Denver International Airport Fleet Management Program Performance Audit

Transcription

1 Denver International Airport Fleet Management Program Performance Audit December 2012 Office of the Auditor Audit Services Division City and County of Denver Dennis J. Gallagher Auditor

2 The Auditor of the City and County of Denver is independently elected by the citizens of Denver. He is responsible for examining and evaluating the operations of City agencies for the purpose of ensuring the proper and efficient use of City resources and providing other audit services and information to City Council, the Mayor and the public to improve all aspects of Denver s government. He also chairs the City s Audit Committee. The Audit Committee is chaired by the Auditor and consists of seven members. The Audit Committee assists the Auditor in his oversight responsibilities of the integrity of the City s finances and operations, including the integrity of the City s financial statements. The Audit Committee is structured in a manner that ensures the independent oversight of City operations, thereby enhancing citizen confidence and avoiding any appearance of a conflict of interest. Audit Committee Dennis Gallagher, Chair Maurice Goodgaine Leslie Mitchell Rudolfo Payan Robert Bishop Jeffrey Hart Timothy O Brien, Vice-Chair Audit Staff John Carlson, Deputy Director, JD, MBA, CIA, CRMA Sonia Montano, Internal Audit Supervisor, CGAP, CRMA Rudy Lopez, Lead Internal Auditor, CICA James McConnell, Senior Auditor, CPA You can obtain copies of this report by contacting us at: Office of the Auditor 201 West Colfax Avenue, Department 705 Denver CO, (720) Fax (720) Or download and view an electronic copy by visiting our website at:

3 City and County of Denver 201 West Colfax Avenue, Department 705 Denver, Colorado FAX Dennis J. Gallagher Auditor December 20, 2012 Ms. Kim Day Manager, Department of Aviation City and County of Denver Dear Ms. Day: Attached is our performance audit report reviewing the Denver International Airport (DIA) fleet management program. The purpose of the audit was to assess the effectiveness and efficiency of the DIA fleet management program and determine whether internal controls in place were adequate under the circumstances. Our review identified several areas of opportunity for enhanced internal controls surrounding DIA feet operations. These issues include non-compliance with take-home vehicle requirements, inadequate controls over fuel access, and the absence of a Fleet Utilization Program. Further, there are opportunities to improve fixed asset and preventive maintenance tracking as well as reporting of damage to fleet vehicles. In addition, we identified budget opportunities for the Fleet Maintenance section to consider. We are pleased to report that a new director of the Fleet Maintenance section has already started to take action to improve operations. We hope that our findings and recommendations presented in this report help improve and strengthen the management of DIA s fleet. If you have any questions, please call Kip Memmott, Director of Audit Services, at Sincerely, Dennis J. Gallagher Auditor DJG/sm cc: Honorable Michael Hancock, Mayor Honorable Members of City Council Members of Audit Committee Ms. Cary Kennedy, Deputy Mayor, Chief Financial Officer Ms. Janice Sinden, Chief of Staff Ms. Stephanie O Malley, Deputy Chief of Staff Ms. Beth Machann, Controller To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people. We will monitor and report on recommendations and progress towards their implementation.

4 Ms. Kim Day December 20, 2012 Page 2 Mr. Doug Friednash, City Attorney Ms. Janna Bergquist, City Council Executive Staff Director Mr. L. Michael Henry, Staff Director, Board of Ethics Mr. David LaPorte, Deputy Manager of Aviation for Facilities Management Mr. Jeff Booton, Director of Fleet Maintenance, Denver International Airport To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people. We will monitor and report on recommendations and progress towards their implementation.

5 City and County of Denver Dennis J. Gallagher Auditor 201 West Colfax Avenue, Department 705 Denver, Colorado FAX AUDITOR S REPORT We have completed an audit of the Denver International Airport (DIA) fleet management program. The purpose of the audit was to: examine and assess whether the proper controls are maintained over fuel distribution, review and assess fleet management controls for regularly scheduled vehicle service, determine whether vehicle preventive maintenance controls and practices are adequate, ensure compliance with rules and regulations, and evaluate the effectiveness and efficiency of fleet management controls. This performance audit is authorized pursuant to the City and County of Denver Charter, Article V, Part 2, Section 1, General Powers and Duties of Auditor, and was conducted in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The audit revealed several weaknesses surrounding the DIA fleet management operations that can be improved. We found a number of internal control issues that may be due to a lack of policies and procedures, which hinder the Fleet Maintenance section s ability to effectively and efficiently operate the airport s fleet. We also identified budget and supplemental funding opportunities that may better align the fleet budget with actual needs and services provided. We extend our appreciation to the Fleet Maintenance staff and other DIA personnel who assisted us during the audit. Audit Services Division Kip Memmott, MA, CGAP, CRMA Director of Audit Services To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people. We will monitor and report on recommendations and progress towards their implementation.

