Table of Contents. Transmittal Letter Executive Summary Background Objectives and Approach Issues Matrix...

Transcription

1 Internal Audit Committee of Brevard, Florida Internal Audit of Central Fleet Services Prepared By: January 4, 2013

2 Table of Contents Transmittal Letter... 1 Executive Summary... 2 Background Objectives and Approach Issues Matrix

3 Carr, Riggs & Ingram, LLC 215 Baytree Drive Melbourne, Florida (321) (321) (fax) January 4, 2013 The Audit Committee of Brevard, Florida Viera, Florida Pursuant to the approved 2012/2013 internal audit plan, we hereby submit our internal audit report covering Central Fleet Services. The internal audit of Central Fleet Services focused on the storage and disbursement of fuel, work order and inventory processes, accurate timekeeping, tracking of fees for services provided and other policy compliance issues. We will be presenting this report to the Audit Committee at the next scheduled meeting on January 30, Our report is organized in the following sections: Executive Summary Background Objectives and Approach Issues Matrix This provides a summary of the issues related to our internal audit of Central Fleet Services. This provides an overview of Central Fleet Services. The internal audit objectives and focus are expanded upon in this section as well as a review of the various phases of our approach. This section gives a description of the issues and recommended actions as well as Managements responses. We would like to thank the various departments and all those involved in assisting the Internal Auditors in connection with the review of the Central Fleet Services function. Respectfully Submitted, INTERNAL AUDITORS 1

4 Executive Summary

5 Executive Summary The primary objective of this audit was to assess the design and effectiveness of internal controls in place over Central Fleet Services and to assess compliance with certain laws, rules and other policies and procedures. During the course of our work, we discussed the control design and operating deficiencies and any compliance issues with management. Relative risk is an evaluation of the severity of the concern and the potential impact on operations. Items rated as High risk are considered to be of immediate concern and could cause significant operational issues if not addressed in a timely manner. Items rated as Moderate risk may also cause operational issues, however, they do not require immediate attention, but should be addressed as soon as possible. Items rated as Low risk could escalate into operational issues, but can be addressed through the normal course of conducting business. There are many areas of risk to consider including financial, operational, and compliance, to name a few. For public sector organizations, we also consider public perception risk when determining the relative risk rating. Our observations and recommendations for improving controls and operations are described in detail in the Issues Matrix included in this report. A summary of issues identified and their relative risk rating is provided below. Issues Risk Rating 1. Segregation of Duties: Adequate segregation of duties can be a challenge for small departments. We noted one employee performs periodic spot checks of inventory parts in the warehouse during the week to verify quantities on hand, orders the majority of parts and distributes these parts. A lack of adequate segregation of duties could lead to issues with the safeguarding of assets. High 2. Video Security System: The video security system is included as an unfunded project on the Central Fleet Services capital outlay summary in the FY budget. The installation of a video security system at the nine fuel sites around Brevard would provide a strong deterrent against employees taking fuel for personal use at the fuel sites. Additionally, the video security system provides a means to investigate suspected misuse of fuel. Moderate 3. Formal Internal Operating Procedures: Central Fleet Services does not have formal written internal operating procedures for all employee job functions. Therefore, in the event of turnover, new employees would not have a formal set of procedures to follow as guidance. Moderate 4. Window Sheets: The quantity reported for parts in the inventory system is typically updated monthly for items distributed to user departments through window sheets. During our inventory observation on December 3, 2012, we noted window sheets used to support the difference between the physical count and the inventory system for item # were dated 10/25/12 and 10/29/12, over a month before the inventory observation. Failure to update the inventory listing timely could lead to recording errors or shortages of inventory. Moderate 5. Underground Fuel Tanks: Central Fleet Services is in the process of replacing underground fuel tanks at the Parkway Complex in Titusville and at Fire Station #64 in Melbourne Beach with above ground fuel tanks. FY budget initiatives include obtaining funding for final Phase 3 of fuel tank replacement project at the Flake Road and Cone Road locations. Five of the nine fuel sites already have above ground fuel tanks. Underground fuel tanks could heighten the risks for possible pollution remediation issues. Low 2

