Report No. 12-05 March 15, 2012

Enterprise Wide Audit of Contract Monitoring Office of the Inspector General Bureau of Internal Audit

Agency for Health Care Administration

Executive Summary Pursuant to Section 14.32, Florida Statutes (F.S.), the Executive Office of the Governor, Office of Chief Inspector General initiated an enterprise audit of the Contract Monitoring Process to evaluate agencies’ current policies, procedures and processes for contract monitoring. The Agency for Health Care Administration’s (Agency) Office of Inspector General participated with the Chief Inspector General on this project along with 14 other agencies. Enterprise audit steps were developed by a team of auditors brought together by the Chief Inspector General’s Office for use in completing this contract monitoring audit. Agency results, along with the other participating agencies, will be summarized in a report published by the Chief Inspector General’s Office. The purpose of the audit was to evaluate the Agency’s contract policies, procedures, and processes, as well as the contract manager training. During this engagement we reviewed the Agency’s contract policies and procedures (specifically the Procurement Policy and Contract Manager Desk Reference) and contract manager training materials. The Agency contract policies and procedures, in general, are in compliance with state laws and requirements. However, our review identified a few items that need to be addressed. • The Agency Contract Manager training needs to be expanded to detail all aspects of contract management. •

Contract closeout procedures are not specifically defined and documented.

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The Agency’s Agency Agreements Policy needs to be modified to include procedures for the development, use, and monitoring of such agreements.

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The Agency Procurement Policy (Policy #4006) and Contract Manager Desk Reference need to be updated.

Scope, Objectives and Methodology The scope of this engagement focused primarily on the Agency’s current policies, procedures, and processes for monitoring contract agreements for services. The objectives were to: • Determine if contract monitoring policies and procedures are in compliance with state laws, rules, and other regulatory requirements. •

Assess the adequacy of contract manager training and development.

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Identify potential best practices by evaluating contract monitoring processes.

To accomplish our objectives, we reviewed applicable laws, rules, and regulations; interviewed appropriate Agency staff; reviewed policies, procedures, contract templates, agreements, and related documents; and surveyed Agency contract managers.

Background The Agency's Bureau of Support Services, Procurement Office within the Division of Operations is responsible for the administration of all Agency procurements. The Agency Procurement Office is broken down into two functional units: the Purchasing unit and the Contract Administration unit. The Contract Administration unit is responsible for the development and administration of all Agency contracts (including amendments and minor modifications), agreements, and formal competitive solicitations. Additionally, this unit is responsible for training, certifying, and monitoring Agency contract managers. The Contract Administration unit’s commitments include: • Monitoring and tracking all incoming Contract Initiation Packages to ensure that requests are being handled as expeditiously as possible. •

Developing procurement documents that are accurate, in compliance with all applicable rules, laws and regulations, and responsive to program office needs.

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Executing and administering all Agency contracts and competitive solicitations.

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Providing contract support to all Agency contract managers.

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Educating and informing Agency staff on current procurement policies, laws, rules and regulations.

Contract Administration defines the procurement process into the following steps: 1. Decision of Contract – includes recognizing an Agency need, developing a “make or buy” analysis, and determining the procurement method. 2. Development of Scope of Services – includes determining the scope of services, deliverables, performance standards, method of payment, and development of a monitoring plan. 3. Preparation of Contract Initiation Package – preparation of required contract documentation. 4. Procurement Document Development and Execution - performed by Contract Administration and includes reviewing and drafting the final contract document. 5. Contract Management – includes all activities (contract monitoring, verifying deliverables, etc.) performed by the contract manager once the contract is executed. 6. Contract Closeout and Vendor Performance Evaluation – the final step in the procurement process, completed once the contract has ended.

