SEPTEMBER 2004

REPORT NO. 2005-037

AUDITOR GENERAL
WILLIAM O. MONROE, CPA

DEPARTMENT OF CORRECTIONS
PHARMACEUTICAL CONTRACTS
Operational Audit
distributed, and order-limit maximums were
not recognized.

SUMMARY

As part of our operational audit of the
Department of Corrections for the period July
2002 through February 2004 and selected
actions taken through June 30, 2004, we
reviewed the contracts between the Department
and Terry Yon & Associates, Inc. (d/b/a TYA
Pharmaceuticals)
for
unit
dosing
of
pharmaceuticals for the treatment of inmates.
Our audit disclosed the following:
Finding No. 1: Contrary
to
law,
the
Department did not seek competitive bids for
the pharmaceutical contract with an expected
value of $72 million over the term of the
contract.
Finding No. 2: The current contract between
the Department and TYA Pharmaceuticals has
several deficiencies, including omissions of
certain items that are necessary for the
cost-effective and efficient delivery of
pharmaceuticals.
Finding No. 3: The Department could not
demonstrate that all contractor responsibilities
specified in the contract were met.
For
example, copies of required licenses and
registrations were not available, financial and
compliance audits had not been obtained, a
current procedure manual had not been

Finding No. 4: The Department did not have
written contract monitoring procedures. In
addition, monitoring efforts did not include a
verification of TYA Pharmaceuticals status with
State and Federal oversight agencies. Also,
evidence of monitoring efforts was not
sufficient as the frequency of on-site monitoring
and the actions taken by TYA Pharmaceuticals
to correct any noted deficiencies were not
documented.
Finding No. 5: Pharmacy orders were not
always filled by TYA Pharmaceuticals within
the time periods required by the contracts.
Finding No. 6: The method described in the
contract for pricing pharmaceuticals provided
to the Department was not being utilized.
Finding No. 7: Invoices were not always
adequately supported or approved prior to
payment by the Department.
Finding No. 8: Credits
for
returned
pharmaceuticals were not issued in accordance
with the contract.

Page 1 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

The Department’s Office of Health Services is
responsible for the delivery of health services to
inmates. To distribute prescribed pharmaceuticals,
the Department operates four “cluster” pharmacies
where health services’ staff, records, equipment, and
pharmaceutical inventories are consolidated. These
four pharmacies provide pharmacy support to
neighboring institutions.
Effective January 1, 2004, the Department entered
into a three-year contract (No. C2116) with TYA
Pharmaceuticals for the provision of unit dosing1 of
pharmaceuticals pursuant to orders submitted by
the four Department pharmacies for the treatment
of inmates.
Pursuant to the contract, the
Department is to compensate TYA Pharmaceuticals
for the vendor’s medication acquisition cost plus
1.45 percent plus a fixed rate for repackaging costs
(e.g., $1.15 per bingo card). This contract was
procured absent the receipt of any sealed
competitive bids or proposals and is the third
consecutive Department contract with TYA
Pharmaceuticals for unit dosing of pharmaceuticals.
The Department’s first contract (No. C1477) with
TYA Pharmaceuticals was effective from January
1998 through December 2000 and was limited to
the unit dosing of liquid psychotropic
pharmaceuticals. (The term of this contract was one
year, but the contract was subsequently renewed for
two additional one-year terms.) A second three-year
contract (No. C1841) was entered into in January
2001. The second contract was amended in 2002 to
change from a fixed price for specific
pharmaceuticals to the vendor’s medication
acquisition cost plus a fixed rate for repackaging
costs (e.g., $.68 per bingo card), to include the
provision of unit dosing for all pharmaceuticals, and
A unit dose is the prescribed amount of each medication
dosage in a package such as a blister pack or bingo card (a
blister pack sealed into a fold-over card).
1

to allow the Department to return appropriate
unused pharmaceuticals to TYA Pharmaceuticals
for credit toward future purchases.
According to Department records, expenditures
totaled $3.2 million over the term of the first
contract (No. C1477) and $51.2 million over the
three-year term of the second contract (No. C1841).
The Department estimates the value of the current
contract (No. C2116) to be approximately $72
million over the three-year contract term. Contract
expenditures to TYA Pharmaceuticals by calendar
year are shown in the following graph:
Contract Expenditures by Calendar Year
$25
$20

In Millions

BACKGROUND

$15
$10
$5
$0
-$5
1998

1999

2000

Contract No. C1477
Contract No. C2116 (1)

2001

2002

2003

2004

Contract No. C1841
Projected No. C2116 (2)

Source: Department Florida Accounting Information Resource Subsystem (FLAIR) records.
Notes:
(1)
Actual expenditures for Contract No. C2116 for the 2004 calendar year are through June 30.
(2) Expenditures for Contract No. C2116 for July 1 through December 31, 2004, are projected
based on the Department annual contract cost estimate.

