Judicial Branch Procurement—Five Superior Courts Did Not .
November 2014Judicial Branch ProcurementFive Superior Courts Did Not Consistently FollowJudicial Branch Contracting PracticesReport 2014-301COMMITMENTINTEGRITYLEADERSHIP
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Elaine M. Howle State AuditorDoug Cordiner Chief DeputyNovember 18, 20142014-301The Governor of CaliforniaPresident pro Tempore of the SenateSpeaker of the AssemblyState CapitolSacramento, California 95814Dear Governor and Legislative Leaders:As required by Chapter 31, Statutes of 2013, the California State Auditor presents this auditreport assessing five superior courts’ compliance with the requirements of the CaliforniaJudicial Branch Contract Law (judicial contract law), Public Contract Code, sections 19201through 19210. The judicial contract law requires the Judicial Council of California to adopt andpublish a Judicial Branch Contracting Manual (judicial contracting manual), which establishesthe requirements for procurement and contracting that all judicial branch entities, includingsuperior courts, must follow.This report concludes that the five courts in the audit—the superior courts of Alameda, Butte,Fresno, San Luis Obispo, and Yuba counties—could improve their compliance with the judicialcontracting manual. For example, we noted that managers at three courts approved paymentsfor amounts that exceeded their payment approval levels, including nine payments totalingalmost 203,000 without any authorization. We also identified instances where all five courtslacked adequate justification for using a noncompetitive procurement process. Specifically, allfive courts did not follow the judicial contracting manual’s requirements for noncompetitiveprocurements for 21 of the 60 contracts we reviewed. Moreover, at the time of our reviewthree of the five courts did not have procedures to implement the State’s Disabled VeteranBusiness Enterprise program, and four of the five courts did not have procedures to implementthe small business preference for competitive information technology procurements.Respectfully submitted,ELAINE M. HOWLE, CPAState Auditor621 Capitol Mall, Suite 1200S a c r a m e n t o, C A 9 5 8 1 4916.445.0255916.327.0019 faxw w w. a u d i t o r. c a . g o v
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California State Auditor Report 2014-301November 2014ContentsSummary1Introduction3Audit ResultsWeaknesses in Procurement Practices Existed atAll Five Superior Courts We Visited9The Superior Court of Alameda County Has DeficientPayment and Procurement Practices9The Superior Court of Butte County Did Not ProperlyDocument Its Justifications for Noncompetitive Procurements12The Superior Court of Fresno County Did Not Always UseAppropriate Sole‑Source Justification and Solicitation Methods13The Superior Court of San Luis Obispo County Did Not FollowCertain Procurement Requirements, Including Those forNoncompetitive Procurements15The Superior Court of Yuba County Had Areas of Weaknessesin Its Procurement and Payment Practices17Recommendations18Responses to the AuditSuperior Court of Alameda County21Superior Court of Butte County23Superior Court of Fresno County25Superior Court of San Luis Obispo County29Superior Court of Yuba County31v
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California State Auditor Report 2014-301November 2014SummaryResults in BriefAudit Highlights In 2011 the State enacted the California Judicial Branch Contract Law(judicial contract law) to require all judicial branch entities to complywith the provisions of the Public Contract Code that are applicableto state agencies related to the procurements of goods and services.Among other things, the judicial contract law required the JudicialCouncil of California to adopt and publish the Judicial BranchContracting Manual (judicial contracting manual), which establishesthe requirements for procurement and contracting for all judicialbranch entities. To determine if the State’s judicial branch entitieshave complied with the requirements within the judicial contractingmanual, we audited the superior courts of Alameda, Butte, Fresno,San Luis Obispo, and Yuba counties. We found that none of thesefive superior courts fully complied with the judicial contractingmanual’s guidance.Our review assessing five superior courts’compliance with the California JudicialBranch Contract Law highlighted thefollowing:Of the five courts we visited, three—the Superior Court ofAlameda County (Alameda court), the Superior Court of FresnoCounty (Fresno court), and the Superior Court of Yuba County(Yuba court)—made procurement payments without properauthorization. Most