Overview of Contract Manager Training It is the responsibility of the Agency’s Procurement Office to provide contract manager training. All Agency contract managers are required to obtain certification by completing contract manager training prior to serving as a contract manager. The Agency Procurement Policy states: "All Agency contracts shall be managed by a Certified Contract Manager. Contract Managers become certified by attending training conducted by the Procurement Office, Contract Administration unit. To maintain active status, Contract Managers shall be required to recertify every two years." 2

The current Agency contract manager training and certification consists of an online contract manager selfstudy course that is provided by the Contract Administration unit. The objective of the course is to introduce contract managers to the basics of Agency Contract Management. The course includes topics of roles and responsibilities, overall procurement process, contract initiation package, contract monitoring, etc. To complete the course, contract managers must review the Contract Manager Desk Reference and complete two “hands on” activities. Once the employee completes the tasks, they must schedule a time to take the comprehensive exam with Contract Administration. In the past, Contract Administration held face-to-face contract manager certification training classes (the last such class was held in February 2010). According to Contract Administration, these classes were discontinued due to the different levels of experience, needs and the frequency of managing contracts among the many Agency contract managers. Beginning in October 2011, Contract Administration developed “mini” contract management training classes based on requests from current contract managers. The curriculum for the mini-training is designed for the needs and wants of contract managers. Multiple mini-training classes have already been held and will continue to be developed based on contract manager interest.

Contract Manager Survey A key step in performing this audit was to assess contract monitoring and training within the Agency. To help accomplish this task, a contract management survey was distributed to all Agency contract managers that asked specific questions related to contract monitoring and training within the Agency. Agency contract managers were asked to select the most appropriate response based on their personal experience. The survey was distributed to 101 Agency employees that were identified as Agency contract managers by the Contract Administration unit of which 87 responses were received (a response rate of approximately 86%). Of the 87 respondents, 49 stated that they are currently managing Agency contracts. Based on the survey results, we concluded that the Agency promotes contract compliance through the implementation of contract management policies and procedures. However, the survey responses also reveal opportunities for improvement in the contract monitoring process and contract manager training. These include improved oversight of required contract manager training and certification and improving contract manager training curriculum (see Finding 1). Below is an overview of the contract manager survey results: Contract Management • 96% of respondents stated that the Agency has provided guidance (e.g. policies, procedures, manuals, memos, etc.) on how to manage contracts/agreements. •

84% of contract manager respondents say that their contracts/agreements specify due dates and milestones.

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78% of contract manager respondents say that their contracts/agreements specify required documentation to support invoiced amounts.

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86% of contract manager respondents agree that deliverables are reviewed prior to approving payment of invoices. 3

Contract Monitoring • Approximately 20% of contract manager respondents are not aware of specific state contract monitoring guidelines (State of Florida Contract and Grant User Guide and CFO Memorandum No.1 (10-11)). •

96% of respondents say they monitor contracts to ensure acceptable performance of work, while 80% say they monitor contracts to ensure appropriate expenditures.

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68% of respondents say they have adequate resources to perform fiscal monitoring, while 84% have adequate resources to perform performance oversight.

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78% of contract manager respondents say they know who to contact if they encounter fiscal monitoring issues with contracts/agreements.

Training • Only 76% and 89% of respondents say that they have attended contract monitoring training provided by the Department of Financial Services (DFS) and by the Agency, respectively. •

Only 90% of respondents say that they have completed the Agency’s contract manager training within the last two years.

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78% of respondents rated the Agency Contract Manager training as either good or excellent.

The survey also gave contract managers the opportunity to provide comments and/or recommendations for improving current contract management practices and contract manager training. Below are some of the comments: • “More direct hands-on training.” • “More information on fiscal and payment processes.” • “More detailed training on specific types of contracts.” • “More focus on the daily activities of managing contracts and the importance of documenting, following through with Agency procedures, importance of a good monitoring plan and maintaining good boundaries with Vendor's.” • “The training focuses on procurement and up-front processes. I would add more information about management of the contract once it has been signed; file management; deliverables review; etc.” • “Our contract management team is proactive in identifying needs and honing their trainings.” • “Need more frequent training/refresher training.” • “The training focuses on completion of forms. I think there should be more content on working with vendors.” • “I think there needs to be more specific contract training. There are different types of Contracts. I manage a Medicaid Health Plan contract and a health plan specific training would be more beneficial than a training that goes over all types of contracts.” • “Have classes. Teach materials that would help prepare one to actually manage a contract. The current ‘training’ consists of an out of date and incomplete self-teach manual and an open book test. The test asks questions for which there is no clear answer, training, or reference.” • “They have just started ‘mini-trainings’, which is great.” All survey results will be provided to Agency management for further review.

