Internal Audit Follow-Up Report. Inventory Management TxDOT Office of Internal Audit

Transcription

1 Internal Audit Follow-Up Report Inventory Management TxDOT Office of Internal Audit

2 Objective Assess the status of corrective actions for Management Action Plans (MAPs) previously communicated in the Inventory Management audit report issued August 22, Summary Results Testing included an evaluation of 14 MAPs to determine if corrective actions were implemented as agreed. MAP Status 2 Open 4 New Comments Corrective actions that require completion to address identified risks from the original audit report. Corrective actions that were newly identified and further actions are necessary to properly address the remaining risks. 12 Closed Corrective actions have been completed.* * Most were closed and consolidated into new MAPs due to process changes as a result of the ERP implementation Scope The engagement was performed by Alma Alvarez, Azana Headspeth, Jarmon Dorsey, Jaime Resendez, and Anne Heitke (Engagement Lead). The engagement was conducted during the period from June 11, 2015 to July 30, The original audit conducted in 2013 reviewed the inventory practices of 35 stock sections within 14 districts for the time period ending March 31, 2013 and resulted in 4 district MAPs for Austin, San Antonio, Tyler, and Pharr as well as 9 non-district specific, division MAPs. Internal Audit performed testing at the Austin, Houston, San Antonio, Pharr, and Tyler districts for the period of time from July 6 to July 24, Methodology The methodology used to complete the objectives of this audit included: Reviewing TxDOT internal documents including policy and procedure manuals, organizational charts, process maps, technical reports, purchase orders, and technical specifications where needed Reviewing previously issued reports from TxDOT s Office of Internal Audit Interviewing key personnel within the Support Services (SSD), Information Technology (ITD), and the Austin, Houston, Pharr, San Antonio, and Tyler Districts Sampling inventory items in five (Austin, Houston, Pharr, San Antonio, and Tyler) districts for testing. Those selections were as follows: o Judgmentally selected 54 inventory items and compared quantities on hand with inventory quantities listed in Maintenance Management System (MMS) (i.e., Compass) and Enterprise Resource Planning (ERP) reports o Judgmentally selected 14 stock piles and compared quantities on hand with inventory quantities listed in MMS and ERP reports o Measured the quantities of items in 11 Stock piles using the iphone Stock Pile Reports application and compared them to quantities listed in MMS and ERP reports August

3 o Observing physical access to various inventory items were reviewed o Reviewing 6 Material Day Cards in the San Antonio, Tyler, and Pharr Districts. These districts were interviewed regarding the Material Day Card process and a sample of day cards was reviewed Access testing was performed on 6 ERP inventory roles defined in the system These procedures were applied as necessary to perform the audit fieldwork. Background This report is prepared for the Texas Transportation Commission and for the Administration and Management of TxDOT. The report presents the results of the Inventory Management Follow-Up Engagement, which was conducted as part of the Fiscal Year 2015 Audit Plan. The Support Services (SSD) is the office of primary responsibility for inventory practices and support. SSD is responsible for developing processes and procedures to help ensure TxDOT inventory is accurate, valid, and appropriate. SSD is also responsible for developing tools and techniques that the districts can use to manage and monitor the inventory in their districts. Between the original audit and this follow-up engagement, legacy inventory systems such as the Material and Supply Management System (MSMS) were replaced by the Enterprise Resource Planning (ERP) system and Management Maintenance System (MMS) to monitor, maintain, and manage inventory. While MMS is used by maintenance sections for inventory and other planning purposes, ERP is the official system of record for the agency s inventory. We conducted this follow-up engagement in accordance with Generally Accepted Government Auditing Standards and in conformance with the International Standards for the Professional Practice of Internal Auditing. Those standards require that we plan and perform the engagement to obtain sufficient, appropriate evidence to provide a reasonable basis for our conclusions based on our engagement objective. Recommendations to mitigate risks identified were previously provided to management during the original engagement to assist in the formulation of the MAPs referenced in this report. The Office of Internal Audit uses the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control Integrated Framework version August

4 Detailed MAP Follow-Up Status MAP Status: Open Corrective actions that require completion to address identified risks from the original audit report. MAP Owner: Daryl Starkes, Materials Management Section Director, Support Service MAP 1.1: The Support Services will: Create a standardized cost effective stock pile inventory process for TxDOT Define roles, responsibilities and points of contact within the districts and division Implement a state wide rollout Original Completion Date: March 15, 2014 Revised Completion Date: November 15, 2015 Original Audit Finding Number 5 : Inventory Access MAP Owner: Imelda Barrett, Director of Transportation Operations, Austin District MAP 5.1: Keys to the Signal Shop Stock Room will be recalled and new keys issued. Keys will be stamped with DO NOT DUPLICATE or similar phrase. Keys will be issued to the following people: (1) Signal Shop Stock Account Coordinator, (2) Signal Shop Stock Account Assistant, (3) One Signal Shop employee assigned to support the Coordinator and Assistant, (4) Signal Shop Supervisor, and (5) Facilities Maintenance Supervisor. Additionally, a key ring with after-hours keys will be issued to up to two traffic signal standby employees before leaving for the day. These keys will be returned the next morning and locked. Access to the key lockbox is limited to the following people: Signal Shop Key Control Coordinator Signal Shop Key Control Assistant Signal Shop Lead Worker or Crew Leader (Position currently not filled) Signal Shop Supervisor Original Completion Date: July 15, 2013 Revised Completion Date: September 15, 2015 August

