City of West Palm Beach Internal Audit Department

Transcription

1 POST AUDIT REVIEW OF THE WAREHOUSE AND INVENTORY Report No. PAR October 26, 2015 City of West Palm Beach Internal Audit Department Roger Strout, City Internal Auditor, CIA, CRMA, CFE, CICA Elena Georgiev, Sr. Internal Auditor, CPA, CGMA Beverly Mahaso, Sr. Internal Auditor, JD, CFE

2 10/26/2015 Audit Committee City of West Palm Beach 401 Clematis Street West Palm Beach, Florida RE: POST AUDIT REVIEW OF THE WAREHOUSE AND INVENTORY Dear Audit Committee Members: On March , the Internal Audit Department released an audit of the Warehouse and Inventory. We performed certain procedures, as enumerated below, with respect to activities of the Public Utilities and Purchasing Departments in order to render a conclusion on the status of the recommendations made as a result of that audit. This Post Audit Review consisted primarily of inquiries of City personnel and examinations of various supporting documentation. It was substantially less in scope than an audit in accordance with generally accepted government auditing standards. The evidence obtained provided a reasonable basis for our conclusions; however, had an audit been performed, other matters might have come to our attention that would have been reported to you and our conclusions may have been modified. The audit contained fourteen (14) recommendations that addressed the audit s findings. Based on the review performed, we concluded that recommendations 10 and 14 were implemented, recommendations 1, 2, 3, 4, 11, 12, and 13 were partially implemented, and recommendations 5, 6, 7, 8, and 9 were not implemented. 1

3 Recommendations Status 36% 50% 14% Implemented - 2 Partially Implemented - 7 Not Implemented - 5 We have enclosed a table listing all the recommendations with the current statuses. We found that management has made progress with respect to corrective action. However, additional tasks remain to be completed. We thank the personnel at the Public Utilities and Procurement Departments for their assistance in conducting this review. We encourage both departments to continue their efforts and fully implement the recommendations provided. Respectfully submitted, /s/ Roger Strout City Internal Auditor cc: Sylvia Moffett, Commission President Keith James, Commissioner Shanon Materio, Commissioner Paula Ryan, Commissioner Cory Neering, Commissioner Jeffrey Green, City Administrator Dorritt Miller, Deputy City Administrator Poonam Kalkat, Director of the Public Utilities Department Frank Hayden, Director of the Procurement Department Encl. 2

4 AUDIT RECOMMENDATIONS 1 We recommended that the Procurement Director address the conditions described in recommendation. We will opportunity for improvement #1 with immediately begin to address Administration and obtain emergency funding safety issues at the warehouse. to allow him to bring the facility up to The Risk Manager has already appropriate warehouse standards. Please note conducted a site visit and has that implementing a bar coding system will be prepared a list of items that are most helpful to the warehouse staff. Utilizing a currently being addressed. See network of hardware and software to automate Appendix B. A cross-functional data collection where hand recording is neither team has been formed to timely nor cost effective will clear time for implement process them to address other pending issues within the improvements and develop a facility. We recommended that a team be long term plan to ensure the formed including the two warehouse clerks and warehouse is operated in an IT employees to evaluate the situation, research efficient manner. The available options and implement the one best warehouse will be transitioned suited for this warehouse environment. We also to the Utilities Department by noted during our tour of the City of Miami September 30, 2015 and many warehouse that its manager utilizes the services of the best practices they have of other City employees familiar with inventory instituted will be duplicated. A and the inventory process during peak times budget for capital like mornings when department representatives improvements will be pick up their orders. These are usually developed and submitted for tradesmen who have availability for a limited the 2016 capital improvement time. Their help is essential since it relieves the plan. warehouse staff and allows them to focus on other tasks. Management may wish to consider this approach to address the warehouse staffing issue further discussed in our finding No. 8. Partially Implemented: We found the warehouse remains: Dark, humid, no A/C, no emergency lighting - lights have been purchased, but cannot be installed prior to the installation of the new racks. The Warehouse Supervisor expects to complete these projects by December Storage of items between aisles - this is still the case since items need to be removed from the old racks. No bar code system - the goal of management is to start using a software named "Hyperweb", which has bar code capabilities. The Warehouse Supervisor is waiting on the Public Utilities and IT Directors to approve the purchase. Unrepaired leaking roof - the supervisor is collecting quotes for the repairs. Only one (1) quote has been received so far and it is considered high. The problem with the roof has become even more serious. During a recent thunder storm not only the roof of the warehouse was leaking, but also the roof of the interior office. Loading dock metal plate unrepaired - painted yellow, but still separating from the concrete. The supervisor expects to remedy this by December Railing on the stairs - fixed and painted. Vegetation - removed, for the most part. Warehouse yard - significant inventory still stored outside exposed to the weather. The supervisor plans to move these to the ECR. Old equipment - the older forklift was retired and a new one was rented. The van was also retired; now, there is only one delivery vehicle with an open bed. 3