Our audit focused on the two contracts (Nos.
C1841 and C2116) in effect during the period July
2002 through February 2004.
FINDINGS AND RECOMMENDATIONS
Finding No. 1:
Procurement

Lack of Competitive

The Legislature recognizes, in Chapter 287, Florida
Statutes, that fair and open competition is a basic
tenet of public procurement; that such competition
reduces the appearance and opportunity for
favoritism and inspires public confidence that

Page 2 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

contracts are awarded equitably and economically;
and that documentation of the acts taken and
effective monitoring mechanisms are important
means of curbing any improprieties and establishing
public confidence in the process by which
commodities and contractual services are procured.
It is essential to the effective and ethical
procurement of commodities and contractual
services that there be a system of uniform
procedures to be utilized by State agencies in
managing and procuring commodities and
contractual services; that detailed justification of
agency decisions in the procurement of
commodities and contractual services be
maintained; and that adherence by the agency and
the vendor to specific ethical considerations be
required.2
The Statutes mandate that, unless otherwise
authorized by law, all purchases of commodities or
contractual services in excess of $25,000 be awarded
by sealed competitive bidding.3
The TYA
Pharmaceuticals contracts were entered into absent
the use of competitive bidding. In the current and
prior contracts, the Department indicated that the
contract was for health services involving
examination, diagnosis, treatment, prevention,
medical consultation, or administration and,
therefore,
is
not
subject
to
the
competitive-solicitation requirements of law.4
According to Department records, the Department
paid TYA Pharmaceuticals $51.2 million over the
term of the previous contract (No. C1841) and
expects to pay TYA Pharmaceuticals approximately
$72 million over the term of the current contract
(No. C2116).
Based upon our review of the scope of work
described in the contracts and interviews with the
Department’s Contract Manager and TYA
Section 287.001, Florida Statutes, Legislative Intent.
Section 287.057, Florida Statutes.
4 Section 287.057(5)(f)6., Florida Statutes.

Pharmaceuticals staff, it does not appear that the
TYA Pharmaceuticals contracts provide for the
health services described in law.
TYA
Pharmaceuticals is licensed by the Department of
Health as a prescription drug manufacturer and is
registered with the United States Department of
Health and Human Services, Food and Drug
Administration, as a drug repackager. Pursuant to
State law, drug manufacturers and repackagers are
not required to have a licensed pharmacist or other
health service professional on staff.5 The general
service description or purpose specified in the
contract is the provision of unit dosing of
pharmaceuticals pursuant to orders submitted by
Department pharmacies.
As such, TYA
Pharmaceuticals is providing commodities that are
available from other vendors.
Further, the
repackaging of pharmaceuticals for unit dosing is
not included in the statutory list of health services.
Absent competitive procurement, the Department
cannot demonstrate that the contract provides the
best value for the State or that the contract was
equitably awarded.
Although competitive
procurement procedures were not utilized, prior to
entering into the current contract, Department staff
prepared a comparison of TYA Pharmaceuticals
prices with those of another pharmaceutical vendor.
This comparison indicated that the other vendor’s
repackaging prices were lower (approximately 30
percent less) than those of TYA Pharmaceuticals
and that the prices for selected pharmaceuticals
were lower for generic medications but higher for
brand-name medications.
Department staff
concluded that TYA Pharmaceuticals offered
greater cost savings to the Department because
TYA Pharmaceuticals was willing to issue credits for
returned pharmaceuticals and the other vendor
“currently [did] not have a policy on returned
medications.” However, the TYA Pharmaceuticals

2
3

5

Section 499.003(28) and (38), Florida Statutes.

Page 3 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

repackaging cost used in the comparison was $.90
rather than the current contract price of $1.15 and
the comparison of pharmaceutical prices did not
take into consideration any percentage markup on
vendor medication costs.
Recommendation:
We recommend that the
procurement of unit dosing of pharmaceuticals
by the Department comply with the competitive
bid process set forth in law.

