March 17, 2004

INITIAL RESPONSE TO THE SUMMARY OF THE AUDITOR GENERAL’S
INVESTIGATIVE REPORT OF MOHAVE EDUCATIONAL SERVICES COOPERATIVE

Mohave has received and reviewed the Auditor General’s investigative report. We want to provide members, vendors, and others with our initial response to that report. A detailed response to all findings will follow in the near future.

IN RESPONSE TO THE MARCH 17, 2004, EMAIL FROM THE AUDITOR GENERAL’S OFFICE INDICATING THAT MESC HAS NOT FOLLOWED THE ARIZONA STATE BOARD OF EDUCATION SCHOOL DISTRICT PROCUREMENT RULES, MOHAVE WANTS MEMBERS AND VENDORS TO KNOW THAT MOHAVE CONTRACTS CONTINUE TO BE VALID. THE EXAMPLES OF NONCOMPLIANCE CITED IN THE EMAIL, IMPROPERLY EVALUATING VENDOR RESPONSES TO REQUESTS FOR PROPOSALS, NOT DETERMINING THAT PRICES WERE FAIR AND REASONABLE, AND IMPROPERLY AWARDING CERTAIN CONTRACTS, WERE ADDRESSED, AND WHERE REQUIRED, CORRECTED SEVERAL YEARS AGO. MOHAVE’S CONTRACTS CONTINUE TO BE VALID FOR USE BY ALL MEMBERS.

A major issue addressed in the report is the governance of Mohave, which is the basis for many of the findings. The Auditor General determined that MESC is a Mohave County entity subject to County rules and regulations. Mohave is working with the Auditor General and Attorney General on the governance issue. In addition to working with the Auditor General and Attorney General, Mohave has prepared a legislative amendment, that if passed, will resolve the governance issue, and many of the report’s findings.

Noted below are Mohave’s initial responses to the Auditor General’s five-point report summary.

1. The report alleges that MESC has not followed procurement statutes and rules.

Many items in the Auditor General’s report are seven years old and most have been corrected since the Auditor General’s investigation began. The phrasing of the report is often based upon the small quantity of instances presented by the report. It does not address the total cooperative purchasing program for the period of review nor the realities of that program today. For example, written determinations are prepared prior to using RFPs, evaluation and award criteria are listed in relative order of importance, award recommendations are substantiated and documented, and competition has increased with each new solicitation. All of these improvements and corrective actions occurred in the normal course of business, and did not result from either the investigation or the report.

2. The report alleges that MESC does not provide economic value for its members.

Mohave does provide economic value for its members and has done so for many years. Mohave provides its members with over 200 contracts covering a wide range of products and services. The members themselves have found the contracts to provide excellent value. If it were not for Mohave, its members would be paying millions more for goods and services. Much of the data in the Auditor General’s report is limited and in some cases incorrect.

The overcharge analysis in the report is based on old and expired contracts with one vendor. MESC does not agree with all of the overcharge findings and is attempting to negotiate and resolve this amount. Following our standard practice, we are prepared to recover and reimburse members for any valid overcharges.

The pricing analysis in the report, which compares MESC pricing to State contract pricing, was not based on similar procurements. The analysis used State contracts for School Facilities Board (SFB) large volume purchases for specified requirements. MESC contracts satisfy member requirements at the time of need and in quantities appropriate for any size entity. Additionally, MESC has discovered errors in the analysis.

The Auditor General’s report misstates the purpose of the savings studies, and raises irrelevant concerns. Likewise, the Auditor General’s allegation that MESC negligently oversaw member purchases is dependent on its conclusion that MESC owed a fiduciary duty to all members to verify each and every purchase order. No procurement cooperative does this, nor is it economically feasible to verify every purchase order. MESC does more verification than most cooperative purchasing entities.

3. The report alleges that MESC charges its members inequitably.

The Auditor General’s report is based upon an assumption that the word “shared” in A.R.S. § 15-365 means equal. Mohave members do share the administrative and general service costs of operating Mohave. Mohave County schools that belong to the MESC video library pay their share through a service fee to the video library. Mohave County schools not belonging to the video library pay the one percent administrative fee. MESC’s only expense regarding CES, the New Mexico cooperative, is the postage to mail contract copies. CES pays that expense.

The Auditor General’s report also includes old data regarding Arizona School Partners in Nutrition (ASPIN) and alleges that this program is in essence “subsidized” by MESC members. Today, ASPIN is 100 members strong and is in the process of reducing fees to members. ASPIN is self-supporting and has paid back the loan from Mohave.

4. The report alleges that MESC’s financial practices violate rules and regulations.

Mohave has operated for over 30 years following legal opinions issued by the Mohave County Attorney and Mohave’s own legal counsel. No one indicated that Mohave should have been following Mohave County Rules and Regulations until the Auditor General released the findings of its investigation.

Mohave’s operations are well known. Mohave has provided the Auditor General with an annual financial report every year for the past 10 years.

Outside of indicating that we should be under County oversight, the Auditor General’s issues primarily deal with documentation. Mohave is willing to properly document all of its operations.

Mohave staff members, government officials, Mohave members, and vendors have not personally benefited from our operations.

5. The report alleges that other MESC operations are improper.

Mohave believes the word improper to be very misleading due to its reliance on the Auditor General’s recent determination that MESC is a Mohave County entity.

Mohave purchased, acquired and holds property in accordance with legal opinions from the Mohave County Attorney.

Mohave County has never taken an active role in Mohave’s operations, providing no tax support, facilities, or direction on financial or procurement laws and rules.

The Mohave County School Superintendent established MESC as a school service agency under A.R.S. § 15-365. Mohave has consistently followed rules and regulations using the same standards that school districts do because we have been defined as a school service agency. This includes the use of the USFR, MESC Board Policy Manual, Arizona Procurement Code, and the procurement rules established by the Department of Education.

Mohave also feels that its members, who primarily are school districts, benefit from these policies in part because they must comply with the same rules. Thus, Mohave contracts must comply with the procurement rules applicable to school districts.

Mohave thanks our members, vendors and others for many years of support. Be assured that this matter is receiving our utmost attention and will be resolved. In the interim, you can continue to use our contracts and services with confidence.

Your past support has been an important factor in our ability to provide the valuable services you have used over the years. Your continued use of our contracts will be an important part of our ability to continue to provide you with those services.

Your comments and questions are always welcome. Please contact Tom Peeler, tom@mesc.org, Craig McKee, craig@mesc.org, or Mark DiBlasi, mark@mesc.org, with any questions regarding MESC contracts.