6 TABLE OF CONTENTS EXECUTIVE SUMMARY 1 INTRODUCTION & BACKGROUND 4 Denver International Airport Fleet Management Program 4 Fleet Composition 4 DIA Organizational Structure 7 DIA Fleet Management Governance 7 DIA Fleet Management Systems 9 Benchmark Data 9 SCOPE 12 OBJECTIVE 12 METHODOLOGY 12 FINDING ING 13 DIA Management Should Take Action to Strengthen Oversight and Internal Controls for the DIA Fleet Management Program 13 RECOMMENDATIONS 30 APPENDICES 32 Appendix A Department of Airport Infrastructure Maintenance Organizational Chart 32 Appendix B Fiscal Accountability Rule Appendix C Summary of Take-Home Vehicle Types 41 Appendix D Capital Equipment Request Form Appendix E Vehicle & Property Damage Report 43 AGENCY RESPONSE 44

7 EXECUTIVE SUMMARY DIA Management Should Take Action to Strengthen Oversight and Internal Controls for the DIA Fleet Management Program Denver International Airport (DIA) has a fleet of more than 1,800 vehicles and units of equipment necessary to provide a safe and well-maintained airport. DIA s Fleet Maintenance section (Fleet Maintenance) is responsible for performing repair and preventive maintenance and monitoring and tracking fleet utilization. Our audit identified two major areas where DIA can enhance the fleet management program. First, Fleet Maintenance does not have sufficient managerial involvement in and control over fleet assets and second, budget opportunities and risks related to operating and capital costs are not optimally managed. DIA s Director of Fleet Maintenance has initiated actions to address several of the operational issues identified in our audit. Strengthening the internal control environment and improving communication between Fleet Maintenance and other DIA divisions is important for airport operations. Fleet Maintenance Does Not Have Sufficient Managerial Involvement in and Control over Fleet Assets Fleet Maintenance does not have sufficient involvement in and control over fleet assets. This was evident in six specific areas. First, DIA needs to reassess its take-home vehicle program. Second, oversight and internal controls governing fuel access at DIA are inadequate. Third, Fleet Maintenance does not have a formal Fleet Utilization Program. Fourth, fixed assets managed by Fleet Maintenance are not consistently recorded or monitored. Fifth, preventive maintenance for newer vehicles in the fleet are not consistently tracked and monitored. Sixth, damage to fleet vehicles is not reported to Fleet Maintenance in a timely manner. These issues can result in unnecessary costs, an increased risk of misuse of assets, and an unsafe environment if the fleet is not properly maintained. Take-Home Vehicle Program Audit work determined that 23 percent of DIA employees authorized to use a take-home vehicle reside beyond the maximum twenty-five mile radius set forth in the Fiscal Accountability Rules (FAR). The City authorizes the use of takehome vehicles by employees whose job duties include emergency response. However, since DIA operates twenty-four hours a day, seven days a week, essential emergency personnel are always on duty to address a crisis. Further, a review of take-home vehicle trip-logs, excluding police and fire, indicated that 90 percent of miles logged by DIA take-home vehicle users are attributable to daily commuting, not for responding to emergencies. The Manager of Aviation should conduct a review to ensure that DIA employees are in compliance with the FARs related to take-home vehicles and determine whether all take-home vehicle use is based on a clear public purpose. P a g e 1 Office of the Auditor

8 Fuel Access We identified four specific areas of concern related to fuel access internal controls, including activation and deactivation of fuel user accounts issues, fuel use exception reset control deficiencies, inadequate management oversight, and a lack of a proper segregation of duties. Policies and procedures for activating and deactivating Fuel Force user accounts or for ensuring proper maintenance of the Fuel Force system are not in place. As a result, many fuel users have multiple active Fuel Force accounts, which increase the risk of unauthorized fuel access. Although no specific examples of unauthorized fuel access were identified, the weak controls create an environment that makes it difficult to identify misuse. In addition, control weaknesses exist related to DIA s exception-based fuel usage reporting approach. For example, resets are conducted without identifying the root cause of variances between vehicle odometer and Fuel Force readings. Further, Fleet Maintenance personnel can both enter and edit data in Fuel Force demonstrating an improper segregation of duties. Controls surrounding fuel use need to be established in some areas and strengthened in others. Fleet Utilization Program Fleet Maintenance has limited control over capital equipment replacement decisions, even though such decisions directly impact its budget and service delivery capability. This condition results in large part because DIA does not have a formal Fleet Utilization Program. 1 Although Fleet Maintenance has an informal Vehicle Replacement Program to assist with fleet management, without the proper authority, Fleet Maintenance personnel cannot administer the fleet effectively, which could increase maintenance and repair costs and lead to an oversized fleet. Therefore, a formal Fleet Utilization Program should be created and policies and procedures should be developed to serve as guidance when determining when to purchase new or replacement vehicles. Inventory of Fleet Assets DIA has centralized the fixed asset oversight function under its Division of Finance and Administration (Finance). Our testing revealed discrepancies between the asset lists provided by Finance and by Fleet Maintenance. In a few cases, invoices and purchase orders could not be located, which can be attributed to information not being consistently maintained for certain assets. In other cases, vehicles that are no longer in use that have been scheduled for disposal for years are included as assets. Finance and Fleet Maintenance should coordinate a strategy to ensure that all capitalized and expended fleet assets are regularly inventoried in accordance with FAR 4.2. Preventive Maintenance Tracking Preventive maintenance schedules for the DIA fleet are determined by vehicle type. These schedules are manually entered into DIA s asset management and procurement system, Maximo, once a new vehicle is received. However, testing identified some newer vehicles that did not have maintenance schedules, warranty information, or work history documented within Maximo. Preventive maintenance is viewed as a critical part of caring for a vehicle, especially in terms of minimizing vehicle costs and ensuring vehicle safety. Therefore, proper controls should be 1 Fleet Utilization Programs are designed to better manage the fleet size, equipment, composition, improve utilization of existing vehicles, and reduce costs. City and County of Denver P a g e 2

