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  • 1. Lecture 12: Purchasing and Risk Management EDA 757 / PPA 730 Education Policy
  • 2. Lecture 12 Outline <ul><li>Purchasing and inventory management: </li></ul><ul><ul><li>Objectives/tradeoffs </li></ul></ul><ul><ul><li>Legal constraints </li></ul></ul><ul><ul><li>Process </li></ul></ul><ul><ul><li>Possible efficiency improvements </li></ul></ul><ul><li>Risk management: </li></ul><ul><ul><li>Risk identification </li></ul></ul><ul><ul><li>Risk evaluation </li></ul></ul><ul><ul><li>Risk reduction </li></ul></ul><ul><ul><li>Risk finance </li></ul></ul>
  • 3. Objectives of Purchasing Management <ul><li>“ procurement is obtaining the right product, at the right time, from the right source, and at the right price.” (“Program Control and Audit: Handbook for Managers and Auditors,” David Hancox and Martin Ives, Sheshunoff Inc, 1997, p. 6-1. </li></ul><ul><li>To match needs of instructional and operating staff. </li></ul><ul><li>To have materials and supplies to them when they need it. </li></ul><ul><li>To provide these at the lowest price possible. </li></ul><ul><li>To control procurement function to avoid fraud, theft, and unethical practices. </li></ul>
  • 4. Tradeoffs in Purchasing and Inventory Management <ul><li>Centralization vs. decentralization: Centralized purchasing permits larger purchases, lower prices, and more inventory control. Decentralized purchasing reduces transportation time, and may better match needs of school staff. </li></ul><ul><li>Flexibility vs. formal procurement procedures: Formal procedures can standardize procurement, reduce possibility for fraud, and may lead to more price efficiencies. However, this may come at cost of slower supply times, and less flexibility in what is purchased. </li></ul><ul><li>Volume purchasing vs. cost of storage: Large volume purchasing particularly in off-peak times permit lower prices. However, this will also tend to increase the inventory raising warehousing cost and loss of returns because of slower turnover of inventory. </li></ul>
  • 5. Legal Constraints on Public Purchasing <ul><li>Public purchasing is much more tightly controlled than private purchasing—concern about financial accountability. Procurement law and regulations developed by each state. Areas of law include: </li></ul><ul><li>Who can sign legal contracts? Boards of education have the statutory responsibility for all contracts. They can delegate responsibility to a “purchasing agent,” but cannot delegate their “discretionary duties” regarding contracts. In New York, boards of education can delegate purchasing responsibility to purchasing agents. </li></ul><ul><li>How are contracts handled? States define when contracts have to be competitively bid, and the bidding process. </li></ul><ul><li>What are illegal or unethical practices? State law will typically define what is collusion in bidding, and conflicts of interest. </li></ul><ul><li>In New York, purchasing law is imbedded in both the General Municipal Law, and Regulations of the Commissioner of Education (see below). </li></ul>
  • 6. Legal Constraints in NY: Competitive Bidding <ul><li>“ Except as otherwise expressly provided by an act of the legis-lature or by a local law adopted prior to September first, nineteen hundred fifty-three, all contracts for public work involving an expenditure of more than twenty thousand dollars and all purchase contracts involving an expenditure of more than ten thousand dollars , shall be awarded by the appropriate officer, board or agency of a political subdivision or of any district therein including but not limited to a soil conservation district, to the lowest responsible bidder furnishing the required security after advertisement for sealed bids in the manner provided by this section.” </li></ul><ul><li>General Municipal Law, Section 103, </li></ul><ul><li>http://assembly.state.ny.us/leg/?cl=48&amp;a=8 </li></ul>
  • 7. <ul><li>“ &amp;quot;Installment purchase contract&amp;quot; shall mean any lease purchase agreement, installment sales agreement or other similar agreement providing for periodic payments between a corporation, person or other entity and a political subdivision which has as its purpose the financ- ing of equipment, machinery or apparatus.” </li></ul><ul><li>“ (d) The term of such installment purchase contract, including all renewals thereof, shall not exceed the period of probable usefulness prescribed by section 11.00 of the local finance law for the equipment, machinery or apparatus being financed under the installment purchase contract.” </li></ul><ul><li>“ 3. (a) Installment purchase contracts for equipment, machinery or apparatus shall constitute purchase contracts for public bidding purposes and shall be subject to public bidding requirements to the extent applicable by law. For purposes of determining whether the cost of the equipment, machinery or apparatus exceeds the monetary threshold fixed in section one hundred three of this article, the cost of the equipment, machinery or apparatus, exclusive of the cost of financing, shall be considered.“ </li></ul>Legal Constraints in NY: Installment Purchase Contracts (leases)