5 MAP Status: New Corrective actions that were newly identified and further actions are necessary to properly address remaining risks. FMAP Owner: Daryl Starkes, Materials Management Section Director, Support Service FMAP 1.1: The Support Service (SSD) will discuss policies with management of the cited district/maintenance section and SSD will publish Materials Management Policy Manual to include: Role of SSD as the office of primary responsibility for providing policy, procedure and analysis guidance for consumable inventory and stock management. Roles and responsibilities of district engineers and other inventory-specific staff in districts and SSD TxDOT's ethics policies as they relate to inventory management and consequences for violating these policies Approval requirements for requesting or issuing stock Maintaining inventory accuracy through methods such as timely entry of work orders, ensuring physical security of stock, using physical and system location codes, cycle counting, adjustments, and correct units of measure and conversion rates Maintaining inventory internal controls through proper segregation of inventory, annual physical wall to wall inventories, and reconciliations of system data to records Compliance monitoring performed by SSD Inventory Specialists, of the district business units' stock accounts Completion Date: November 15, 2015 FMAP Owner: Daryl Starkes, Materials Management Section Director, Support Service FMAP 1.2: Support Services will publish a Materials Management Procedures Manual - Chapter(s): Inventory Accuracy, Controls, and Functional Procedures - to include: Phase I Inventory Accuracy o Using PeopleSoft as system of record o Physical layout, bin locations, labelling o Documenting removal of items from stock o NIGP item management - units of measure and conversion rates o Inspecting and receiving new items - use of stockpile measuring App o Reconciling transactions with office records, general ledger and budget o Performing spot inventories on regular basis o Investigating discrepancies - tracing errors o Performing adjustments August

6 Phase II Controls o Segregation of physical stock in different stock accounts o Limiting access by securing and locking stock items o Limiting issuance of keys to secured areas o Standard picking/shipping/in-transit processes o Periodic obsolete inventory reviews o Perform annual wall-to-wall inventories requiring certification by district engineer o Investigating and documenting discrepancies and obtaining approvals for adjustments o Segregation of duties to prevent inappropriate use of state funds or stock items Phase III Functional Procedures o Workflow and decision points o Procedures o Include or link to PeopleSoft job aids Completion Date: September 15, 2016 Original Audit Finding Number 2: Performance Goals Original Audit Finding Number 3: Stock Adjustments Original Audit Finding Number 4: Material Movement in System of Record Original Audit Finding Number 6: Access Control FMAP Owner: Daryl Starkes, Materials Management Section Director, Support Service FMAP 1.3: The Support Services will create and deliver inventory management training to district Business Services Coordinators on content of Materials Management Policy Manual and Phase I of Procedures Manual Completion Date: February 15, 2016 Original Finding Number 2: Performance Goals Original Finding 6: Access Control FMAP Owner: Daryl Starkes, Materials Management Section Director, Support Service FMAP 1.4: The Support Services will create a Materials Management and Compliance group within the Materials Management Section with dedicated Inventory Specialists responsible for assisting and training districts in specific geographic areas on inventory management functions. This will include: Provide districts with monthly inventory activity summary Assist and train districts' on functions related to accuracy and controls: Overall management of physical stock and system quantities and values. Daily and weekly spot inventories, reconciliations, researching discrepancies, identifying needed adjustments August

7 Creating and maintaining physical layout plans with bin locations and labels, both physically and in PeopleSoft Performing spot audit tests on high dollar/high volume items in district stock accounts How to determine which items are potential surplus, have long supply, have expired shelf life, or are obsolete How to conduct root cause analysis, and how to surplus items and remove them from the system, in order to meet the districts' performance metrics Provide Tier 1 customer assistance through the ASKMATLSMGMT mail box Monitor PeopleSoft user role list and work with BSCs to ensure appropriate access is given and removed in a timely manner Monitor I-Phone Stockpile App usage, assist users, and request vendor to update UOMs and conversion rates Completion Date: September 15, 2015 August

8 MAP Status: Closed Corrective actions for three original MAPS have been completed; for the additional nine MAPS, they have been closed and consolidated into new MAPs mainly due to process changes as a result of the ERP implementation. MAP Owner: Daryl Starkes, Materials Management Section Director, Support Service MAP 1.2* : The Support Service will: Discuss with management of the cited district/maintenance section Segregate inventory items according to custodian responsibility Provide written guidance to all districts/maintenance sections * MAP closed due to process change and FMAP 1.1 and FMAP 1.2 created Original Completion Date: March 15, 2014 MAP 1.3* : The Support Service will create and deliver stock management training to districts to include: Conducting required inventories according to MSMS policies Documenting required inventories according to current MMS policies Researching and documenting inventory discrepancies Adjusting inventory balances as required Providing secure access to stock accounts * MAP closed due to process change and FMAP 1.3 created Original Completion Date: September 15, 2013 MAP 1.4* : The Support Service will: Discuss and address with management of the cited district/maintenance section Ensure all managers know the consequences of violation ethics policy * MAP closed due to process change and FMAP 1.1 and FMAP 1.2 created Original Completion Date: July 15, 2013 MAP 1.5*: The Support Service will: Create and fill an Inventory Specialist Position within the Support Services to be a central point of contact (POC). Ensure materials management policy adherence rest with each district and is administered by the district engineer. This will be supported by layered POCs for each district and maintenance section. The district POCs will be supported by SSD Inventory Specialist * MAP closed due to process change and FMAP 1.4 created Original Completion Date: 03/15/2014 August