significantly, because of the magnitude of theAlameda court’s deficiencies in its procurement practices, it did notproperly authorize any of the 18 payments we tested. In fact, it didnot provide any authorization for nine of these payments totalingalmost 203,000. As a result, the Alameda court overpaid onevendor 2,500, which the court did not recover until we broughtthe error to its attention. In another instance, an employee of theAlameda court directed a contractor to perform additional servicescosting more than 6,000 without receiving prior authorization,leaving the court no option but to pay for these services. We alsofound that managers at the Fresno and Yuba courts approvedseven payments and two payments, respectively, for amounts thatexceeded their payment approval levels.Furthermore, all five superior courts could better follow theirprocedures for noncompetitive procurements. The judicialcontracting manual requires courts to document their approval ofnoncompetitive procurements. However, all five courts did not followthe judicial contracting manual’s requirements for noncompetitiveprocurements for 21 of the 60 contracts we reviewed. For example, theSuperior Court of San Luis Obispo County (San Luis Obispo court)did not document its justification for awarding a noncompetitivecontract for microfilm services worth 92,000. Similarly, theAlameda court entered into three sole‑source contracts with acombined value of over 90,000 without properly documentingthat the pricing was fair and reasonable or that competitive bidding»» None of the five superior courtswe visited—Superior Court ofAlameda County (Alameda court),Superior Court of Butte County(Butte court), Superior Court ofFresno County (Fresno court), SuperiorCourt of San Luis Obispo County(San Luis Obispo court), and SuperiorCourt of Yuba County (Yuba court)—fully complied with the Judicial BranchContracting Manual.»» Alameda court, Fresno court, andYuba court made procurement paymentswithout proper authorization.»» All five superior courts couldbetter follow their procedures fornoncompetitive procurements.»» Butte court, Fresno court, andSan Luis Obispo court had not adoptedprocedures for the State’s DisabledVeteran Business Enterprise program.»» Butte court, Fresno court, San Luis Obispocourt, and Alameda court did not haveprocedures to implement the smallbusiness preference for competitiveinformation technology procurements.1
2California State Auditor Report 2014-301November 2014was not feasible. One of the five courts—the Superior Court ofButte County (Butte court)—modified its policy in October 2014 toaddress the problems we observed. When the courts do not complywith the judicial contracting manual’s guidance for noncompetitiveprocurements, they risk giving the appearance of favoritism or failingto achieve the best value for their procurements.Most of the courts we visited also lacked certain proceduresthat the judicial contracting manual requires. Specifically, thejudicial contracting manual requires that superior courts adoptprocedures to implement the State’s contracting preferences: theState’s Disabled Veteran Business Enterprise (DVBE) programand the small business preference for competitive informationtechnology procurements. However, three courts—the Buttecourt, the San Luis Obispo court, and the Fresno court—had notadopted procedures for the DVBE program, and four courts—thethree previous courts and the Alameda court—had not adoptedprocedures for the small business preference for competitiveinformation technology procurements. After we brought theseissues to the San Luis Obispo and Butte courts’ attention, theyadopted procedures to implement both programs in August andOctober 2014, respectively. The other courts stated that they plan toadopt procedures by the end of 2014.RecommendationsWe made several recommendations to four of the five superiorcourts we visited to ensure that they adequately address the issueswe identified. For example, we recommended that the Alameda andFresno courts ensure that their managers do not approve paymentsabove their authorized dollar limits. Furthermore, we recommendedthat the Alameda court establish clear procedures to ensure thatappropriate staff authorize all payments prior to processing them.Also, we recommended that four of the courts maintain properdocumentation to justify noncompetitive procurements. Finally, werecommended that those courts that have not adopted procedures forthe DVBE program or the small business preference for competitiveinformation technology procurements adopt such procedures.Agency CommentsThe five superior courts agreed with our findingsand recommendations.