  • 8. Legal Constraints in NY: Advertisement of Bid Process <ul><li>“ Advertisement for bids shall be published in the official newspaper or newspapers, if any, or otherwise in a newspaper or newspapers designated for such purpose. Such advertisement shall contain a statement of the time when and place where all bids received pursuant to such notice will be publicly opened and read. Such board or agency may by resolution designate any officer or employee to open the bids at the time and place specified in the notice. Such designee shall make a record of such bids in such form and detail as the board or agency shall prescribe and present the same at the next regular or special meeting of such board or agency. All bids received shall be publicly opened and read at the time and place so specified. At least five days shall elapse between the first publication of such advertisement and the date so specified for the opening and reading of bids.” </li></ul><ul><li>General Municipal Law, Section 103(2). </li></ul>
  • 9. Legal Constraints in NY: Non-Collusion Among Bidders <ul><li>“ Statement of non-collusion in bids and proposals to political subdivision of the state. …(a) By submission of this bid, each bidder and each person signing on behalf of any bidder certifies, and in the case of a joint bid each party thereto certifies as to its own organization, under penalty of perjury, that to the best of knowledge and belief: (1) The prices in this bid have been arrived at independently without collusion, consultation, communication, or agreement, for the purpose of restricting competition, as to any matter relating to such prices with any other bidder or with any competitor; (2) Unless otherwise required by law, the prices which have been quoted in this bid have not been knowingly disclosed by the bidder and will not knowingly be disclosed by the bidder prior to opening, directly or indirectly, to any other bidder or to any competitor; and (3) No attempt has been made or will be made by the bidder to induce any other person, partnership or corporation to submit or not to submit a bid for the purpose of restricting competition… “ </li></ul><ul><li>General Municipal Law, Section 103-d. </li></ul>
  • 10. Legal Constraints in NY: Conflicts of Interest <ul><li>§801. Conflicts of interest prohibited </li></ul><ul><li>“ Except as provided in section eight hundred two of this chapter, (1) no municipal officer or employee shall have an interest in any contract with the municipality of which he is an officer or employee, when such officer or employee, individually or as a member of a board, has the power or duty to (a) negotiate, prepare, authorize or approve the contract or authorize or approve payment thereunder (b) audit bills or claims under the contract, or (c) appoint an officer or employee who has any of the powers or duties set forth above and (2) no chief fiscal officer, treasurer, or his deputy or employee, shall have an interest in a bank or trust company designated as a depository, paying agent, registration agent or for investment of funds of the municipality of which he is an officer or employee. The provisions of this section shall in no event be construed to preclude the payment of lawful compensation and necessary expenses of any municipal officer or employee in one or more positions of public employment, the holding of which is not prohibited by law.” </li></ul>
  • 11. Purchasing Policy <ul><li>It is highly recommended that school districts develop formal purchasing policies approved by the board, which include guidelines for: </li></ul><ul><li>“ a. Responsibility for the development and administration of the purchasing program. </li></ul><ul><li>b. Annual designation of the purchasing agent at the organizational meeting. </li></ul><ul><li>c. Use of quotations and adherence to the bidding statute. </li></ul><ul><li>d. Bidding procedure and criteria for evaluating bid proposals and award of competitive bids. </li></ul><ul><li>e. Purchase of materials through State Contracts whenever such purchases are in the best interest of the school district. </li></ul><ul><li>f. Standardization of frequently used items in the interest of efficiency and economy. </li></ul><ul><li>g. Utilization of a purchasing calendar to schedule the purchase of materials and services. </li></ul><ul><li>h. Use of petty cash for only those items which require payment upon delivery (in compliance with Commissioner&apos;s Regulation 170.4). </li></ul><ul><li>i. Prohibition against issuance of confirming orders except for emergencies approved by the purchasing agent. </li></ul><ul><li>j. Maintenance of a specification file and lists of responsible bidders and suppliers. </li></ul><ul><li>k. Handling of approved requisitions. </li></ul><ul><li>l. Preparation and handing of purchase orders. </li></ul><ul><li>m. Approval of all claims by the purchasing agent as &amp;quot;officer giving rise to claim&amp;quot; and the audit procedure for payment. </li></ul><ul><li>n. Establishment of open purchase orders with local vendors for items of immediate need. </li></ul><ul><li>o. Maintenance of an inventory of equipment. </li></ul><ul><li>p. The procedure for receiving, storing, inventorying, and distributing of supplies, materials and equipment.” </li></ul><ul><li>SED, “School Business Management Evaluation Checklist.” p. 30. </li></ul>
