2008-01-AU Limited Scope Performance Audit Report Department of Public Works CIP Contract Change Orders and Supplements for FY 2006-2007

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terms of procurement and design, the practice severely reduces the ability of small contractors to participate due to bonding requirements and mobilization costs. There are other factors that need to be considered as well such as negative public perception of preference to a few larger contractors and consultants, higher long -term costs due to decreased competition, and limiting economic growth and distribution of wealth to a smaller segment of the island population. • The Department of Public Works does not have adequate CIP accounting and reporting capabilities under the County's current FRESH accounting system. Pursuant to HRS § 10313-309 below, funds were duly certified for all contracts, contract supplements and change orders without exception. However, the auditors did note that on various occasions, after funds had been certified and payments had been made to contractors /vendors from "certified account(s)," accounting entries were made to "move" or charge payments to different fund accounts. Currently, no detailed report is submitted to the Council to document these changes to the appropriated CIP budget at the project level. While this practice may not be problematic when proper controls, authorizations and oversight are in place, it does raise issues about the lack of accountability for CIP project accounting and reporting capabilities at both the departmental and County -wide levels under the current FRESH accounting system. HRS § 10313-309, Contract not binding unless funds available, provides as follows: "(a) Contracts awarded pursuant to section 10313-302 [Competitive sealed bidding], 10313-303 [Competitive sealed proposals], or 10313-306 [Sole source procurement], shall neither be binding nor have any force and effect of law unless the comptroller, the director of finance of a county, or the respective chief financial officers of the department of education, the judiciary, or the legislative branches of the State or county, as the case may be, endorses thereon a certificate that there is an appropriation or balance of an appropriation over and above all outstanding contracts, sufficient to cover the amount required by the contract; provided that if the contract is a multi -term contract, the comptroller, director of finance, or chief financial officer shall only be required to certify that there is an appropriation or balance of an appropriation over and above all outstanding contracts, that is sufficient to cover the amount required to be paid under the contract during the fiscal year or remaining portion of the fiscal year of each term of the multi -year contract; provided further that the administrator of the state procurement office shall attest in writing to any recommendation or solicitations. This section shall not apply to any contract under which the total amount to be paid to the contractor cannot be accurately estimated at the time the contract is to be awarded, or to any contract for which consideration is in kind or forbearance, or to any contract awarded pursuant to section 10313-306 [Sole source procurement] that is a one -time payment through a purchase order. (b) In any contract involving not only state or county funds but supplemental funds from the federal government, this section shall be applicable only to that 24