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Audit prompts changes in Palo Alto's purchasing operation

Original post made on Nov 21, 2012

The City of Palo Alto is re-examining its purchasing policies and switching office-supply providers after a critical audit found that the city could have saved close to $350,000 if it had better contract management.

Read the full story here Web Link posted Wednesday, November 21, 2012, 9:50 AM

Comments (18)

Posted by Greed Stinks, a resident of College Terrace
on Nov 21, 2012 at 10:47 am

Seems like management is hurting for raises. The information in the article was available back in 2005 but they chose to ignore it because their pockets were lined nicely.

I hear staff in other areas used to do purchasing work until that infamous Q12 from the Benest reign happened. Then purchasing took back all their duties, reduced staff, and ouila!

Now if they would audit the Utilities Department, they should find millions more in wasted money. Hold those folks accountable for grossly mismanaged funds and see how much more money will be found.

Remember how the State Department of Parks hid like $52 million dollars? Yep folks, with just a click of a button in SAP funds can be moved, hidden, 'reserved', call it what you want. It's there!

Thank goodness auditors are loyal to numbers and not politics!


Posted by RT, a resident of Barron Park
on Nov 21, 2012 at 1:26 pm

Procurement is seasonal?


Posted by power corrupts, a resident of Another Palo Alto neighborhood
on Nov 21, 2012 at 1:58 pm

Whenever there is money at hand, there is going to be corruption associated with it. Why did we think Palo Alto was above such a thing? Two decades ago, my BIL was the finance mgr fot the city, and he used to tell us about it, and how all these depts would whine about having no money when nothing was further from the truth.


Posted by Resident, a resident of Another Palo Alto neighborhood
on Nov 21, 2012 at 4:22 pm

Office Max and Staples are not in Palo Alto. The city wants us to shop Palo Alto but won't do it themselves. They know it is too expensive to shop Palo Alto.

Bring some big box stores to Palo Alto.


Posted by Terry, a resident of Midtown
on Nov 21, 2012 at 8:18 pm

> "Since 2005, the purchasing division went from 10 to nine full-time employees"

Poor babies, seems to me that like most of the Palo Alto staff, they are just plain incompetent. A good plan would be to fire 4 and hire 2 replacements. There surely are better qualified candidates in this economy.


Posted by Silly, a resident of Embarcadero Oaks/Leland
on Nov 21, 2012 at 10:02 pm

No problem. They'll just keep raising our Utility Rates.

I guess it would take too much creativity to use the office supply place on Cal Ave?

I'm never ever voting for any bond issue in this city again.


Posted by Wayne Martin, a resident of Fairmeadow
on Nov 23, 2012 at 8:18 am

What is not very revealing from this Audit is why the Finance people managed to miss the opportunity to make purchases that used public money most effectively. This sort of insight would probably require an examination of the Finance Department inner-workings—which Palo Alto Audits don't seem to do very often. In other words—such an Audit would end up assigning responsibility for the problems found by the Audit staff.

Palo Alto has a very expensive computer software system (SAP) that (presumably) should have been able to flag cost changes that were not in compliance with contracted prices. So—does SAP provide that service? If it does, how is the information presented to the Finance staff? There is really no reason that the computer should not flag every line item on every invoice that is entered when there is a difference between contracted price and billed price.

The Audit's observation that OfficeMax was not honoring its promises for "deep discounts" of up to 85% requires some work to make the determination that the "deepest" discounts have not been offered to the City. Having a computer-to-computer link, so that all up-to-date price information can be obtained from the vendors would make this job easier for the Finance people, but that requires some commitment on the part of the vendors to honesty in their dealings with customers. (85% discounts also seem too steep to be real—or only offered to get rid of merchandise that is discontinued, or not selling.)

This audit does not seem to look into just how much software support the Finance Department has at its disposal, or what kinds of software could be obtained to do this sort of work.

> "There are plenty of examples where our organization has
> significantly (saved) -- I'm talking about millions in savings,"
> Perez said. "We're a large organization and we'll have areas for
> improvement and this is
> one that merits review and discussion.

While this may be very well true, Lalo Perez, as Finance Director, should have documented these savings, in one way, or another, along the way? "Saving Millions" seems like it's possible, given a sufficiently long time-line—so why not write a memo, or generate a staff report, that documents what the Finance people did to identify wasteful spending, and how they corrected it. Paper trails do a lot more to generate trust that the people at the top know what they are doing, than unsupported words uttered as people are trying to "circle the wagons" to defend their not having been very good at their jobs.

Also, the Finance Department should produce some sort of "performance report" (on a yearly basis) that identifies all of the key metrics that would help all of us understand how effectively this department is doing the job entrusted to it.

> "Frankly, we don't want to add permanent staff (that's)
> fully benefited. That's our challenge."