9 developed to ensure that all relevant vehicle information is included in Maximo as soon as the vehicle is received. Damaged Vehicle Reporting Executive Order 3 requires that damaged City vehicles be taken to an appropriate Fleet Maintenance facility as soon as practical after the damage occurs and that all repair costs should be charged to the agency using the vehicle. If damaged vehicles are not taken to Fleet Maintenance in a timely manner, fleet effectiveness is reduced. Fleet Maintenance is working with DIA Risk Management to develop policies and procedures for damaged vehicle reporting. Fleet Maintenance should continue to develop and implement the draft Motor Vehicle Accident Policy and Procedures document in compliance with Executive Order 3 in order to ensure that accidents are reported to Fleet Maintenance in a timely manner and that vehicles are safe to operate before being returned to service. Budget Opportunities and Risks Related to Operating and Capital Costs Are Not Optimally Managed We identified several budget and supplemental funding opportunities that are not being diligently pursued by Fleet Maintenance management, which could help to offset increasing operating expenses. First, Fleet Maintenance is not requesting additional funding for preventive maintenance costs despite a growing fleet. Second, Fleet Maintenance is not fully documenting or taking advantage of possible supplemental funding available through grants. Third, DIA has missed opportunities to reduce expenses by recouping the cost of fuel consumption at DIA by other City agencies and third parties. With these three opportunities in mind, Fleet Maintenance should better capture and communicate the costs associated with maintaining a growing fleet, develop and document processes undertaken to pursue grant funding, and monitor outside agencies and third-party vendors in relation to fuel use and invoice them for consumption. P a g e 3 Office of the Auditor

10 INTRODUCTION & BACKGROUND Denver International Airport Fleet Management Program Denver International Airport (DIA) maintains a fleet of more than 1,800 vehicles and units of equipment for all divisions throughout the airport, many of which provide specialized services. These specialized services are necessary to provide a safe and well maintained airport for the traveling public, tenants, and employees and to conduct business efficiently and effectively. The DIA fleet management program has a variety of responsibilities, which include: Repair and preventive maintenance functions Ensuring the readiness of emergency and snow removal equipment Monitoring and tracking fleet utilization Management and monitoring of fleet databases Oversight of compressed natural gas purchases Fleet Composition DIA maintains a large fleet of approximately 1,500 units of equipment and over 300 attachment pieces. The equipment comprises a mix of light duty and heavy duty vehicles, as well as stationary and portable equipment such as generators, welders, portable message signs, and hand-held push mowers. Light duty vehicles typically include common trucks and passenger vehicles. Examples of heavy duty vehicles include plows, semi trucks, and multi-function snow removal vehicles. In fact, much of the DIA fleet is dedicated to snow removal and runway maintenance, including a majority of the attachment pieces. Some units were purchased to speed up the snow removal process, such as mobile fueling trucks, which refuel the plows and other equipment on site without having to bring them back to the main fueling stations managed by the Fleet Maintenance section (Fleet Maintenance). The budget for fleet equipment comes from the Airport Enterprise Fund. From 2008 to 2011, DIA s budget for all capital equipment expenditures was between approximately $3 million and $4 million per year. 2 Frequently, multiple fleet units are combined in a single purchase to achieve economiesof-scale savings. Units are also packaged together with attachment pieces, such as plow 2 Based on City and County of Denver Budgets from 2010 through City and County of Denver P a g e 4

11 blades or runway brooms. When purchased, Fleet Maintenance coordinates the new vehicle s DIA graphics, radios, and keys. Further, each unit of equipment is assigned an identification number for easy reference, which is entered into Fleet Maintenance systems for preventive maintenance, repairs, and fueling. Fleet Maintenance also separately labels attachment pieces to better locate and distinguish the source of any problems with overall units. Once purchased, Fleet Maintenance owns the airport s fleet assets, which are assigned for use by other DIA agencies. Fleet equipment is stored in multiple locations throughout the airport s secured premises, but much of it is kept on site at the maintenance facilities. Other airport divisions such as Electrical and Engineering hold vehicles as well. Many of the airport s golf carts are located in the underground tunnels, which only allow zero-emission vehicles. Based on an inventory list provided by Fleet Maintenance, we developed a summary of fleet and attachment equipment located in Tables 1 and 2. Quantity Table 1: Count and Description of Fleet Assets Description 422 Light Duty Trucks and Passenger-Utility Vehicles 221 Deicers, Runway Sweepers, Runway and Parking Lot Plows, Runway Blowers, and Small Terminal-Use Snow Equipment 149 Loaders and Dump Trucks 142 Buses and Electric Golf Carts 107 Trailers and Cargo Vans 101 Lift and Boom Equipment, Message Signs, Portable Light Units, and Aircraft Stairs 73 Generators, Fire Pumps, Electric Welders, and Air Compressors 68 Street and Suction Sweepers, Scrubbers, Asphalt Patch and Tanker Trucks, Surface Rollers, Graders, and Other Pavement Equipment 61 Mower Garden Equipment and Implements 53 Water, Painting, and Mobile Fueling Trucks 42 Fire and Police Equipment and Vehicles 42 Multi-Function Tractors, Semi-Trucks, and Tow Trucks 1,481 Source: Developed by auditors based on the inventory list provided by Fleet Maintenance management. P a g e 5 Office of the Auditor

