News Release News Release The City of Palo Alto
Communications Department
250 Hamilton Ave
Palo Alto, CA 94301


PRESS RELEASE 11/14/2012
Subject :

City Auditor Recommends Changes to Contract Administration and Procurement Processes at City
Contact : Jim Pelletier, City Auditor    650-329-2629
James Keene, City Manager    650-329- 2563
Palo Alto, CA – Today, Palo Alto City Auditor Jim Pelletier released his first performance audit for the City of Palo Alto, Audit of Contract Oversight: Office Supplies. The audit was conducted by the City Auditor's staff in 2012 and focused on the City's multiple year office supplies contract with OfficeMax Incorporated. The contract oversight audit reviewed whether the City has adequate controls in place to ensure that contracts are administered in accordance with Municipal Code and relevant policies and procedures. The audit contains six key findings and ten recommendations that are currently being addressed by the City Manager. 

The Administrative Services Department, Purchasing Division, oversees procurement activities for the City. In 2012, the division established nearly 2,250 purchase orders totaling over $137 million. Palo Alto has a larger operation than most cities due to its full array of utility services unique in California (water, natural gas, wastewater collection and treatment, electricity, dark fiber, storm drain, and garbage collection) and services provided to other entities such as fire services to Stanford. 

The contract services audit looked at the OfficeMax contract, which averages about $250,000 a year in expenditures for office supplies purchased by all 13 City departments. The audit found that controls within the City’s Administrative Services Department (ASD) require improvement to ensure that contracts are effectively administered. Additionally, the audit identified opportunities where taking a more strategic approach to contracting could provide additional savings opportunities for the City.

"We appreciate the detailed work of the City’s Auditor and his staff on this audit," said City Manager, James Keene. "The City Auditor's Office worked collaboratively with us on this audit and we will make improvements to our procurement process based on the audit recommendations."

In the review of the City’s contract with OfficeMax, the audit found that the City could have saved between $196,484 and $389,426, during the November 2007 through May 2011 period covered by the audit, if the contract had been actively monitored to ensure the City was receiving reasonably expected discounts at contracted prices.

“Some opportunities lost 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 added.

Since the economic downturn began in 2007, the City has focused its efforts on making significant structural changes to its budget such as reducing employee health care and pension liabilities and refinancing long-term debt at lower interest. For example, in 2012, the University Avenue Parking District bonds were refinanced to save the City $7.5 million over 19 years and in 2011, utility revenue bonds (water and natural gas) were refinanced for a savings of $3.97 million over 15 years.

“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,” said Lalo Perez, Chief Financial Officer for the City of Palo Alto. “We feel that the audit recommendations are reasonable and we have already begun making process improvements.”

“I recognize the amount of time and effort the Administrative Services Department committed to this audit,” said City Auditor, Jim Pelletier. “I feel confident that the City can make process improvements in contract administration that will save money and positively impact the entire organization.”