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Audit finds state agencies gave at least $14K to improperly registered vendors

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A legislative audit found that state agencies paid at least $14,000 to vendors that were not properly registered with the Secretary of State's Office, as state code requires, from Jan. 7-11, 2013.

Members of the Legislature's joint committee on government operations heard the results of the audit June 21 as part of their monthly committee meetings in Wheeling.

Lawmakers were told the audit revealed that there is "some confusion" as to what is defined as doing business in the state, and the legislative auditor recommends the state's Purchasing Division review the status of the vendors the audit identified to be sure they comply with registration requirements or to verify that the vendors qualify for an exemption from the requirements.

Tina Baker, a research analyst with the West Virginia Legislative Auditor's Performance Evaluation and Research Division, told lawmakers the auditor obtained a list of all 4,023 vendors that received payments from state agencies from Jan. 7-11, 2013. From a sample of those vendors, 355 could not be found in the Secretary of State's Business Organization Database, and they were operating as corporations or limited liability companies, so they should have been registered. Of the 355 that could not be verified by the legislative auditor, 208 became verified by the Secretary of State's Office.

The office contacted the remaining 147 by mail to inform them that if they are operating in the state as corporations or limited liability companies, they must register as such.

Drilling down further into the audit results, the report stated that at least five organizations that should have been registered but not had received payments from state agencies during the time they were evaluated totaling $14,000. The majority of the organizations – 100 of the 147 – did not respond to the Secretary of State's Office mailing, so a repeat mailing went to those organizations, but the audit also points out the Secretary of State's Office does not have authority to do anything more.

Some of the confusion comes from the fact that the Purchasing Division has the authority to require vendors registering with the division to comply with the Secretary of State's registration requirements.

The five organizations that should have been registered but were not were: Charleston School of Beauty Culture, Forensic Psychology Center Inc., Four Roses Distillery LLC, Land Grant University Tax Education Foundation, Inc. and Valley Orthotic Specialists, Inc.

The divide between the Purchasing Division and the Secretary of State's registration creates separate systems, which Baker explained permits the Purchasing Division to register vendors that don't meet other requirement.

"Agencies think it's ok to buy from them, and it's not," she said. "Code does not define what it means to be doing business in the state."

Ross Taylor, Acting Cabinet Secretary for the West Virginia Department of Administration, also addressed the committee.

He said he does not "100 percent agree with the audit," and pointed out that registration with the Secretary of State's office is necessary to do business in the state but not necessarily with the state.

"There are issues," he said.

Taylor said the Purchasing Division takes the stance that an organization can register as a vendor within Purchasing and never do business with the state, but that registration allows them to go in to the Purchasing system to see various bid documents to determine if there are contracts they would like to bid on.

West Virginia Code and West Virginia Code of State Rules require vendors that sell goods or services to the state to be registered with the West Virginia Purchasing Division unless the vendor is a purchasing card vendor that provides travel-related services or receives less than $25,000 total in a year from a spending unit.

The Purchasing Division conducts some checks to be sure vendors are registered with regulatory agencies, and the audit states that the Legislative Auditor will follow up with both the Secretary of State's Office and the Purchasing Division.

Lawmakers had several questions about the various requirements and systems of registration.

Sen. Bill Cole, R-Mercer, said the state should be trying to make itself more accessible to businesses, and discounted claims that a new computer system would solve some of the purchasing problems.

"If you don't have a good policies and procedures, a new computer system is only going to replace the old system," Cole said. "It seems like there is a terrible lack of communication in state government that needs fixed, and it's not a computer system."