12 Table 2: Count and Description of Attachment Equipment Quantity Description 162 Plow Blades 88 Deicers, Brooms, and Sweepers 53 Sanders and Spreaders 22 Loader Buckets 19 Blower Heads 18 6 Mower Attachments, Hydraulic Hammers, and Cranes Augers, Trenchers, Planers, Tillers, and Asphalt Equipment 1 Emergency Heavy Rescue Trailer 369 Source: Developed by auditors based on the inventory list provided by Fleet Maintenance management. Taking into consideration the stationary equipment, DIA s inventory consists of approximately 1,200 drivable vehicles. Based on benchmark data, DIA appears to have a relatively large fleet. We inquired with other fleet entities regarding the number of vehicles in their fleets, and Table 3 summarizes the responses. Table 3: Vehicle Totals for Fleet Entities Fleet Entity Vehicles City and County of Denver Public Works Fleet Division 2,000 City and County of Denver Denver International Airport 1,246 Hartsfield-Jackson Atlanta International Airport 836 Seattle-Tacoma International Airport 808 Dallas/Fort Worth International Airport 625 Detroit Metropolitan Wayne County Airport 554 Washington Dulles International Airport 500 Source: Responses obtained from auditor s benchmark survey. We also analyzed the age of Fleet Maintenance s assets and generally, most of the equipment was manufactured during the last decade, but some of the equipment dates back to the late 1970s. Considering the size and age of DIA s fleet, having an effective and efficient fleet management program in place is essential. City and County of Denver P a g e 6

13 DIA Organizational Structure A variety of sections at DIA are involved in the operations related to the fleet management program, which include DIA Risk Management, DIA Maintenance Control, and DIA Finance and Administration. Our audit focused on the Department of Airport Infrastructure Maintenance, since Fleet Maintenance is housed in this area. The Department of Airport Infrastructure Maintenance is responsible for the operations of other related sections at DIA, which include Facility Maintenance, Fleet Maintenance, Field Maintenance, Technical Maintenance, Maintenance Services, and Life Safety. 3 Fleet Maintenance is responsible for the repair and maintenance of all DIA fleet vehicles, amounting to approximately 1,800 vehicles and pieces of attachment equipment. Fleet Maintenance is budgeted for over seventy positions. A summary of the positions are located in Table 4. Table 4: DIA Fleet Maintenance Job Classifications Job Classification Director of Fleet Maintenance Assistant Director of Fleet Maintenance Number of Positions Executive Assistant 1 Maintenance Liaison 2 Lead Heavy Equipment Mechanic Heavy Equipment Line Supervisor Associate Heavy Equipment Mechanics Heavy Equipment Service Technician Heavy Equipment Mechanic Total 71 Source: DIA Fleet Maintenance Organizational Chart. DIA Fleet Management Governance A variety of City, state, and federal rules and regulations govern the use of DIA s fleet. These include Executive Orders, Fiscal Accountability Rules, and Code of Federal Regulations that apply to fleet functions such as purchasing, maintaining, and disposing 3 See Appendix A for DIA Fleet Maintenance Organizational Chart. P a g e 7 Office of the Auditor

14 of vehicles. In addition, the fleet management program relies on guidance related to take-home vehicles. The following regulations were relevant to this audit: Executive Order 3 Executive Order 3 establishes the City s Motor Vehicle Program and its requirements, including vehicle acquisition, title, registration, identification, maintenance, drivers licenses, and defensive driving requirements. The order also establishes detailed procedures for vehicle accidents and their related repairs. Executive Order 3 further requires a fleet utilization program to accomplish three primary goals. The first goal is to assure that the City operates a fleet of vehicles in the most efficient manner by optimizing the utilization of equipment and vehicles. The second goal is to reduce maintenance and operating costs associated with underutilized vehicles and equipment. The third goal is to reduce capital expenditures associated with underutilized vehicles and equipment. Fiscal Accountability Rules The fleet management program must abide by several Fiscal Accountability Rules (FARs), some pertaining to fixed assets and others pertaining to vehicle use. Each City agency and department is responsible for ensuring that every fixed asset acquired by the City is properly accounted for when acquired, inventoried and safeguarded throughout its useful life, and properly accounted for at the time of disposal. In addition, many City and County of Denver officers and employees engage in activities that require them to use a City-owned or City-leased vehicle, or their personal vehicle, to conduct City business. The City is committed to safeguarding the individuals who operate City-owned vehicles or use a personal vehicle while conducting City business. The following FARs are relevant to this audit: FAR 4.2 Governs how new fixed assets, including vehicles and equipment, are recorded. Generally, new assets costing $5,000 or more must be capitalized, while assets costing less than $5,000 are controlled (i.e., expensed). This rule also requires that each agency conduct and document an annual physical inventory of all fixed assets and report the results to the Controller s Office. FAR 10.5 Applies to any officer or employee who operates a City-owned or Cityleased vehicle or uses his or her personal vehicle while conducting City business. The rule provides additional guidance on the use of a City vehicle, requirements when operating a City vehicle, and overall responsibilities when operating a personal vehicle for City business. FAR 10.6 Provides guidance to determine if certain employees need a City vehicle to perform their jobs effectively and to provide direction for the use of a City vehicle when the City vehicle is to be driven to an authorized officer s or employee s home and main or regular place of work or from their main or regular place of work to their home. 4 Internal Revenue Service Code of Federal Regulations, United States Department of Treasury, Title 26, Ch. 1(A), Part 1, contains regulations pertaining to the valuation of taxable fringe benefits used by the Internal Revenue Service (IRS). The use of any City vehicle for personal purposes, including commuting to and from work, is 4 See Appendix B for the Fiscal Accountability Rule City and County of Denver P a g e 8

