Introduction
The Role of the Judicial Council Within California’s Judicial Branch
California’s judicial branch is a separate, independent branch of state government consisting of the Supreme Court; courts of appeal; superior—or trial—courts; and administrative and policy entities, including the Judicial Council of California (Judicial Council). The California Constitution requires the Judicial Council to survey judicial business practices and make recommendations to the courts, the governor, and the Legislature regarding improvements to judicial administration. For example, the Judicial Council cosponsored the Trial Court Facilities Act of 2002, which shifted governance of California’s courthouse facilities from the counties to the State. According to the Judicial Council, this act was an important part of broader structural reforms to the judicial branch in California that transformed the trial courts into an integrated, state‑operated court system.
The Judicial Council consists of a policymaking body and support staff to that policymaking body. Members of the policymaking body include the chief justice of California and one other Supreme Court justice; three justices of the courts of appeal; 10 superior court judges; four members of the State Bar of California; several nonvoting members, including court executive officers; and a representative from each house of the Legislature. In addition, this policymaking body may appoint an administrative director to perform functions delegated by the policymaking body of the Judicial Council. The administrative director serves as the secretary for the policymaking body and performs administrative and policymaking functions as the law and the Judicial Council policymaking body direct. The Judicial Council policymaking body performs its constitutional and other functions with the support of its staff. In addition to performing various administrative functions, Judicial Council support staff can assist judicial branch entities, such as the state’s 58 superior courts, when they procure goods and services.
The California Judicial Branch Contract Law
The California Public Contract Code generally governs how state entities enter into contracts; how state entities acquire goods and services; and how those entities should solicit, evaluate, and award such contracts. In 2011 the State enacted the California Judicial Branch Contract Law (judicial contract law), which is a body of laws that requires judicial branch entities to follow procurement and contracting policies that are consistent with the California Public Contract Code and substantially similar to those found in the State Administrative Manual (SAM) and State Contracting Manual (SCM). In addition, the judicial contract law requires, with limited exceptions, that judicial branch entities notify the California State Auditor (state auditor) of all contracts they enter into that exceed $1 million in estimated value. The law further specifies that all administrative and information technology projects exceeding $5 million are subject to the review and recommendations by the California Department of Technology.
The judicial contract law also imposes other reporting requirements. Beginning in 2012 the judicial contract law requires the Judicial Council to submit semiannual reports to the Legislature and state auditor itemizing most of the judicial branch’s contracting activities. In addition, the judicial contract law requires the state auditor to commence a biennial assessment of the Judicial Council’s implementation of and compliance with the judicial contract law. We present the results of our most recent biennial assessment in this report.
The Judicial Branch Contracting Manual and State Procurement Requirements
The judicial contract law requires the Judicial Council to adopt and publish a contracting manual for the judicial branch. This law also requires that this manual—the Judicial Branch Contracting Manual (judicial contracting manual)—be consistent with the California Public Contract Code and substantially similar to the provisions contained in the SAM and the SCM. The SAM provides general fiscal and business policy guidance to state agencies, while the SCM provides more specific procedures in the areas of procurement and contract management. For example, the SCM and the California Public Contract Code include competitive bidding requirements and certain conflict‑of‑interest considerations.
In addition to requiring adherence to the judicial contracting manual, the judicial contract law requires that the Judicial Council and each judicial branch entity adopt a local contracting manual (local manual). The judicial contracting manual requires these local manuals to identify individual persons with responsibility and authority for specific procurement and contracting activities. Further, the judicial contracting manual identifies certain items that local manuals should include, such as processes and levels of approval authority that are consistent with applicable law.
In enacting the California Public Contract Code, the Legislature intended to achieve certain objectives, such as ensuring that state agencies comply with competitive bidding statutes; providing all qualified bidders with a fair opportunity to enter the bidding process; and eliminating favoritism, fraud, and corruption in the awarding of public contracts. The California Public Contract Code generally requires state agencies to secure at least three competitive bids or proposals for each contract, and it also describes certain conditions under which a contract may be awarded without obtaining at least three competitive bids or proposals. The SCM provides guidelines for these circumstances. For example, the SCM allows solicitation of bids from a single source for transactions of less than $5,000 when the state agency determines that the pricing is fair and reasonable. The judicial contracting manual similarly exempts procurements of less than $5,000 from competitive bidding requirements. Other circumstances in which the State’s procurement rules do not require three competitive bids include situations in which a contract is for legal services, cases in which a contract is for services with a state agency or local governmental entity, and other instances as defined by the California Department of General Services.