In response to Finding No. 1, the Department
stated that the Department “reasonably
interpreted the statute at face value” and
considers that “preparation of accurate dosage
of medications to be an integral part” of the
medication administration process. While we
agree that the accurate dosage of medications is
integral to the medical treatment of inmates,
TYA Pharmaceuticals does not prescribe or
dispense
pharmaceuticals
to
inmates.
Pharmaceuticals are prescribed and dispensed
to inmates by health services professionals at
the Department.
TYA Pharmaceuticals
purchases
pharmaceuticals,
places
the
pharmaceuticals in different containers, and
then resells the pharmaceuticals to the
Department. We believe that this repackaging
of medication does not constitute a health
service as the term is utilized in Section
287.057(5)(f)6., Florida Statutes, which exempts
health services from the normal competitive
purchase requirements applicable to State
agencies. Such exemptions must be narrowly
construed so as to effectuate the legislative
intent set forth in Section 287.001, Florida
Statutes, of fostering “fair and open
competition” in State procurements.
Finding No. 2: Contract Deficiencies

Our review of the terms and conditions for the
current contract (No. C2116) between the
Department and TYA Pharmaceuticals disclosed
several deficiencies, including omissions of certain
items that we believe are necessary for the
cost-effective
and
efficient
delivery
of
pharmaceuticals. These deficiencies are described
below:
Page 4 of 20

¾ The contract indicates that TYA
Pharmaceuticals will be paid according to
the vendor’s medication cost plus 1.45
percent, plus a fee for the pharmaceutical
package. The contract does not address any
rebates
or
discounts
that
TYA
Pharmaceuticals may be entitled to as a
result of purchasing pharmaceuticals for
resale to the Department. Such rebates and
discounts
are
common
in
the
pharmaceutical industry and can result in
significant cost savings. Accordingly, the
Department may not be receiving pricing
related to TYA Pharmaceuticals actual
medication cost.
¾ Federal
and
State
laws
regulate
pharmaceutical
suppliers,
including
repackagers, to safeguard the public health
and promote public welfare. Federal and
State oversight agencies perform inspections
and investigations of pharmaceutical
suppliers to determine compliance with
regulations and good business practices and
to resolve complaints. If violations are
noted, warning letters, notices of violations,
notices of inspection results, or inspections
reports may be issued to the supplier.
The contract between the Department and
TYA Pharmaceuticals does not contain a
provision requiring TYA Pharmaceuticals to
notify the Department of any complaints
filed, investigations made, warning letters or
inspection reports issued, or any disciplinary
actions imposed on the company by any
Federal or State oversight agency. Absent
such a provision, the Department may not
be aware of serious complaints against or
violations by TYA Pharmaceuticals.
¾ The contract requires that TYA
Pharmaceuticals abide by all the pertinent
requirements of specified chapters in the
Florida
Statutes
and the
Florida
Administrative Code. However, as shown
in the following table, the Florida
Administrative Code rules cited in the
contract were repealed or transferred prior
to the effective date of the contract:

SEPTEMBER 2004
Florida Administrative Code
Cited in Contract No. C2116
Department of Health and
Rehabilitative Services Rules,
Chapter 10D-45, Regulations for
Drugs, Devices and Cosmetics
Agency for Health Care
Administration Rule 59X-28.118,
Unit Dose Returns by In-Patients

REPORT NO. 2005-037

Status of Rules
Repealed or Transferred to
Department of Health Rules,
Chapter 64F-12 (1997)

Pharmaceuticals did not always fulfill the
responsibilities and conditions in accordance with
the contract terms. Specifically:

Transferred to Department
of Health Rule 64B16-28.118
(1997)

By not appropriately addressing the issues discussed
above, the Department has limited assurance that
the contract for the unit dosing of pharmaceuticals
provides
Department
pharmacies
with
pharmaceuticals in the most cost-effective and
efficient manner.
Recommendation:
To
ensure
that
unit-dosed pharmaceuticals are procured at the
best available prices, we recommend that the
Department consider the impact of any
discounts or rebates earned by TYA
Pharmaceuticals as a result of the
pharmaceuticals purchased for resale to the
Department. The terms and conditions of the
pharmaceutical contract should address the
effect of any such rebates and discounts on the
prices paid by the Department. In addition, the
contract language should be revised to require
TYA Pharmaceuticals to timely notify the
Department
of
any
complaints
filed,
investigations made, warning letters or
inspection reports issued, or any disciplinary
actions imposed by Federal or State oversight
agencies for the company or any of the
company’s key employees.
Also, the
Department should communicate the correct
Florida Administrative Code cites to TYA
Pharmaceuticals and, in all future contracts, the
Department should ensure that applicable laws
and rules are appropriately cited.
Finding No. 3: Contractor Responsibilities and
Contract Conditions