  • 12. Purchasing Process <ul><li>Purchasing process even in small district can be a complex process if control on purchasing is going to be maintained. </li></ul><ul><li>Purchasing manual is the formal document for district staff describing: </li></ul><ul><ul><li>Purchasing guidelines and ethical standards </li></ul></ul><ul><ul><li>Methods / competitive bidding requirements </li></ul></ul><ul><ul><li>Purchasing process—key steps. </li></ul></ul><ul><ul><li>Formal procedures including description of the key forms that have to be filled out (description of paper trail). </li></ul></ul><ul><ul><li>Key actors in the process and who has responsbility for specific functions—used to separate those that order supplies from those that receive and store them. </li></ul></ul><ul><li>Examples of purchasing manuals: </li></ul><ul><li>http:// www.killeenisd.org/Purchasing/purchmanual.htm </li></ul><ul><li>http://atc.ccsd.k12.wy.us/purchasing/purm01.html </li></ul>
  • 13. Purchasing Process <ul><li>Recognition of need: issuing of requisition as part of budgeting process or special requests. </li></ul><ul><li>Check of availability in inventory. </li></ul><ul><li>Check of whether it is on standard list. </li></ul><ul><li>If not, develop specifications. </li></ul><ul><li>Request bid or quote. </li></ul><ul><li>Issue purchase order. </li></ul><ul><li>Receipt of good/payment of vendor. </li></ul><ul><li>Storage in warehouse and dispursement. </li></ul><ul><li>See “School District Purchasing” in Principles of School Business Management , second edition, 1995. </li></ul>
  • 14. Item requisitioned Is item on standardized list? Issue purchase order Is request an emergency/rush? Only one vendor qualified? Is competitive bidding required? Follow procedures and issue purchase order Bypass normal procedures but issue purchase order Document reasons and issue purchase order Competitive bidding (Is price main criteria? Invitation-for-bid process Contract awarded. Request for proposal. Contract awarded. No No No No No Yes Yes Yes Yes Yes Figure 12-1: Decision Chart for Effective Procurement Source: “Program Control and Audit: Handbook for Managers and Auditors,” David Hancox and Martin Ives, Sheshunoff Inc., 1997.
  • 15. Requisition Purchase Order Invoice / receiving ticket Key Documents Key Actors Teachers/operating staff Principal Purchasing Agent Business office /accounting office Warehouse Vendor Issue Copies Figure 12-2: Purchasing Paper Trail
  • 16. ADVERTISEMENT FOR BIDS Notice is hereby given that sealed bids will be received in the Office of Purchasing and Warehouse Services at the Killeen Independent School District, 2301 Atkinson, Killeen, Texas 76543, until 2:00 PM local time for the following bids: Bid Name: TRUCKS &amp; AUTOMOBILES (POLICE SUV) Due Date: October 29, 2002 Brief Description: KISD is accepting sealed bid proposals for the purchase of police SUV&apos;s as per specifications. Bid Name: PRINTING SERVICES Due Date: October 29, 2002 Brief Description: KISD requests proposals from qualified Vendors for providing Printing Services for its campuses.
  • 17. <ul><li>CHINLE UNIFIED SCHOOL DISTRICT NO.  24 </li></ul><ul><li>CHINLE, ARIZONA 86503 </li></ul><ul><li>REQUEST FOR PROPOSAL FOR RFP01-1252- FOOD SERVICE MANAGEMENT SERVICES </li></ul><ul><li>Sealed bids will be accepted until April 4, 2000, 4:00 p.m. Mountain Standard Time and opened immediately at the District Administration Building.  A prebid  conference and District tour will be conducted on March 21, 2000 at the District Administration Conference room.  All questions reqarding the pre-bid conference must be received by the District (Fax is acceptable) at least five (5) working days before the March 21, 2000 meeting.  Following a review of the proposals,  a formal recommendation will be submitted to the District Governing Board. </li></ul><ul><li>To obtain bid specifications,  contact:  Vikki Shirley, Purchasing Agent, (520)674-9647.  Bids may be mailed to:  Vikki Shirley, Purchasing Department,  Chinle Unified School District No. 24,  PO Box 587, Chinle, Arizona 86503. </li></ul><ul><li>Firms must return bid in a sealed envelope with bid number and the firm&apos;s name and address clearly indicated on the envelope. </li></ul><ul><li>NOTE:   If you are to rely on Federal Express for bid delivery, you must allow an extra 24 hours. </li></ul><ul><li>PUBLIC RECORDS:  All bids submitted in response to this request for proposal shall become the property of the District and will become a matter of public record available for review, subsequent to award notification, as provided for by the Arizona Procurement Code. </li></ul><ul><li>Chinle Unified School District #24 Governing Board reserves the right to reject any or all bids or informality in any bid. </li></ul><ul><li>Advertisement to appear in the following publications: </li></ul><ul><li>Gallup Independent </li></ul><ul><li>Farmington Daily Times </li></ul><ul><li>Albuquerque Journal </li></ul><ul><li>Navajo Times </li></ul><ul><li>Mesa Tribune </li></ul><ul><li>Publication dates:   March 11 AND March 18 Navajo Times: March 9 and March 16 </li></ul>Bids and RFP&apos;s for Materials and Services
