For Everything Else There’s CAL-Card 16,800 Rolls Two-Ply Toilet Tissue = $51,597.50 4,660 Economy Storage Files w/Lids

Purchase orders account for the vast majority of county spending but are the most expensive method of acquisition. In 2008 nearly $28 million in purchases were processed via purchase orders at a cost of over $500,000. Response: County of Santa Cruz Board of Supervisors – PARTIALLY AGREES Purchasing Division salary and expenditures include more than purchase order tasks. The Purchasing Division work involving contracts account for the vast majority of county spending through the process of bidding, legal review and processing of payments. Purchase orders account for a significant spend, but not the major dollars that contracts represent. Other tasks performed by the Purchasing Division include Living Wage tracking/reporting, Master Contract Agreements and bidding of other department contracts and surplus property disposal.

Purchasing indicates that a standard industry goal is to maintain processing costs in the $60-$100 range above the cost of goods per purchase order. However, it appears, based on review of the County of Santa Cruz Cost Allocation Plan, that our County’s cost greatly exceeds that range. In 2003-2004, 2,620 purchase orders were processed at a cost of $184 per order. In 2004-2005, 2,570 purchase orders were processed at a cost of $196 per order. Response: County of Santa Cruz Auditor-Controller – PARTIALLY DISAGREES The Purchasing Division has the expertise to determine the standard industry range for purchase orders and on this statement. We do not agree or disagree. We disagree with the costs provided to process a purchase order and disagree that the Santa Cruz County Cost Allocation Plan (the Plan) is able to provide information to calculate that cost. The Grand Jury based its calculations on information annually 28 For Everything Else There’s CAL-Card 2008–2009 Santa Cruz County Grand Jury Final Report with Responses published in the Plan. The Plan’s purpose is to accumulate and allocate costs between departments. It does not provide enough information to determine a per unit purchase order cost, because tasks are not broken down in the Plan between processing Purchase Orders versus Contracts, Request for Proposals, or other work the Purchasing Division performs. Response: County of Santa Cruz Board of Supervisors – PARTIALLY AGREES Purchasing provided the Grand Jury with the referenced industry standard cost of a purchase order as an industry benchmark, not a goal (this figure was obtained from a study by the Institute of Supply Management). However, current estimates provided by the California Public Purchasing Officers suggests that a purchase order costs generally range between $50-$250 depending upon the dollar amount of the purchase and a specific agency’s processes associated with the production of a purchase order. The Cost Allocation Plan’s purpose is to accumulate and allocate costs between departments. It does not provide the necessary information for determining the per unit purchase order cost, because tasks are not broken down in the plan between processing Purchase Orders, contracts, Requests for Proposals, or other work performed by the Purchasing Department. Additionally, other Purchasing Division work tasks, such as Living Wage reporting, issuing complex requests for proposals, bids, qualifications, negotiations and verifying that orders are done within legal requirements, would need to be removed from an analysis of Purchasing Division expenses in order to find a more accurate figure for the processing of purchase orders.

Purchasing is aware of the standards for controlling the cost of processing purchase orders; however, the department says it is unable to determine whether they are meeting these standards due to limitations imposed by the archaic mainframe computer system on which Purchasing depends. Response: County of Santa Cruz Board of Supervisors – PARTIALLY DISAGREES There are different phases of the purchasing order process (see response #2). There are three independent computer systems (APS, FAMIS, ePO) that have limited interface capabilities for producing a purchase order. In addition, code enforcement activities related to Living Wage, green procurement and outsourcing restrictions all contribute to the limitations in reducing costs for the procurement process or to provide a cost/efficiency analysis.

In making purchasing choices the County is subject to many limitations. These include those imposed externally such as provisions of California law (i.e. the Government Code and the Public Contracts Code), spending guidelines for various funds received from the federal and state governments, and restrictions imposed by the numerous grants and special programs. The County has many self-imposed For Everything Else There’s CAL-Card 29 2008–2009 Santa Cruz County Grand Jury Final Report with Responses restrictions such as the Living Wage Ordinance, and the Green Purchasing Requirement. The county cites these limitations as justification for some of the County imposed CAL-Card usage restrictions. Response: County of Santa Cruz Auditor-Controller – AGREES We agree that the County has some restrictions related to purchasing. These restrictions have been adopted by the Board of Supervisors and are the same for Purchase Orders, CAL-Card purchases and Contracts.