The current contract (No. C2116) with TYA
Pharmaceuticals describes various Contractor’s
Responsibilities and conditions. Our review of the
contract management file and inquiries of
Department
staff
indicated
that
TYA
Page 5 of 20

¾ The contract requires that TYA
Pharmaceuticals provide a copy of all
required State and Federal licenses
including, but not limited to, a current
Department of Health Pharmacy license
and Federal Drug Enforcement Agency
(DEA) registration.
However, the
Department did not obtain a copy of the
Board of Pharmacy license in effect for the
period July 1, 2002, through January 29,
2003, for any TYA Pharmaceuticals
employee. In response to audit inquiries,
Department staff indicated that a copy of
the license was not obtained because “a
Pharmacy License is not needed to provide
the contracted services.”
In addition, the Department did not obtain
a copy of a DEA Registration from TYA
Pharmaceuticals. The DEA Registration is
required for the sale of pharmaceuticals
included in the DEA’s schedules of
controlled substances.
According to
Department staff, during the audit period,
TYA Pharmaceuticals did not have a DEA
Registration. In response to audit inquiry,
Department staff indicated that the
Department purchases needed controlled
substances from the State’s Prime Vendor
contract.
¾ Although the contract requires TYA
Pharmaceuticals to provide a financial and
compliance audit to the Department or to
the Auditor General and ensure that all
related-party transactions are disclosed to
the auditor, the Department has not
obtained financial and compliance audit
reports from TYA Pharmaceuticals and
TYA Pharmaceuticals has not provided
copies of any audit reports to the Auditor
General.
¾ TYA Pharmaceuticals is required by the
contract to provide, by January 30, 2004, a
procedure manual to all four participating

SEPTEMBER 2004

REPORT NO. 2005-037

Department
pharmacies
and
the
Pharmaceutical Services Director (Contract
Manager). The procedure manual is to
include, among other things, a description
of the process to resolve problems and
issues between TYA Pharmaceuticals and
the pharmacy or Department, and provide
the name of a contact person, address,
telephone number, and facsimile number.
The procedure manual is to be updated
expeditiously as changes occur and copies
of changed procedures or other updates are
to be provided.
At the time of our initial inquiries, two of
the four pharmacies did not have a TYA
Pharmaceuticals procedure manual and the
other two pharmacies had an outdated
manual. The Contract Manager had a copy
of a procedure manual that was purported
to be the current, up-to-date manual. This
manual addresses most of the required
items identified in the contract. However,
as the manual was not dated, we could not
determine whether it had been timely
provided.
In addition, the TYA
Pharmaceuticals procedure manual provided
for our review by the Contract Manager did
not include the name of a contact person
and related data for use in the resolution of
problems and issues between TYA
Pharmaceuticals and the Department.
¾ TYA Pharmaceuticals is required by the
contract to recognize the order-limit
maximums set by the Department. TYA
Pharmaceuticals is to notify the Contract
Manager of any orders that exceed the
order-limit maximum on the same date that
the order is received.
The Contract
Manager
indicated
that
authorized
pharmacy staff set order limits in the
pharmacy computer system so that
pharmacy stock levels do not exceed a
14-day supply.
In response to audit
inquiries, the Contract Manager also
indicated that the order-limit maximum is
not provided to TYA Pharmaceuticals for
each order placed because “this would

