. 01, 2020 through to Dec. 31, 2021 for COVID-19 funds from the US Department of Health and Human Services via the federal Department of Treasury. (See Samoa News Mar. 30, 2023 for the first installment of this story.)

In the report, TAO gave details for each of the findings as well as DoH’s explanation and response. This story covers two of the findings and recommendations, as well as DoH’s reply.

AFTER THE FACT PURCHASES

The issue raised by TAO in this finding is that, proper approval was sought after commitment and Purchase Orders were created only after receipt of the invoice and not in accordance with the ASG Procurement rules.

“Despite the emergency and the required need during the pandemic, the review of disbursements indicate that a number of payments processed did not follow the procurement process and purchase requisitions and purchase orders were created after soliciting to vendors for purchasing supplies and performed services,” the finding points out.

“Failure to do so circumvents the approval process, promises payment to a vendor for funds that have not yet been encumbered for that purpose and increases the likelihood of fraud or waste through unauthorized expenses,” said TAO.

Furthermore, the “span in dates and missing documents is an audit concern.”

The report outlined six examples of purchase orders created after receiving an invoice from the vendor.

Five of the purchase order examples are all below $10,000 while the highest purchase order amount was $34,265 — with the supplier’s invoice dated June 02, 2020; the purchase order date is July 20, 2020 and was paid the following month.

“It is important to adhere and reinforce requirements to have the complete process in place and approved prior to placing orders with vendors,” TAO said in its recommendation. “This will make sure that the integrity of procurement rules and regulations are strictly maintained.”

According to TAO, after the fact purchases can create significant problems in many ways and:

•           Result in duplicate payments

•           Result in higher costs that have might been paid through standard purchasing methods

•           Result in suppliers with unfavorable terms

•           By-pass Procurement and Purchasing policies

In its response, included in the report, DoH explained that normal routing process for one purchase usually takes 1 week to 2 months to complete.

“As DOH is at the forefront of medical emergencies, pandemics, epidemics and more, time is essential to accomplish DOH's mission and protect American Samoa,” said DoH. And this “requires swift and immediate action” by DOH staff and local vendors.

“To avoid and completely eliminate this finding,” DoH said it has “been working closely with Procurement to creatively find ways to expedite the process to stay within regulations.”

DoH noted that on Mar. 18, 2020, the government issued the first COVID-19 Emergency Declaration in which the public was “advised that the current threat level is CODE BLUE. ASG departments are to stagger staffing coverage and use a four (day) workweek for employees (10 hours/day) to ensure sufficient coverage but limited interpersonal exposure."

Due to the restrictions, DoH said it definitely delayed the process more than the normal 1week to 2-months. More so, the continued COVID declarations reached the point where the threat was flagged at CODE RED, closing down most of the ASG’s normal operations that greatly affected the procurement process.

“Now that American Samoa is out of the red code zone,” DoH promised in its response that, it will “assure that we follow the set Procurement procedures and regulations” as stated in the DOH-SOP guidelines — for example:

•           Initiate a purchase requisition (PR) with a quote or invoice through One-Solution by the DoH programs.

•           DoH Director reviews and approves or rejects (once rejected, the PR requester shall seek director for what's needed to clear the rejection cause and then re-submit a new PR#.

•           Treasury Grant Analyst pending approval for review upon the DoH Director's approval

•           Goods purchased by this time shall generate a purchase order number to process receiving once the vendor signs the Acceptance copy of the purchase order.

•           Receiving the goods from the vendors and tagging the equipment completes the Procurement process and then transmitting over to the Accounts Payable Treasury for payout.

VENDOR’S ADVANCE PAYMENT

The issue for this finding says TAO, is “Procurement Process and Required Procedures”.

It says that DoH should have created a written justification that details the specific need for advance payments, which then must be approved by the appropriate person in the department's financial management area and maintained in each grant file(s).

TAO points out that DoH found it critical that funds must be issued as quickly as possible in order to respond effectively and efficiently to minimize the spread of COVID-19.

From the selected sample of twenty approved advance payments, totaling approximately $342,000, they were tested to supporting documentation that shows missing Receiving Reports, said TAO.

The TAO audit review identified that one advance payment of $112,939.23; check no.325413 (inclusive of handling fees of $1,341.23) has neither a Receiving Report prepared and filed nor any subsequent confirmation that supplies were received in full with a signature and date.

This was for acquiring Express COV2/ RSV 10- Test Kits and Certified pre-owned GX Module 6 COL MB2. “Not properly documenting receipt of ordered supplies increases the risk of paying for items that were not received,” said TAO’s finding.

TAO also explained why this finding matters: “When something is paid in advance, it takes on greater risk and fewer recourse actions if something happens. It also undertakes additional administrative burden,” the TAO said.

TAO also said that it understands that the decision to exempt some vendors from the Procurement pre-payment vendor's requirement was due to vendor's classification where ASG is set up as a "Cash-in Advance Customer".

TAO recommends, as a prudent business practice to consider and assess risks associated with paying goods and services before it has received them and how any excess advance payment would be identified and how it would be recovered in cases advance payment exceeds the value of goods and services received.

“The bottom line is, even if exempt, uniform procurement rules should be followed to ensure transparency, competition and what was paid for goods and services was made at a fair price,” said TAO.

In its response, DoH said that an increasing number of vendors have experienced delayed payments from ASG after providing a good or service. Further, during the COVID-19 outbreak, many vendors required payment in advance as it was an unpromising time.

“DOH's advanced payment customers did provide all goods and services as promised,” DoH declared.

However, DoH said it will take heed of the advice and seek vendors/ suppliers who are willing to accept payment after the goods/ services have been received, or negotiate for progress payments, if necessary.

Moreover, during the COVID-19 outbreak and pandemic, vendors had backorders and shortage of medical supplies and medical equipment but advance payments allowed DoH to receive those items in a timely manner.

Furthermore, DoH complies with the recommendations as the “ASG Accounts Payable Policies & Procedures Manual Section 2.4.1 Advance Payments to Vendors- General Provisions” stated;

•           Advance payments or prepayments shall be avoided whenever possible

•           Prudent business practice advises no payment for goods or services until received

•           Government may suffer loss of interest on funds used to make advance payments

However: Exceptions to the policy may include:

•           Foreign orders

•           High-cost equipment manufactured to meet functional specifications

•           Books, periodicals and newspapers, including trade and professional publications

•           Caterers for food and beverage service for large official functions where the caterer requires a deposit

•           Charges for research expeditions including transportation and expenses, Maintenance dues

•           Seminary/ conference registrations

(Samoa News will report in future editions on details of other TAO findings, along with the recommendations and response from DoH)