Audit # Vehicle Purchase and Sale Agreement

Transcription

1 Audit # Vehicle Purchase and Sale Agreement Department of Inspector General Stacy M. Butterfield, CPA Clerk of the Circuit Court and County Comptroller

2 Stacy M. Butterfield, CPA Clerk ef the Circuit Court and County Comptroller Polk County) Florida December 16, 2014 INSPECTOR GENERAL AUDIT REPORT AUDIT # VEHICLE PURCHASE AND SALE AGREEMENT Honorable Board of County Commissioners: We have conducted an audit of the Vehicle Purchase and Sale Agreement between Polk County and Weikert Ford, Inc. Our audit objectives were to review records and management practices to determine compliance with the terms of contract , Vehicle Purchase and Sale Agreement, as well as policies and other established controls over the contract. We express our gratitude for the cooperation and professional courtesy extended to the Department of Inspector General by management and employees of the Fleet Management Division during the audit. Our report includes opportunities for improvement. We hope you find this report useful in ensuring Polk County government provides the best possible services to our residents. Respectfully submitted, Approved: Inspector General s~]!~~ Clerk of the Circuit Court and County Comptroller Auditor assigned: Kassandra Cook

3 SYNOPSIS The intent of the vehicle purchase agreement with Weikert Ford, Inc. is to obtain the most cost effective new vehicle acquisition while maximizing the quality and level of service received by Polk County. The agreement has allowed the County to conduct vehicle purchasing in a coordinated and organized way, while promoting local businesses. BACKGROUND The Department of Inspector General of the Clerk of the Circuit Court and County Comptroller has completed an audit of the Vehicle Purchase and Sale Agreement between Polk County and Weikert Ford, Inc. This agreement is managed by Polk County s Fleet Management Division (Fleet). Fleet provides repair and maintenance services for vehicles and equipment owned and operated by Polk County and vehicles owned by various Constitutional Officers. Other functions include the replacement of vehicles and equipment, development of specifications before purchase, and the submission of requisitions for procurement. These latter functions were the focus of our audit. As part of the agreement, the Contractor provides the County with vehicle pricing at cost plus one percent, and additional services including service priority over other vehicles awaiting service from the Contractor, diagnostic services support, and technical training for Fleet Management staff. Fleet manages the Vehicle Renewal & Replacement Fund for the County. Its purpose is to accumulate funds to replace assets currently in service when they reach the end of their economically useful lives. Objectives of the replacement program include 1) retain fleet vehicles based on life cycle cost, 2) accelerate disposal of high maintenance units, and 3) achieve minimal service time (i.e., repair time) for new vehicles and equipment. The fleet currently consists of over 1,600 vehicles. 1

4 The replacement program utilizes the Vehicle Renewal & Replacement Fund, an internal service fund that is intended to accumulate funds for replacement of vehicles and equipment at the end of their useful lives. Annual expenditures of the fund are budgeted at one year s estimated replacement costs, currently $7.5 million, and the remainder of the fund is reserved for future capital purchases. Expenditures are budgeted to maintain the reserve for future purchases at the appropriate level. Fleet s budgeted and actual expenditures are represented in the Fleet Expenditures graph below. The Replacement Fund reserve balances for 2011 through 2013 are also depicted below. *FY12/13 includes planned $5 million purchase in 2012 for fire apparatus 2

5 In 2000, the Board of County Commissioners (BoCC) solicited proposals from Polk County Ford dealerships to provide and assist with acquisitions of new vehicles and other services. Weikert Ford, Inc., located in Lake Wales, Florida, was awarded the purchasing agreement for 5 years with the BoCC. This agreement was renewed in 2005 and 2008 and subsequently extended by the BoCC for two additional one-year terms. In 2010, the Purchasing Division solicited new proposals from Polk County Ford dealerships for RFP-079, which resulted in a new Vehicle Purchase and Sale Agreement (contract ) between the BoCC and Weikert Ford. Under this contract, Weikert Ford will assist the BoCC in acquiring maintaining, and repairing new motor vehicles. The agreement does not require the County to expend a minimum dollar amount during the agreement term. The agreement term is five years with an option for the BoCC to extend for an additional five years. SCOPE AND METHODOLOGY Our audit included examining compliance with and cost effectiveness of contract , Vehicle Purchase and Sale Agreement. The objectives of this audit were to: Determine compliance with the terms of contract Evaluate the adequacy of procedures and controls over contract The scope of our audit included the examination of records from October 2010 through September However, transactions and processes reviewed were not limited by the audit period. Our audit was conducted in accordance with Principles and Standards for Offices of Inspector General, and accordingly, included such tests of records and other auditing procedures as we considered necessary in the circumstances. OVERALL CONCLUSION Fleet Management Division has achieved fairly competitive purchases, at dealer cost plus one percent, the prevailing method for new vehicle pricing as stated in the Vehicle Purchase and Sale Agreement. Eighty-eight percent of the vehicle purchases that we tested were purchased with base prices higher than Florida state contract prices, which is not in accord with the County s stated intent in the agreement. Division management believes there are other advantages to the contract that are not likely to be addressed under state contract pricing, including additional services provided by the vendor and deeper discounts on accessories than provided under the state contract. Language in the contract should be updated to reflect practical pricing considerations. Fleet Management s current vehicle purchasing procedures are not documented in writing to incorporate objective, quantifiable criteria for replacement of vehicles. Management concurs with audit recommendations. 3