Mr. Perez should be commended for his having the courage to say this in public. That said, as Director, it is his responsibility to figure out how to run this department effectively. This is one of those cases where having an outside "efficiency"/automation consultant take a look at the operation would be worth $30K-$50K for help doing what his staff does not seem to be able to do.


Posted by Resident, a resident of Another Palo Alto neighborhood
on Nov 23, 2012 at 9:06 am

Wayne

This shows exactly why Palo Alto needs to get more affordable shopping in town.

If the City buys its supplies outside Palo Alto because it is cheaper and can get better bargains, then it must understand why the average Palo Alto family does not shop Palo Alto.

My family does most of its grocery shopping in Costco or a large Safeway for that very reason. We also buy household items in Target, Ikea, etc. for similar reasons. Yes it is nice sometimes to go to Stanford and look around, possibly buy an impulse item or two, but that is not how we are going to do routine shopping.

With all this talk about changing zoning laws, it is also time to start talking about changing the rules about big box stores.


Posted by Box Stores, a resident of another community
on Nov 23, 2012 at 10:16 am

It is ironic how citizens are calling out for local shopping and big box stores. Check this out: About 10 years ago, there was a 'meeting to help the system' held by the city manager in council chambers. 99% of the audience attending was for support staff. It was a question and answer meeting. All our ideas were shot down and explained away why they would not work. Then, he asked us, "What would it take to get people to shop in Palo Alto?" Someone said, "Put in a Ross, Target, or Marshalls." He then asked, "uhhh, how many of you here would shop at a big box store like that?" 85% of the audience raised their hands high, followed by statements like....I could shop during lunch, after work and before going home, etc. City Manager decided that based on the quick poll, it would not be a good thing to put in a Target, Ross or Marshalls-type store.

So there you have it. City leaders do not listen to employees. They also do not listen to its citizens. They take care of themselves just nicely though. OH and the reason Lalo has saved millions is through employees. Here is the honest truth. (Do an audit on hiring and firing cycles and prove me wrong.) Forcre people to retire to save salary/benefit costs, take that savings and hire more unaccountable, unqualified management staff. Then have the auditor ask 'why are you laying off 1 non-management person and hiring 2 to replace them, of which they do not perform the laid off persons duties?' How do you justify that? Management staff fringe benefits (and they are expensive) eat up a huge part of the salary budget.


Posted by Box Stores - edit, a resident of another community
on Nov 23, 2012 at 10:20 am

"....1 non-management person and hiring 2 MANAGEMENT people to replace them,...."

(edited to correct sentence


Posted by Wayne Martin, a resident of Fairmeadow
on Nov 23, 2012 at 10:48 am

> This shows exactly why Palo Alto needs to get more
> affordable shopping in town.

It's hard to see how the issue of contract administration/price monitoring is linked to the availability of "big box" stores in Palo Alto. These seem to be two different issues.

With Palo Alto being so geographically small, and with "big box" stores on the borders of Palo Alto/Menlo Park, Mountain View, East Palo Alto--it's difficult to understand how all/many/any of these retailers could justify operating these outlets in a town that has for decades been openly hostile to "business", and has a very constricted road system (capacity and limited vehicular speeds), compared to the surrounding towns. ("Big Box" stores depend on/generate a lot of vehicular traffic.)

The Internet has already been disruptive to many small/local businesses. It's hard not to see it continuing to impose changes on families, and institutional customers--like the City of Palo Alto. One change that will most assuredly happen is more people buying on-line, with merchandise delivered to their homes. Same with City governments.

Walmarts has, for perhaps upwards of 15-20 years now, operated a very effective on-line ordering system for its vendors. As I understand the system, vendors determine the quantity of product that needs to be on Walmart shelves, and uploads this information to Walmart. Walmart doesn't do the actual inventorying/ordering itself. There is no reason that, over time, the City could not create a similar sort of system, with actual inventories being monitored (one way or another), and when supplies get to a "re-order point", the SAP system is alerted electronically--which then places an order with the vendor using the Internet.

Such a system as just outlined would take a complete overhaul of the City's IT/Purchasing service models--but it's doable with today's technology.

It's hard to believe that more people will not increase their use of e-commerce in the future. Walmarts/Safeway now have on-line purchase capability--with Safeway making deliveries. Walmarts does not currently deliver--but it's an avenue that's open to them if they are successful in their on-line purchasing effort.

These changes in the retailing ecosystem makes it hard to see "big box" stores in Palo Alto in the future.


Posted by Resident, a resident of Another Palo Alto neighborhood
on Nov 23, 2012 at 11:12 am

Wayne

The link between the two is sales tax dollars. The City is spending its sales tax dollars outside Palo Alto, just like an average household, because it is cheaper and the sales tax goes elsewhere.

I understand what you are saying about the internet and it is a valid point.

Yes our family does do some internet shopping and will probably continue to do so, but for us I can't see how it will replace regular shopping trips.