5 2 We recommended that the Procurement We agree with this Department research and obtain an entry recommendation. An entry control system, which allows City employees control system to the to enter the warehouse via a swipe of their ID warehouse will be researched cards. The number of people entering can be and a budget request will be further reduced by granting access to select made as part of the 2016 employees. The use of a system such as this Capital improvement plan. will also allow for the identification of the people who enter the warehouse. Also, the system should allow outside delivery personnel to call, for example the Fleet office, and be allowed entry. Finally, we recommended that the doors be kept locked at all times and opened only upon request. 3 We recommended that the Procurement Department, which is in charge of the warehouse, arrange for the installation of an alarm system for the warehouse building. Security alarms on doors can both sound off in case of a break-in and alert police. 4 We recommended that the warehouse staff require that all non-city employee visitors sign in on a visitor s log. The log should include not only their name, but the organization they represent and the time of arrival and departure. 5 We recommended that the Procurement Director or his designee work with the two store clerks to develop policies and procedures suitable for this warehouse environment. In addition, all employees who utilize the services of the warehouse should receive a copy of the policy and procedure manual, and sign forms acknowledging receipt of the manual. Training should follow the written guidelines. Each employee should be held accountable for his or The installation of an alarm system will be considered as we develop an improvement plan for the warehouse operations. We agree with this recommendation. A visitors log was put into effect the beginning of February. recommendation to develop a policies and procedures manual. We will update the Policy and Procedures by September 30, Partially Implemented: Only the bay door in the front is kept open during business hours and a gate was installed to prevent anyone from freely entering the warehouse itself. Also, a new badge entry system was installed in the place of the old (broken) hand recognition device. Now only the three staff assigned to the warehouse may access it when the bay door is not open. A Traffic/Parking study is commencing in November, which will help management decide on a more centralized entry to the Complex. It was brought to our attention that the door of the concrete room is in dire need of repair. Its rollers are not on track and the limit stop on top is missing thus presenting a serious hazard to anyone in close proximity. Partially Implemented: An alarm system has not been installed. Currently, management is collecting quotes for an alarm and trying to procure additional lighting. Partially Implemented: We were provided with a copy of the visitor s log. However, there were only three sign-ins during the period of June 17 to September 8. We were told that only vendors' representatives, not vendors' delivery personnel, are required to sign-in and that is why there are so few entries in the log. Not Implemented: A new set of policies and procedures is currently being created. However, we have not been provided with a draft. In order to implement the necessary controls, management needs additional staff. 4

6 her role in carrying out inventory policies and procedures. 6 We recommended that staff is trained to utilize these reports or similar reports within the recommendation to provide Oracle system. training to staff. We will assess the competencies and coordinate training with the IT 7 We recommended that the Procurement Department ensure that all vendor contracts are current. 8 We recommended that tasks be divided between the warehouse staff and the Procurement Department s staff in such a way that one employee should be in charge of and authorized to complete the ordering function, another should receive inventory and inspect it, yet another should be in charge of the record keeping. The Procurement Department may also wish to consider utilizing the services of other City employees similar to the way the City of Miami does, as outlined in our recommendation for improvement No We recommended that the warehouse staff begin to utilize purchase orders without quantities ordered displayed during receiving. 10 We recommended that the Procurement Department train City employees on how to requisition items from the catalogue. This training should be done periodically. Department. recommendation to update all contracts with vendors; we are currently implementing this recommendation. Completion date for all contracts with vendors will be September 30, recommendation for segregation of responsibilities for internal control purposes. This will be achieved upon the transfer to and consolidation of warehouse operations with the Utilities Department. This should be completed by September 30, recommendation and will begin on March 1, recommendation regarding training of city employees on how to use the catalogue. We will implement training for Not Implemented: Staff have not been trained and everything is still being done the same way. Per discussion with Public Utilities senior management, a phone call was recently placed to Oracle to inquire of what functions could be utilized to make the process more efficient. Not Implemented: Per discussion with Procurement senior management, the Procurement Department is working on this. They have compiled a list of their largest suppliers and expect to have contracts with them by January 1, Not Implemented: In order to implement this recommendation, management needs additional staff. Currently, the supervisor still spends a considerable amount of his time at the ECR. In addition, he needs to be granted access to the software systems staff use and to be trained in order for him to perform some of his supervisory duties. Not Implemented: The system does not allow staff to print POs without quantities. Furthermore, counting items is time consuming; therefore, additional staff will be needed if this control is to be implemented. Implemented: Staff no longer accept incomplete forms. The forms and the catalogue were changed to make it easier for employees to find the items needed. Furthermore, training is available on a one-on-one basis to anyone. 5

