San Diego has violated its own purchasing and contracting rules for years, and has failed to implement changes and improve practices under both the current and former mayors, a new city audit has concluded.
In his latest review, City Auditor Andy Hanau singled out an acquisition process officials call “confirming purchase orders” — a way to by typical buying practices that is permitted under emergency circumstances.
But the audit released earlier this month found that San Diego officials relied on the special process hundreds of times in the fiscal year that was reviewed — actions that were mostly attributed to staff errors and poor planning.
In total, they spent more than $4 million without properly qualifying for the exemption.
“None of the 240 confirming purchase orders we reviewed for fiscal year 2022 appeared to meet the existing (San Diego Municipal Code) definition of an emergency,” the 28-page review said.
The report issued Sept. 6 is the most recent in a yearslong history of challenges confronting the city’s Purchasing and Contracting Department.
The audit began after the office received a tip from an unidentified city worker who reported concerns that the purchasing process was being abused. Overuse of the emergency-buying tool could present unfair disadvantages to vendors seeking business with the city, auditors said.
Since 2015, the Auditor’s Office has issued four prior audits that addressed deficiencies in the city’s purchasing and contracting practices. But San Diego officials nonetheless have been slow to implement suggestions put forward by auditors.
“To date, eight of the 29 recommendations related to those four prior reports regarding contract istration improvements remain in progress,” the audit said. “P&C has not yet provided the recommended contract istration training, nor updated its contract istration manual.”
City auditors reviewed other California municipalities and found that most had laws and procedures in place to limit when and how staff may use emergency buying standards.
“Many of those policies define urgent procurements, include dollar limits, and require public disclosure of the transactions,” the audit said. “In contrast, the (municipal code) does not specifically allow for confirming purchase orders as an allowable option.”
The latest audit included just one recommendation: The Purchasing and Contracting Department director should propose a change to the municipal code defining the procedures for employing the emergency orders and publicly disclose the spending.
City management agreed with the suggestion and pledged to implement it by May 2024.
“P&C will work with the Office of the City Attorney to clarify its definition of emergency purchase procedures and circumstances,” the response said. “P&C will also work to determine the best approach to reporting/disclosing these types of procurement transactions.”
The audit found that the city spent $4.4 million through confirming purchase orders in the 2022 fiscal year, which ended June 30, 2022, although the practice has been employed for years and continues to this day.
It also notes that the amount of confirmed purchase orders was a fraction of the $2 billion-plus that the city of San Diego spends each year.
But the review also showed there is no limit on the amount of money that can be spent through the emergency process, a wrinkle that has allowed city staff to extend some contracts past the amounts that generally require City Council approval.
“Our investigation identified six confirming purchase order memorandums processed in fiscal year 2022 that related to the same expired contract for janitorial services,” the audit said. “The services were continued throughout fiscal year 2022 even though the five-year contract term expired on April 13, 2021 (near the end of fiscal year 2021).”
In that case, additional confirming purchase orders were approved by the same department into fiscal year 2023, auditors said.
“Thus, it appears that this contract was extended to a seven-year term without the required council approval,” the review said.
Most often, the emergency-buying agreements were for modest amounts of money.
But the audit identified five vendors in fiscal year 2022 that were paid more than $150,000 each, for a total of more than $2.2 million.
Auditors said the emergency purchases were almost always approved.
“Occasionally, the P&C deputy director may reject a confirming purchase order request and direct the department to go to a committee of the City Council or the full City Council for approval,” the report said.
In one case, auditors identified an emergency order worth millions of dollars that was rejected.
The city’s Purchasing and Contracting Department has been the subject of numerous unflattering audits dating back years — even before Mayor Todd Gloria was elected in 2020 and Mayor Kevin Faulconer took office in 2014.
More than 15 years ago, then-Mayor Jerry Sanders hired a former Detroit schools to run the department — apparently without conducting a thorough review of his performance.
The Union-Tribune reported that Hildred Pepper had been in charge of purchasing for Detroit schools when several audits raised questions about his business practices. Sanders aides said they were unaware of the audits but hired investigators to examine the findings.
Pepper resigned after a tumultuous three years, but San Diego purchasing practices did not improve. An interim director left once Bob Filner was elected mayor in 2013, and the former congressman hired Dennis Gakunga.
But Filner was forced to resign amid a sexual-misconduct scandal within a year of becoming mayor. His successor — Faulconer — fired Gakunga in 2015 after a botched city parking-meter contract and a pair of unwelcome audits.
When then-program manager Kristina Peralta took over, she became the fifth purchasing department chief in seven years.
Peralta spent five years as the Purchasing and Contracting Department director before she was promoted to deputy chief operating officer.
The department is now directed by Claudia Abarca, who formerly was a top deputy to Peralta.
