http://paloaltoonline.com/print/story/print/2012/11/16/audit-palo-alto-spends-too-much-on-office-supplies


Palo Alto Weekly

News - November 16, 2012

Audit: Palo Alto spends too much on office supplies

City has failed to take advantage of discount; has major flaws in its procurement process

by Gennady Sheyner

Poor management of office-supply expenditures may have cost the City of Palo Alto close to $390,000 between November 2007 and May 2011, according to a critical audit the city released Wednesday evening, Nov. 14.

The report by City Auditor Jim Pelletier focuses on the city's contracts with OfficeMax, which account for about 59 percent of total office supplies. It found, among other things, that OfficeMax overcharged the city by at least $47,563 through unauthorized changes to pricing; that the city has failed to take advantage of discounts that it may have been qualified for; and that the city's Administrative Services Department "has not effectively administered the City's office supplies contract."

Pelletier's review found that the office-supply chain has routinely changed prices on supplies without properly notifying the city. OfficeMax representatives said that they had communicated any price changes to the city in writing and that these changes were never questioned, according to the report. But the auditor's office "did not find evidence that contract-price list changes were appropriately authorized or communicated."

The audit recommends that the city request a reimbursement from OfficeMax for these overcharges.

The city takes part in the "America Saves" program, which allows agencies to get high discounts on certain items. But the report notes that the city has in fact been spending more on office supplies since it joined the program in 2007. Whereas before it entered the program, Palo Alto had been receiving an overall discount of about 58 percent, the discount dropped in each subsequent year, to about 45 percent in 2011.

"If the City had continued to receive an average discount of about 58 percent for all its purchases subsequent to entering the America Saves program, it would have saved at least an additional $67,302 from Nov. 1, 2007 through May 31, 2011," the audit states.

The audit's other recommendations are broader in scope. After finding that the city does not have "effective processes and procedures to ensure the City receives contracted discounts," the audit recommends that the Administrative Services Department "develop formal procedures" to effectively administer the office supply contract and to properly account for its unusually high office expenditures.

In fiscal year 2011, the city had spent about $425 per full-time-equivalent employee, far more than other comparable jurisdictions. Mountain View, for example, had expenditures of $225 per employee. Sunnyvale's were $225 and Santa Clara's were $131.

But while the audit acknowledged that the city has spent "considerably more for office supplies than other local jurisdiction sampled," it also noted the difficulty of linking many of these expenditures with vendors. Furthermore, the audit found that nearly half of all city contracts are exempted from competitive bidding, which may also keep the city from getting the most for its money. The review also concluded that "about 38 percent of expenditures coded as office supplies in the City's financial systems could not necessarily be associated with office supplies vendors."

The audit recommends that the Administrative Services Department "ensure contract administration roles and responsibilities are defined and appropriately communicated." In reviewing the existing operation, the auditor's office "did not find any evidence of a defined documented, or effective process" to administer its contracts. Lalo Perez, the city's chief financial officer and director of administrative services, called these recommendations "reasonable."

"While we have saved significant dollars in other areas such as refinancing our long-term debt, we can make improvements in the contract services area," Perez said in a statement. "We feel that the audit recommendations are reasonable, and we have already begun making process improvements."

City Manager James Keene said the city appreciates the audit and will make improvements to the procurement process based on its recommendations. Some of the opportunities lost, he said in a statement, "may have been generated by staff cutbacks made to save the City money."

"These tradeoffs will be examined more deeply in the ongoing audit response," Keene said.

While Pelletier's audit is sharply critical of Administrative Service Department's procurement policies, Pelletier lauded the department's effort in addressing the problems uncovered by the audit.

"I feel confident that the City can make process improvements in contract administration that will save money and positively impact the entire organization," Pelletier said.

Staff Writer Gennady Sheyner can be emailed at gsheyner@paweekly.com.

Comments

Posted by Marc, a resident of Midtown
on Nov 15, 2012 at 9:48 am

>>In fiscal year 2011, the city had spent about $425 per full-time-equivalent employee, far >>more than other comparable jurisdictions. Mountain View, for example, had expenditures >>of $225 per employee. Sunnyvale's were $225 and Santa Clara's were $131.

