George J. McGowan, CPA Director, Office of Audit Services and Management Support Date: June 8, 2012

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1 To: Ray Elwell, Deputy Chief Financial Officer From: George J. McGowan, CPA Director, Office of Audit Services and Management Support Date: June 8, 2012 Subject: Citywide Fuel Utilization (Report No ) The Office of Audit Services and Management Support, with substantial assistance provided by one of our co-source partners, McGladrey, performed an audit of the processes and controls employed by the City in the purchase, use and monitoring of fuel. The audit objectives were to determine that fuel purchase prices were in accordance with contract terms and appropriate controls were in place to account for and monitor fuel usage by the various using departments. This project was initiated and substantially completed under the previous Director of Audit Services and Management Support, Jack Sirak. After the transition to my term as Director, this project and its associated draft report was reviewed, discussed with affected management and revised to present the issues and recommendations that remain important and actionable at this time. We conducted this performance audit 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 that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The following pages summarize the issues identified during the audit, recommendations for improvement and management s reply regarding actions taken/being taken with respect to the identified issues. We appreciate the cooperation and courtesies extended by the staff of the Fleet & Facilities Management, Technology Management, and Purchasing and Materials Management Divisions during the course of this audit. c: Mayanne Downs, City Attorney David Dunn, Fleet & Facilities Management Division Manager Rebecca W. Sutton, Chief Financial Officer

2 Page 2 INTEGRATED FUEL SYSTEM Chip key and fuel card users can either obtain fuel from City owned storage tanks, utilizing a chip key, or from third party service stations that accept Fuelman fuel cards. Under both systems, the vehicle/equipment number associated with the chip key/fuel card and the amount of fuel dispensed is captured by the respective system. Due to the differing systems, several daily and monthly actions must be taken by staff to properly document and manage the accounting for fuel purchases. Chiefly, these systems do not offer real-time access to exceptions (e.g. use of premium fuel grade, fueling quantity greater than established gallon parameter, etc.) to City management. As a long-term solution to these inefficiencies and when budget flexibility allows, Fleet & Facilities Management should implement a uniform fueling management system/process that will control, authorize and record fuel transactions and limit or eliminate the manual procedures currently required. This solution would allow Fleet & Facilities Management the ability to create efficiencies over accounting and monitoring of fuel transactions. RECOMMENDATION: Fleet & Facilities Management study the alternatives and availability of an automated and integrated fueling management system. When budget is available, Fleet & Facilities Management should acquire such a system to strengthen controls over the authorization and recording of fuel transactions, allow for reallocation of staff resources and enable Fleet & Facilities Management and Departments using City vehicles to perform real-time monitoring of fueling exceptions, consumption and costs. AUDITEE RESPONSE: Concur. Fleet & Facilities Management, along with Purchasing, could not find one company to provide all services; a continued effort to streamline the current system will be pursued. MONITORING FUEL CONSUMPTION Fleet & Facilities Management is responsible for procuring, dispensing, and monitoring fuel inventory, as well as billing Departments for their fuel usage. City employees, at all levels, are responsible for fueling their vehicles in accordance with City procedures and for compliance with related policies and procedures. This includes providing the

3 Page 3 necessary information required for fueling, i.e., accurate odometer readings. Departments are responsible for monitoring and ensuring efficient use of City resources, including fuel. On a monthly basis, Technology Management provides electronically a Fuel Cost Detail report, by program, detailing each fuel transaction by Vehicle ID and program. However, we found that two key pieces of information, total miles and average miles per gallon (MPG), is not calculated and summarized on this report. Our analysis, which included 137,613 fuel transactions for FY and 136,250 fuel transactions for FY , revealed the following minor issues: Data Analysis Description Fuel transaction 3 gallons over tank limit Odometer reading equals vehicle ID Odometer reading less than 10 miles Disposed vehicle with Fuelman fuel card Decommissioned equipment with chip key Total Exceptions We believe that implementation of a fuel utilization monitoring process would facilitate timely identification of fuel inconsistencies, improper fuel usage, and/or to identify possible fuel savings. Departments are more suited to perform monitoring activities internally as they are familiar with their specific operational requirements and employee fueling patterns including work hours, vehicle mileage and use, and vehicle routes. RECOMMENDATION: Fleet & Facilities Management update the Fuel Cost Detail report to include average miles per gallon and other data analytics, by vehicle, to enhance department monitoring of fuel consumption. AUDITEE RESPONSE: Concur. Fleet & Facilities Management continues to input data supplied by operators. RECOMMENDATION: Fleet & Facilities Management instruct Departments to regularly monitor and manage fuel consumption and costs on an on-going basis for reasonableness.

