I N T E R N A L A U D I T. Government of Buncombe County, North Carolina Vehicles

Transcription

1 I N T E R N A L A U D I T R E P O R T Government of Buncombe County, North Carolina Vehicles Tim Flora, CPA Internal Auditor April 24, 2009

2 TABLE OF CONTENTS PAGE SUMMARY... 1 INTRODUCTION. 2 BACKGROUND & OBJECTIVES SCOPE & METHODOLOGY FINDINGS & RECOMMENDATIONS COST PER MILE ANNUAL MILEAGE (USAGE) IRS TAXABLE FRINGE BENEFITS....5 COMMUTING COSTS CITGO GAS CARD REVIEW 9 CAR RENTAL REVIEW..10 MANAGEMENT REPORTING & INTERNAL CONTROLS..12 CONCLUSION....12

3 I N T E R N A L A U D I T R E P O R T Government of Buncombe County, North Carolina Vehicles April 24, 2009 SUMMARY As of November 30, 2008, Buncombe County owned 407 vehicles that it used to meet its many obligations. An audit was performed to determine whether these vehicles were being used in an efficient and effective manner. Based upon the audit the following findings were found. The annual mileage threshold of 12,000 miles for justifying the need for a countyowned vehicle should be changed to better reflect the requirements of the County. Some departments were non-compliant regarding the IRS Fringe Benefit rules for the commuting use of vehicles. The Finance Department failed to properly withhold employee and matching Social Security and Medicare payroll tax contributions for commuting fringe benefits compensation. Based on IRS regulations and North Carolina General Statutes, the Sheriff s Office should evaluate the merits and cost/benefit of using County vehicles when picking up/dropping off children at school. The County subsidizes the costs for the commuting use of take-home vehicles at an estimated annual amount of $224,769. Except for public safety vehicles, the County should implement a system to recoup some of these costs. The annual cost for allowing staff members to commute outside county limits, which is contrary to policy, was $34,135. A system should be implemented to recapture these costs in the future. A cost/benefit formula should be incorporated into the County s vehicle policy that ensures take-home vehicles are provided for the benefit of the County and not for the convenience or benefit of employees. Higher fuel grades are being used unnecessarily in some vehicles and this practice should be stopped. While the County saves money by using rental cars for extended trips, consideration should be given to devoting a vehicle solely for these types of trips. Additional savings could be realized. The County should implement a management and reporting system using existing Business Objects technology that would consolidate vehicle information and make it more readily available, timely, and easier for analysis. 1

4 INTRODUCTION BACKGROUND & OBJECTIVES In order to meet its many obligations, the Government of Buncombe County uses a vast array of resources. Among these resources are vehicles. To ensure these particular resources are employed in an efficient and effective manner a county-wide audit was conducted with the intent of addressing the following general objectives: That internal controls governing vehicles are adequate and ensure proper safeguarding; Vehicle procedures are in compliance with policies of the County; The County is compliant with all IRS requirements and exemptions; That assignment and usage of vehicles is mission-critical; and Adequate evaluation standards are in place to maximize cost savings. As of November 30, 2008, The County owned 407 vehicles, including automobiles, trucks, ambulances, vans, shuttles, dump trucks, and other specialty vehicles. The accompanying chart breaks down vehicles by function. All total, these vehicles had an original purchase price of over $11.1 million. Operating costs (fuel and maintenance) for the year ending November 30, 2008, was estimated at $2.1 Vehicle Breakdown by Function million. The County uses fleet management software, FASTER, to track vehicles, their assignments, fuel and maintenance costs, and mileage. The County does not operate a fleet per se, as most vehicles are assigned to departments and are used for specific functions. The county garage handles routine maintenance for most vehicles except those operated by Mountain Mobility. Mountain Mobility tracks its maintenance costs and mileage separately. 14% 8% 14% 7% 1% 56% Public Safety Human Services General Government Air, Earth & Construction Solid Waste Cultural and Recreational SCOPE & METHODOLOGY Vehicle information was examined for the time period December 1, 2007 through November 30, This information was gleaned from FASTER, CITGO fuel bills, Lawson general ledger and fixed asset reports, Mountain Mobility spreadsheets, examined vehicles, and interviews with key staff members. It was difficult to account for disposed vehicles during this timeframe due to FASTER software limitations. To compensate, it was assumed all new vehicles replaced disposed vehicles one-for-one. Mileage and fuel cost information for new vehicles were annualized for the time period under examination. 2