6 Background

7 Background Overview The mission of Brevard s Central Fleet Services (CFS) office, a division of the Central Services office, is to positively contribute to enhancing and ensuring Brevard s quality of life by providing cost effective and readily available fuel supplies and maintenance of automobiles and small trucks. Central Fleet Services includes three program areas: vehicle and equipment repair and maintenance, fuel acquisition and fuel site operation and emergency generator repair and maintenance. Goals of Central Fleet Services include: 1) to maintain operational efficiency and safety and maximum useable life of vehicles and equipment, 2) to ensure a continuous and safe supply of fuel at the nine fuel sites around the and 3) to provide efficient collection, storage, and redistribution services for surplus vehicles and heavy equipment to other auctions and public auctions. Central Fleet Services repairs and maintains vehicles and equipment for the majority of the except for Solid Waste, Mosquito Control and SCAT and has eight notfor-profit customers that receive services through individual contracts with those entities. Central Fleet Services also repairs and maintains the s approximately 150 emergency generators. According to the s budget for FY , escalating fuel costs continue to have a significant impact on Central Services overall budget, with the average delivered cost of unleaded gasoline increasing 35% from FY (the most recent audited fiscal year). Diesel fuel costs have increased approximately 41%. In addition, the average age of vehicles now exceeds 8 years and replacements continue to be deferred due to budget constraints. Repair and maintenance costs continue to increase while funding of the program decreases. The department manages a workload of more than 4,000 vehicle maintenance or repair work orders per year. Central Fleet Services is supported by internal billings to other departments and external billings for work done on not-for-profit, non- owned vehicles (i.e. Brevard Workforce and Brevard Alzheimer s). All time for internal and external billing projects is tracked by work order number on labor sheets by fleet personnel. Materials and contracted services are charged to the department requesting the work through the s cost allocation plan. For FY , labor was charged to not-for-profit agencies and departments for services not covered under the cost allocation plan (i.e. heavy duty vehicles or welding) at a rate of $62.50 per labor hour. This rate was based on estimating the average salaries and benefits of fleet technicians, plus adding 5% of the estimated labor rate to handle non-charge items (i.e. shop supplies or small parts). Central Fleet Services is also partially funded by fuel sales to Charter Officers, the Town of Melbourne Beach, Town of Malabar and several not-for-profit agencies. The fuel is marked up $0.18 per gallon and sales totaled approximately $522,000 during FY There are 9 employees in Central Fleet Services including a supervisor, an operations support specialist, a welder and 6 mechanics including a lead mechanic. Staffing Key personnel from Central Fleet Services, a division of the Central Services Office that are involved in the operations and assisted in the audit are as follows: Name Steve Stultz Teresa Camarata Leslie Rothering Chuck Banks Larry Joseph Title Director, Central Services Office Interim Director, Central Services Office Purchasing Manager, Central Services Office Fleet Supervisor Operations Support Specialist 3

8 Background - continued Organization Chart Central Fleet Services, a division of the Central Services Office, has developed a strong working relationship with numerous other departments of the. A current organizational chart for the areas tested during this audit is below. Central Services Office Programs and Services Fleet Services Vehicle and Equipment Maintenance and Repair Fuel Site Maintenance and Repair Emergency Generator Service and Maintenance 4

