Statutory Violations

Statutory ViolationsStatutory Violations• Identification• Procedure• Avoidance

CCIT Presentation – July 20, 2011

(rev 3/17/14)

What is a statutory What is a statutory violation?violation?A statutory violation is a violation of

CRS 24-30-202(1) or (3) which occurs when:◦ Liabilities are incurred or payments are

made on the State’s behalf without prior approval of a State purchase order or contract, when required by Fiscal Rule 2-2.

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When is a liability When is a liability incurred?incurred? The State incurs a liability when it is obligated to

pay for goods or services provided by another non-State party.

Examples of liabilities:

◦ A contract is fully executed, including execution by

the State Controller or delegate.

◦ A purchase order is executed.

◦ Without a commitment voucher, a vendor begins

performance by providing goods and/or services

and the State has knowledge of such performance

(and makes no effort to stop it) or the State

directed such performance.

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When is a liability When is a liability incurred?incurred?There can be a statutory violation without

requiring approval to make a monetary payment.◦ For example, a vendor’s proposal may provide

for ramping up activities without charge to the State, but this assumes that a contract will be executed.

Ask “If there is no resulting contract or purchase order, would the State be required to make a payment?”◦ If the answer is “Yes,” there is a statutory

violation.

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Payment can also be Payment can also be statutory violationstatutory violationCRS 24-30-202(1) prohibits payment

to a vendor without a purchase order or contract, when required by Fiscal Rule 2-2.

For example, prior to performance, a vendor may request an advance payment. ◦ Even if such advance payment meets an

exception in Fiscal Rule 2-2-8.3, without a purchase order or contract, if required, there is a statutory violation.

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Payment ProhibitionPayment ProhibitionWhen a statutory violation has

occurred, agencies/IHEs cannot make payments to the vendor for such performance unless the violation has been ratified by the State Controller.◦ Exception – If the vendor’s performance

serves a critical State need (goods or services), which requires continued performance, and the vendor will not continue performance without payment, the agency/IHE should pay for such performance and notify the OSC/CCU as soon as possible.

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Personal LiabilityPersonal Liability Any person who incurs, orders or votes for an

obligation against the State:

◦ without a purchase order or contract, when

required by Fiscal Rule 2-2, or

◦ in excess of or for any expenditure not authorized

by appropriation, and

◦ any surety of such obligation can be held jointly

and severally liable for such obligation. See CRS 24-

30-202(3)

The resulting obligations will not be binding against the State and are null and void ab initio (from the beginning).

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Processing a Statutory Processing a Statutory ViolationViolation The State Controller has the authority to ratify

statutory violations and allow payment for services

already performed or goods already delivered.

Statutory violations involving contracts or purchase

orders should be sent to the CCU.

The CCU’s single point of contact for statutory

violations is:

◦ Floy Jeffares,

[email protected]

(303) 866-5703

◦ Floy will either process the requests herself or transfer

them to other CCU members for processing

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Processing a Statutory Processing a Statutory ViolationViolationThe State Controller has the discretion

to ratify an expenditure, in whole or in part, if the following conditions are met:◦ The prices are fair and reasonable;◦ The amount of the expenditure is within

the unencumbered balance;◦ The agency/IHE provides a written

explanation in accordance with the OSC’s Policy, Statutory Violations; and

◦ The parties did not act in bad faith or in a fraudulent manner.

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Processing a Statutory Processing a Statutory ViolationViolationThe chief fiscal officer of the agency/IHE

with the statutory violation must notify the State Controller of the violation and request ratification of the commitment only ◦ after reviewing the information related to

the statutory violation; and ◦ upon his/her satisfaction that the corrective

action planned or taken is sufficient to prevent or minimize future occurrences.

The notice can be in the form of a memo or an email.

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Processing a Statutory Processing a Statutory ViolationViolationThe notice shall contain:

◦A description of the commitment including: A description of the goods/services

provided; The dollar amount; The date when the commitment arose; A statement of whether disbursements

have been made or not; Copies of any relevant documents that

define the terms of the commitment.