California State Auditor Report 2014-301November 2014IntroductionBackgroundA separate and independent branch of stategovernment, California’s judicial branch iscomposed of the State’s Supreme Court, appellatecourts, superior courts, Habeas Corpus ResourceCenter, Judicial Council of California (JudicialCouncil), and Administrative Office of the Courts(AOC).1 Under the California Constitution, theJudicial Council has policy‑making authorityover the judicial branch and is responsiblefor recommending improvements to judicialadministration to the courts, the governor, andthe Legislature. The Judicial Council’s compositionis detailed in the text box. The Judicial Councilperforms various functions with the support of itsstaff agency, the AOC.Composition of the Judicial Council of California The chief justice of California One other Supreme Court justice Three justices of the courts of appeal Ten superior court judges Four members of the State Bar of California Several nonvoting members One member of each house of the LegislatureSource: The California Constitution, Article VI, Section 6.Before 1998 the California Constitution provided for superiorcourts and municipal courts. However, in June 1998 Californiavoters approved a constitutional amendment allowing the judgesin each county to vote to consolidate their municipal and superiorcourts into a single superior court, which the Legislative Analyst’sOffice concluded could result in savings and greater efficiencyby offering greater flexibility in case assignments, improve courtrecord management, and reduce administrative costs. Accordingto the AOC, judges in all 58 counties voted to unify their superiorcourts by February 2001.Further, between 1997 and 2002, the Legislature enacted a series ofmeasures to transfer responsibility for funding the superior courtsfrom each county to the State. These measures established a newpersonnel system for superior court employees and initiated thetransfer of responsibility for court properties from the counties tothe State.The California Judicial Branch Contract LawThe Public Contract Code generally governs how state entities enterinto contracts, solicit contracts for construction of state structures,and acquire goods and services, as well as how the entities shouldsolicit, evaluate, and award such contracts. However, until recently1In July 2014 the Judicial Council voted to retire the name Administrative Office of the Courts for itsstaff agency. However, because state law continues to use this name, we use it in our report.3
4California State Auditor Report 2014-301November 2014these requirements did not apply to the judicial branch. The Stateenacted the California Judicial Branch Contract Law (judicialcontract law) in 2011 to require all judicial branch entities tocomply with the provisions of the Public Contract Code that areapplicable to state agencies related to the procurement of goodsand services. The judicial contract law also required the JudicialCouncil to adopt and publish the Judicial Branch ContractingManual (judicial contracting manual) by January 2012. The judicialcontracting manual is to incorporate procurement and contractingpolicies that are consistent with the Public Contract Code and thatare substantially similar to those found in the State AdministrativeManual and the State Contracting Manual. The judicial contractlaw requires all judicial branch entities to comply with the judicialcontracting manual, and requires each judicial branch entity toadopt a local contracting manual.The judicial contract law also imposes reporting requirementson judicial branch entities.2 Specifically, it requires that judicialbranch entities notify the California State Auditor (stateauditor) of all contracts they enter that exceed 1 million inestimated value, with limited exceptions. The law furtherspecifies that the California Department of Technology reviewall administrative and information technology projects exceeding 5 million. Beginning in 2012 the law also requires the JudicialCouncil to submit semiannual reports to the Legislatureand the state auditor itemizing most of the judicial branch’scontracting activities.Further, subsequent amendments to the judicial contract lawdirect the state auditor to identify five judicial branch entitiesother than the AOC for audit to assess the implementationof the judicial contract law every two years beginning on orbefore March 15, 2014. Such audits are to commence on or beforeJuly 1, subject to appropriation in the state budget act. The judicialcontract law also directs the state auditor to audit the AOC everytwo years, beginning on or before July 1, 2015. Table 1 providesthe relative size and workload data on the five courts we selectedfor this audit.2According to the judicial contract law, a judicial branch entity means any superior court, court ofappeal, the California Supreme Court, the Judicial Council, the Habeas Corpus Resource Center,and the AOC.