9 Background - continued Budget to Actual Comparison Revenues: FY11-12 Final Budget FY11-12 YTD Actual * $ Variance % Variance Charges for services** $ 4,888,104 $ 4,746,245 $ (141,859) -3% Transfers-General Fund 412, ,088-0% Miscellaneous 4,000 4, % Total revenues $ 5,304,192 $ 5,162,889 $ (141,303) -3% Expenditures: Compensation & benefits $ 561,403 $ 526,364 $ (35,039) -6% Other contractual services 24,883 7,014 (17,869) -72% Communication & freight 12,141 1,698 (10,443) -86% Utility services 21,500 21, % Rentals & leases 1, (809) -54% Insurance 12,866 9,767 (3,099) -24% Repairs & maintenance 58,200 47,350 (10,850) -19% Other current charges 78,702 78,073 (629) -1% Office supplies 2,800 1,737 (1,063) -38% Operating supplies 63,259 22,786 (40,473) -64% Books, publications & membership % Capital outlay 413,888 90,322 (323,566) -78% A Resale items 4,053,050 4,032,504 (20,546) -1% Total expenditures $ 5,304,192 $ 4,840,539 $ (463,653) -9% Excess of revenues over expenditures $ - $ 322,350 * Unaudited amounts provided on January 2, ** Budget is net of 5% statutory reduction. Note Generally any surplus goes to the General Fund. On occasion, requests are made to carry forward to the following year for specific projects or capital replacements. 5

10 Background - continued Budget to Actual Comparison (Continued) Revenues: FY10-11 Final Budget FY10-11 Actual $ Variance % Variance Charges for services $ 4,209,518 $ 4,394,491 $ 184,973 4% Transfers-General Fund 366, ,045-0% Miscellaneous 4,000 2,636 (1,364) -34% Total revenues $ 4,579,563 $ 4,763,172 $ 183,609 4% Expenditures: Compensation & benefits $ 584,007 $ 559,529 $ (24,478) -4% Other contractual services 14,714 9,321 (5,393) -37% Communication & freight 4,500 1,026 (3,474) -77% Utility services 23,500 20,337 (3,163) -13% Rentals & leases 1, (940) -63% Insurance 12,785 12,467 (318) -2% Repairs & maintenance 56,117 60,875 4,758 8% Other current charges 78,002 78, % Office supplies 4,000 1,309 (2,691) -67% Operating supplies 30,171 22,656 (7,515) -25% Books, publications & membership 4, (3,890) -97% Capital outlay 242, ,906 (116,379) -48% B Resale items 3,523,982 3,506,278 (17,704) -1% Total expenditures $ 4,579,563 $ 4,398,665 $ (180,898) -4% Excess of revenues over expenditures $ - $ 364,507 ** Budget is net of 5% statutory reduction. 6

11 Background - continued Budget to Actual Comparison (Continued) The following are explanations regarding the budget vs. actual variances noted on the previous pages. A Capital Outlay FY 2012 budgeted capital outlay includes the remaining balance of the removal and replacement of the fuel storage tanks projects at the Detention Center and Area 3/5 Road & Bridge facility in Palm Bay and two additional projects replacing tanks at the Parkway Service Complex in Titusville and at Fire Station 64 in Melbourne Beach. FY 2012 actual expenditures included final expenditures for the Detention Center and Area 3/5 projects and architectural and engineering expenditures for Parkway Service Complex and Fire Station 64 projects. Balance was carried forward to FY 2013 and purchase orders have been issued in FY 2013 for construction services for the Parkway Service Complex and Fire Station 64. B Capital Outlay FY 2011 budgeted capital outlay included funding for the removal and replacement of fuel storage tanks at the Detention Center and Area 3/5 Road & Bridge facility in Palm Bay. Variance in FY2011 was due to the fact that final completion of construction and thus final payment was not completed until FY Balance of funds were carried forward to FY Selected Statistics and Benchmarks Central Fleet Services currently uses and tracks various performance measures internally. The following is a listing of performance measures used by Central Fleet Services. Target FY Actual FY Target FY Actual FY Target FY Total number of repair and maintenance work orders opened 4,400 4,376 4,475 4,652* 4,577 Total number of work orders completed N/A 4,293 4,430 4,453* 4,532 Total number of not-for-profit contracted customers N/A Average number of days vehicle or equipment is out of service for repair or maintenance Operating budget vs. operating actual 100% 96% 99% 92%** 100% * Total includes Central Fleet Services and Road and Bridge. ** As of 01/03/2013 budget to actual report. Unaudited numbers are not final and will likely change. 7