  • 18. Procurement Management: Best Practices <ul><li>Standard supply lists: </li></ul><ul><li>“ Standard supply lists are composed of a grouping of similar items for which a standard of quality has been established. Such lists can be an effective tool in an efficient budget development process by serving in lieu of requisitions. Both the budgeting and purchasing functions are thereby simplified. Because of the large amount of data, which must be manipulated, and the repetitiveness of the operation, this type of analysis and planning should be computerized. To be most effective, these lists should: </li></ul><ul><ul><li>Be developed cooperatively between the purchasing agent and representatives of the staff who will use the items contained on the list. </li></ul></ul><ul><ul><li>Be coded, differentiating types of supplies, equipment and textbooks. </li></ul></ul><ul><ul><li>Make provision for addition of new items to the list. </li></ul></ul><ul><ul><li>Be updated annually to retain their value. </li></ul></ul><ul><ul><li>Reflect current price estimates </li></ul></ul><ul><ul><li>Allow for an indication of current inventories.” </li></ul></ul><ul><li>Source: SED, “Purchasing Guildance,” http://www.emsc.nysed.gov/mgtserv/Purchasing%20Article%202%20revised.doc </li></ul>
  • 19. Procurement Management: Best Practices <ul><li>Purchasing cooperatives: </li></ul><ul><ul><li>To take advantage of lower prices from volume purchases, small districts can join together to form purchasing cooperatives, or take advantage of other purchasing options. In New York these include: </li></ul></ul><ul><ul><li>Using BOCES for central purchasing </li></ul></ul><ul><ul><li>Using state buying cooperatives (NY Office of General Services) </li></ul></ul><ul><ul><li>Using buying groups of several districts. </li></ul></ul>
  • 20. NY Office of General Services Procurement Services <ul><li>Benefits of Using OGS Contracts </li></ul><ul><li>Since 1953 political subdivisions (cities, towns, villages, counties and public schools) have been </li></ul><ul><li>eligible to use OGS contracts to purchase materials, equipment and supplies at competitive prices. In </li></ul><ul><li>addition to political subdivisions, many other entities, such as fire districts, volunteer ambulance </li></ul><ul><li>companies, libraries, private schools and colleges are also eligible to use OGS contracts. (A complete list </li></ul><ul><li>is on page 5 and at our website: www.ogs.state.ny.us/purchase/snt/othersuse.asp ) </li></ul><ul><li>One of the great advantages to local governments using OGS contracts is that, because they are </li></ul><ul><li>established through a competitive bidding system, OGS contracts meet the competitive bidding </li></ul><ul><li>requirements of the General Municipal Law. </li></ul><ul><li>OGS leverages the State’s buying power by combining State and local government agency </li></ul><ul><li>requirements to establish contracts for considerable quantities. OGS contracts also reduce administrative </li></ul><ul><li>costs because OGS handles bid solicitation and evaluation, as well as contract development and </li></ul><ul><li>management. </li></ul><ul><li>OGS contracts can also: </li></ul><ul><li>. Save 10 to 40 percent of average purchase prices </li></ul><ul><li>. Reduce or eliminate the time required to research specifications </li></ul><ul><li>. Enhance and simplify the purchase process </li></ul><ul><li>. Minimize the time required to identify responsible vendors </li></ul><ul><li>. Ensure product and service quality </li></ul><ul><li>. Meet recycling/energy efficient objectives. </li></ul><ul><li>http://www.ogs.state.ny.us/purchase/AboutPSG.asp </li></ul>
  • 21. Example of BOCES Cooperative Purchasing (Delaware, Chenango, Madison, Otsego) <ul><li>“ This service enables participating districts and municipalities, large and small, to secure pricing and advantages of large volume purchasing through aggregated bidding. The main philosophy of the service is to be cost effective, that is, to obtain and ensure the best products at the best possible price for each member. </li></ul><ul><li>The authority to jointly bid comes from the New York General Municipal Law, Section 119-o that permits public entities to join together for the purpose of purchasing cooperatively. Cooperative bids are conducted for a wide variety of products; such as computers, vehicles, school supplies, food, and building materials, to name a few. </li></ul><ul><li>The service also provides the following benefits to participating members: </li></ul><ul><li>Reduces staff time in the bidding and quoting of products </li></ul><ul><li>Saves members the cost of legal ads, postage and paper </li></ul><ul><li>Provides quality products at the lowest price available </li></ul><ul><li>Saves the members from potential legal risks by complying with laws regarding purchasing </li></ul><ul><li>Provides the writing of specifications and boilerplates for individual bids conducted by members </li></ul><ul><li>State contract information </li></ul><ul><li>Specification research” </li></ul><ul><li>Source: http://www.dcmoboces.com/dcmomanser/copur/ </li></ul>