15 considered a fringe benefit under this section of the Code. Thus, any City employee authorized to commute in a City vehicle must account for this vehicle usage, and it must be valued as a form of compensation to the employee. The City utilizes the IRS-approved commuting valuation rule to value this benefit, which requires the employee to reimburse the City $1.50 per commuting trip, or $3.00 per day. DIA Fleet Management Systems DIA utilizes two information systems for daily fleet management activities: Fuel Force and Maximo. Fuel Force is the software system that tracks, monitors, and administers fuel usage for all fleet vehicles and equipment at DIA. This includes providing fuel for some contractors that perform snow removal services. Maximo is the software generally utilized throughout the airport for asset management and procurement. Fuel Force This software is responsible for tracking fuel consumption at DIA. In order to access fuel, employees must enter unique identifying information issued to them by Maintenance Control. Users enter in a unit number, a user ID, and either an odometer or hour reading (lifetime utilization of heavy duty equipment is measured in hours of operation, not mileage). Fuel Force will automatically recognize if any of the entered information does not reconcile with the information stored in the database and deny access for fuel. Maximo Fleet Maintenance specifically utilizes the Maximo system to track work orders, purchase requisitions, and preventive maintenance schedules. For each vehicle, Fleet Maintenance tracks the repairs to component parts as well as to the vehicle as a whole to review the source of frequent problems. For planning purposes, Fleet Maintenance can later use this data to determine if certain parts are either unreliable or incompatible with their equipment. Management can also use the information when deciding whether to surplus or continue to use a vehicle. Benchmark Data In order to meet the various audit objectives and to gain a better understanding of how Fleet Maintenance compares to other airport fleet maintenance departments across the country, we conducted a benchmarking analysis. Our team developed a survey to identify the following, among other, attributes: Fleet size Number of take-home vehicles Vehicle replacement criteria Billing practices for services provided that include vehicle repairs and preventive maintenance P a g e 9 Office of the Auditor

16 We selected ten fleet management organizations, including the City and County of Denver s Public Works Fleet Division. 5 According to the benchmarking responses, DIA s fleet operations are similar in many respects to other fleet organizations across the nation. As indicated in Table 3, fleet sizes range from 500 to 2,000 vehicles. The number of assigned take-home vehicles range from six to ninety vehicles and were primarily assigned to top management officials and emergency responders. Survey responses indicated that vehicle replacement criteria is based on the age of the vehicle, mileage or hours used, and associated repair cost history of the vehicle, which is similar to the practice used by Fleet Maintenance. Some respondents utilized a point system to determine when a vehicle was ready to be replaced. All respondents indicated that their vehicle replacement programs were formally documented. Research indicated that an additional management tool that is utilized by various fleet entities is a Fleet Utilization Program. A Fleet Utilization Program is designed to help manage the fleet size and equipment, composition, and utilization of existing vehicles, and to reduce costs. Three respondents indicated that vehicle repairs, preventive maintenance, and other services provided are billed internally. See Figure 2 for survey responses. Figure 2 - Financial Responsibility for Services Provided 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% The division assigned the vehicle is internally billed for services provided All services provided are included in the fleet maintenance budget Other (please explain) Source: Responses obtained from auditor s benchmark survey. The other responses indicated that: 5 The following fleet organizations responded to our benchmarking survey: Detroit Metropolitan Wayne County Airport, Washington Dulles International Airport, Dallas/Fort Worth International Airport, Hartsfield-Jackson Atlanta International Airport, and Seattle-Tacoma International Airport and the City and County of Denver s Public Works Fleet Division. City and County of Denver P a g e 10

17 The associated costs for each department are tracked, however, maintenance and service work provided is part of the fleet maintenance budget In cases of blatant abuse repair costs are charged to the responsible department A charge-back program to internally bill other departments for service is currently being evaluated P a g e 11 Office of the Auditor