Trying on clothes and shoes will always be harder online. We have used online grocery shopping and it takes an age to do a $200 weekly shop even with items bought regularly, and there are always a few items that are not on your regular shopping favorites list. On top of that, a trip to Safeway is possible for dinner tonight, unexpected guests or just run out items, apart from the unexpected I have to take snack for 20 people to school tomorrow occasions. There will always be the black pants needed for tomorrow's concert, the sneakers that have just got a big hole or the dress shoes that no longer fit and need to be replaced for an outing this evening.

Most online shopping is not instant and most household needs are.

As for where to put some of these big box stores, the Charleston Road area near the big box stores of Mountain View (where Western Marine used to be) seems quite ideal. Additionally, some of the run down areas on El Camino are also suitable. If Frys stays or goes, there is space around there.

Yes of course big box stores will attract traffic. But if they are situated near major arteries, then it will make some sense. Additionally, the more shopping in Palo Alto for our residents, mean less traffic of Palo Alto residents driving out of town to go shopping.

I love some of the big box stores and supermarkets in Mountain View. I just wish I could spend some of those tax $$ to benefit Palo Alto instead.


Posted by Wayne Martin, a resident of Fairmeadow
on Nov 23, 2012 at 11:44 am

> The City is spending its sales tax dollars outside Palo Alto,
> just like an average household, because it is cheaper and the
> sales tax goes elsewhere.

Well .. maybe this is an issue, and maybe not. How many dollars would you guess that the City is spending on Office Supplies from sources outside of Palo Alto? It would seem that you are saying that every item that the City buys should come from a source inside of PA. That just doesn't seem realistic.

And keep in mind that over time, with the growth of e-Commerce, we will probably see a rethinking of the allocation of sales tax that leaves sales taxes in the community where something is purchased. It makes more sense to allocate these taxes based on population--rather than where the sales are made. If this rethinking were to occur, then where one buys something will not affect a community's share of sales tax.


Posted by Box Stores, a resident of another community
on Nov 25, 2012 at 7:53 pm

'It's hard to see how the issue of contract administration/price monitoring is linked to the availability of "big box" stores in Palo Alto. These seem to be two different issues'

The POINT was, city manager/leadership does not listen to citizen nor employee input.

'As for where to put some of these big box stores, the Charleston Road area near the big box stores of Mountain View (where Western Marine used to be) seems quite ideal.'

Ok folks, it's about generating taxes ok. don't take on this "yes to big box store but not in my neighborhood." Pa-lease. A big box store(s) does not have to be in south palo alto where traffic is already congested. Page Mill/Arastadero/Foothills has plenty of space to utilize. Out by 280 is just fine and it does not have to be near 101. Besides, Palo Alto does not have competent staff to do unnecessary traffic studies for an already over-congested 101/San Antonion Road/ El Camino quadrant. Citizens who live there now are telling you 'no more business generating traffic problems for south palo alto." LISTEN TO THE CITIZENS INPUT AT LEAST.


Posted by Boggles the mind, a resident of Another Palo Alto neighborhood
on Nov 25, 2012 at 11:26 pm

$350,000 overpaid. It boggles the mind.
Everyone can check prices online, especially for mass purchases.
Will anyone be chastised or fired for such incompetence? Nope. Not while Jim Keene and Steve Emslie are in charge. They reward loyalty not competence.
Wonder if anyone got a kickback, as one sometimes reads about companies that find such things out.


Posted by Retiree, a resident of another community
on Nov 26, 2012 at 1:19 pm

Prior to SAP, a buyer in purchasing approved all supply invoices. When SAP came aboard, that buyer retired. After that, nobody in purchasing wanted to assume that responsibility, so that process was eliminated. They hired more purchasing staff for SAP, but forgot about approval of office supplies. It was difficult to get any purchasing staff to take on any responsibility.


Posted by Retireee, a resident of another community
on Nov 29, 2012 at 9:52 am

"nobody in purchasing wanted to assume that responsibility, so that process was eliminated."

There were qualified people WANTING that job and to transfer BUT the "good ol boys/girls club" prevents a lot of talent to help the city grow and recover. I know dedicated, hard working, QUALIFIED and COMPETENT employees that have been with the city for 20+ years who STILL get turned down for applied-for-promotions and are discriminated against. Jim Keene is the WORST city manager in the city's history. (Yes, even more so than Fleming and Benest.)

Also, they did at one time attempt to use local vendors (service was slightly reduced and prices were not that competive) but the businesses) could not afford to remain open and shutdown/relocated to another city). So yes, if procurement cannot be partnered with local businesses via city purchasing contracts, how does a blind council and city manager not get it that citizens cannot shop in Palo Alto?


Posted by Robin, a resident of Old Palo Alto
on Mar 27, 2013 at 12:01 pm

Remember the $200,000 budget error missed by ASD a few years ago? Let's face it, Perez never should have been appointed to this position. He simply does not seem to possess the skills.


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