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,
(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
•Greg Garner, Contract Administrator(303) 866-2862
•Clark Bolser, Contract Specialist(303) 866-4759
•Floy Jeffares, Contract Administrator(303) 866-5703
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