5 FINDINGS & RECOMMENDATIONS COST PER MILE The audit determined the cost to the County for owning and operating a respective vehicle. It was decided the best measure was determining the cost per mile (CPM). For each vehicle the CPM was calculated for fuel, maintenance and repairs, and by purchase price (depreciation) of the vehicle. The CPM for purchase price was determined by the greatest of 150,000 miles or actual odometer reading. Where the County owned multiple vehicles of a like make and model, an analysis was done to determine the average cost to own and operate. The chart below breaks down the average vehicle cost per mile by both the total (fuel, maintenance, and depreciation) and fuel only. This chart does not include ambulances, other special use vehicles, or instances where the County only has one particular model. Vehicle Fuel CPM Total CPM Toyota Prius Honda Civic Ford Escort Chevrolet Cavalier Ford Escape (Hybrid) Chevrolet Impala GMC Canyon Ford Ranger Ford Escape Chevrolet S10 Truck Ford Crown Victoria Dodge Charger Chevrolet Tahoe Ford Explorer Dodge Ram Ford F150 Truck Chevrolet Suburban ANNUAL MILEAGE (USAGE) The chart below lists vehicles by function and department and provides the average annual miles logged during the one-year evaluation period. Vehicles designated as special use were excluded from the mileage average. The County s current policy has a benchmark of 12,000 miles per year for justifying a county-owned vehicle. This is an industry standard and is consistent with both State and Federal guidelines. 3

6 Total Vehicles Special Use Vehicles Average Annualized Miles Driven per Vehicle Vehicles with less than 12,000 Annualized Miles General Government County Manager 1 0 6,170 1 Finance 2 0 6,859 2 Tax Department , General Services , Information Technology 1 0 2,790 1 Sub-Total Public Safety Sheriff Administration , Patrol & Investigation , School Resource Officers ,509 7 Detention Center ,050 3 Animal Control ,310 0 Pre-Trial Release ,421 0 Emergency Management ,004 0 EMS-Vehicles ,072 0 EMS-Ambulances ,121 0 Sub-Total Air, Earth, and Construction Planning ,349 1 Permits & Inspections ,533 2 Cooperative Extension ,621 1 Soil Conservation 1 0 9,053 1 Air Quality 4 2 9,239 2 Sub-Total Human Services Health Department ,006 0 Environmental Health ,208 1 Department of Social Services ,282 1 Mountain Mobility ,649 1 Child Care Services 1 0 2,834 1 Sub-Total Cultural and Recreational Library ,929 0 Recreation Services 3 1 6,604 3 Sub-Total Enterprise Fund Solid Waste ,605 7 Sub-Total Grand Total Finding: Of the 368 county-owned vehicles (excludes special use vehicles), 104 or 28 percent had annualized miles of less than 12,000. If adjusted to reflect business use miles only (excludes commuting miles), the number jumps to 136 or 37 percent of the fleet. 4

