KAREN E. RUSHING AUDIT OF. Fuel Tax Refunds

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1 KAREN E. RUSHING Clerk of the Circuit Court and County Comptroller AUDIT OF Fuel Tax Refunds Audit Services Karen E. Rushing Clerk of the Circuit Court and County Comptroller Jeanette L. Phillips, CPA, CGFO, CIG Director of Internal Audit Audit Team Kerkering, Barberio & Co. Certified Public Accountants Patricia J. Entsminger, CPA, CFE Mandi S. Someson, CPA, CFE Lindsey N. Breaux September 30, 2013

2 TABLE OF CONTENTS Summary and Results 3 Opportunities for Improvement, Management Responses and Action Plan 6 Page Page 2

3 Summary and Results The Clerk of the Circuit Court and County Comptroller s Internal Audit Department has completed an audit of Fuel Tax Refunds. The audit was planned and 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 the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The purpose of the audit was to review internal controls and assess operational effectiveness and efficiency, as well as compliance with applicable laws and regulations. Background Fleet Services Fleet Services has primary responsibility for Board of County Commissioner vehicle and equipment assets, fuel facilities and maintenance facilities. Fleet Services duties include: Granting access to fuel facilities to authorized users, vehicles and equipment; Maintaining the fuel supply and approving invoices; Management of fuel and fleet management systems; and Ensuring compliance with various regulations. Fleet Services is responsible for maintaining accurate fuel inventory records, ordering and authorizing fuel deliveries, confirming inventory quantities in records and submitting supporting reports and documentation to Finance for timely filing of fuel tax refund applications. These responsibilities are accomplished in part by reviewing fuel receipt and usage and comparing vendor invoices to receipt reports and inventory levels for accuracy. Fuel is purchased from a single vendor based on fuel needs (volume and usage) as determined by Fleet Services. Fleet Services utilizes a fuel management system and daily inventory readings to determine order levels. Fuel from County Facilities The County operates four (4) fuel sites as well as a fuel credit card system which allows County employees to purchase fuel at participating stations throughout the United States. In addition to use by County employees, select outside agencies (Englewood Area Fire Control District) are provided access to fuel sites and the fuel cards administered by the County. County departments and outside agencies are billed monthly for fuel they have received. To obtain fuel from any of the fuel sites, a user must have two fuel keys, the black key vehicle/equipment being fueled and the individual user s assigned white key. Black keys identify the vehicle/equipment being fueled and the appropriate account number for billing purposes. White keys identify the person fueling the vehicle/equipment. To obtain fuel from fuel site locations, users are prompted to: Enter vehicle mileage; Insert vehicle fuel key; Insert personal key; and Indicate which pump will be used for fueling. Page 3

4 Once all required information is input and validated, the indicated pump is activated. The County also utilizes fuel tanks to transport fuel to vehicles/equipment operating in the field. Fuel dispersed, mileage and vehicle information is tracked through the fuel management system (TRAK) and uploaded to the fleet maintenance system (Fleet Focus). Fuel Credit Cards The fuel credit card purchasing system (Wright Express) allows County employees and designated outside agencies to purchase fuel at participating stations throughout the United States. County employees are restricted from using fuel cards within Sarasota County except for the Property Appraiser s office or emergencies. Fuel cards are requested and must physically be obtained from Fleet Services. Fleet Services assigns the PIN codes necessary to activate the cards for those employees who have been authorized to use a fuel card. Other controls for the cards include requiring manager-level authorization, employee signatures and travel information on fuel card requests, and generally restricting the cards to fuel only. Food, drinks and other products found at gas stations may not be purchased using the cards. Fuel Tax Refunds The County currently holds a refund permit with the Florida Department of Revenue (FDOR) which allows the County to apply for partial refunds of fuel taxes paid on unleaded and diesel fuel used for on-road purposes and for refunds of fuel taxes paid on diesel fuel used for off-road purposes. Each month, the Fleet Services department sends fuel records to the Finance Department (Finance), which uses the information provided by Fleet Services to complete and submit fuel tax returns to the Florida Department of Revenue. For the year ended July 31, 2013, fuel purchases totaled approximately 2,272,000 gallons. Fuel refunds received by the County totaled approximately $244,000. Objectives, Scope and Methodology The objective of this audit was to determine whether the fuel tax refund process is being administered in accordance with the Florida Department of Revenue instructions. In addition, the audit included a review of the key internal controls over the fuel tax refund process. To meet the objectives of the audit, the following procedures were performed: Inquired of County personnel; Reviewed the Florida Department of Revenue Forms and Instructions; Obtained an understanding of fuel purchase, disbursement, and fuel card system processes; Compared fuel system reports and other supporting documentation to a sample of fuel tax return filings; Contacted the Florida Department of Revenue to verify the proper treatment of inventory gains and losses on the tax returns; Identified opportunities for improvement. For a sample of four (4) monthly fuel tax returns: Reviewed monthly tax return to ensure that it has been filled out completely and accurately, with appropriate supporting documentation attached; Verified that numbers reported on the tax returns agreed to vendor invoices and the bill of lading (BOL) reports from the vendor; Page 4