In addition, the judicial contracting manual outlines how a judicial entity can procure goods and services using purchase orders, contracts, and contract amendments. According to the judicial contracting manual, purchase orders are agreements that may be used for the purchase of goods, and these agreements are typically for “off the shelf” goods and software or for routine, low‑cost, or low‑risk services. Figure 1 outlines the process that the Judicial Council and the judicial branch entities use when they employ competitive bidding to enter into agreements—including purchase orders and contracts—to purchase goods or services from vendors.
Figure 1
The Judicial Branch’s Competitive Procurement Process for Contracts and Purchase Orders
Sources: The Judicial Branch Contracting Manual (judicial contracting manual), the California State Auditor’s observations, and its interviews with staff of the Judicial Council of California.
* Purchase orders are a type of agreement. According to the judicial contracting manual, judicial branch entities often use purchase orders for the purchase of goods and for services that are ancillary to the purchase of the goods. The judicial branch entities also typically use purchase orders for “off the shelf “goods and software or for routine, low‑cost, or low‑risk services.
Scope and Methodology
We conducted this audit according to the audit requirements contained in the California Public Contract Code, Section 19210, which is part of the judicial contract law. The judicial contract law requires the state auditor to perform biennial audits of the Judicial Council. Table 1 lists the audit objectives we developed and the methods we used to fulfill those objectives.
| AUDIT OBJECTIVE | METHOD | |
|---|---|---|
| 1 | Determine whether the Judicial Branch Contracting Manual (judicial contracting manual) is consistent with the requirements set forth in the California Judicial Branch Contract Law (judicial contract law). | We evaluated the July 2015 revision of the judicial contracting manual—the latest revision at the time of our review—to determine whether it is consistent with state standards. We focused on significant changes to the California Public Contract Code, the State Administrative Manual, and the State Contracting Manual that occurred between January 2013 and June 2015 and that apply to the judicial branch. |
| 2 | Determine to what extent the Judicial Council of California (Judicial Council) has implemented recommendations from our prior procurement audits. | We reviewed recommendations directed to the Judicial Council in prior audits by the California State Auditor (state auditor) about judicial branch procurements, and we followed up on recommendations that the Judicial Council had not yet fully implemented. |
| 3 | Assess the reliability of the Judicial Council data used in the Semiannual Report on Contracts for the Judicial Branch for the Reporting Period July 1 Through December 31, 2014, submitted by the Judicial Council to the Joint Legislative Budget Committee and the state auditor. | We followed up on the Judicial Council’s progress in addressing issues identified in our December 2013 audit report* related to our review of selected system controls over the Judicial Council’s Oracle Financial System and Phoenix Financial System. The Judicial Council uses information from these two systems in compiling the semiannual reports it submits to the Legislature and state auditor. The Oracle Financial System contains procurement and payment data specific to the Judicial Council and other judicial branch entities; whereas the Phoenix Financial System contains procurement and payment information related to the superior courts. |
| 4 | Determine whether the Judicial Council’s local contracting manual (local manual) conforms to the judicial contracting manual. | We compared the provisions of the Judicial Council’s most recent local manual to relevant provisions in the July 2015 judicial contracting manual. |
| 5 | Assess the Judicial Council’s internal controls over contracting and procurement practices and determine whether the entity complied with those controls and with key contracting and procurement requirements, including those related to competitive bidding and sole‑source contracting. | We interviewed staff and reviewed relevant documentation to identify key internal controls. We determined whether the Judicial Council followed these key controls by reviewing 60 procurements the Judicial Council made between July 2013 and June 2015. We examined whether the Judicial Council followed a competitive process for the selected procurements. If it did not, we identified whether it had an approved justification for not doing so. |
| 6 | Assess the Judicial Council’s internal controls over payment practices and determine whether it complied with those controls. | We interviewed staff and reviewed relevant documentation to identify key internal controls. We assessed whether the Judicial Council followed these key controls by reviewing 60 payments the Judicial Council made between July 2013 and June 2015. During our review, we determined whether the Judicial Council documented that staff had received the goods or services and whether the appropriate staff person approved payments to vendors. |