But this is Palo Alto. Of course we have to spend more on office supplies. We have more twittering ( and I don't mean Twitter) residents that stick their noses into everything. The city has to respond to more and more residents that don't like what other people are doing and complain. And then they complain when another resident complains about what they are doing.


Posted by Money-Grows-On-Trees--Doesn't-It?, a resident of Another Palo Alto neighborhood
on Nov 15, 2012 at 9:55 am

While the thrust of this audit seems to have focused on the lack of monitoring price changes, as well as possibly improper coding of items as office supplies that were not actually office supplies—without focusing on the consumption side of the equation, this audit is not as complete as it should be.

o) Is expressing the total expenditure on a per-employee basis really the best way to document these expenditures? Certainly people not working in offices don't have the same needs as those who do. Wouldn't it be better to look at the spending based on where the supplies are actually used?

o) What exactly does $425 buy for each employee?

o) And what about theft of supplies by office workers? When it's time for school, how many binders, notebooks and pens disappear from the office supply lockers, and end up in the local schools on the desks of children of government workers?

It would appear that there is roughly a $200K/year difference between Palo Alto and other local cities, some of which have up to twice the population. So—this $200K comes to about $1M every five years, and $2M every ten years. Clearly this is not an insignificant amount of money.

There seems to be some problems in the Finance Department when it comes to proper identification of invoices, as well as monitoring price changes. Presumably Mr. Perez, and his staff, are too concerned—since it's "other people's money". It's a shame no one on the City Council seems concerned either.


Posted by Retired Staffer, a resident of another community
on Nov 15, 2012 at 10:28 am

There needs to be an audit of "discounts lost" as is done in industry. After that, a reasonable decision can be made about adequate staffing of the disbursing function.

The first meeting I went to as a temporary employee was with the disbursing staff and the Accounting Manager. She was seeking greater accuracy. She said, "This is the people's money. It's not my money--it's not your money. It's the people's money." She had a high level of personal concern for the task at hand.


Posted by Money-Grows-On-Trees--Doesn't-It?, a resident of Another Palo Alto neighborhood
on Nov 15, 2012 at 10:47 am

> She had a high level of personal concern for the task at hand.

This retired Staffer's personal experience seems at odds with the audit. Any chance that there wasn't much follow through, or management supervision, of the work done by Staff?


Posted by Retired Staffer, a resident of another community
on Nov 15, 2012 at 11:46 am

@MGOTDI--If there weren't management supervision the meeting mentioned would never have occurred. Point is--Staff cares about the people's money.

This meeting was held many years ago when a different database was in place and there was adequate staffing to supervise vendors. If you read the audit report you will see that both the City Manager and the ASD director recognize that staff cutbacks have been so severe that they have damaged the ability to "get the job done." Please remember--Palo Alto does NOT have a city controller.


Posted by City waste, a resident of Meadow Park
on Nov 15, 2012 at 12:03 pm

City documents have become thicker and thicker. Bigger typefaces and lots of blank space on every page. Space wasted on unnecessary graphics, lots of reprints of Powerpoint space wasters with maybe 25 words on a page. It all adds up.


Posted by Quantum Balls, a resident of Palo Alto Orchards
on Nov 15, 2012 at 12:04 pm

Benchmarking cost-per-employee with neighboring cities does indicate PA should be better at negotiating their contracts with the likes of OfficeMax. No question the name, OfficeMax fits well. Retail prices on stationery is thru-the-roof. 58% discount should still allow them to make a pretty penny. This type of non-competitive pricing is accelerating the push of everyone toward "the Cloud" (digital-paperless world).


Posted by Anon., a resident of Crescent Park
on Nov 15, 2012 at 12:05 pm

>> But the report notes that the city has in fact been spending more on office supplies since it joined the program in 2007.

This seems to be the pattern or incompetency in Palo Alto City Government in every single thing it does. Power rates, Garbage rates and then the job of keeping up the city is not getting done because of these "deals" that turn out to be scandals, boondoggles, whatever?

God knows what the costs of Police, Fire, maintenance is. There is not a decent restroom anywhere in the Baylands, making the whole area useless. But perhaps that is what the airport and people with airplanes want so that we don't get too many complaints and requests to upgrade and make the Baylands more inviting and useable?