  • 22. Example of Regional Purchasing Group <ul><li>“ The Leatherstocking Region Purchasing Group (LRPG) , is a group of municipal agencies that recently joined forces to create a Regional Bid Notification System to notify businesses of our bid and contract opportunities. Businesses will now have access to all LRPG participating agencies bid information from one single website.  This system provides instant access to all of our Bids, RFP&apos;s, Quotes, Amendments and Awards online.  Three agencies will lead the LRPG and begin posting bid information the week of June 24th, 2002.  They are Otsego County, the City of Oneonta and the Oneonta City School District.  Many other agencies in this region are expected to join in the near future. Effective 6/3/2002, vendors may register to access bids, quotes, amendments and award information, by clicking on the &amp;quot;Vendor Registration&amp;quot; link below.  If you need assistance when registering, please contact BidNet .  BidNet provides all technical and customer support for the LRPG system and will be happy to assist you anytime.” </li></ul><ul><li>http://www.govbids.com/scripts/LRPG/public/home1.asp </li></ul>
  • 23. Procurement Management: Best Practices <ul><li>Purchasing calendars: </li></ul><ul><li>“ Typically, most teaching supplies and equipment are purchased during the summer months. Volume purchasing and bidding during the months of June, July and August should be avoided since suppliers are generally experiencing their busiest season of the year. As a result, their bid prices tend not to be as competitive as they might be at other times of the year. The heavy demands of the summer months have depleted the stocks of suppliers, with consequent short orders, back orders, and substitutions. All this leads to partial deliveries, partial payments, correspondence, and negotiation problems. </li></ul><ul><li>Good business practice requires that total purchases of particular types of items be planned to occur at times when the best prices can be obtained and prompt deliveries can be made, so that the requisitioner will have these items available when they are needed. </li></ul><ul><li>The purchasing agent should initiate a purchasing schedule and develop a purchasing calendar to facilitate the purchasing function. This will help coordinate the purchasing cycle on a weekly, monthly, and yearly basis. In addition, the establishment of a weekly purchasing schedule will allow for the receipt of requisitions, encumbering, and the issuance of purchase orders on specific days. This will more evenly distribute the office workload and encourage the combining of small orders. It will also result in fewer purchase orders and in accounting records being more accurately maintained. </li></ul><ul><li>The cyclical calendar will establish dates on which certain classes of items will be purchased. Most of these items will be taken from the requisitions of standard supply lists used in budget development and, where necessary, bids will be secured. </li></ul><ul><li>Source: SED, “Purchasing Guildance,” http://www.emsc.nysed.gov/mgtserv/Purchasing%20Article%202%20revised.doc </li></ul>
  • 24. Example of Purchasing Calendar
  • 25. Procurement Management: Best Practices <ul><li>Computerized purchasing/inventory system: District ideally would have relational database with records on: </li></ul><ul><ul><li>Vendors </li></ul></ul><ul><ul><li>Supplies/materials (catalog) </li></ul></ul><ul><ul><li>State purchase contracts </li></ul></ul><ul><ul><li>Standard supply lists </li></ul></ul><ul><ul><li>Purchase orders </li></ul></ul><ul><ul><li>Requisitions </li></ul></ul><ul><ul><li>Bids </li></ul></ul><ul><ul><li>Inventories </li></ul></ul>
  • 26.   VENDOR UPDATE FOR BID LIST If you would like for your business to be added to the KISD Purchasing Bid List, please fill out the form below and click the submit button. Example of Form to Collect Supplier Information                     KILLEEN INDEPENDENT SCHOOL DISTRICT Purchasing &amp; Warehousing Services 2301 Atkinson Drive Killeen, TX  76543 Phone (254) 501-0104 Fax     (254) 520-1820 www.killeenisd.org/purchasing/purfront.htm   BUSINESS WEBSITE FAX NUMBER: TELEPHONE NUMBER: TOLL FREE NUMBER: POINT OF CONTACT: ADDRESS: VENDOR NAME:
  • 27. Procurement Control System <ul><li>Key components: </li></ul><ul><ul><li>Formal and open bidding process </li></ul></ul><ul><ul><li>Separation of ordering and receiving functions. </li></ul></ul><ul><ul><li>Carefully manager purchasing/inventory records systems. </li></ul></ul><ul><ul><li>Occasional audits of procurement system: </li></ul></ul><ul><ul><ul><li>Requisitions </li></ul></ul></ul><ul><ul><ul><li>Purchase orders </li></ul></ul></ul><ul><ul><ul><li>Non-competitive bids </li></ul></ul></ul><ul><ul><ul><li>Receiving ticket versus invoices. </li></ul></ul></ul>
  • 28. Inventory Management <ul><li>Key decisions: </li></ul><ul><ul><li>Location of inventory: central versus decentralized storage. </li></ul></ul><ul><ul><li>Inventory system: </li></ul></ul><ul><ul><ul><li>Perpetual inventory—requires good computerized inventory system. </li></ul></ul></ul><ul><ul><ul><li>Periodic inventory—less accurate and expensive. </li></ul></ul></ul><ul><ul><li>Size of inventory </li></ul></ul>
  • 29. Inventory Control System <ul><li>Tradeoff between availability and rate of return. </li></ul><ul><li>Just-in-time inventory (JIT): Have supplies just in time for use. Minimizes the holding cost for inventory but requires sophisticated inventory management system and relationships with suppliers. </li></ul><ul><li>Economic order quantity (EOQ): </li></ul>Where: S = Estimated demand or usage O = Ordering cost per order H = Holding cost (interest rate per year) U = Cost per unit EOQ balances the cost of ordering more supplies against the lost interest cost from holding the inventory.