18 SCOPE The audit assessed the effectiveness and efficiency of Denver International Airport s (DIA s) fleet management program. The audit examined DIA s fleet management practices on both the airside and landside of the facility. OBJECTIVE The objective of this audit was to evaluate the effectiveness and efficiency of the fleet management operations at DIA and to review and assess internal controls over takehome vehicles, preventive maintenance, fuel usage, and fixed assets. The audit also evaluated whether Fleet Maintenance is properly considering all budget opportunities and risks. METHODOLOGY We utilized several methodologies to achieve the audit objective. These evidence gathering techniques included, but were not limited to: Researching various federal, state, and City regulations Reviewing prior internal and external audits related to fleet management Interviewing personnel from the various DIA divisions and sections, including Fleet Maintenance, Financial Planning and Analysis, Risk Management, Finance and Administration, and Maintenance Control Reviewing Fleet Maintenance policies and procedures and Standard Operating Procedures Assessing the systems utilized by Fleet Maintenance, Maximo and Fuel Force Verifying that fixed assets are properly inventoried and accounted for Reviewing data related to controls for take-home vehicles, fuel usage, and preventive maintenance Conducting benchmarking of fleet management practices and metrics at other airports City and County of Denver P a g e 12

19 FINDING DIA Management Should Take Action to Strengthen Oversight and Internal Controls for the DIA Fleet Management Program Denver International Airport (DIA) has a fleet of more than 1,800 vehicles and units of equipment necessary to provide a safe and well-maintained airport. DIA s Fleet Maintenance section (Fleet Maintenance) is responsible for performing repair and preventive maintenance and monitoring and tracking fleet utilization. In July 2012, DIA hired a new Director of Fleet Maintenance, who has started to address a variety of operational issues, specifically concerning oversight and internal control weaknesses, many of which were observed during the course of this audit. The Director has also been granted approval to hire two new analyst positions to assist with management oversight and strengthening the internal control environment. These two positions will also be charged with improving communication within Fleet Maintenance as well as between Fleet Maintenance and other DIA departments and divisions. Communication is paramount due to the number of other DIA departments and divisions that the fleet affects operationally. We found two major areas where the fleet management program can improve its operations, both of which the new Director recognizes. First, Fleet Maintenance does not have sufficient managerial involvement in and control over fleet assets. Second, budget opportunities and risks related to operating and capital costs are not being optimally managed. Fleet Maintenance Does Not Have Sufficient Managerial Involvement in and Control over Fleet Assets Fleet Maintenance does not have sufficient involvement in and control over fleet assets. This condition was evident in six specific areas. First, DIA needs to reassess its take-home vehicle program. Second, oversight and internal controls governing fuel access at DIA are inadequate. Third, Fleet Maintenance does not have a formal Fleet Utilization Program. Fourth, the fixed assets managed by Fleet Maintenance are not consistently recorded or monitored. Fifth, preventive maintenance for newer vehicles in the fleet are not being consistently tracked and monitored. Sixth, damage to fleet vehicles is not being reported to Fleet Maintenance in a timely manner. DIA Needs to Reassess Its Take-Home Vehicle Program The City authorizes the use of take-home vehicles for employees whose job duties include responding to emergencies or responding to non-scheduled work program service requests that require an emergency vehicle with specialized equipment outside of normal business hours. Examples of these kinds of duties include snow removal, street flooding, power outages, unsafe street conditions, and various public safety emergencies. DIA has approximately fifty-three assigned take-home vehicles for the P a g e 13 Office of the Auditor

20 purpose of responding to these instances. 6 Employees authorized to take a vehicle home generally use the vehicle a City asset for 23 percent of authorized vehicle take-home drivers reside beyond the twenty-five mile radius requirement personal use commuting to and from work. 7 Typically, an employee assigned a take-home vehicle is charged $1.50 for each trip, to and from work, which amounts to approximately $90 per month. 8 However, these employees enjoy the benefits of not having to pay for the costs associated with owning a personal vehicle, including monthly payments, maintenance costs, insurance premiums, and fuel expenses. The benefits associated with a take-home vehicle may not outweigh the associated costs. We determined that requirements surrounding take-home vehicle usage are not consistently monitored or complied with. Fiscal Accountability Rule (FAR) 10.6 requires that the driver of a take-home vehicle reside within a twenty-five mile radius of his or her main or regular place of work. Our testing determined that DIA employees authorized to use a take-home vehicle are generally in compliance with this City take-home vehicle requirement. However, twelve of the fifty-three individuals (23 percent) were identified as residing beyond the maximum twenty-five mile radius from DIA. Nine of the twelve individuals identified were either Denver Police Department or Denver Fire Department personnel. The further a driver resides from DIA the longer it will take to respond to an emergency outside of normal business hours, reducing the effectiveness of the takehome vehicle policy. We determined that individuals with take-home vehicles who reside beyond the twentyfive mile radius requirement consume greater amounts of fuel, which increases overall fuel consumption and costs to DIA. Table 5 compares the fuel consumption of drivers who reside beyond the twenty-five mile radius requirement with the fuel consumption of drivers who reside within the radius. Take-Home Vehicles > 25 Mile Radius Table 5 Fuel Used for Take-Home Vehicles Gallons of Fuel* Take-Home Vehicles < 25 Mile Radius Gallons of Fuel* Vehicle Vehicle Vehicle 2 1,047 Vehicle Vehicle Vehicle Vehicle 4 1,568 Vehicle Vehicle 5 1,232 Vehicle Total 5,138 Total 2,086 Source: Fuel Force. *Gallons of fuel were from January 1, 2012 through August 12, We judgmentally selected five vehicles from each category to arrive at our conclusion. 6 See Appendix C for a Summary of Take-Home Vehicle Types. 7 Personal use of a take-home vehicle is limited to commuting to and from work. 8 The commuting valuation rule is determined by the IRS. City and County of Denver P a g e 14

