Report 99117.2 Summary - March 2000

California Public Utilities Commission:

Weaknesses in Its Contracting Process Have Resulted in Questionable Payments

RESULTS IN BRIEF

The California Public Utilities Commission (commission) does not always adequately develop and manage its contracts. For example, it does not consistently seek competitive bids, clearly define the scope of contracted work, and prepare reasonably detailed budgets and progress schedules. It also does not always review its consultants' invoices to ensure that all charges are appropriate and sufficiently supported. As a result, the commission has paid hundreds of thousands of dollars on invoices that included improper charges or lacked sufficient detail. Because the commission receives most of its funding from assessments on utility companies--which pass the costs on to consumers-when it makes improper payments the public ends up paying higher utility rates than necessary.

The commission, which has broad authority to regulate the State's investor-owned utility companies, employs a diverse staff of more than 800 people, including economists, engineers, administrative law judges, accountants, lawyers, and support personnel. Despite the range of expertise on its staff, the commission needs to contract with consultants when it does not have the necessary resources to provide certain services. In fiscal year 1998-99, the commission allotted more than $11 million of its $106 million budget to contracted services.

Although the commission consistently monitored the progress of its consultants' work, weaknesses in its contracting process were evident in our review of a sample of 25 commission contracts amended or entered into during fiscal year 1998-99 as well as in our previous review of the commission's contract to have an outside consultant investigate the 1998 San Francisco power outage. By failing to obtain competitive bids on contracts, inadequately reviewing invoices, and not requiring consultants to adhere to state travel guidelines, the commission made more than $662,000 in questionable payments to its consultants. During fiscal years 1997-98 and 1998-99, the commission approved payments totaling more than $650,000 to one consultant, even though the consultant did not provide adequate supporting documents for more than $350,000 of the costs. More than $70,000 of these unsupported charges were approved for payment in fiscal year 1998-99. We also found significant weaknesses in one consumer education contract that the commission handled outside the State's normal systems of control.

An internal audit of the commission's consultant contracting process, conducted after our previous audit, identified several weaknesses we include in this report. The commission has begun to address these weaknesses through training and the development of a procedures manual. However, the commission must sustain these efforts to make sure that meaningful change occurs within its organization.

RECOMMENDATIONS

To ensure that it properly develops and manages its contracts, the commission should establish controls over its contracting process. For example, it should include clearly defined scopes of work in all contracts, solicit competitive bids whenever possible, and properly review consultant invoices to verify that its needs are being met and that payments are made only for appropriate services received.

The commission should require all contractors to comply with state travel guidelines and should pay only for allowable travel expenses. In addition, it should recover amounts it has overpaid to contractors for travel expenses.

The commission should use the State's contracting process for all contracts it develops or manages, including contracts for consumer education programs.

The commission should continue to implement the recommendations contained in the internal audit report on its contracting process.

AGENCY COMMENTS

The commission agrees with the report's conclusions and notes that it has already taken several actions to strengthen its contracting.


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