  • 30. Other Purchasing Examples <ul><li>Anchorage purchasing department: http://www.asdk12.org/depts/purchasing/ </li></ul><ul><li>http://www.laredoisd.org/departments/purchasing/default.htm </li></ul><ul><li>Bid Process: </li></ul><ul><li>http://www.gwinnett.k12.ga.us/gcps-purchasingweb01.nsf/14ae2105f1707b2e8525675b005508cf/854064412ee7a372852567e60071af0f?OpenDocument </li></ul><ul><li>http://www.davis.k12.ut.us/purchasing/bids.htm </li></ul>
  • 31. Risk Management <ul><li>“ Risk management includes the identification and measurement of risk, as well as the processes for dealing with losses in all areas – from property to people.” (Walter Hack, Carl Candoli, John Ray. 1998. School Business Administration . Boston: Allyn and Bacon, Chapter 13: “Risk Management and Insurance,” p. 317.) </li></ul>
  • 32. Key Steps in Risk Management <ul><li>Identification of risk: Determine the main sources of risk to the school district. </li></ul><ul><li>Evaluate and prioritize risk: Estimate the probability and severity of each source of risk. </li></ul><ul><li>Risk reduction or elimination: Implement program to reduce risks (and eliminate as many as possible). </li></ul><ul><li>Risk finance: Decide how to finance the remaining risks. </li></ul><ul><li>Key Actor: Risk manager is someone hired specifically to manage this function. Should be senior staff under SBO if possible. Should be included as part of many committees to decide curriculum, facilities, employee benefits, etc. See following example. </li></ul>
  • 33. Director of Risk Management—Example (Montebello SD, CA) <ul><li>“ DIRECTOR OF RISK MANAGEMENT  </li></ul><ul><li>BASIC FUNCTION:  </li></ul><ul><li>Under the direction of the Business Manager, plan, organize, implement and administer a comprehensive risk management program for the District including liability and property self-insured and insured programs, safety and loss control programs, a self-insured worker&apos;s compensation program, health and welfare benefits and other programs related to employee and pupil safety; coordinate committees and training related to District safety issues; serve as Safety Officer for the District and direct regulatory compliance programs; train, assign, and evaluate the work of assigned personnel.”  </li></ul><ul><li>http://www.montebello.k12.ca.us/class-jobs/listing/jobs/drm.htm </li></ul>
  • 34. Director of Risk Management—Example (Montebello, CA) <ul><li>“ REPRESENTATIVE DUTIES:  </li></ul><ul><li>Plan, organize, implement, and administer a comprehensive risk management program for the District; perform research in the areas of risk management to determine means to contain the incidence and cost of losses, insurance and other expenditures.  </li></ul><ul><li>Administer the property and liability self-insured programs; determine insured and self- insured coverage&apos;s, place insurance and recommend third-party administrators; review and investigate accidents and claims; participate in litigation procedures and negotiate District settlements where authorized.  </li></ul><ul><li>Direct a self-insured worker&apos;s compensation program; establish and implement methods of proper reporting, investigating, and paying claims and benefits; consult with District general counsel regarding attorneys, propose vendors and investigators for litigated cases; monitor activities of third party administrators. Work with District legal counsel on property damage, liability and worker&apos;s compensation claims administration.  </li></ul><ul><li>Develop and coordinate health and welfare benefits coverage for District employees and retirees, including health, vision, life and employee assistance plans; counsel employees in need of advice regarding insurance and worker&apos;s compensation; analyze insurance coverage needs, research insurance options, and present alternatives to benefits negotiators.  </li></ul><ul><li>Negotiate annual premiums with health care providers and monitor compliance with contracts; coordinate eligibility, review contract language and resolve disputes; coordinate distribution of benefits information to employees.  </li></ul><ul><li>Communicate with District administrators, bargaining units, vendors and employees to distribute a variety of information and to assist in cost containment of benefits and liability coverage; provide technical expertise regarding risk management and safety programs and procedures.  </li></ul><ul><li>Serve as District Safety Officer and assure documentation and record-keeping of regulated programs and materials, injuries and illnesses; coordinate training of employees in the proper use, control, disposal and documentation of hazardous materials.  </li></ul><ul><li>Develop safety programs to comply with Federal, State and local safety laws and regulations; analyze current safety programs and revise to improve effectiveness and to comply with changes in applicable laws, regulations and policies.  </li></ul><ul><li>Inspect District facilities and property for safety issues and to assure compliance with safety laws and regulations; maintain required illness, accident and safety records; assist building and safety inspectors.”  </li></ul>