7 Recommendation: The 12,000 mile measure should be reevaluated and replaced with a more realistic benchmark. While it may be a good industry standard, it does not necessarily meet the needs of Buncombe County. The County has a smaller geographic area than most State and Federal jurisdictions. Having a minimum mileage requirement may encourage misuse by increased personal use in order to reach the mileage benchmark. This recommendation is consistent with other local government audits that have suggested reevaluated mileage thresholds. Management Response: Management concurs. The County vehicle policy is currently being revised, and the Review Committee is taking this recommendation under consideration. After reviewing its vehicle usage, County Management has decided to move its assigned vehicle to another department so an older vehicle can be put in surplus and the overall size of the fleet reduced. The Finance Department has done the same with one of its vehicles. Other Department heads are also examining their vehicle usage to determine if similar reductions can be made. IRS TAXABLE FRINGE BENEFITS Buncombe County provides take-home vehicles (THV) to certain employees. Take-home vehicles are county-owned vehicles that employees keep at their homes. As of November 30, 2008, the County had 238 of these vehicles. The United States tax code and the related Internal Revenue Service (IRS) regulations generally treat take-home vehicles as a taxable fringe benefit. The value of the fringe benefit is included in the employee s income and is subject to payroll taxes such as Social Security and Medicare. As determined by the IRS, the value of this fringe benefit is $1.50 for each one-way commute (that Number of Take-Home Vehicles Required IRS Fringe Benefit Non- Compliant with IRS Patrol & Investigation Sheriff Administration Tax Department Permits & Inspections School Resource Officers Environmental Health Planning Animal Control Emergency Management EMS Detention Center General Services Air Quality Solid Waste Pre-Trial Release Total is, from home to work or from work to home). The information is included on the employees W-2 form. The IRS requires the employer providing the vehicle to withhold taxes based upon the income and provide matching Social Security and Medicare contributions as with any other employee compensation. Sheriff and other public safety vehicles are exempt from IRS fringe benefit requirements as these vehicles fall under the Qualified Non-personal Use Vehicles umbrella. IRS guidelines specify the use of a qualified non-personal-use vehicle, including commuting, is excludable to the employee. However, there are certain restrictions that apply. Chief among these restrictions is the employer requirement to prohibit personal use (other than commuting). 5

8 Other requirements are the employee must always be on call and the employee must be required by the employer to use the vehicle for commuting. The IRS is precise in how commuting fringe benefits are calculated. The above list of vehicles was cross referenced to the Finance Department payroll records to determine the existence and accuracy of fringe benefits reporting. Finding: All departments were not aware of their requirement to report commuting fringe benefits. The extra income was not reported on W-2 forms for employees in Planning, EMS, Building Maintenance, and Solid Waste. Recommendation: Employees currently not reporting fringe benefits and required to do so should begin keeping records as outlined by IRS Publication 15-B. While public safety vehicles normally are exempt, EMS has an employee who uses a van (vehicle 1729) for commuting purposes that is not exempt under the IRS s Qualified Non-personal Use Vehicles requirements. Due to the nature of the position, the employee is unlikely to be on call and required by the County to use the vehicle for commuting. Management Response: Management agrees. Finance Department staff will be making the necessary arrangements to ensure IRS compliance. Finding: For those employees that correctly had amounts reported on their W-2 forms, the Finance Department failed to withhold the employees payroll tax portion for Social Security and Medicare and failed to pay the employer matching contribution. Recommendation: The Finance Department should ensure the required withholding and matching payroll taxes are made for all individuals reporting fringe benefits on their W-2. Management Response: Management agrees. Finance Department staff will correct this oversight and establish procedures for ensuring this requirement is met. Finding: Using Sheriff s Office vehicles to transport family members to and from school violates the IRS fringe benefit personal-use exemption for law enforcement vehicles. It is also contrary to North Carolina General Statute , which makes private use of publicly-owned vehicles illegal. Recommendation: Evaluate the merits and cost/benefit of continuing this policy. If it is decided to maintain the policy, begin treating take-home law enforcement vehicles as a fringe benefit according to IRS guidelines. The estimated annual cost to the County to achieve IRS compliance is $80,663. The Sheriff s budget impact is $39,833. Also, seek a dispensation from the State Attorney General that allows this special use. Otherwise, the Sheriff s Office should discontinue using County vehicles when picking up/dropping off children. Management Response: Management believes the practice of allowing officers to drop their children at school in law enforcement vehicles provides added positive exposure to the community. This is good for schools and safety. Management will take the recommendation 6