5 Agreed gross, net, and additive amounts of fuel from vendor invoices to reports generated and sent to Finance which were used to complete monthly return receipts and ensured that amounts listed as received matched invoice amounts billed and the BOL reports; Recalculated invoice amounts (net gallons received, plus any additives, multiplied by the unit price per gallon) and verified that invoice amounts agreed to amounts paid per the County s accounting system; Traced fuel disbursements on tax returns to Fleet Services system reports ensuring amounts reported were accurately reported by the appropriate type (off-highway, to other local governments and/or on-highway use); Traced tax rates per returns to the applicable Florida Department of Revenue rate schedules for the selected months; Recalculated inventory amounts and activity reported; Verified that monthly returns were filed with the Florida Department of Revenue by the 20 th day following the collection period as outlined in the return instructions; Verified that reported amounts were received in the case of refunds, or paid as required per review of the County s accounting system; Reviewed supporting documentation for unusual activity or indications of manual overrides/corrections; and Examined invoices and reports related to fuel credit cards to determine if fuel card purchases were eligible for refunds. Overall Results Based on the procedures performed, the County appears to understand their responsibilities related to the fuel tax refund process and the process appears to ensure that refunds are substantially correct and applied for timely. There are, however, opportunities for improvement as summarized below and detailed in the Opportunities for Improvement, Management Responses and Action Plan section of this report. The following summarizes the results of the audit. Reporting Fuel Inventory Gains/Losses - Fuel inventory gains and losses are inconsistently reported. While fuel losses do not impact the refund amount, fuel gains reduce the County s refunds. As a result, the County appears to have been overrefunded by approximately $1,200 during the audit period. Including Fuel Card Purchases on Fuel Tax Returns - Fuel purchased with the County s fuel credit cards is not reported on monthly tax returns filed with the FDOR. As a result, the County appears to have been under-refunded by approximately $200 for the audit year. Updating Intranet Document - Fleet Services: Sarasota County User Guidelines on the County intranet (SharePoint) instructs employees to provide their social security number via interoffice memo or . This procedure is no longer in practice. Excluding Outside Agency Purchases from County Tax Returns - The County tax return erroneously includes outside agency purchases in the refund calculation. As a result, it appears the County has been over-refunded by approximately $1,700 for these purchases. Page 5