| 7 | Evaluate the Judicial Council’s contracts to determine whether the Judicial Council inappropriately split any contracts to avoid necessary approvals or competitive bidding requirements. | We identified the thresholds beyond which the Judicial Council must follow a competitive procurement process and obtain approval from certain levels of management. We then reviewed contract and purchase order data to identify potential split transactions and analyzed those transactions in detail. We did not identify any contracts that had been inappropriately split. |
| 8 | Review the appropriateness of transactions made with the state credit card or other court‑issued cards when those transactions exceeded a total of $100,000 or 10 percent of all reported payments during the period we audited. | According to our review of payments made from July 2013 through June 2015, the Judicial Council did not have credit card payments totaling more than $100,000 or representing more than 10 percent of all payments. We also reviewed purchases the Judicial Council made through American Express business travel and meeting planner accounts but found that these transactions were for general procurements, which we tested in Audit Objective 5. |
Sources: California Judicial Branch Contract Law, the state auditor’s planning documents, and the state auditor’s analysis of information and documentation identified in the column titled Method.
* Judicial Branch Procurement: Semiannual Reports to the Legislature Are of Limited Usefulness, Information Systems Have Weak Controls, and Certain Improvements in Procurement Practices Are Needed, Report 2013‑302 & 2013‑303, December 2013.
Assessment of Data Reliability
The U.S. Government Accountability Office, whose standards we are statutorily required to follow, requires us to assess the sufficiency and appropriateness of computer‑processed information that we use to support our findings, conclusions, or recommendations. In performing this audit we assessed the reliability of the Oracle Financial System and Phoenix Financial System data that the Judicial Council used to compile the Semiannual Report on Contracts for the Judicial Branch for the Reporting Period of July 1 through December 31, 2014. Further, we obtained electronic data files extracted from the Judicial Council’s Oracle Financial System related to procurement and payment data.
To assess the reliability of the Oracle and Phoenix financial systems, we evaluated the Judicial Council’s progress in addressing issues identified in our December 2013 audit report related to our review of select information system controls that the Judicial Council and superior courts implemented over their information systems. General controls are the policies and procedures that apply to all or a large segment of the Judicial Council’s information systems and help ensure their proper operation. In response to our identification of significant deficiencies in the controls over its information systems, in 2014 the Judicial Council adopted a framework of information system controls structured to align with the National Institute of Standards and Technology’s Special Publication 800‑53. Although the Judicial Council has made some progress in implementing the framework it adopted, pervasive weaknesses remain in the general controls over the Judicial Council’s information systems. Further, we reviewed a selection of audit reports the Judicial Council previously published concerning the weaknesses it identified in the information system controls at nine superior courts. We present the details of our review in the Audit Results.
Business process application controls relate directly to specific computerized applications—in this case, the Oracle Financial System and the Phoenix Financial System—and help to ensure that transactions are complete, accurate, valid, confidential, and available. The strength of general controls is a significant factor in determining the effectiveness of business process application controls. Because pervasive weaknesses remain in the general controls that the Judicial Council and superior courts have implemented over their information systems, we did not perform any testing of the Oracle Financial System’s or the Phoenix Financial System’s business process application controls.
The results of our review indicate that there is an unacceptably high risk that data from the applications the Judicial Council and superior courts currently use to perform their day‑to‑day operations could lead to an incorrect or improper conclusion. Therefore, we determined that the Oracle Financial System and the Phoenix Financial System data were not sufficiently reliable for the purposes of evaluating procurement activity or reporting procurement activities to the Legislature or to the state auditor. Although our determination may affect the precision of the numbers we present, there is sufficient evidence in total to support our audit findings, conclusions, and recommendations in this report.