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Findings and Recommendations Finding 1: Agency Contract Manager Training The Agency specific Contract Manager Training needs to be expanded to detail all aspects of contract management. Training and development provides contract managers with the knowledge and tools to perform effective contracting and monitoring practices and also mitigates the risk on non-compliance with rules and regulations. The lack of training and development could cause failure to properly manage Agency contracts. Agency contract managers should be properly trained on the topics that are referenced and specified throughout the Procurement Policy and Contract Manager Desk Reference. This includes the Agency procurement and contract development process, roles and responsibilities of contract managers and contract administration, contract monitoring, deliverables, invoice payment, contract requirements, contract monitoring, closeout procedures, etc. As stated in the training overview section of this report, the current self-study training only has contract managers review the desk reference and complete two activities which tasks the employee with developing a scope of services and a contract initiation package. After review and analysis of the Agency’s contract manager training and the contract manger survey, we conclude that the contract manager training needs to be improved. Based on comments from the contract manager survey, some contract managers would like to see a more detailed training curriculum developed (see Survey section above). Mini-trainings, as previously stated, have been developed and implemented by Contract Administration to assist active contract managers with improving their knowledge of the Agency’s contracting and monitoring practices. To date, these mini-trainings have covered the topics of Agency contract forms, the process of contract draft to execution, contract file development and maintenance, developing scope of services and developing a contract monitoring plan. We commend Contract Administration on their efforts to develop and execute these mini-trainings. This best practice will help Agency contract managers better execute and monitor contracts for compliance and cost savings.

Recommendation We recommend that Contract Administration continue to develop and present mini-trainings periodically that will further address the basic principles and fundamentals of Agency contract management. Some topics to focus on include the day-to-day management of contracts, contract monitoring, contract requirements, closeout procedures, fiscal monitoring, and invoicing (specifically the review of invoices and supporting documentation prior to payment). We also recommend that Contract Administration consider recording training sessions and posting to SharePoint for future review by contract managers. Recording specific training will help limit the need for face-to-face training.

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Management Response Contract Administration will continue to hold topic specific mini-trainings throughout the year. The first training session specific to day-to-day contract management, contract monitoring, etc. will be held February 28, 2012.

Finding 2: Contract Closeout Procedures Contract closeout procedures are not specifically defined and documented. The Department of Financial Services developed the State of Florida Contract and Grant User Guide to provide guidance related to key elements of contract and grant management to state agencies and providers. This guide states that contract closeout is a key element of contract management and includes, but is not limited to, the following items: • All deliverables and services have been delivered and accepted in writing. •

All reports (including Financial Status Report) have been received and accepted in writing.

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Program objectives were met.

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Liquidated damages/sanctions have been assessed for non-performance/non-compliance.

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Acquired non-expendable property has been returned to State.

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Advances and/or interest earned on advances have been recovered or applied against what is owed.

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Amounts assessed as liquidated damages/sanctions for non-performance/non-compliance have been recovered.

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Disallowed costs have been recovered.

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Final payment to provider is made only after all programmatic and fiscal steps have been completed.

The Contract Manager Desk Reference states the responsibilities of contract managers, but does not specifically identify contract closeout procedures other than completing an evaluation of the vendor’s performance. Providing Agency contract managers with specific contract closeout procedures will help ensure that the contract is properly closed and that no objectives and deliverables were missed prior to closing out the contract. Contract closeout procedures will also assist with ensuring the completeness of the Agency contract file.

Recommendation We recommend the Contract Administration unit update the contract closeout section of the Contract Manager Desk Reference. This section should include additional guidance to contract managers for ensuring proper closeout of Agency contracts. Subsequent to our field work, we met with Contract Administration to discuss these issues. As a result, Contract Administration updated the Contract Manager Desk Reference to include additional contract closeout items.

Management Response The contract closeout section of the Contract Manager Desk Reference has been updated to include additional contract closeout items and instructions. Contract closeout will also be covered in upcoming Contract Manager Training.