4 Page 4 AUDITEE RESPONSE: Concur. UPDATE POLICIES AND PROCEDURES We found that operating procedures do not exist for the following facets of fuel usage and monitoring: Request for chip key/fuel card additions, changes and deletions. Monthly billing procedures. Guidelines for the fuel card pilot program. Reports available to Departments and their responsibility in monitoring fuel consumption. Consequences for failure to comply with above guidelines. To best limit the risk associated with misuse of fuel, it is essential that adequate Policies and Procedures are used to document the shared responsibility of Fleet & Facilities Management and the Departments to control fuel usage. These procedures should guide the users of the chip keys and fuel cards and make them aware of their required actions and that they are accountable for performing these actions, as noted above. RECOMMENDATION: Fleet & Facilities Management revise current Policies and Procedures to communicate the recommended methods to control chip keys and fuel cards usage, monitor the acceptable use of fuel and instruct users how to properly fuel vehicles using chip keys and fuel cards. At a minimum, these procedures should clearly delineate the responsibilities of Departments and employees, establish guidelines for fuel usage and monitoring by management, and delineate consequences for failure to comply with the guidelines established. AUDITEE RESPONSE: Concur. UTILIZE ADDITIONAL FUELMAN CONTROLS Fuelman fuel cards provide convenience for the City to purchase fuel for vehicles, and systematic means of capturing information to track consumption and cost, in order to effectively monitor fuel expenditures. Each fuel card is associated with an OPD vehicle which has an established vehicle profile. Each City Employee is assigned a personal

5 Page 5 identification number (PIN) which identifies the program associated with the employee and record the employee s authorization for the fuel transaction. The vehicle profile can include, but is not limited to, the vehicle identification number, department code, vehicle description, gallon tank capacity, fuel type, transactions per day limit, daily gallon limit, etc. Upon review of the systematic controls offered within the Fuelman system, we noted that the following point of sale preventive controls that have not been implemented: Limitation of consumption in excess of established tank capacity. Restriction of fuel product type. Denied access for wrong odometer reading input. Limitation of the times and days specific cards can be used. RECOMMENDATION: Fleet & Facilities Management implement the additional Fuelman fuel card point of sale preventive controls available. AUDITEE RESPONSE: Concur. After conclusion of pilot program and contracts are in place, the use of fuel cards may be expanded City-wide. CONTROL RETURN OF FUEL CARD/CHIP KEY During our review, we found that there is no existing process to deactivate employees using fuel cards and chip keys upon termination/resignation with the City. As a result, there is a risk of active City employees utilizing employee identification numbers of those who are no longer active employees for fuel consumption, via the chip key and/or inappropriate access to fuel cards. Fleet should inquire with Human Resources regarding adding the collection of the fuel card and/or chip keys to the employee separation process so that Fleet is informed when employees using fuel cards or chip keys separate from City employment. RECOMMENDATION: Fleet & Facilities Management contact Human Resources to request that the return of the fuel card and chip key be included in the employee separation process so that Fleet can be informed when employees authorized to fuel vehicles have separated from City employment.

6 Page 6 AUDITEE RESPONSE: Concur. AUTOMATE TESTING OF FUEL PRICES Fleet & Facilities Management does not perform a review of invoices for correct pricing, nor are Fuelman invoices reviewed and approved. It should be noted that the weekly fuel invoice is extremely lengthy and it would take a great deal of man-hours to complete such a review. However, our review indicated an issue with some billings. In order to reduce the risk of paying invoices based on erroneous price calculations to a minimum, Fleet & Facilities Management should perform random price testing of vendor invoices prior to invoice processing. Fleet should investigate alternative procedures, including electronic procedures or services provided by OPIS or other contractors, which could reduce the man-hours necessary to perform such a review. RECOMMENDATION: Fleet & Facilities Management investigate electronic methods to perform random price testing on vendor fuel invoices as compared to OPIS and the contract terms prior to invoice approval for payment. AUDITEE RESPONSE: Concur. Fleet to implement a process of monitoring current trends of OPIS rates.