21 Based on the figures in Table 5, take-home vehicle users who reside outside of the twenty-five mile radius consume twice as much fuel as those who live within the twentyfive mile radius. Thus, non-compliance with FAR 10.6 results in additional costs to the City. Audit work also revealed other ways in which the take-home vehicle program may not be effectively serving its intended purpose as outlined in FAR A review of take-home vehicle trip logs, excluding logs for Police and Fire Department personnel, indicated that 90 percent of miles logged were for commuting to and from work, not for business use such as responding to emergencies. 9 Because DIA operates twenty-four hours a day, seven days a week, essential emergency personnel are always on duty and on site to address an emergency situation. Therefore, issuing take-home vehicles for employees to respond to emergencies can be limited without affecting business operations. For example, despite having the responsibility to manage the fifth-busiest airport in the nation, the Manager of Aviation has been able to do so successfully without the use of a take-home vehicle. DIA Management may be able to streamline the fifty-three authorized take-home vehicles to a smaller number without impacting public safety. In November 2011, the Mayor s Office initiated, through the City s Peak Performance initiative, the Fleet Optimization Project for all City vehicles excluding those in the DIA fleet. The Peak Performance group subsequently recommended that a take-home vehicle study be conducted to determine a minimum usage threshold for take-home vehicles. Further, the group recommended that all vehicles outside of the defined parameters should be returned to the City. 10 For these reasons, the Manager of Aviation should conduct a review to ensure that DIA is in compliance with FAR 10.6 as it pertains to individuals residing within the maximum twenty-five mile radius. The Manager of Aviation should also review the current list of authorized DIA take-home vehicle users to determine if use is based on a public purpose. Oversight and Internal Controls Are Inadequate for Fuel Access In addition to monitoring and maintaining take-home vehicles, Fleet Maintenance also has fiscal responsibility for fuel use at DIA. Fleet Maintenance is responsible for monitoring fuel obtained through DIA s fuel information system, Fuel Force, which is used to control access at fueling locations throughout the airport. Anticipated budgeted costs related to the delivery, distribution, and review of fuel for 2012 will exceed $3 million. Audit work identified four areas where fuel use controls are either not operating or are ineffective in design, creating a risk for misuse of fuel. The areas of concern include issues related to fuel access activation and deactivation, exception resets, management oversight, and segregation of duties for those responsible for oversight. Weak Controls Govern the Activation and Deactivation of DIA Fuel User Accounts DIA Maintenance Control (Maintenance Control), assigned to the Maintenance Services section within the Department of Airport Infrastructure Maintenance is responsible for physical user access to fuel, including managing the Fuel Force database. Maintenance 9 Vehicle trip logs allow drivers to record their commute miles to and from work, business miles, and emergency miles. 10 Fleet Optimization Project Committee, Fleet Optimization Recommendation Report (2012). P a g e 15 Office of the Auditor

22 Control performs all processing related to the activation and termination of Fuel Force accounts for fuel users, including the resolution of exceptions. To gain an understanding of the fuel activation and deactivation processes performed by Maintenance Control, auditors obtained a listing of all active fuel ID numbers, or user codes, in Fuel Force. Fuel users include DIA personnel, contractors, and outside agencies including some non-city entities. Auditors observed that 1,956 user codes are active out of a total population of 2,958 user codes. 11 Auditors further analyzed the 1,956 active user codes and found that 155 users had multiple active fuel ID numbers ranging from two to four. The font and spelling of the names for users varied, which contributed to these multiple codes. From the list of 155 individuals 155 users had anywhere from two to four active fuel IDs with duplicate user ID numbers, we selected fifteen users to test whether access controls were in place. 12 Maintenance Control personnel stated that the following controls were in place related to activation and deactivation of DIA fuel user accounts: Prior to fuel user account activation, Maintenance Control confirms that the authorization request was approved or sent by a department head or supervisor. Maintenance Control supervisors review all new user ID numbers entered into Fuel Force for accuracy and maintenance. However, audit work determined that these controls were either not adequate or not in place. For example, Maintenance Control does not have any policies and procedures governing the activation and deactivation of Fuel Force user accounts or the elimination of Fuel Force data entry errors. Further, documentation of operating controls around fuel user account activation and data entry is not retained by Maintenance Control and, therefore, we were unable to test for proper authorization of new user set-up. Maintenance Control currently verifies authorization for new user set-up by reviewing the job title of the requestor listed in Microsoft Office Outlook. Review of proper authoritative levels in this manner is neither a reliable nor an independent source to verify proper authorization for activation requests. The current process increases the risk of unauthorized fuel access and potential for misuse of fuel and DIA assets. In addition to user account activation documentation not being retained, review and verification of proper user set-ups conducted by supervisors is not retained. As a result, auditors were unable to conduct testing in this area. The review of active user ID numbers and the proportion of users with multiple ID numbers suggest that review and maintenance performed by Maintenance Control personnel during set-up does not occur. Absence of review by Maintenance Control supervisors results in more active user ID numbers than actual users, which could lead to the misuse of fuel and difficulty tracking fuel use. Although no specific examples of unauthorized fuel access were 11 Inactive user codes must be retained in the Fuel Force system for the retention of historical fuel use records. 12 Identification of controls in place was primarily identified through fieldwork testing and communication with Fleet Maintenance and Control Maintenance personnel. City and County of Denver P a g e 16