12 Background - continued Selected Statistics and Benchmarks (Continued) With the exception of Brevard, the selected statistics and benchmarks for the other counties fleet services below were taken from the Florida Benchmarking Consortium s FY Annual Services Report which was dated August 2012, the most current available report. The selected statisitcs and benchmarks below for Brevard were provided by Central Fleet Services for the FY fiscal year. Brevard has the third lowest number of employees in its fleet services department and ranks in the middle for consumption of diesel fuel and unleaded fuel among the listed counties. Brevard ranks below the average of the other counties in all categories listed below. Brevard Collier Marion Martin Orange Polk Total Fleet Supervisory/Management Employees Seminole Total Fleet Technician Employees Total Fleet Support Employees Gallons of Diesel Fuel Consumed at End of Reporting Period 371, , , , ,095 1,004, ,679 Gallons of Unleaded Gasoline Consumed at End of Reporting Period 536, , , ,404 1,712,195 1,614, ,043 Broward Hillsborough Leon Miami- Dade Okaloosa Okeechobee Total Fleet Supervisory/Management Employees Pinellas Total Fleet Technician Employees Total Fleet Support Employees Gallons of Diesel Fuel Consumed at End of Reporting Period 240,348 1,144, ,695 4,120, ,661 53, ,665 Gallons of Unleaded Gasoline Consumed at End of Reporting Period 687, ,992 92,651 6,616, , , ,963 Average (excluding Brevard ) Total Fleet Supervisory/Management Employees 7 Total Fleet Technician Employees 31 Total Fleet Support Employees 10 Gallons of Diesel Fuel Consumed at End of Reporting Period 875,531 Gallons of Unleaded Gasoline Consumed at End of Reporting Period 1,053,471 8

13 Objectives and Approach

14 Objectives and Approach Objectives The primary purpose of this audit was to assess the design and effectiveness of internal controls in place over Central Fleet Services and to assess compliance with certain laws, rules and other policies and procedures. Objectives of the current internal audit review of Central Fleet Services were to evaluate the effectiveness and efficiency of fleet management operations, and to review and assess internal controls over maintenance practices, renewal and replacement policies and fuel management. These audit objectives were broken down into the following components: Approach To review and assess the adequacy of the management control framework and related risk management strategies for the fleet management function, including processes relating to the planning, organizing, controlling, directing, communicating and management of vehicle assets. To review and assess the extent to which the department is complying with Board of Commission rules and Administrative Orders, and internal policies, procedures and guidelines pertaining to fleet management. To review and assess the completeness and accuracy of the information available to management and the extent to which this information is used by management for decision-making and monitoring purposes. To review and assess the costs of maintenance, as benchmarked against other agencies, and evaluate the organizational structure of the department in relation to its cost model for efficiencies. This would also include an analysis of outsourcing methodologies, where appropriate. Our audit approach consisted of three phases: Understanding and Documentation of the Process During the first phase, we held an entrance conference with the Central Services Director and other personnel to discuss the scope and objectives of the audit work, obtained preliminary data, and established working arrangements. We then conducted interviews with responsible personnel and documented their role in the processes. Detailed Testing The purpose of this phase was performance of testing procedures based on our understanding of Central Fleet Services, a division of the Central Services Office, applicable ordinances, and Federal and State statutes. Our procedures included observation and inquiry, walk through and testing of individual transactions. The time period covered by testing was October 1, 2011 through September 30, 2012 with the exception of the inventory observation performed on December 3, We utilized sampling and other auditing techniques, such as inquiry and observation, to meet our audit objectives outlined above: 9