restrict a pharmacy’s ability to adjust to
ordering trends.”
Obtaining and reviewing applicable licenses,
registrations, and audit reports would provide
assurances that TYA Pharmaceuticals is in
compliance with the regulations of the
pharmaceutical manufacturing and repackaging
industry and is in sound financial condition.
Reliance on TYA Pharmaceuticals for ensuring that
order-limit maximums are not exceeded, as
contemplated in the contract, does not appear
practicable, especially as the Department does not
inform TYA Pharmaceuticals of the order-limit
maximums. To better monitor the order-limit
maximums, the Department should review existing
practices or consider the use of a pharmacy
computer system with appropriate order-limit
maximums that cannot be exceeded (or changed
inappropriately), thus restricting the orders to only
those pharmaceuticals needed.
To ensure
Department pharmacy staff are aware of proper
ordering, delivery, return-of-goods, and credit
procedures, pharmacy staff should have access to an
up-to-date TYA Pharmaceuticals procedure manual.
Recommendation:
We recommend that the
Department’s Contract Manager ensure that
copies of all TYA Pharmaceuticals licenses and
registrations required by law or specifically
referred to in the contract are timely obtained
and reviewed. In addition, the Department
should also obtain and review audit reports for
any reportable conditions or instances of
noncompliance and utilize the information in
the audit reports when monitoring TYA
Pharmaceuticals or negotiating contract
amendments. Also, the Department should
ensure that the current TYA Pharmaceuticals
procedure manual is provided to pharmacy staff
and that future updates to the manual are
timely distributed. Requiring that the manual
be dated would help ensure that the current
version of the manual is being used by the
pharmacies.
Further, as the Department
requires TYA Pharmaceuticals to recognize the
order-limit maximums set by the Department,

Page 6 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

the Department should provide reasonably
established
order
limits
to
TYA
Pharmaceuticals, or amend the contract to
exclude that requirement.
Finding No. 4: Contract Monitoring

Throughout the duration of a contract, contract
monitoring is necessary to ensure that the
contractor provides high quality products and
services in accordance with the contract terms and
applicable laws and rules. To ensure that contract
monitoring is performed in a comprehensive and
consistent manner, it is essential that written
policies, procedures, and standards be developed
and communicated to contract managers. The
Contract Manager for the contract between the
Department and TYA Pharmaceuticals has
developed a monitoring process that utilizes a
checklist that includes all the items described in the
section of the contract titled Contractor’s
Responsibilities. However, the Department does not
have written monitoring procedures and had not
provided the Contract Manager with any recent
contract monitoring training.
Although the Contract Manager utilized a checklist
to document the monitoring of TYA
Pharmaceuticals, the completed checklists were not
signed or dated. As such, the frequency of the
monitoring visits is not documented.
According to the Contract Manager, when
deficiencies are noted during a monitoring visit, a
follow-up site visit will be conducted to specifically
address the deficiencies. However, the follow-up
site visits are not documented and TYA
Pharmaceuticals is not required to prepare a written
corrective action plan or otherwise document
corrective actions taken.
As discussed in Finding No. 2 above, the contract
does not require TYA Pharmaceuticals to notify the
Department of any complaints filed, investigations
made, warning letters or inspection reports issued,

or any disciplinary actions imposed for the company
by any Federal or State oversight agency. Whether
or not such notification is provided, the Contract
Manager should periodically check TYA
Pharmaceuticals status with oversight agencies. For
example, the FDA has a Web site where warning
letters are posted. Our review of this Web site
disclosed that the FDA issued a warning letter to
TYA Pharmaceuticals on August 6, 2002. However,
the Department’s contract file did not contain a
copy of the warning letter or any indication that the
FDA inspection results were considered during
monitoring of the prior contract (No. C1841) or
when entering into the current contract (No.
C2116).
Absent
effective
monitoring
procedures,
Department management has limited assurance that
the terms and conditions of the contract are being
met.
Recommendation:
We recommend that the
Department develop written monitoring
procedures and provide the Contract Manager
with applicable training. Such training should
include proper monitoring procedures (e.g.,
conduct of site visits, verification of TYA
Pharmaceuticals
status
with
applicable
oversight agencies, evaluation of overall TYA
Pharmaceuticals performance, etc.) and
requirements for documenting monitoring
results and any resulting corrective actions. To
demonstrate that monitoring is performed
timely and at proper intervals, we also
recommend that monitoring instruments be
dated and signed. In future contracts, the
Department
should
consider
including
provisions relating to contractor corrective
action requirements.
Finding No. 5: Timeliness of Pharmaceutical
Orders

Department pharmacy staff submit pharmaceutical
orders directly to TYA Pharmaceuticals. According
to the terms of the respective contracts and

Page 7 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

applicable amendments, TYA Pharmaceuticals is to
ensure that all orders are timely filled as follows:
Contract Period

Contractor's Responsibility to Fill Orders

January 1, 2001, through Two (2) calendar days from time of order to time
December 19, 2002
of receipt by Department pharmacies.
December 20, 2002,
to Present

Forty-eight (48) hours, excluding holidays and
weekends, from time of order to time of receipt by
Department pharmacies. All orders placed after
1:00 PM will be considered as received on the
following day.