There is something very systemically wrong with Palo Alto, and things are so opaque that it is hard to really figure out who are the groups in charge and what they are doing - let alone why?


Posted by Resident, a resident of Another Palo Alto neighborhood
on Nov 15, 2012 at 12:05 pm

Interesting that the City uses Office Max - a big box store not allowed in our town - to buy its supplies. Do they realise that Palo Alto does not get sales tax dollars for these supplies but it goes to East Palo Alto.

Should there be a rule that all purchases made by City Hall should be purchased in Palo Alto since they want us all to shop Palo Alto. I think they should be shopping Palo Alto also.

Apart from this, there is no surprise here. Most big offices buy too much and waste money on office supplies.


Posted by Kate, a resident of Duveneck/St. Francis
on Nov 15, 2012 at 12:38 pm

One big expense that could be cut waaaay down is the incessant repetitive annoying brochures, no-no's, do this & don't do that which come in 'by the ton" from the Utility Department. Enough already. Take out an ad in the newspaper. Save mailed paper and postage. It comes in droves - and I for one am fed up with it. This is 'justifying someone's unnecessary job". I don't have filing space for all of this civic junk mail. And while the city's at it, please leave us alone. We KNOW how to live 'green', efficiently, and responsibly.


Posted by common sense, a resident of Midtown
on Nov 15, 2012 at 12:58 pm

Anyone remember 6 months ago and the cuts to Animal Services? or the cuts to Traffic Enforcement?

I'm willing to also guess that better management of the city fleet of automobiles, power, and some other areas would yield additional savings, especially if benchmarked against neighboring cities.


Posted by David Pepperdine, a resident of Another Palo Alto neighborhood
on Nov 15, 2012 at 1:35 pm

And don't forget the Utilities Department's generous contributions to the general fund, circumventing Prop 13 with a direct pipeline to your wallet! All to help finance the city's gracious employee benefits and plentiful office supplies.


Posted by David Pepperdine, a resident of Another Palo Alto neighborhood
on Nov 15, 2012 at 1:37 pm

So the cost per employee is about twice as high? What about the sheer number of employees?


Posted by Oneword, a resident of Barron Park
on Nov 15, 2012 at 1:39 pm

Restless!


Posted by Wayne Martin, a resident of Another Palo Alto neighborhood
on Nov 15, 2012 at 1:52 pm

This 70-page audit seems to be quite comprehensive:

Web Link

It could take several hours to read through it, but that time is probably worth spending.

This Audit is much higher in quality than most of the audits produced by previous Auditors. Let's hope the quality level stays at this level.


Posted by neighbor, a resident of Duveneck/St. Francis
on Nov 15, 2012 at 1:55 pm

Supplies are only the beginning...what about the constant tearing up, resurfacing and again tearing up of all the same streets time and again. This speaks to NO preplanning by the City Works department. This is constant, only months go by before something else causes road work. If only there were some coordination. Private companies wouldn't work this way, they would go broke. Maybe Palo Alto would be money ahead if they subcontracted the work to a non-city entity.


Posted by Wayne Martin, a resident of Fairmeadow
on Nov 15, 2012 at 2:11 pm

> what about the constant tearing up, resurfacing and again
> tearing up of all the same streets time and again.

A previous Auditor did look into "the streets"--maybe five years ago. Unfortunately, she did not seem to have a very comprehensive approach to her analysis, and it's hard to find any evidence that any of her findings were ever implemented, or if they were, that those findings actually were particularly effective at saving costs, or stopping unnecessary street cuts.

The whole issue of "streets" is complicated enough that it would pay to have an on-going project dedicated to trying to model everything that impacts our streets. With about $30M (at least) of backlogged street repairs, and the impacts on our quality-of-life that comes from traffic (particularly these difficult-to-understand lane reductions)--having an on-going Audit team monitoring all the data possible would be in everyone's best interests.


Posted by Peter, a resident of another community
on Nov 15, 2012 at 2:33 pm

This story reminds me of a similar way the way the City buys hardware.

The City buys hardware from a local store owned by an elected official ... not a City Council person, but a guy with some connections.

The thing is, when City employees order hardware, we're told to go to the online site of the national chain that this local hardware store is connected with.

