1. Statutory Violations Identification Procedure Avoidance CCIT Presentation – July 20, 2011 (rev 3/17/14)

2. What is a statutory 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. 2

3. When is a liability 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. 3

4. When is a liability 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. 4

5. Payment can also be statutory violation CRS 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. 5

6. Payment Prohibition When 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. 6

7. Personal 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). 7

8. Processing a Statutory Violation 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, floy.jeffares@state.co.us (303) 866-5703 floy.jeffares@state.co.us ◦ Floy will either process the requests herself or transfer them to other CCU members for processing 8

9. Processing a Statutory Violation The 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. 9

10. Processing a Statutory Violation The 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. 10

11. Processing a Statutory Violation The 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. 11

12. Processing a Statutory Violation ◦ 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

13. Processing a Statutory Violation ◦ 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. 13

14. Do you need a new 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. 14

15. Avoidance Statutory 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. 15

16. Avoidance – Transitioning to a new vendor If 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? 16

17. Avoidance – Transitioning to a new vendor Does 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! 17

18. Avoidance – Transitioning to a new vendor ◦ 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. 18

19. Avoidance – Monitoring Contracts Agencies/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. 19

20. Avoidance – Winding 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! 20

21. Questions Office of the State Controller Central Contracts Unit 633 17 th Street, Suite 1500 Denver, Colorado 80202 RaLea Sluga, Central Contracts Unit Manager (303) 866-2127 ralea.sluga@state.co.us Greg Garner, Contract Administrator (303) 866-2862 greg.garner@state.co.us greg.garner@state.co.us Clark Bolser, Contract Specialist (303) 866-4759 clark.bolser@state.co.us Floy Jeffares, Contract Administrator (303) 866-5703 floy.jeffares@state.co.us 21