Eight of the 40 orders we reviewed were not timely
filled by TYA Pharmaceuticals. These 8 orders
were filled 1 to 10 days late. The order forms
utilized by the Department varied from pharmacy to
pharmacy and did not always contain the time and
date of the order or the name of the person
approving the order.
(Two order forms we
reviewed did not include the pharmacy location
placing the order.) In addition, the date stamped on
the receiving reports did not always agree with the
date stamped on the invoice as the date the goods
were received. Accordingly, for another 22 orders,
the timeliness of the order could not be determined.
While the contracts do not specify any penalties
should TYA Pharmaceuticals fail to timely fill
pharmaceutical orders, proper contract monitoring
includes an evaluation of the contractor’s
performance and compliance with all contract
terms. Failing to properly record the time and date
the order was placed and the date the order was
received hinders the contract monitoring process.
On the three monitoring checklists provided for our
review, the Contract Manager indicated that the
contractor responsibility related to timely filling
orders was “Met.” One of the checklists included a
notation that there had been “no complaints from
pharmacies.”
Recommendation:
We recommend that the
Department ensure that the time and date for
all orders are appropriately noted on the order
forms and that the receiving reports and
invoices both reflect the proper date the
pharmaceuticals are received. To improve the

quality of the documentation needed to
evaluate TYA Pharmaceuticals performance in
timely filling the pharmacies’ orders and help
ensure the accuracy of the orders, we
recommend that the Department implement the
use of properly designed standard order
documents at all four pharmacies. We also
recommend that the Department amend the
contract to allow the Department to impose
penalties should TYA Pharmaceuticals fail to
timely fill pharmaceutical orders.
Finding No. 6: Pharmaceutical Pricing

The contracts between the Department and TYA
Pharmaceuticals establish the method for pricing
pharmaceuticals. As shown in the following table,
over the terms of the two most recent contracts, the
pricing methods and amounts have been revised:
Contract
Number
C1841:

Pricing
Effective
Dates

Type of
Package

01/01/2001 All Types:
01/09/2002

Amendment 01/10/2002 Bingo Card:
No. 2 12/19/2002
Unit dosed
tablets/capsules:
Unit dosed
liquids:

(1)

Pricing

Fixed Price Per Contract
Attachment A with an
annual increase not to
exceed 3 percent.
Medication Cost plus $.68
per card.
Medication Cost plus $6 per
one hundred.
Medication Cost plus $18
per one hundred.

Medication Cost plus $.90
per card, 30 count or less.
Medication Cost plus $1.04
per card, 60 count.
Unit dosed
Medication Cost plus $6 per
tablets/capsules: one hundred.
Unit dosed
Medication Cost plus $18
liquids:
per one hundred.

Amendment 12/20/2002 Bingo Card:
No. 4 12/31/2003

C2116:

Medication Cost plus 1.45
percent plus $1.15 per card.
Medication Cost plus 1.45
Unit dosed
percent plus $6 per one
tablets/capsules:
hundred.

01/01/2004 Bingo Card:
Present

Unit dosed
liquids:

Medication Cost plus 1.45
percent plus $18 per one
hundred.

Note:
(1)
Medication Cost is defined in the contracts as the vendor's Medication
Acquisition Cost. According to the contracts and amendments, this cost
can be verified using invoices from the vendor's suppliers.

We examined 40 invoices that were paid by the
Department during the audit period (July 2002
through February 2004) to determine whether the
pricing agreed with the method described in the

Page 8 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

respective contract or contract amendment. Based
upon our review of the invoices and inquiries of
Department personnel, we determined that the
Department uses a method whereby “Item Listings”
support the prices billed by and paid to TYA
Pharmaceuticals. These Item Listings are prepared
by TYA Pharmaceuticals and are generally updated
weekly for price changes. TYA Pharmaceuticals
provides copies of invoices from suppliers to
support Item Listing price changes. The Contract
Manager reviews and approves the Item Listings.
Once the Item Listing is approved, the Listing is
dated and is in effect for orders placed on or after
that date and until a new Item Listing is approved.
Utilizing this method, the Department cannot be
assured that the prices on the Item Listing
correspond with the actual vendor acquisition cost
for the pharmaceuticals purchased by the
Department. For example, a Department order may
be filled from existing TYA Pharmaceuticals
inventory, but the price on an Item Listing may
relate to a recent acquisition of the same
pharmaceutical. As the Item Listings are only
periodically updated, the Listings may not accurately
reflect pharmaceutical price fluctuations.
In
addition,
small
quantity
purchases
of
pharmaceuticals may have a higher acquisition cost
than those acquired through bulk purchase.
Although a supplier’s invoice accompanies the
changes to the Item Listings, as TYA
Pharmaceuticals has numerous other customers, the
Department cannot be assured that the price on the
invoice provided specifically relates to the price for
the quantity purchased by the Department.
We also noted that, for 4 of the 40 invoices we
examined, an incorrect Item Listing was used to
price at least one item on the invoice. For another 8
invoices, the correct prices could not be determined
because the Department order was not dated and,
therefore, could not be correlated to the appropriate
Item Listing.