7 warehouse requisitions on July 1, We recommended that the Procurement Department re-initiate cycle counts and complete yearly inventory counts to help ensure that records are brought up-to-date and are complete and accurate. The yearly inventory counts should be done using personnel outside of the Procurement Department if possible, if an outside firm cannot be contracted. In addition, the perpetual inventory should be reconciled monthly to the general ledger. 12 We recommended that records be kept of all the items stored at the warehouse. 13 We recommended that the Purchasing Department implement procedures for periodic review of inventory records and physical inventory to identify items that may be obsolete and dispose of them in the most appropriate and timely manner. We also recommended that those with technical expertise relating to specific inventory items be consulted when evaluating items for obsolescence. 14 In light of the opportunities for improvement (No. 1 to No. 13), our visits to the Palm Beach recommendation to re-initiate cycle counts and complete yearly inventory counts. We will conduct a physical inventory and reconciliation to our accounting records prior to transfer of operations to the Utilities Department. We anticipate a completion date by July recommendation to keep records of all items stored at the warehouse. We will also develop a policy to address non-stock items. recommendation. Obsolete items will be identified during the upcoming physical inventory and will be appropriately disposed of no later than September 30, We agree with option C. City Administration has already made the determination to place Partially Implemented: An inventory count was completed on May 5, 2015, by a team of warehouse and procurement personnel. With the warehouse currently undergoing a reorganization and lacking proper labeling of items, the involvement of outside personnel is not feasible. Partially Implemented: The supervisor is currently compiling a list of all items stored in the warehouse on behalf of other departments. Meanwhile, staff keeps copies of the invoices for any items delivered to the warehouse and stored there on behalf of other departments (in order to have a record). On July 10, 2015, a memo was sent from the Utilities senior management to all departments informing them of some of the changes to the warehouse non-stock items rules. Partially Implemented: A physical count has been performed and the perpetual inventory written down to the count. In order to achieve maximum efficiency, this recommendation will be implemented along with the new racks installation. Implemented: On July 1, 2015 the responsibility for managing the warehouse passed from the Purchasing Department to the Public Utilities Department. Overall, in order to provide a safe 6

8 County warehouse and the City of Miami warehouse, and independent research, we recommended several different options for management s consideration. A. The Purchasing Department should prioritize the significant issues currently affecting the warehouse. The Purchasing Director should request that emergency funding be directed to his Department in order to implement the most pressing warehouse needs. Items that may directly affect the state of the inventory and the well-being of the warehouse staff and visitors should be addressed first followed by the installation of a bar code system to automate the process and make it more efficient. B. The Purchasing Department may wish to request that the Public Utilities Department takes possession of all Public Utilities related inventory and move it into one of the Utilities Department s several warehouses. Then, the remaining inventory should be evaluated for turn over activity and potential elimination or user direct purchase opportunities. The remaining inventory may be moved to a smaller facility. C. As an alternative, the Purchasing Department may wish to place control of the warehouse and all inventories with the Public Utilities Department which has more in-house warehouse expertise. For example, the Utilities Department stores significant inventories at its East Central Regional Reclamation Facility (ECRWRF) and the City s water plant. D. The Administration may also wish to consider an arrangement with the Palm Beach control of the warehouse with the Public Utilities Department. This consolidation makes sense as the Utilities Department has an experienced warehouse supervisor, 70% of the warehouse items are assigned to the Utilities Department, greater efficiencies can be achieved and proper separation of duties can be instituted without adding more staff. The Procurement Director along with the cross-functional team will work with Utilities staff to enable a smooth and efficient transition no later than September 30, environment for staff and clients, and to implement the necessary controls, management needs additional staff. 7

9 County (County) warehouse which performs similar services and appears to have excess capacity at their new facility. Administration may wish to enter into a service agreement with the County. During the Internal Audit Department s tour, we noted that the County carries similar inventory and that their delivery vehicles service County structures in close proximity to many City of West Palm Beach locations. E. Finally, the warehouse operation could be outsourced to a third party vendor who specializes in inventory management. There are many companies, which offer this type of service. From middle man companies that put their clients in touch with prescreened vendors based on their needs determined by a questionnaire to actual third party logistics companies. There are a number of different choices available to Administration if this path is chosen. 8