23 identified, the weak controls create an environment that makes it difficult to identify misuse. Maintenance Control relies on communication from other departments for notification related to deactivation of user accounts. Many DIA departments do not communicate deactivation requests to Maintenance Control. Maintenance Control should implement policies and procedures to manage the proper activation and deactivation of fuel user accounts to ensure that all users are authorized and fuel use is appropriate and traceable. In addition, Maintenance Control should develop a standard authorization form for activation that requires department information, the employee s full name and ID number, and a supervisor signature. These forms should be retained by Maintenance Control as support documentation. Fuel Use Exception Reset Control Deficiencies Exist In addition to granting fuel access, Maintenance Control is also responsible for conducting resets when the Fuel Force system does not allow a user to obtain fuel at a fueling station. A fuel exception reset occurs when a current odometer reading entered by a user at a DIA fueling station varies from Fuel Force system records by more than an established threshold. This control is in place to prevent users from obtaining fuel when the established thresholds are exceeded. Exceeded thresholds may occur as a result of fuel or vehicle misuse or a user fueling outside of the DIA premises. Fleet Maintenance is responsible for establishing the system variance threshold levels, which are listed in Table 6. Table 6: Fuel Variance Thresholds Variance Categories DIA Vehicles Take-Home Vehicles Miles Hours Source: Data provided by Fleet Maintenance management. If a user is unable to obtain fuel, he or she must contact Maintenance Control to resolve the access issue. Maintenance Control first verifies that the user and vehicle ID numbers were entered accurately, after which a Maintenance Control supervisor resets the Fuel Force system tracking meter to mirror the vehicle odometer or hourly meter reading provided by the user. 13 The reset enables the user at the pump to obtain fuel and generates a fuel exception reset in the system. However, when conducting these resets, Maintenance Control is not identifying the root cause of the variance between the vehicle odometer or hourly meter and Fuel Force readings, in effect by-passing the intent of the control and also resulting in inefficiency. Fleet Maintenance personnel indicated that no specific criteria were used to develop the variance thresholds. DIA Maintenance personnel noted that thresholds have been 13 Some DIA vehicles are equipped with odometers that track hourly usage instead of miles; the Fuel Force system tracks whichever odometer is present on each vehicle. P a g e 17 Office of the Auditor

24 reduced from 1,000 hours/miles to the figures depicted in Table 6. DIA Fleet Maintenance management could not explain why the thresholds were reduced. Fleet Maintenance personnel acknowledged that the thresholds currently in place would not identify potential misuse until several refueling transactions had occurred requiring exception resets. Even then, determining malfeasance would be very difficult because the mileage thresholds are not realistic, since most vehicles cannot travel 400 to 600 miles before refueling. This condition could result in excessive fuel and vehicle use, which would increase Fleet Maintenance s annual expenses. Therefore, Fleet Maintenance should establish criteria to set effective variance thresholds. Additionally, increased communication between Fleet Maintenance and Maintenance Control related to fuel processes would further increase the accountability surrounding fuel usage. Maintenance Control in coordination with Fleet Maintenance should develop a tracking log that documents fuel exception reset instances and why they occurred. This report should be sent weekly to Fleet Maintenance for further retention, review, and investigation. Tracking fuel reset instances would facilitate the review and investigation of why resets are occurring and how to correct associated issues. Lack of Adequate Management Oversight and Review of Fuel Controls To ensure that fuel use is reasonable and to detect misuse, Fleet Maintenance management periodically reviews two different fuel use reports: one identifying fuel exception resets and one identifying excessive small equipment fueling transactions. Auditors observed that these reports do not have sufficient information with which Fleet Maintenance management could accurately identify root cause for the exceptions without additional investigation. Further, when reviewing the reports, Fleet Maintenance management does not document the nature, extent, and frequency of review performed. The Assistant Director of Fleet Maintenance periodically reviews these reports for fuel exception resets and excessive small equipment fueling transactions. Our review of the first report type indicated that fuel exception resets do not identify whether or not an exception is related to a fuel reset. Inquiry with the Assistant Director of Fleet Maintenance confirmed that the report does not specifically identify what types of exceptions are listed. For identification of actual fuel exception resets, further research in the system must be performed by Fleet Maintenance management. Currently, no tracking mechanism is in place to track fuel exception resets and to facilitate the identification of certain users who may frequently cause fuel exception resets. The Assistant Director of Fleet Maintenance reviews the second type of report for any consecutive fueling transactions by the same user, potentially signifying excessive fuel use. However, criteria to identify potential small equipment fuel misuse have yet to be developed. The absence of effective criteria to identify, investigate, and track fuel exceptions increases the risk of fuel and vehicle misuse. Fleet Maintenance should establish criteria for review of fuel exceptions. Fleet Maintenance should also maintain a log of users reviewed to City and County of Denver P a g e 18