9 Original Audit Finding Number 2: Performance Goals MAP Owner: Andrew Chavez, Director, Support Service MAP 2.1*: The Support Service will Reorganize and update the MSMS Manual Train district POCs Create standard reporting processes to include what information to report, recipients, format, frequency and delivery method Create best in class performance criteria to include what information to report, recipients, format, frequency and delivery method * MAP closed due to process change and FMAP 1.3 and FMAP 1.4 created Original Completion Date: 12/15/2013 Original Audit Finding Number 3: Stock Adjustments MAP Owner: Daryl Starkes, Materials Management Section Director, SSD MAP 3.1*: The Support Service will create and deliver stock management training to districts to include: Conducting required inventories according to current MSMS polices Documenting required inventories according to current MSM polices Researching and documenting inventory discrepancies Adjusting inventory balances as required Providing secure access to stock accounts * MAP closed due to process change and FMAP 1.3 created Original Completion Date: 11/15/2013 Original Audit Finding Number 4: Inventory Valuation MAP Owner: Dan Stacks, P.E., Director of Operations, San Antonio District Steven H. Hall, P.E., Director of Operations, Tyler District Rex Costley, P.E., Director of Maintenance, Pharr District MAP 4.1: Schedule the following reports to be ed to the Office Manager or Stock Clerk on a weekly basis (Monday of each workweek): Unapproved Material Day Cards (Current/Previous Pay Period) Report will identify the Material Day Cards that are pending approval. Report will be filtered to display TxDOT Unit, Work Order #, Work Date, Quantity, etc. The Office Manager or Stock Clerk will review the report and initiate approval for pending Material Day Cards. Material Day Cards with Errors (Current/Previous Pay Period) Report will identify the approved Material Day Cards with errors. Report will be filtered to display TxDOT Unit, Work Order #, Work Date, Line Message that identifies the error, etc. Discrepancies on Material Day Cards are to be corrected within five (5) working days. Original Completion Date: 07/15/2013 August

10 MAP 4.2: MMS District Champion to reinforce all Work Orders for previous pay period to be completed by the 4th working day of each month, unless otherwise approved by the District. Work Orders are required to have Labor, Equipment and Material Day Cards approved prior to completion. District Champion to generate Segment 78 Work Orders OPEN Report and coordinate with Maintenance Sections to identify Work Orders that require completion. Original Completion Date: 07/15/2013 Original Audit Finding Number 4: Inventory Valuation MAP Owner: Daryl Starkes, Materials Management Section Director, SSD MAP 4.3*: Update MSMS Manual to include requirements for signatures and related authorities. Include MMS issues in future training. * MAP closed due to process change and FMAP 1.1 and FMAP 1.2 created Original Completion Date: 10/15/2013 Original Audit Finding Number 5: Inventory Access MAP Owner: Imelda Barret, Director of Transportation Operations, Austin District MAP 5.2: Transportation Operations, Austin District A log will be established and placed by the door to the stock account area. Stock items will be issued under the guidance of Stock Account Coordinator, Stock Account Assistant Coordinator, or Lead Worker. If none of those people are present, stock can be issued under the guidance of the Signal Shop Supervisor. After hours stock can be issued by standby personnel. They will complete the MSMS forms and stock log. Information will be confirmed by the Stock Account Coordinator or Stock Account Assistant on the next business day. Original Completion Date: 08/15/2013 Original Audit Finding Number 6: PeopleSoft Access Control MAP Owner: Daryl Starkes, Materials Management Section Director, SSD MAP 6.1* : The Support Services will: Have districts review and list changes to the current MSMS access list SSD will make changes and send confirmations to the users and POCs * MAP closed due to process change and FMAP 1.4 created Original Completion Date: 09/15/2015 August

11 MAP 6.2*: The Support Services will create a purchasing control segment with the MSMS training program. * MAP closed due to process change and FMAP 1.1, FMAP 1.3, and FMAP 1.4 created Original Completion Date: 03/15/2015 Closing Comments The results of this MAP Follow-Up engagement were discussed with and provided to the Support Services Director, Materials Management Section Director, Business Operations Coordinator, Business System Support Specialist, and Director of Transportation Operations, Austin District on August 11 th, The Audit team appreciates the cooperation and assistance received from the Support Services and the Austin, Houston, San Antonio, Pharr, and Tyler Districts during this audit. August