Bad Timing of Payments Costing L.A. Millions

Editor’s note: This is the second of three columns in a series that will review the status of audits from L.A. City Controller Wendy Greuel. VICA has worked with city controllers over the years to ensure audits are heard by the City Council and recommendations are implemented. As VICA continues its review of L.A. City Controller audits it is becoming more and more surprising that the city manages to remain solvent. Waste and inefficiency are the prevailing themes of the audits, and even after the concerns are brought to the attention of city officials, action is slow or nonexistent. We began this series of columns by reviewing the Audit of Citywide Fixed Assets and Equipment, which found that the city is losing millions of dollars by not adequately tracking its property. More shocking than the details of the report, is that none of the Controller’s recommendations to improve the process have been implemented. The second audit currently under VICA’s examination, which reviews early payments to vendors, is just as concerning. This audit was initially released December 2009 and did not go before the City Council until March 2010. None of the recommendations outlined in the audit have been implemented, according to the scorecard released at the beginning of the year by Controller Wendy Greuel’s office. The City of Los Angeles spends approximately $2.5 billion on goods and services each year and has a policy of paying its vendors 30 days from either the date of the invoice, or when goods or services are received, whichever is latest. This practice should allow the city to maximize its investment earnings while still being a good customer. Too early Controller Greuel’s audit of vendor payments found that the city is paying these bills too early and missing out on several million dollars in investment earnings. If the payments were scheduled closer to the due dates, the city could see a significant improvement in its investment return. The audit pointed to some key problems with the management of vendor payments. The most glaring is that city workers are not using the payment scheduling tools offered by the city’s two procurement systems. Simply taking advantage of these capabilities and scheduling payments closer to the due dates could increase city revenue. Another troubling finding in the audit is that few city contracts with vendors specify payment timeframes. Most business people would consider this to be a standard practice when dealing with contracts for goods or services. However, out of 37 contracts for services reviewed by the Controller’s office, only five included payment timelines. Unfortunately, the Audit of Early Payments to Vendors is not an anomaly. Most audits find that the city is losing significant amounts of money due to inefficiency and still little or no action is taken. Nearly half the reports included in Greuel’s audit scorecard have not experienced any actual progress toward implementation. It is always puzzling to VICA how such simple opportunities for revenue generation get ignored by city officials, especially when logical solutions sit before them. In just two audits regarding inventory management and vendor payments we have found millions of dollars are being lost and nothing is being done to stop it. VICA is committed to holding our city officials accountable for fiscal responsibility and encourages members of the community to do the same. In difficult economic times it is more important than ever to operate government in an efficient manner. Before vital services are cut or taxes raised, the city must take a hard look at these audits and implement these cost-saving strategies. What suggestions do you have for the city to better manage its payments to vendors? What city audits would you like VICA to monitor? Email your responses or thoughts about the column to [email protected].