9 under consideration and implement whatever measures are necessary that most benefit the citizens of Buncombe County. COMMUTING COSTS The County currently pays all costs associated with commuting. This includes for vehicles taken to personal residences outside the County line. Commuting outside county limits is contrary to the County s policy. As part of the audit, commuting costs and related mileage for the annual review timeframe were calculated. For the purposes of this audit, commuting is defined as the distance traveled regularly between one s home and one s assigned permanent workstation. A workstation is defined as the location where a majority of one s regularly scheduled work assignments are completed; or it s the physical location employees are required to report at the beginning or completion of their scheduled workday. For example, the workstation for patrol deputies would be their vehicles. An environmental health inspector s workstation would be the Valley Street address. The table below illustrates the costs associated with commuting. Commuting miles were determined using either Yahoo! or Google maps. The Total Commute Costs columns include fuel, maintenance, and depreciation costs. Number of Take- Home Vehicles THV Drivers living outside the County Estimated Percent used for Business COMMUTE FUEL COSTS Inside County Limits Outside County Limits TOTAL COMMUTE COSTS Inside County Limits Outside County Limits Tax Department 16 3* 82% 3, ,314 0 General Services % Permits & Inspections % 11,808 1,499 22,782 3,116 Planning % 6,387 3,659 11,621 6,631 Environmental Health % 6, , Air Quality % ,568 0 Solid Waste % ,925 0 Sheriff Administration % 27, ,266 1,838 Patrol & Investigation % 11,654 9,283 25,453 17,088 School Resource Officers % 8, , Detention Center % 2, ,548 1,449 Animal Control % 6, ,663 1,217 Pre-Trial Release % ,075 0 Emergency Management % 3, ,400 0 EMS % 2, ,774 1,671 Total $92,276 $17,995 $190,634 $34,135 Total $110,271 $224,769 * Vehicles do not leave county. Left at county line per special arrangements. 7

10 Finding: The County is subsidizing the cost for commuting. For the year under review, the estimated cost to the County for providing take-home vehicles was $224,769. Of this amount, $157,758 was for public safety vehicles and $67,011 was for other County services vehicles. Recommendation: Using IRS Fringe Benefit guidelines as a structure and a minimum, employees with take-home vehicles should be charged for the commuting use of their vehicle. Consistent with these IRS rules, the Sheriff s Office, Emergency Management, Air Quality and two EMS vehicles would be exempt from this recommendation. Instead of increasing W-2 wages based upon the IRS fringe benefit formula, employees should have this amount taken as a payroll deduction. This equates to an annual charge of $681 ($3/day for an average 227 days). The bi-weekly payroll deduction would be $ While this amount will not cover the entire costs associated with commuting, it is a reasonable amount and would cover fuel costs for respective vehicles. The $681 should be considered a standard annual fee and not adjusted for actual vehicle usage. If implemented, the County is no longer providing a taxable benefit to employees. Compliance with IRS Taxable Fringe Benefits is no longer required. The County would realize additional payroll tax savings of $5,522. Management Response: Management has asked the Vehicle Policy Review Committee to consider this recommendation and incorporate it into the revised policy if appropriate. Finding: The County vehicle policy states county-owned vehicles are not to be driven to an out-of-county residence. The cost to the County for allowing staff members to commute outside county limits was $34,135. Recommendation: Impose a surcharge on all employees that commute outside the county boundary in their county-owned vehicle. The County should charge the IRS standard mileage rate (currently $.55) for the distance from the county line to the employee s residence. Sheriff s Office vehicles are included in this recommendation. It is acknowledged the County receives some residual benefits for allowing take-home patrol and other public safety vehicles within county limits. The County, however, receives no benefit once a vehicle leaves its boundaries. Management Response: Management has asked the Vehicle Policy Review Committee to evaluate the merits of this recommendation and incorporate it into the revised policy if appropriate. Management also has asked the committee to consider grandfathering current employees while making it a condition of employment for new hires receiving take-home vehicles. Finding: Some vehicles are used more for commuting than business purposes. Assignment of take-home vehicles should be for the benefit of the County and not for the convenience or benefit of employees. For example, the two assigned vehicles for the Detention Center for the 8