6 Opportunity for Improvement # 1 Fleet Management should monitor that the County obtains the lowest, most competitive prices for new vehicles, in accordance with the County s intent as stated in the agreement. The purpose of the vehicle purchase agreement with Weikert Ford is to obtain the lowest, most competitive pricing available. In accordance with the prevailing method for new vehicle pricing, as stated in the agreement, the County is currently paying dealer cost plus one percent for new vehicles. In the agreement, Contract , Section 3(a), Pricing, states: When fulfilling an order for any new vehicle, the Contractor shall obtain the lowest, most competitive new vehicle pricing available given the prevailing market conditions when the order is placed. Contractor acknowledges that the County's intent is to pay new vehicle prices that equal or fall below the prices for new vehicles obtained under the Florida State Contract [emphasis added] and the Florida Sheriff's Association contract. Contractor shall use its best efforts to obtain new vehicle pricing consistent with the County's intent. Upon receipt of an order or upon request Contractor shall recommend available methods that the County may use to obtain the most advantageous new vehicle pricing that is available on the market. If the recommended methods are within the County budget guidelines and all applicable government regulations, then Fleet Management shall make every reasonable effort to use such methods to lower the vehicle costs. Contractor advises County that as of Effective Date the prevailing method for new vehicle pricing is Net Invoice plus I%. In this pricing method the term "Net Invoice" is defined as the manufacturer to dealer invoice minus holdback, Ford Dealer Advertising Fund, finance, and fleet or Government Price Concession. The Contractor confirms that Government Price Concessions could be piggybacked on either the Florida State or the Florida Sheriff's Association contracts [emphasis added]. We tested a random sample of new vehicle purchases and compared base pricing to the Florida State contract pricing sheets. During our testing, we noted 69 of 78, or 88%, were purchased at prices higher than the Florida State contract base prices for those vehicles. The cost of those 69 vehicles averaged $1,060 per vehicle higher than the State contract prices. Our testing did not incorporate testing of additional services provided under the contract or the cost of accessories. Recommendation: Fleet should monitor the costs of new vehicles purchased at planned intervals throughout the year to ensure the County is receiving the best prices. If it is no longer practical to obtain pricing that equals or falls below Florida State contract pricing, then the agreement between the County and Weikert Ford should reflect practical pricing conditions. 4

7 Opportunity for Improvement # 2 Fleet Management lacks a written vehicle replacement policy that incorporates objective, quantifiable criteria for replacing County vehicles. The current new vehicle selection process is largely based on Fleet Management s experience, industry replacement criteria, and the expressed needs of user Divisions. After review of vehicle maintenance and cost records, Fleet and Division representatives agree upon potential new vehicle purchases and submit these requests to the Fleet Management Director for approval. There is no written policy that incorporates objective and quantifiable criteria for prioritizing the replacement of existing vehicles and the purchase of new vehicles. Recommendation: We recommend that Fleet Management develop objective and quantifiable criteria in a written vehicle replacement policy. Vehicle replacement guidelines should be established to define the economic useful vehicle life, taking consideration of life cycle costs, standardization (to minimize operator training and maintenance costs), intended use, and value to the County. We recommend the documented vehicle replacement policy contain quantifiable categories for characteristics such as age, mileage, condition, and maintenance costs to achieve optimal replacement time frames. We believe that development of a written, objective replacement policy would permit replacement planning to be more consistently applied across all Divisions. 5

8 Florida's Crossroads of Opportunity Board of County Commissioners 2490 Bob Phillips Road PO Box 9005 Drawer AS03 Bartow, Florida PHONE: FAX: FLEET MANAGEMENT DIVISION TO : FROM: Lita McHugh Inspector General Chuck Cheatha~ ~ Division Director DATE: November 20, 2014 SUBJECT: MANAGEMENT RESPONSE TO AUDIT # Fleet Management has reviewed the recommendations from the Inspector General's audit of the Vehicle Purchase and Sale Agreement and offers the following management responses: Recommendation #1- Monitor vehicle costs and modify contract language as practical: Fleet Management agrees with the recommendation and will monitor the contract at planned intervals through the balance of this agreement to make contract language modifications that reflect practical pricing conditions. Pricing concessions to Polk County from Ford Motor Company are based on a lower volume than the Sheriff or State contract and it may not be realistic to expect the same volume based discounts but the contract provides other major benefits. The advantages of the county contract are identified in the body of the document and include items such as priority service & warranty repair through a local dealer, tag and registration service, uniquely up-fitted vehicles, service pricing concessions and technical/diagnostic system support. Additional value added service resulting from the contract also include specification/engineering support on light and heavy vehicles, engineering and specification support on specialized mounted equipment, on-site support of administrative/ recall/warranty functions and lower cost factory vehicle options than the major contracts. These benefits provide cost savings and avoid staffing additions to offset the cost difference. We will document our pricing expectations in the contract language based on the monitoring results. Recommendation #2 - replacement policy: Develop Objective and quantifiable replacement criteria in a written vehicle The Fleet Management Division agrees with the recommendation and will develop a written vehicle replacement procedure. Fleet Management has employed quantifiable replacement criteria utilizing age, mileage/hours and cost of repairs using pre-established parameters in the automated system but has not had a written procedure. We will document these practices within 90 days. COMMISSIONERS: George Lindsey Ill. Chairman Melony M. Bell Edwin V. Smith R. Todd Dantzler John Hall, Vice Chairman