They "drop ship" it to the MSC, meaning a truck from the chain pulls up to the door and drops off the merchandise. The merchandise never goes through the local store belonging to this elected official.

But this elected official/hardware store owner gets a portion of the sale price. If we ordered directly from this same chain, we could reduce the amount of tax money we're paying for hardware.

I know the Auditor's Office has been told about this arrangement, but apparently doesn't want to touch it.




Posted by Wayne Martin, a resident of Fairmeadow
on Nov 15, 2012 at 2:41 pm

> But this elected official/hardware store owner gets a portion
> of the sale price. If we ordered directly from this same chain,
> we could reduce the amount of tax money we're paying for hardware.

A little more detail would make this a very interesting contribution to understanding why the City of Palo Alto spends so much money.

Any chance you could file a Request to Investigate with the Santa Clara County Grand Jury to look into this matter?


Posted by Retired Staffer, a resident of another community
on Nov 15, 2012 at 3:39 pm

When I worked for the City fasteners were purchased from Fastenal and small hand tools were purchased from Grainger. Fastenal has a Palo Alto store. Grainger has a Sunnyvale store. Both are publicly owned corporations traded on major exchanges (FAST on NASDAQ and GWW on NYSE)


Posted by Wayne Martin, a resident of Fairmeadow
on Nov 15, 2012 at 4:36 pm

> When I worked for the City

But what about today?


Posted by Gus L., a resident of Barron Park
on Nov 15, 2012 at 6:50 pm

How about the City saving money by NOT sending all this extra junk mail with the Utility bills, and other mailers everyone just dumps in the recycling?
I sometimes get multiple mailers from the city.
Palo Alto being Green?? Yeah, right.


Posted by mattie, a resident of Crescent Park
on Nov 15, 2012 at 8:28 pm

I'm glad that our auditor noticed that other cities have recently audited city supplies contracts and saved a ton. I know San Jose's auditors office did this about 2 years ago and won a considerable settlement, and they in turn were following another big city (San Diego or LA?) if my memory is right.


Posted by Kate, a resident of Duveneck/St. Francis
on Nov 15, 2012 at 10:42 pm

Mattie, Palo Alto's wonderful auditor went to San Jose just a few years ago as its chief auditor. Wish we had Sharon back.


Posted by kk, a resident of Barron Park
on Nov 16, 2012 at 12:30 am

HIRE a welfare mom to be the buyer. If they can raise a family on it, they should be running the entire country.


Posted by musical, a resident of Palo Verde
on Nov 16, 2012 at 12:53 am

Thanks Wayne for the audit web link. Fortunately everything after page 27 is attachments and I think I got through it in less than an hour if I don't count the places where I fell asleep.

I noted a typo in Gennady's article: Mtn View's number is $255 per FTE, not $225. Also the Palo Alto number $425 might be more realistically $264 if the $161 not from office supply vendors are actually mis-coded items not really office supplies. Maybe the other cities categorize differently.

Learned something new -- was not aware that the City pays sales tax. Do we pay things like vehicle registration fees also? Property tax on City Hall?

Guess I always knew that retail customers like me subsidize volume purchasers who get the deep discounts. Now realizing that I'm subsidizing the government in more ways than I thought.


Posted by Resident, a resident of Another Palo Alto neighborhood
on Nov 16, 2012 at 7:38 am

Yes Musical and Wayne

The City should be shopping Palo Alto to spend the sales Tax $$$ in Palo Alto not on Office Max to give the money to East Pale Alto. Ooops, then we would tell them they should be shopping somewhere cheaper - nowhere to buy reasonably priced office products in Palo Alto.

It is about time we had decent affordable shopping in Palo Alto.


Posted by Ken , a resident of Professorville
on Nov 16, 2012 at 8:07 am

Ok, that's done. Now how about having the Auditor look at the parking situation in Downtown and SOFA and give us an idea of how much we - the neighbors - are subsidizing the developers who don't provide parking to support the use of their land and properties.


Posted by anonymous, a resident of Duveneck/St. Francis
on Nov 16, 2012 at 8:42 am

This topic is sort of interesting but likely a drop in the bucket insofar as waste goes.
@Kate above mentions utility dept mailings and printed inserts - I think the periodic mailing that compares our energy use to our neighbors (even if the comparison isn't a great comparison - another issue) is mailed independently from the service which is contracted with the city?! - so that, for example, might use paper (office supplies) not included in the city office supply usage figures that are listed as expenditures in this thread.
Whatever can be done to tighten up operations and lessen bureaucracy would be a benefit, in my opinion...