11 time period under review were estimated to be used only 29 percent for business purposes. This resulted in additional costs to the County of $7,997. Recommendation: All departments (including Sheriff s Office) should be cognizant of the high expense associated with vehicles and weigh the cost/benefit of providing take-home vehicles. Further, the County should change its vehicle policy to incorporate a cost/benefit formula that includes, among other things, variables for business and commuting miles. Management Response: Management has asked the Vehicle Policy Review Committee to consider this recommendation and incorporate it into the revised policy if appropriate. Also, Department heads will continue to review vehicle usage to ensure optimal official use. CITGO GAS CARD REVIEW CITGO gas cards are used for a majority of fuel purchases. Except in some cases, all vehicles are assigned a CITGO card. When fuel purchases are made the vehicle number and odometer reading are required for the transaction to be completed. Monthly CITGO bills break down fuel purchases by: vehicle number date, time and location of purchase fuel type, grade and quantity price per gallon and associated rebates odometer reading Most of this information is uploaded into the FASTER system. Finding: Fuel grades other than regular unleaded were being purchased unnecessarily. While in some cases the purchases were random, a handful of vehicles are consistently using higher-grade fuels. There is nothing to indicate these vehicles require higher-grade fuels or evidence to suggest efficiencies are achieved. During the audit window 3,250 gallons of higher grade fuels were purchased for a total estimated additional cost of $650. While the additional cost may Added Costs for Higher Fuel Grades appear minimal, as indicated in the $180 accompanying chart, $160 the trend in additional $140 $120 expense to the County $100 is increasing. There $80 were three exceptions $60 based upon $40 requirements found in $20 $0 the operator s manual. These exceptions were excluded from the test. December January February March April May June July August September October November 9

12 Recommendation: Only regular unleaded fuel should be purchased unless specifically stated otherwise in the operator s manual. Management Response: Management concurs and has asked the Vehicle Policy Review Committee to incorporate this into its revised policy. Finding: In some instances drivers incorrectly entered the vehicle number and/or odometer reading. It was difficult to determine whether a respective card was used for the assigned vehicle. Non-fuel purchases, such as car washes, were also made in some cases. Recommendation: Improper use and/or inattention to entering required information has an impact on the accuracy and quality of data collected. More diligence should be used when entering required information. Non-fuel purchases should be discouraged as it may lead to increased improper use of these cards. Consideration should be given to changing fuel cards to fuel-only cards. Management Response: Management will reinforce with its staff members the importance of inputting accurate information and using fuel cards only for fuel purchases. Changing to fuelonly cards will be examined. CAR RENTAL REVIEW The County has a contract with Enterprise Rent-A-Car to provide rentals for trips that exceed 120 miles in a 24-hour period. This previously has been determined to be cost effective when compared to paying mileage for using a personal vehicle. This information is tracked by DSS for their rentals and by Finance for the rest of the County. The chart below represents the average cost per mile and associated savings per mile by using rental vehicles from December 2007 through November Cost Per Mile: Rental v. Reimbursement for Personal Vehicle Savings Savings IRS average reimbursement rate for use of personal vehicle 0.55 Per Mile In Dollars DSS average rate for use of rentals $ 30,534 Other County average rate for use of rentals $ 2,263 Note: Cost of vehicle is factored into the CPM DSS is able to realize more significant savings due to more standardized requirements from its users. Savings for Other County rentals were significantly less because oftentimes they included in-town rentals which were significantly more expensive. Also, in several instances rentals were picked up on Saturday for trips starting on Sunday or early Monday morning. This incurred additional rental charges. Enterprise is not opened on Sunday. While DSS had optimized it savings, additional cost savings may be realized if the County invested in vehicles to use solely for extended travel purposes. Using information from County rentals (does not include DSS) from December 2007 and November 2008, scenarios 10