15 Objectives and Approach - continued Approach (Continued) Detailed Testing (Continued) Perform surprise site visits to three fuel sites to observe for any potential security issues. Test a selection of 25 bi-weekly time entry sheets for the following: o Proper approval of time sheet by immediate supervisor; o Mathematical accuracy of time sheet; and o Time recorded in the accounting system, including comp time, reconciles to the time sheet. o Leave request forms agree to time sheets and are properly approved. Test a selection of 25 purchase card statements for the following: o The reconciliation report has been signed and dated by the card holder and the card holder s supervisor; o Listed purchases contained the appropriate supporting documentation; and o Listed purchases appeared appropriate for use in Central Fleet Services. Verify that inventory is kept in a secure location. Verify the total dollar value of the parts listing at September 30, 2012 agrees to the dollar amount in the accounting system. Test the inventory parts listing on December 3, 2012 for the following: o Trace a selection of 20 items from the list and trace to the floor. o Trace a selection of 20 items from the floor and trace to the list. Evaluate renewal and replacement policies Evaluate information available to management for use in decision-making and monitoring purposes. Test a selection of 40 billable and non-billable work orders for the following: o Appropriateness and accuracy of billable services; o Appropriate approvals; and o Efficient completion, including completed in a timely manner and in accordance with policies. Evaluate the current performance measures and determine if there are areas for improvement. Identify sources of potential benchmarks, types of benchmarks available and where possible, compare Brevard Central Fleet Services to the available benchmarks from the Florida Benchmarking Consortium. Evaluate costs of maintenance as benchmarked against other agencies including outsourcing the complete fleet maintenance function. Review general compliance with statutes, policies, procedures, administrative orders and by-laws. Reporting At the conclusion of our audit, we documented our understanding and summarized our findings related to Central Fleet Services. We conducted an exit conference with Management and have incorporated their responses into our report. 10

16 Issues Matrix

17 FLEET MANAGEMENT F UNCT ION INTERNAL AUDIT REPORT ISSUES MATRIX Rating Issues Recommendation Management Response High 1 Segregation of Duties In addition to the Director and Assistant Director of the Central Services Office, there are nine employees in Central Fleet Services. Adequate segregation of duties can be a challenge for small departments. The Operations Support Specialist performs periodic spot checks of inventory parts in the Central Fleet Services warehouse throughout the week and compares the physical inventory count to what is reported in the inventory system to verify quantities on hand. The same employee performs the majority of the ordering of stock parts for the warehouse shelves and non-stock parts for specific jobs and distributes these parts. Another employee has ordered and distributed parts for Central Fleet Services, but typically performs these same functions for Road and Bridge. A lack of adequate segregation of duties could lead to issues with the safeguarding of assets or a misappropriation of assets. We recommend segregating the duties of the Operations Support Specialist. Another employee, who does not order or distribute inventory, could perform the physical inventory counts during the week to verify quantities on hand and determine inventory parts that should be ordered by the Operations Support Specialist. Response: The Central Fleet Operations Support Specialist (OSS) will spot check Road and Bridge inventory parts and supplies weekly to verify that the inventory contained in the work order system corresponds with the units on hand. Conversely, the Road and Bridge OSS will perform a spot check to verify the Central Fleet parts and supplies inventory. In the absence of the OSS employees, the Central Fleet Services System Control Supervisor will perform spot checks of inventory as required. Responsible party: Teresa Camarata/Chuck Banks Estimated completion date: February 15, 2013 Next testing date: October

18 FLEET MANAGEMENT F UNCT ION INTERNAL AUDIT REPORT ISSUES MATRIX Rating Issues Recommendation Management Response Moderate 2 Video Security Systems FY budget initiatives include obtaining funding and installing a video security system at the nine fuel sites around Brevard. Funding may be able We recommend Central Fleet Services continue to explore opportunities to fund the installation of a video security system at the nine fuel sites to be obtained through intergovernmental grants and/or around Brevard through through remaining funds from funded capital projects. The video security system is included as an unfunded intergovernmental grants and/or remaining funds from funded capital projects. project on the Central Fleet Services capital outlay summary in the FY budget. The video security system would provide a strong deterrent against employees taking fuel for personal use at the fuel sites. Additionally, the video security system provides a means to investigate suspected misuse of fuel. Response: Central Fleet Services will continue to pursue alternative funding for the installation of video security at the fuel sites, and will submit as an unfunded CIP in annual budgets until accomplished. The estimates a total cost of $56,250 for installation of the video security system at the fuel sites. Responsible party: Teresa Camarata/Chuck Banks Estimated completion date: September 26, 2013 (FY2013/14 Budget Hearing) Next testing date: October

