In reviewing the city’s contract development and approval process, the City Auditor’s Office managed to unearth process trouble and engage a defiant Law Department. Both were on hand at Wednesday’s Council Audit and Finance Committee meeting.
The Auditor’s Office found that out of the 14 contracts they tested, nine did not follow templates created by the Law Department, and there was no evidence that the changes were reviewed by city attorneys.
According to the report, “contract clauses designed to safeguard the city’s interests are not consistently included in all contract documents, and there does not appear to be an established review process for contract templates. Model clauses not consistently included in templates we reviewed include Right to Audit, Indemnification, and Confidential Information clauses.”
In a memo responding to the audit, City Attorney Karen Kennard wrote that the audit “contains statements that are both factually and legally incorrect, and reflects a fundamental misunderstanding of the basis of contract development and approval.”
Mayor Pro Tem Sheryl Cole noted that the committee had rarely had a response from an audited department that disagrees with the findings in writing.
Kennard continued this disagreement at the committee meeting Wednesday.
“Our disagreement is that the auditor has the impression that we physically see every contract. We frequently give legal advice that is not written,” said Kennard. “The overwhelming majority of legal advice that we give related to contracts is verbal. So to “pass upon” a contract can take many different forms. The auditor seems to believe that the only form it can take is some written evidence that we have seen something.”
Assistant Auditor Nikki Raggi stressed that the auditor’s office was not passing judgment on whether or not the process currently being used is legal, whether the delegation of contracting was appropriate, or whether templates should be used and changed. Rather, she explained that under City Charter, the Law Department is required to “pass upon” every contract, and that process was not being documented, even if it was being followed.
Council Member Laura Morrison pointed out that changes from standard contracts had put the city in jeopardy in the past. She spoke specifically, about problems that arose from a contract with a vendor at the Austin Convention Center that left out a clause that allowed the city to audit the outside auditors. This omission caused problems and put the city at risk.
“We need to remember why we are doing this audit. We are doing this audit because it was a priority for us. Over and over and over again, we have audits coming to us about particular contracts that were a problem,” said Morrison. “We said we needed to figure out what the process problem was. I just wanted to highlight that. That’s why we are here, because we had changes that were not okay and got us into places we didn’t want to be.”
Much of the discussion at the meeting centered on whether templates had been “deviated from” or “changed.”
In the end, the committee voted unanimously to approve the audit. They also asked the Law Department to work with contracting departments in order to provide a list of “high risk items that should not be removed or added to the template without legal review.” The committee also asked that the department provide documentation of legal review when these “high risk changes” are made.
“I think that would be a good practice – to document decisions on significant changes,” said Morrison.
In the Auditor’s report, they explain that their review found removal of a clause that require vendor compliance with health, safety, and environmental regulations; removal of a clause that requires vendors to employ orderly and competent workers who are not under the influence of drugs or alcohol; and reduction of the standard warranty period of the city.
“It’s not that we are saying that everything needs to be reviewed 100 percent. We think that templates are a good thing to have. If necessary, you can vary or deviate from those templates, but you need to document it and approve it,” said Auditor Ken Mory.
The committee is likely to revisit the item within the next couple of months.
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City of Austin City Attorney: The head of the City of Austin's Legal Department. Reports to the City Manager.
Office of the City Auditor: This city department is created by the city's charter in order to establish and ensure "accountability transparency, and a culture of continuous improvement in city operations."