All CAL-Cards issued to County employees have single purchase limits under $1,500 and total monthly purchase limits of less than $10,000. CAL-Card, like any Visa card, can be used for any purchase under these dollar limits unless the category of items is prohibited by CAL-Card or County policy. As these are simply a payment mechanism rather than a supplier, the cards can be used to buy virtually anything from handcuffs and inmate toiletries for the Sheriff’s Office to auto parts and gardening tools for Government Services. The County restricts CAL-Card use by policy, decreeing the cards cannot be used to pay for travel, conference registrations, subscriptions, books, computer hardware/software, office supplies or services of any kind. The dollar limits imposed by the County further restrict the usefulness of the cards. Response: County of Santa Cruz Auditor-Controller – PARTIALLY AGREES We agree with the purchase limits listed above and the general summary of spending restrictions. However, exceptions to these limits are allowed on a pre-approval basis including computer hardware/software purchases under $500. We disagree that the dollar limits and restrictions imposed by the County make the program less useful. Usefulness must be balanced with risk and cost effectiveness. The cost benefit derived by making purchases using a CAL-Card must be weighed against the cost and control benefit of having purchasing functions performed at the Purchasing or Departmental level where controls can be monitored more closely. For example, by restricting travel and registration payments on CAL-Cards, employees are required to process these items through travel or expenditure claims, therefore giving the appropriate additional oversight over these expenditures as the Department Head must approve the expense before it is paid. Services are a restricted category of expenditures for CAL-Cards. Services are not appropriate to be paid with a CAL-Card as it does not allow for the capturing of data necessary to complete the IRS 1099 forms. The County must issue a 1099 form to all vendors paid cumulatively more than $600 is a calendar year. The fewer controls that are in place, the greater the risk of fraud, waste or the misuse of funds. The General Services Department and Auditor-Controller’s Office reviews these controls and revises them periodically. For Everything Else There’s CAL-Card 2008–2009 Santa Cruz County Grand Jury Final Report with Responses Response: County of Santa Cruz Board of Supervisors – PARTIALLY AGREES In any public sector purchasing process, established policies and procedures must balance acceptable risk, cost effectiveness and utility, and be in accordance with the rules and regulations of the auditing function of the specific government entity.

Purchasing estimates that purchases using CAL-Card cost roughly 25 percent less to process than a county purchase order and CAL-Card provides cash-back rebates. California studies of CAL-Card use have estimated savings ranging from $25 to $90 per transaction. Other states and counties have documented savings resulting from implementation of such a purchase card system. Response: County of Santa Cruz Board of Supervisors – AGREES

The County receives cash rebates up to two percent for purchases made using CAL- Cards. For fiscal year 2007-2008 the rebate amounted to $6,500. The rebates are awarded to purchasing, not the department whose CAL-Card usage generated the rebate. Response: County of Santa Cruz Board of Supervisors – AGREES Purchasing receives all rebates and uses them as an offset to the cost of general program administration. This offset is allocated through the cost allocation plan at a later time. Currently, there is no system in place to allocate the rebates directly to the client departments.

The paper-intensive process required by the County for reconciling CAL-Card statements and invoices is prohibitively complex and burdensome. Users are individually required to resolve any questioned charges or items, and may be personally held financially responsible for unresolved charges. Response: County of Santa Cruz Auditor-Controller – PARTIALLY AGREES We agree that the reconciliation of the monthly CAL-Card invoice is paper based, the reconciliation requirements are based predominately upon requirements from the CAL-Card sponsoring bank. Departments can file any disputes related to charges online. Additionally, the receipts and supporting documents provided by the vendor when purchases are made with a CAL-Card are paper based. We disagree that the process is prohibitively complex and burdensome. These requirements are similar to those for reconciling other invoices a department receives; the invoice must have receipts attached and any error on the invoice must be resolved by the department or card holder. We agree that employees may be held personally financially responsible for their purchases and unresolved charges. These controls are necessary to safeguard the County against fraud, waste or abuse. For Everything Else There’s CAL-Card 31 2008–2009 Santa Cruz County Grand Jury Final Report with Responses

The County implemented the CAL-Card program in 1996. Since its original implementation the usage of the CAL-Card has declined. CAL-Card Usage Statistics since 2001: Cards Year Transactions Total Dollars Issued 2001 293 7,148 $1,594,959 2002 298 7,610 $1,754,406 2003 281 6,366 $1,370,683 2004 285 4,839 $972,993 2005 275 4,424 $948,976 2006 251 4,719 $992,597 2007 308 3,861 $907,599 2008 308 2,937 $793,712 2009 283 649 $131,731 (1st Quarter) Response: County of Santa Cruz Board of Supervisors – AGREES

The somewhat dramatic reduction in CAL-Card use in 2003 and 2004 was a result of the implementation of the single-vendor office supply contract and increased enforcement of its usage requirements. Response: County of Santa Cruz Board of Supervisors – AGREES

There is no documented case of a county employee being prosecuted or having card privileges revoked for deliberate misuse or abuse of a CAL-Card. Response: County of Santa Cruz Board of Supervisors – AGREES

U.S. Bank and Visa offer free CAL-Card optimization audits to examine ways the customer can achieve maximum cost savings using the CAL-Card program. The County has never made use of these optimization services. Response: County of Santa Cruz Auditor-Controller – AGREES Response: County of Santa Cruz Board of Supervisors – AGREES 32 For Everything Else There’s CAL-Card 2008–2009 Santa Cruz County Grand Jury Final Report with Responses Conclusions