13 were run to determine savings. The examination included only those trips that did not overlap with another and fit the vehicle size requirement for a respective trip. The vehicles used in determining the savings were a Toyota Prius and Ford Hybrid Escape. The below chart shows the average costs per mile based upon like vehicles owned by the County. Vehicle People per vehicle Average Cost Per Mile (CPM) If used at least 100,000 miles If used at least 150,000 miles Prius up to Hybrid Escape up to Using the above information and actual rental information from the review timeframe, if one county-owned vehicle was used as the primary trip vehicle and the rental agency was used as secondary source, the annual savings are listed below. Toyota Prius (Hybrid) If used at least 100,000 miles If used at least 150,000 miles Ford Escape Hybrid If used at least 100,000 miles If used at least 150,000 miles Annual Projected Usage (in miles) 22,583 22,583 22,583 22,583 Projected Days Used Estimate Vehicle Life (in years) Savings over Life of Vehicle $17,700 $38,550 $9,700 $26,551 Add'l insurance ($750 annually) ($3,321) ($4,982) ($3,321) ($4,982) Estimated Trade-in Value $4,500 $1,000 $4,500 $1,000 Total Savings $18,879 $34,569 $10,879 $22,569 Average Annual Savings $4,263 $5,204 $2,457 $3,398 Return on Investment 2.4 years 2.8 years 3.0 years 3.4 years Note: Cost of vehicle is factored into the CPM A second vehicle could absorb an additional 12 to 16,000 miles of capacity and provide a projected additional savings between $2,200 and $3,600, depending on the vehicle and number of years it is kept in service. In order to realize the savings, a capital investment would be required with a return on investment not projected until at least year three. The above scenarios were generated not taking into account DSS rentals. While DSS has done an exceptional job in optimizing its use of rentals, if the County were to use its own vehicles, there would be additional capacity to accommodate some DSS trips. For one vehicle, there is an additional 80 days or 10,000 miles of capacity. Two vehicles would provide up to a total of 28,000 miles of capacity. Since the County would have already made the capital investment, the actual cost to provide these additional trips is only 8 to 13 cents per mile (for fuel and maintenance), depending on vehicle type. This could generate additional annual savings of $1,500 to $6,500, depending on number and type of vehicles. Recommendation: Consideration should be given to doing a pilot with at least one designated county-owned vehicle as the primary source for extended trips. 11

14 Management Response: Management is always looking for ways to become more efficient and effective in managing its resources. There is some concern that additional insurance costs would be higher than projected. This recommendation will be evaluated further and a pilot implemented if appropriate. MANAGEMENT, REPORTING & INTERNAL CONTROLS In general, managers appear to have a good understanding of their department s respective vehicles and have adequate internal controls to mitigate abuse. In many instances, however, access to vehicle information was disjointed and oftentimes difficult to obtain and, in some cases, inaccurate. In recent years, the County has developed capabilities through Business Objects software that provide consolidated, timely and easily-managed reporting and management systems using existing information. With this software, information from various locations can be consolidated into one data warehouse and then reassembled as needed for relevant analysis. For instance, spreadsheets developed for this audit took months to compile and became good for only one period of time. With Business Objects, this same information can be compiled in minutes and configured in various ways depending on need, such as by department, vehicle, person, cost, timeframe, or any variable combination. Timely, general information, such as fuel consumption, mileage, and maintenance costs can be readily accessed. Information can be cross-cut, dissected, and drilled down upon to provide better, more precise information that will lead to better management decisions as well as providing a better monitoring resource for use and/or abuse. Recommendation: The County should implement a management and reporting system using Business Objects technology and provide access through the County s Executive Dashboard. Management Response: Management agrees with this recommendation and has authorized the development of such a system. CONCLUSION The scope of this audit was broad. While every attempt was made to address all issues relevant to county-owned vehicles, it was impossible to identify all concerns and investigate every lead. In addition to all the aforementioned findings and recommendations, it was intended that this audit serve as baseline for future vehicle reviews and audits. As better management and reporting mechanisms are implemented, departments are encouraged to use these resources for continued improvements, monitoring and cost savings. 12