Recommendation:
We recommend that the
Department require TYA Pharmaceuticals to
bill the Department in accordance with the
contract terms. Alternatively, the Department
could revise the contract terms to reflect an
agreed-upon procedure for establishing the
pharmaceutical prices. We also recommend
that the Department take more care to verify
pricing when approving invoices for payment.

In response to Finding No. 6, the Department
stated that it believes that TYA Pharmaceuticals
is billing the Department in accordance with
contract terms. However, use of Item Listings
to support the prices billed by and paid to TYA
Pharmaceuticals may not ensure that the prices
specifically relate to the vendor’s medication
acquisition costs for the pharmaceuticals
purchased by the Department. The contract
amendments described in the Department’s
response that will incorporate references to the
use and approval of Item Listings will more
accurately portray the actual method employed
by TYA Pharmaceuticals and the Department
for the pricing of pharmaceuticals.
Finding No. 7: Invoice Support and Approval

Thirty-four of the 40 invoices from TYA
Pharmaceuticals that we reviewed were not
supported by adequate documentation. Specifically,
the order forms or receiving reports for these 34
invoices were not available; did not identify the
pharmacy placing the order; or were not properly
signed to indicate the person who placed the order,
authorized the order, accepted the order, or
approved the order as received. In addition, the
duties of Department employees were not always
properly separated in that, at one pharmacy, the
persons placing and approving the orders also
accepted and approved the orders received.
We also noted that 37 of the 40 invoices were not
approved in accordance with the contract terms.
The contract specifies that a Department Lead
Pharmacist (or designee) is to review and approve
the invoices prior to payment. These 37 invoices

Page 9 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

were not approved by a Lead Pharmacist nor was
there a formal document evidencing the delegation
of this responsibility to a designee.

Contract
Number
C1841:

Finding No. 8: Credits for Returned
Pharmaceuticals

Prior to the second amendment to contract No.
C1841, a return for credit policy was not addressed
in the contracts between the Department and TYA
Pharmaceuticals. As shown in the following table,
the credit policy has been revised over the terms of
the two most recent contracts:

Credit Policy and
Amendments Thereto

01/01/2001 Credit policy not addressed.
01/09/2002

Added that all appropriate unused medications
Amendment 01/10/2002 - will be returned for credit against future invoices.
No. 2 03/31/2002 Each credit will be issued at the Medication
Acquisition Cost.

Absent adequate documentation, the Department
cannot demonstrate that the payments made were
properly authorized and in the correct amounts. In
addition, lack of appropriate separation of duties
may allow the misappropriation of pharmacy
supplies to occur and not be timely detected.
Recommendation:
We recommend that the
Department
ensure
that
adequate
documentation is retained to support the
accuracy and approval of the pharmaceutical
invoices paid. As recommended in Finding No.
5 above, use of properly designed standard
order documents at all four pharmacies would
improve the quality of the supporting
documentation. In addition, the Department
should ensure that responsibilities for placing,
authorizing, and accepting orders and
approving orders as received are adequately
separated to the extent possible.

Effective
Dates

Added a reference to Section 465.016(1)(l),
Amendment 04/01/2002 Florida Statutes, for the definition of
No. 3 12/19/2002
"appropriate unused medications."
Added that Bingo Card Credits will be $0 if
medication cost does not exceed $.50. Cards
Amendment 12/20/2002 returned, due to vendor error, will be credited
No. 4 12/31/2003
the Medication Acquisition Cost and packaging
cost, with no return fee.