19 FLEET MANAGEMENT F UNCT ION INTERNAL AUDIT REPORT ISSUES MATRIX Rating Issues Recommendation Management Response Moderate 3 Formal Internal Operating Procedures Central Fleet Services does not have formal written We recommend Central Fleet Services develop Response: Internal operating internal operating procedures for all employee job formal written internal operating procedures for procedures for the Central Fleet functions. Therefore, in the event of employee turnover, new employees would not have a formal set of procedures to follow as guidance. all employee job functions. Central Fleet Services should have formal written procedures in the event of employee turnover. employees will be developed to ensure that each employees daily job duties are outlined for consistency among like job descriptions, and to provide clear guidance for new employees. Responsible party: Teresa Camarata/Chuck Banks Estimated completion date: May 2013 Next testing date: October

20 FLEET MANAGEMENT F UNCT ION INTERNAL AUDIT REPORT ISSUES MATRIX Rating Issues Recommendation Management Response Moderate 4 Window Sheets During our testing of 40 inventory items, we identified a We recommend Central Fleet Services Response: As part of the Operations difference of 6 between the physical count and the implement a formal written policy to update the Support Specialist s internal quantity reported in the inventory system on December quantity reported in the inventory system on a procedures, window sheets will be 3, 2012 for a total cost of approximately $10 for item # monthly basis for items issued to user closed within the last five (5) work days power steering fluid. Central Fleet Services provided window sheets which properly reconciled and supported the difference. Window sheets are assigned to a user department and used in place of work orders for basic maintenance completed by the user department (i.e. replacement of a light bulb or oil for equipment). The window sheets used to support the difference noted for item # were dated 10/25/12 and 10/29/12 over a month before the inventory observation conducted on December 3, The quantity reported in the inventory system is typically updated monthly for items distributed to user departments through window sheets. Failure to update the inventory listing timely on a regular basis could lead to recording errors or shortages of inventory stock when a user department requests an item. departments through window sheets. of each month, and the inventory will be updated to accurately account for distribution of parts and materials distributed by these transactions. Responsible party: Teresa Camarata/Chuck Banks Estimated completion date: May 2013 Next testing date: October

21 FLEET MANAGEMENT F UNCT ION INTERNAL AUDIT REPORT ISSUES MATRIX Rating Issues Recommendation Management Response Low 5 Underground Fuel Tanks Five of the nine fuel sites already have above ground fuel tanks. Central Fleet Services is in the process of replacing underground fuel tanks at the Parkway We recommend Central Fleet Services continue the fuel system and tank replacement projects at the Parkway Complex in Titusville and at Fire Complex in Titusville and at Fire Station #64 in Station #64 in Melbourne Beach. After Melbourne Beach with above ground fuel tanks. completion of these projects, seven of the nine fuel sites will have above ground fuel tanks. FY budget initiatives include obtaining funding for final Phase 3 of fuel tank replacement project for tanks at the Flake Road and Cone Road locations. Funding may be able to be obtained through a General Fund transfer, a General Fund transfer with reimbursement from any year end revenue surplus, a commercial loan or an internal fund loan. In addition, we recommend that Central Fleet Services continue to explore opportunities to fund the remaining two fuel system and tank replacement projects at the Flake Road and Cone Road locations. Response: Central Fleet Services will continue to pursue alternative funding for the replacement of fuel sites at Flake Road, Titusville and Cone Road, Merritt Island; and will submit as an unfunded CIP in annual budgets until accomplished. The estimates a total cost of approximately $322,593 to complete the last two fuel site conversions. Responsible party: Teresa Camarata/Chuck Banks Underground fuel tanks could heighten the risks for possible pollution remediation issues. Estimated completion date: September 26, 2013 (FY2013/14 Budget Hearing) Next testing date: October