Posted by Retired Staffer, a resident of another community
on Nov 16, 2012 at 12:02 pm

@musical--Yes, the City pays sales tax. Everybody in CA except the feds and bona fide charities pay sales. The State pays tax to itself.

Sales tax is based on the "ship to" address of the end user. If no tax is charged by the vendor then the City must pay use tax monthly.

Printing is now outsourced in order to save money. In the past (pre 2008) printing was done at city hall.


Posted by Midtown resident, a resident of Midtown
on Nov 16, 2012 at 12:47 pm

If I embezzled $47,000, I would go to jail for a long time. I'm sure no one at OFFICE MAX will be held criminally accountable for this because it will be hard to prove intent.

I for one will be pushing the city to ditch OFFICE MAX at the least.


Posted by MIdtown resident, a resident of Midtown
on Nov 16, 2012 at 12:49 pm

Why the hell would anyone buy from the big chain office supply stores? They're complete ripoffs. I suggest walmart.


Posted by MIdtown resident, a resident of Midtown
on Nov 16, 2012 at 12:53 pm

I totally agree with the person who asked about the constant resurfacing of city streets when there is no necessity. Someone is making money on this I'm sure. I wonder how I, as a citizen can find out how this is justified.


Posted by Darwin, a resident of another community
on Nov 16, 2012 at 3:47 pm

It's unfortunate that it doesn't say the breakdown in cost per city department.


Posted by musical, a resident of Palo Verde
on Nov 16, 2012 at 3:57 pm

@Midtown resident, did you miss the part about OfficeMax giving the city a 58%-off coupon? That's why we buy there. It was the best deal we could get, including Walmart I presume. I think much of this article was about quibbling over the usual fine print of what items are really eligible for the discounts, and what quantities you need to buy, just like at the grocery store. The question should be, do we really need to buy all this stuff? Is it a predetermined pile of money that must be spent before year-end or you don't get a larger pile next year?

@Retired Staffer, thanks for the sales tax notes including Fed exclusion. Always seemed to me that NASA did not pay. I assume then the school districts pay. So the budgets actually appear inflated because we are counting tax money that is going around in circles?


Posted by anon, a resident of another community
on Nov 16, 2012 at 4:01 pm

Folks,

Most of those mailings from the Utilities Dept. are mandated by law.

They'd stop killing trees if they were allowed to.

I'm just sayin.'


Posted by Ducatigirl, a resident of Old Palo Alto
on Nov 16, 2012 at 6:06 pm

Hey, whatever happened to "buy locally"?


Posted by MIdtown resident, a resident of Midtown
on Nov 16, 2012 at 7:39 pm

@musical
"did you miss the part about OfficeMax giving the city a 58%-off coupon?"

58% off of what? Twice the fair price? The discount in itself makes no sense unless you tell me what the "list price" is. And everyone knows the list price is just marketing BS.

And what about those 47K of crooked price-raising? Do you really think that was an "honest" mistake?


Posted by musical, a resident of Palo Verde
on Nov 19, 2012 at 4:40 pm

@midtown, ok, but apparently OfficeMax gave the best deal Palo Alto could find, and we are free to go elsewhere (Office Depot, Staples, and Walmart are main competitors). It will take teams of auditors, accountants, and lawyers to decide how "crooked" the 47K overage was. Contracts can be quite complicated, especially in things like what constitutes "proper" notification of price adjustments. OfficeMax (NYSE:OMX) stock value has recovered somewhat this year, but has not been a very good investment for decades.

We can try to drive a harder bargain, and keep better oversight on the billing, but probably our best tack is improved inventory management and trying not to order things we don't really need.


Posted by Resident, a resident of Another Palo Alto neighborhood
on Nov 19, 2012 at 4:53 pm

Musical

But Office Depot, Staples and Walmart are not in Palo Alto (like Offix Max_ and PA doesn't get sales tax dollars on purchases there. The City should shop Palo Alto since that is what they tell us to do.