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Processing a Statutory Processing a Statutory ViolationViolation

◦ An explanation of why the commitment arose before it was authorized including: The organizational unit and name(s) and title(s) of

person(s) responsible.

A description of internal controls and why they did not

prevent the situation from occurring; and

A finding with supporting facts stating whether any

party acted in bad faith or fraudulently.

◦ An assessment of whether the prices or rates are fair and reasonable and the basis for the conclusion. If appropriate, include State procurement procedures that were used and indicate whether all other required approvals were obtained. 12

Processing a Statutory Processing a Statutory ViolationViolation

◦Confirmation that the expenditure is within the unencumbered balance and that the agency/IHE has the funds to pay for the commitment.

◦A description of the measures planned to prevent reoccurrence of the violation. If similar violations occurred in the past,

explain what prior preventative actions were and why they were not effective.

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Do you need a new Do you need a new contract?contract? Ratification by the State Controller approves the

payment for services or goods; however, pursuant to contract law, once a contract expires or terminates, it cannot be revived.

◦ To continue receiving services/goods, the

agency/IHE will need a new contract or purchase

order, as applicable.

If a new contract includes within its scope of work a description of services/goods provided prior to the contract or within its encumbrance payments for services/goods provided prior to the contract, the contract should be sent to the CCU for execution.

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AvoidanceAvoidanceStatutory violations can be

avoided through:◦A system of internal controls

designed to prevent violations. All agencies/IHEs are required to maintain

an adequate system of internal controls to identify, prevent or minimize statutory violations.

◦Preparation and planning for procuring services and goods.

◦Monitoring contracts for performance and completion.

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Avoidance – Avoidance – Transitioning to a new Transitioning to a new vendorvendorIf an agency is transitioning from an

existing vendor to new one and the new vendor will need to conduct activities prior to the start date of the services/goods, the agency should consider the following:◦Does the contract with the existing

vendor have a transition period? Will the existing vendor need to work

with the new vendor to bring them up to speed?

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Avoidance – Avoidance – Transitioning to a new Transitioning to a new vendorvendorDoes the contract with the new vendor

allow the vendor to start preparation for the start date of services/goods?

◦ Will the vendor need access to State systems to link its system?

◦ Will the vendor need information to be ready to provide services on the start date?

Be careful not to overlap services/goods to obligate the State to pay for the same services from two vendors!

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Avoidance – Avoidance – Transitioning to a new Transitioning to a new vendorvendor

◦ For example, if vendor A provides services through Agency’s website from July 1, 2010 through June 30, 2011, the Agency may execute a contract with vendor B to begin providing the same services on July 1, 2011. There is no overlap of services.

◦ However, if vendor B needs access to OIT and Agency personnel and information to prepare its systems to link to the Agency’s system and be ready to provide services on July 1, 2011, vendor B’s contract should allow vendor B to conduct ramping up activities prior to July 2, 2011.

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Avoidance – Avoidance – Monitoring ContractsMonitoring ContractsAgencies/IHEs should monitor their contracts

to determine if services/goods are being provided in a timely manner and if there is a need for such services/goods beyond the end date in the contract.

If the agency/IHE needs the goods/services to continue with the same vendor, a determination should be made if a new contract is required or an extension of the existing contract is adequate.

◦ If the existing contract will extend beyond 5 years, you may need a waiver from State Purchasing.

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Avoidance – Avoidance – Winding UpWinding Up

◦ If you are extending the contract, ensure to provide for additional funding, if necessary.

Make sure to process the extension of the existing contract prior to its expiration/termination!

You cannot revive a dead contract!

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QuestionsQuestionsOffice of the State Controller

Central Contracts Unit

633 17th Street, Suite 1500

Denver, Colorado 80202•RaLea Sluga, Central Contracts Unit Manager

(303) 866-2127

[email protected]

•Greg Garner, Contract Administrator(303) 866-2862

[email protected]

•Clark Bolser, Contract Specialist(303) 866-4759

[email protected]

•Floy Jeffares, Contract Administrator(303) 866-5703

[email protected]

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Documents

Statutory Violations