C2116:

All appropriate unused medications, as defined in
01/01/2004 Section 465.016(1)(l), Florida Statutes, will be
Present
returned for a credit against future invoices.
Each credit will be issued at the Medication
Acquisition Cost.
Bingo Card credits will be 100 percent of
Medication Acquisition Cost, less $1 per card for
medication that can be credited pursuant to State
and Federal laws. Cards returned, due to vendor
error, will be credited the Medication Acquisition
Cost, plus 1.45 percent, and packaging cost, with
no return fee. The Department will attempt to
notify vendor, in writing, 20 days in advance of
any formulary action.(1)

Note:
A formulary is a list of pharmaceuticals a physician may prescribe without prior
permission. Pharmaceuticals are periodically added to or deleted from the
Department formulary.

(1)

As similarly noted for the pharmaceutical pricing in
Finding No. 7 above, we found that the 20 credits
we reviewed were issued at the prices on the Item
Listing in effect on the date the return items were
received by TYA Pharmaceuticals.
As the
Department does not necessarily know the date that
TYA Pharmaceuticals receives the returned
pharmaceuticals, the Department cannot ensure that
the applicable Item Listing is used.
Utilizing the Item Listings provided for the 20
credits we reviewed, we still noted some minor
errors in pricing and instances in which the number
or type of items credited did not agree with
Department records of the number or types of
items returned.
Recommendation:
We recommend that the
Department require TYA Pharmaceuticals to
issue credits in accordance with the contract
terms or revise the contract terms to state an
agreed-upon procedure that would enable the

Page 10 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

Department to verify the pricing of credits. We
also recommend that the Department more
closely review the credits issued to ensure that
credits are properly priced and issued for the
appropriate quantities and types of returned
pharmaceuticals.

¾ To determine whether the Department had
adequate documentation to support the
selection of the contractor and the contract
payments made and to determine whether
the contract was administered and goods
and services were provided in accordance
with contract terms.

OBJECTIVES, SCOPE, AND METHODOLOGY

The objectives of our audit of Department unit
dosing of pharmaceuticals contracts were:
¾ To evaluate the effectiveness of established
internal controls in achieving management's
control objectives in the categories of
compliance
with
controlling
laws,
administrative rules, and other guidelines;
the economic, efficient, and effective
operation of State government; the validity
and reliability of records and reports; and
the safeguarding of assets.
¾ To evaluate management’s performance in
achieving compliance with controlling laws,
administrative rules, and other guidelines;
the economic, efficient, and effective
operation of State government; the validity
and reliability of records and reports; and
the safeguarding of assets.

¾ To evaluate the Department process for
monitoring contract compliance.
The scope of our audit included various aspects
related to the contract for unit dosing of
pharmaceuticals including the negotiation and
contracting processes, contractor responsibilities
and contract deliverables, compensation, and
monitoring.
In conducting our audit, we
interviewed Department personnel, tested selected
Department records, visited the Contractor’s
repackaging facility, and completed various analyses
and other procedures.
Our audit included
examinations of various documents (as well as
events and conditions) applicable to the period
July 2002 through February 2004 and selected
actions taken through June 30, 2004.

Page 11 of 20

SEPTEMBER 2004

REPORT NO. 2005-037
AUTHORITY

DEPARTMENT RESPONSE

Pursuant to the provisions of Section 11.45, Florida
Statutes, I have directed that this report be prepared
to present the results of our operational audit.

In a response letter dated September 24, 2004, the
Secretary of the Department provided responses to
our findings and recommendations. This letter is
included in its entirety at the end of this report.

William O. Monroe, CPA
Auditor General

To promote accountability in government and improvement in government operations, the Auditor General makes
operational audits of selected programs, activities, and functions of State agencies. This operational audit was made in
accordance with applicable Government Auditing Standards issued by the Comptroller General of the United States. This
audit was conducted by Stanley E. Mitchell, CPA, and supervised by Sherrill F. Norman, CPA. Please address inquiries
regarding this report to Dorothy R. Gilbert, CPA, Audit Manager, via E-mail (dorothygilbert@aud.state.fl.us) or by
telephone (850-488-5444).
This report and other audit reports prepared by the Auditor General can be obtained on our Web site
(http://www.state.fl.us/audgen); by telephone (850-487-9024); or by mail (G74 Claude Pepper Building, 111 West
Madison Street, Tallahassee, Florida 32399-1450).

Page 12 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

Page 13 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

Page 14 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

Page 15 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

Page 16 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

Page 17 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

Page 18 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

Page 19 of 20

SEPTEMBER 2004

REPORT NO. 2005-037

Page 20 of 20