California State Auditor Report 2014-301November 2014Table 1Five Superior Courts’ Size and Workloads(Dollars in Thousands)COUNTY SUPERIOR COURTALAMEDACounty populationBUTTEFRESNOSAN LUIS ,6365,9583,299632 100,327 11,754 60,852 18,399 5,208Procurement payments, fiscal year 2013–14 18,042 2,691 13,545 3,620 2,090Case filings, fiscal year 7521194012447County area in square milesExpenditures, fiscal year 2013–14Judges (authorized positions)Support staff (authorized positions)Sources: The California Department of Finance’s population estimates as of January 2014; county Web sites; the U.S. Census Bureau; the Judicial Councilof California’s fiscal year 2013–14 Semiannual Report on Contracts for the Judicial Branch and 2014 Court Statistics Report; and the superior courts.Note: Data in this table is unaudited.The Judicial Contracting ManualAs discussed previously, the judicial contract law requires thejudicial contracting manual’s provisions to be substantially similarto those of the State Administrative Manual, the State ContractingManual, and consistent with the Public Contract Code, each ofwhich serves a different purpose for state agencies. Specifically, theState Administrative Manual provides general fiscal and businesspolicy guidance, while the State Contracting Manualprovides more specific procedures in the areas ofprocurement and contract management. Finally, theTypes of AllowableState enacted the Public Contract Code to ensureNoncompetitive Procurementsthat state agencies comply with competitive biddingrequirements; to provide all qualified bidders with a Purchases under 5,000fair opportunity to enter the bidding process; and to Emergency purchaseseliminate favoritism, fraud, and corruption in the Purchases from other governmental entitiesawarding of public contracts. The Judicial Councilalso used these elements as guiding principles for the Procurement of legal servicesjudicial contracting manual.Like the Public Contract Code, the judicialcontracting manual generally requires judicialbranch entities to secure competitive bids orproposals for each contract. The judicial contractingmanual allows certain exceptions, as the text boxshows. The State Contracting Manual also describescertain conditions under which a contract maybe awarded without obtaining competitive bidsor proposals. For example, the State ContractingManual allows a state agency to solicit a bid from Purchases through certain leveragedprocurement agreements Purchases from a business entity operating a communityrehabilitation program Purchases of licensing or proficiency testing examinations Subvention and local assistance contracts Sole‑source procurementSource: The January 2014 Judicial Branch Contracting Manual.5
6California State Auditor Report 2014-301November 2014a single source for transactions of less than 5,000 when the agencydetermines that the pricing is fair and reasonable. Agencies can makethis determination using methods such as comparing the pricing toother sources or by relying on their past procurement experience.Similarly, the judicial contracting manual exempts procurements ofless than 5,000 from competitive bidding requirements so long asthe court determines that the price is fair and reasonable. Further, theState’s procurement rules do not require competitive bids whena contract is necessary for the immediate preservation of publichealth or when the contract is with a state agency or other localgovernmental entity, rules which the judicial contracting manualalso includes.Finally, the judicial contracting manual exempts judicial branchentities from obtaining competitive bids or proposals when theentities use vendors through certain leveraged procurementagreements. According to the State Contracting Manual, leveragedprocurement agreements are statewide agreements that theCalifornia Department of General Services (General Services)awards to consolidate the needs of multiple state agencies and toleverage the State’s buying power. General Services enters varioustypes of leveraged procurement agreements, including masterservice agreements, California Multiple Award Schedules, andothers. The judicial contracting manual includes a process forusing and establishing leveraged procurement agreements, andencourages the judicial branch entity to consider whether it canobtain better pricing or other terms through vendor negotiations orsoliciting competitive bids.Scope and MethodologyWe conducted this audit pursuant to the audit requirementscontained in the judicial contract law.3 Our audit focused on thesuperior courts of Alameda, Butte, Fresno, San Luis Obi
Superior Court of Fresno County 25 Superior Court of San Luis Obispo County 29 Superior Court of Yuba County 31. vi Caliornia State Auditor Reort 2014301 . issues to the San Luis Obispo and Butte courts’ attention, they adopted procedures to implement both programs in August and October 2014, respectively. The other courts stated that they .
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