6 Opportunities for Improvement, Management Responses and Action Plan The audit identified certain procedures and practices that could be improved. This audit was neither designed nor intended to be a detailed study of every relevant system, procedure or transaction. Accordingly, the Opportunities for Improvement, Management Responses and Action Plan presented in this report do not encompass all areas related to the Fuel Tax Refund process where improvement may be needed. Observations and recommendations were made in the following areas: A. Reporting Fuel Inventory Gains/Losses B. Including Fuel Card Purchases on Fuel Tax Returns C. Updating Intranet Document D. Excluding Outside Agency Purchases from County Tax Returns A. Reporting Fuel Inventory Gains/Losses Fuel inventory gains and losses are inconsistently reported. While fuel losses do not impact the refund amount, fuel gains reduce the County s refunds. As a result, the County appears to have been over-refunded by approximately $1,200 during the audit period. Observation: Fuel may shrink and expand due to changes in conditions such as temperature or evaporation. This creates gains and losses of inventory. The gains and losses are not treated consistently between Fleet Services reports and the fuel tax returns filed. Fleet Services internally tracks and reports gains/losses in fuel inventory whereas the tax returns generally do not include adjustments for gains and losses. As a result, Fleet Services personnel must track and reconcile the two different inventory levels reported. Including gains and losses in the fuel tax returns filed with the Florida Department of Revenue would have reduced the County s refund. Recommendation: Based on the fuel tax return instructions and discussions with the Florida Department of Revenue, gains and losses should be included on the monthly fuel tax returns. This will also create consistency between internally tracked and reported inventory levels and activity and eliminate the need to reconcile these differences. Management Response Effective immediately, the County will include gains and losses in fuel tax returns each month. B. Including Fuel Card Purchases on Fuel Tax Returns Fuel purchased with the County s fuel credit cards is not reported on monthly tax returns filed with the FDOR. As a result, the County appears to have been under-refunded by approximately $200 for the audit year. Observation: The purchase of fuel through the use of the County s fuel cards is not reported on monthly returns filed with the FDOR. Staff responsible for reviewing and approving the monthly activity and invoices for fuel credit cards did not have a clear understanding of which taxes were included and excluded from those statements. Also, staff responsible for preparing monthly tax returns were unaware that fuel card purchases existed that should be included on the tax returns. Page 6

7 The WEX fuel credit card statements include deductions of tax amount from the charges to the County but it is unclear which taxes are being deducted. The County is working with the vendor to determine what amounts have been included and excluded from the invoices and what should be charged and exempted. During the year ended July 31, 2013, approximately 1,450 gallons of fuel was purchased in Florida using the fuel cards. Potentially, the additional refund amount related to these purchases is approximately $200. The County has three (3) years from the date the tax was originally paid to file and receive refunds for fuel credit card purchases. Recommendation: Personnel responsible for approving fuel credit card invoices must ensure that the proper taxes are being charged or exempted in accordance with taxing authorities and the vendor contract. In addition, when any amounts are charged that are eligible for refund, this information and the related statements should be provided with the other reports used to prepare the tax returns. Management Response Fleet Services will provide the data for inclusion in the fuel tax return to Finance before the 15th of each month. The FY12 and FY13 documentation will be revisited and monthly data for the tax rebate document will be completed. C. Updating Intranet Document Fleet Services Sarasota County User Guidelines on the County intranet (SharePoint) instructs employees to provide their social security number via interoffice memo or . This procedure is no longer in practice. Observation: The version of the Fleet Services Sarasota County User Guidelines available on the intranet during the audit discusses the process for obtaining a fuel key (page 8). The instructions include County employees providing their social security numbers via interoffice memo or to Fleet Services. This is not required in practice as it exposes employees to risk. Recommendation: Replace the intranet (SharePoint) version of the Fleet Services Sarasota County User Guidelines with the current procedures in place. These procedures require an employee number and do not require a social security number. Management Response Social security numbers have not been requested in practice for several years. Fleet Services updates SharePoint documents as they change. This document has been revised and uploaded to SharePoint as of September 16, D. Excluding Outside Agency Purchases from County Tax Returns The County tax return erroneously includes outside agency purchases in the refund calculation. As a result, it appears the County has been over-refunded by approximately $1,700 for these purchases. Page 7

8 Observation: The County incorrectly accounted for fuel sold to outside agencies in its tax returns and as a result, appears to have been over refunded. The County is only entitled to a refund of the fuel taxes paid on gallons consumed by the County. Outside agencies purchasing fuel at County sites may apply to the FDOR for a refund of their respective fuel taxes. Based on gallons sold to outside agencies as provided by Fleet Services, it appears the County has been over-refunded by approximately $1,700 for these purchases during the audit period. Recommendation: The County should determine the amount that it has been over refunded and work with the FDOR to resolve this matter. Management Response Fleet Services Administrative staff will gather data and submit corrective documentation to Finance for corrective rebate dollars. Page 8