  • 35. Risk Identification <ul><li>Determine the areas of potential risk: </li></ul><ul><ul><li>Employees (health, safety, misconduct). </li></ul></ul><ul><ul><li>Students (safety and security, transportation, harassment). </li></ul></ul><ul><ul><li>Other citizens (safety issues). </li></ul></ul><ul><ul><li>Buildings and property (natural disasters, fire, theft, vandalism). </li></ul></ul><ul><ul><li>Transportation (accidents, theft, safety and health of students). </li></ul></ul>
  • 36. Risk Management Committee <ul><li>“A risk management committee is a group of people charged with developing and overseeing an organization’s risk management program. The committee has three primary responsibilities: </li></ul><ul><ul><li>Identify the organization’s exposures; </li></ul></ul><ul><ul><li>Develop a risk control program; and </li></ul></ul><ul><ul><li>Establish a risk financing strategy.” </li></ul></ul><ul><li>Source: “Mission Accomplished the Seminar.” Nonprofit Risk and Management Center, www.nonprofitrisk.org </li></ul>
  • 37. Example of Safety Team—Kent School District (Washington) <ul><li>“ Safety Team </li></ul><ul><li>The district has a safety team composed of employer elected and employer selected members.  </li></ul><ul><li>The main function of the team is to monitor the effectiveness of the Accident Prevention Program. It accomplishes this by:  </li></ul><ul><li>1. Conducting periodic facility inspections </li></ul><ul><li>2. Reviewing inspection reports from outside agencies </li></ul><ul><li>3. Reviewing accident/investigations to ensure corrective actions have been taken and that they are appropriate </li></ul><ul><li>4. Investigating any hazards reported to them by employees </li></ul><ul><li>  Another major function is to communicate the safety message to district employees through the Meeting Minutes and Safety Bulletin Boards.  </li></ul><ul><li>They also keep the district administrators informed of all safety matters, and coordinate their support in correcting identified problems.”  </li></ul>
  • 38. Evaluating and Prioritize Risk <ul><li>Estimating the potential exposure of the district to risk involves determining for each potential risk: </li></ul><ul><ul><li>The probability of the accident/incident occurring (frequency). </li></ul></ul><ul><ul><li>The average (and maximum) cost associated with an incident. </li></ul></ul><ul><li>This can be represented by the following “risk map” (similar to Figure 13-1 in Ch. 13). </li></ul>
  • 39. Source: http://www.riskinstitute.org/ptrdocs/riskidpdfs/Appendix_A.pdf
  • 40. Risk Reduction and Avoidance <ul><li>Avoidance: Develop strategies for avoiding some types of risk (e.g., decide to not have some high risk programs, activities, sports, etc.) </li></ul><ul><li>Reduction: Most risks can’t be eliminated but they can be reduced through: </li></ul><ul><ul><li>Training of employees (students) –see following. </li></ul></ul><ul><ul><li>Programs to reduce risk (e.g., employee/student health and wellness programs, internet security, school safety, etc.). </li></ul></ul><ul><ul><li>Replacement of hazardous equipment/facilities (e.g., unsafe wiring, asbestos/lead from buildings, removal of toxic chemicals, etc. </li></ul></ul><ul><li>Transfer: shifting the risks to another party (e.g., contractor, parents, another government). Important to have a “hold harmless” agreement that identifies risk not assumed by district. </li></ul>
  • 41. Example of Employee Risk Training—Kent School District <ul><li>“ Employee Training and Information </li></ul><ul><li>Risk Management is responsible for MSDS training of all employees. He will ensure that all program elements specified below are carried out. </li></ul><ul><li>  Prior to starting work, each new employee of the Kent School District will attend an orientation that includes the following information and training:  </li></ul><ul><ul><li>An overview of the requirements contained in the Hazard Communication Standard. </li></ul></ul><ul><ul><li>Hazardous chemicals present at his or her workplace. </li></ul></ul><ul><ul><li>Physical and health risks of the hazardous chemical. </li></ul></ul><ul><ul><li>The symptoms of overexposure. How to determine the presence or release of hazardous chemicals in his or her work area. </li></ul></ul><ul><ul><li>How to reduce or prevent exposure to hazardous chemicals through use of control procedures, work practices and personal protective equipment. </li></ul></ul><ul><ul><li>Steps the company has taken to reduce or prevent exposure to hazardous chemicals. </li></ul></ul><ul><ul><li>How to access the MSDS database to obtain hazard information.” </li></ul></ul>