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Finding 3: Agency Agreements Policy and Procedures The Agency’s Agency Agreements Policy (Policy/Procedure #4028) should be updated to include procedures for the development, use, and monitoring of such agreements. The Agency defines an Agency agreement as any executed agreement which binds the Agency to another party or entity, such as Memoranda of Understanding, Interagency Agreements, Business Associate Agreements, and Data Sharing Agreements. The current Agency Agreements Policy establishes procedures for routing and ensuring all agreements are captured in one central repository, located in the Procurement office. This policy does not include requirements for the development and monitoring of such agreements. Section 215.985(16), F.S. tasked DFS with the responsibility for the development and maintenance of a contract management system. DFS is in the process of developing this central repository, Statewide Contract Reporting System (SCRS), which will provide information and documentation relating to contracts procured by all state agencies. The policy being developed by DFS for this system states the types of contracts to be included in this system, which includes Agency agreements and Memoranda of Understanding. The State of Florida Contract and Grant User Guide, which provides guidance related to key elements of contract and grant management to state agencies, applies to all forms of agreements which include contracts, purchase orders, memoranda of understanding, etc. Agency agreements are similar to Agency executed contracts in that they may often include a scope of services, deliverables, specified timeframes, and compensation. The lack of Agency procedures governing the development, execution, and monitoring of Agency agreements increases the likelihood that agreement terms and conditions will not be met.

Recommendation We recommend that the Procurement Office, in concert with General Counsel (to ensure compliance with Section 112.24, F.S. and Section 215.971, F.S.) develop policies and procedures for Agency agreements to address these issues and to help ensure consistency in the development, execution, and monitoring of Agency agreements.

Management Response The Agency Agreement Policy (#4028) will be updated to include procedures for development, use, and monitoring.

Finding 4: Florida Statute Requirements in Policies & Procedures Agency contract policies and procedures lack certain requirements specified by Florida Statutes. These statutes include Section 287.057(14), Section 287.057(16)(a)&(b), and Section 287.133(3)(b) as follows: •

Section 287.057 (14), F.S., requires agency contract managers responsible for contracts exceeding the Category Two threshold amount ($35,000) to attend training conducted by the Chief Financial Officer for accountability in contracts and grant management. Agency contract managers must meet this requirement.

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Section 287.057(16)(a)&(b), F.S., states the requirements for the appointments of contract evaluators, contract negotiators, and project management professionals for agency contracts exceeding the Category Four threshold amount.

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Section 287.133(3)(b), F.S., states that "Any person must notify the department within 30 days after a conviction of a public entity crime applicable to that person or to an affiliate of that person. Any public entity which receives information that a person has been convicted of a public entity crime shall transmit that information to the department in writing within 10 days."

These requirements should be documented in the appropriate Agency policy and procedures to ensure compliance with state rules. Currently, these statute requirements are not adequately addressed in the appropriate Agency policies and procedures relating to contracts. Accurate and complete policies and procedures increase consistency and quality in the contract monitoring process.

Recommendation We recommend updating the appropriate policies and procedures, specifically the Procurement Policy and the Contract Manager Desk Reference, to include the requirements specified in Section 287.057(14), Section 287.057(16)(a)&(b), and Section 287.133(3)(b), F.S. Subsequent to our field work, we met with Contract Administration to discuss these issues. As a result, Contract Administration updated the Contract Manager Desk Reference to include the requirement specified in Section 287.057(14), F.S.

Management Response The requirements specified in Section 287.057(14), F.S. and Section 287.057(16)(a)&(b), F.S. are now included in both the Procurement Policy (#4006) and the Contract Manager's Desk Reference and will continue to be covered in Contract Manager Training. The requirements specified in Section 287.133(3)(b), F.S. will be added to the Procurement Policy (#4006) in the next update.

Final Comments The Office of the Inspector General, Bureau of Internal Audit would like to thank the Procurement Office for their assistance and cooperation extended to us during this engagement.

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The Agency for Health Care Administration’s mission is Better Health Care for All Floridians. The Inspector General’s Office conducts audits and reviews of Agency programs to assist the Secretary and other agency management and staff in fulfilling this mission. This engagement was conducted pursuant to Section 20.055, F.S., in accordance with International Standards for the Professional Practice of Internal Auditing as established by the Institute of Internal Auditors. The engagement was conducted by Tim Vause, PMP under the supervision of Mary Beth Sheffield, CPA, CIA, CFE, Audit Director. Please address inquiries regarding this report to the AHCA Audit Director by telephone at (850) 412-3990. Copies of final reports may be viewed and downloaded via the Internet at: ahca.myflorida.com/Executive/Inspector_General/Internal_Audit/audit.shtml Copies may also be obtained by telephone (850) 412-3990, by FAX (850) 487-4108, in person, or by mail at Agency for Health Care Administration, Fort Knox Center, 2727 Mahan Drive, Mail Stop #5, Tallahassee, FL 32308.

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