The state Department of Health employees tasked with purchasing millions of dollars in goods and services each year lack the proper oversight and guidance that would ensure the state actually gets what it pays for, according to a report released Thursday by acting state Auditor Jan Yamane.

As one “glaring example” of the problem, the report cites a request for proposals the Health Department issued in 2008 to hire an outside auditor to review the records of beverage container redemption centers.

The department received only one proposal for $76,400 to do that work, but before the contract was even signed, the vendor had increased its price to $340,000, according to the auditor.

The state Procurement Office suggested the Health Department seek new bids for that contract using a different procurement method, but the department “ignored” that recommendation, according to the auditor’s report.

The Health Department later amended that auditing contract with PKF Pacific Hawai‘i LLP three times, including revisions that extended the deadline for the audits by a year and reduced the number of required audits from six to two, according to the report. However, the price of the contract ballooned even further to $543,374, which amounted to a 611 percent increase from the original proposal, according to the auditor.

The Health Department later became concerned that the PKF audits of the recycling operations didn’t meet the original requirements of the contract, and the department refused to accept one of them, according to the state auditor. However, by then the department had already paid PKF $525,051, or almost all of the money it owed under the contract.

The state auditor’s report concluded that the two recycling audits that PKF produced were “of little value,” but said the state is unable to seek restitution because the contract was so poorly executed.

To prevent those kinds of problems in the future, the auditor’s report recommends the Department of Health develop a system to periodically review procurement activities by its employees to ensure compliance with state laws and policies. It also recommends the department develop a procurement policies manual and that the health director ensure that staff involved in procurement is properly trained and supervised.

In a response to the audit, Health Director Virginia Pressler said the department will form an internal procurement working group that will include representatives from the state Procurement Office and the attorney general’s office to assess the current system and propose improvements.

The department acknowledged shortcomings in its handling of the PKF contract, including a lack of oversight when amendments were made to the original contract. However, Pressler’s response said it would be “neither accurate nor fair to extrapolate from these legitimate concerns and generalize about all of DOH’s procurement practices.”

Many of the problems with the contract stemmed from the original solicitation, which was too vague, Pressler wrote in the response. In hindsight it would have been “prudent” to redo the solicitation rather than to award a contract under the flawed request for proposals, according to the Health Department response.

As for the reduction in the number of audits required under the contract, the department said that change was made in order to focus on the two largest companies, Reynolds Recycling Inc. and RRR Recycling Services, which together operate two-thirds of the recycling redemption centers and receive almost half of the container refunds paid out by the state.