  • 42. Example of Employee/Student Wellness Program http://www.washoe.k12.nv.us/wellness/ Sunday, October 27, 2002                                                                                                                                                                                                                                      Weekly Wellness Tip: Oct. 21 - Oct. 25 2002 Flu Shot Schedule 2003 Open Enrollment Annual Wellness Report: Fiscal Year 01-02 Exercise For Life! Buckle Up America! Pictures: Mount Rose Summit Pictures: Jones-Whites Creek Domestic Violence Awareness Month - October The President&apos;s Health and Fitness Initiative 2003 Good Health Incentive Program Site Wellness Coordinators and Committees Employee Assistance Program Garden Growing Competition - Results Surgeon General&apos;s Health Information Prevalence and Trends in Obesity - JAMA U.S. Adult Obesity Epidemic National Health Observances - October 2002
  • 43. Source: http://www.riskinstitute.org/ptrdocs/riskidpdfs/Appendix_A.pdf Assessment of Costs and Benefits of Risk Management Strategies
  • 44. Financing Risk <ul><li>Ultimately, it is impossible to eliminate all risk. Decisions have to be made over how and whether to finance risk. Choices include: </li></ul><ul><li>Insurance: Pay 3 rd party to insure against the losses associated with certain insurable risks. </li></ul><ul><li>Self insure: Set aside money annually in an insurance reserve to finance loss. </li></ul><ul><li>No insurance: Pay for any losses out of current revenue (or in terms of facilities possibly use debt financing). </li></ul><ul><li>Tradeoff: annual cost of insurance against the risk of a very large loss. Generally want to insure against catastrophic loss. </li></ul><ul><li>See revised Attachment 4. </li></ul>
  • 45. Source: http://www.riskinstitute.org/ptrdocs/riskidpdfs/Appendix_A.pdf USE INSURANCE SELF INSURANCE USE ALL STRATEGIES TO REDUCE RISK NO INSURANCE
  • 46. Types of Insurance <ul><li>Types of insurance: </li></ul><ul><ul><li>Property (fire, theft, automobile). </li></ul></ul><ul><ul><li>Liability (damage done to employee, student, other private party). </li></ul></ul><ul><ul><li>Medical and life insurance (employee benefits). </li></ul></ul><ul><li>Sources of insurance coverage: </li></ul><ul><ul><li>Private companies (different types of companies). </li></ul></ul><ul><ul><li>State or local insurance pools (pooling risk of a number of other districts). </li></ul></ul><ul><ul><li>State/federal programs (e.g., Worker’s Compensation). </li></ul></ul>
  • 47. Pooling of Insurance Coverage <ul><li>“ Welcome to the New York Schools Insurance Reciprocal (NYSIR) web site. </li></ul><ul><li>I encourage you to use our site to learn about NYSIR, the coverages we provide, the risk management services we offer, and the people who continue to make NYSIR a success. NYSIR was created in 1989 when fifty-six New York State school districts banded together to insure themselves and each other in a first of its kind cooperative endeavor. Now, twelve years later, two hundred and twenty-four school districts are partners in our program which provides the most complete package of insurance coverages and services available to New York State schools. </li></ul><ul><li>In 2001-2002 we will be concentrating our efforts on educating subscribers about our School Board Errors and Omissions and employment practices coverages. We will provide in-service presentations, written descriptions, and face to face visits to insure that unnecessary monetary awards and expenses are kept to an absolute minimum. We will also reach out to those districts that have experienced recent administrative and board changes. District administrators and board members in these districts may be unfamiliar with our exceptional protection, risk management initiatives, financial strength, and our dedication to handle cases cooperatively and fight frivolous claims.” </li></ul><ul><li>http:// www.nysir.org/frisk.htm </li></ul>
  • 48. Websites for Particular Areas of Risks for Schools <ul><li>Risk management information available from New York Schools Insurance Reciprocal (NYSIR): </li></ul><ul><ul><li>Violence/security assessments/programs </li></ul></ul><ul><ul><li>Internet risk </li></ul></ul><ul><ul><li>Sexual harassment </li></ul></ul><ul><ul><li>Athletic programs </li></ul></ul><ul><ul><li>Medical risks </li></ul></ul><ul><ul><li>http://www.nysir.org/frisk.htm </li></ul></ul>
  • 49. Websites for Particular Areas of Risks for Schools <ul><li>Egovernment—risks: </li></ul><ul><li>http://www.nysarchives.org/a/nysaservices/ns_serv_mg_egovt58_security.shtml#Risk </li></ul><ul><li>School bus safety program: http://www.oms.nysed.gov/budget/pro2001/emsc5.htm </li></ul><ul><li>Pesticide use by schools: </li></ul><ul><li>http://www.oag.state.ny.us/press/reports/pesticide_school/pesticide_school.html#survey </li></ul><ul><li>Asbestos, lead in schools: </li></ul><ul><li>http://www.fplc.edu/risk/vol4/fall/fisher.htm </li></ul>
  • 50. Examples of School District Risk Management Programs <ul><li>Kent School District (Washington): http://www.kent.k12.wa.us/KSD/RM/ </li></ul><ul><li>Corvallis School District (Oregon): http://www2.csd509j.net/risk_management/ </li></ul><ul><li>Grand Joint Union High School District (CA): http://www.grant.k12.ca.us/facilitiesplanning.html </li></ul><ul><li>Puyallup School District (Washington): http://www.puyallup.k12.wa.us/business/Risk/risk1/ </li></ul><ul><li>Eugene School District (Oregon): http://www.4j.lane.edu/hr/rm/ </li></ul>

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