Aberdeen City Council. Fleet Management Final Report

Transcription

1 Aberdeen City Council Fleet Management Final Report Internal Audit Report 2013/2014 for Aberdeen City Council February 2014 Internal Audit KPI Targets Target Dates Actual Dates Red/Amber/ Green Commentary where applicable Terms or reference agreed 4 weeks prior to fieldwork 21/10/ /10/2013 Green Planned fieldwork start date 18/11/ /11/2013 Green Fieldwork completion date 13/12/ /12/2013 Green Issuing draft reports for management comment 06/01/ /01/2014 Red Delays caused by Christmas annual leave Received management comments 05/02/ /02/2014 Green Report finalised 11/02/ /02/2014 Green Final report presented to the Audit and Risk Committee 27/02/ /02/2014 Green

2 Contents Section Page 1. Executive Summary 3 2. Background and scope 5 3. Detailed findings and recommendations 8 Appendix 1 Basis of our classifications 13 Appendix 2 Terms of reference 15 Appendix 3 - Limitations and responsibilities 17 This report has been prepared solely for Aberdeen City Council in accordance with the terms and conditions set out in our engagement letter dated 4 th October We do not accept or assume any liability or duty of care for any other purpose or to any other party. This report should not be disclosed to any third party, quoted or referred to without our prior written consent. Internal audit work will be performed in accordance with Public Sector Internal Audit Standards (PSIAS). As a result, our work and deliverables are not designed or intended to comply with the International Auditing and Assurance Standards Board (IAASB), International Framework for Assurance Engagements (IFAE) and International Standard on Assurance Engagements (ISAE) Internal Audit report for Aberdeen City Council PwC Contents

3 1. Executive Summary Report classification Total number of findings Section 3 Critical High Medium Low Advisory Low risk Control design Operating effectiveness Total Summary of Findings 1.01 As part of this review we have examined the controls in place relating to Aberdeen City Council s Fleet Management (FM) process; including the strategy, service line agreements (SLA), procurement and disposal, and maintenance. The review has focused on the vehicle elements of fleet management and not plant items as it was considered this area gives greatest exposure to regulatory risks and maintenance issues Management have developed an appropriately designed strategy and SLA; which from review of documentation and discussions with stakeholders (fleet manager, fleet staff, service managers) is embedded throughout the Council. This is evidenced by: An SLA in place to agree terms between fleet management and service lines; A five year replacement strategy to address investment in aging fleet; Tranman system used for monitoring fleet including registration and service history; Procurement done through central PECOS system; and Disposals done through auctioneers to remain transparent. 3

4 1.03 Based on our review we did not identify any critical, high or medium risk issues. However we have made 5 low risk recommendations to help the Council more effectively manage its fleet: SLAs have been in place since April 2013 but have yet to be signed by services at ACC (Low risk). Driver licence checks are manually performed every six months by service managers but there is a risk this can be circumvented using old licences or if drivers are suspended in between checks; therefore incorporating checks within the Tranman system to link directly with DVLA will provide greater comfort over licence checks (Low risk). SLAs should contain an estimated price list for common re-charges to services for un-reasonable wear and tear (Low risk). The vehicle replacement working paper does not calculate budget variance or record purchase order number (Low risk). Inflation is not accounted for in the re-investment programme, with a potential impact of 900,000 over the 5 year programme (Low risk). 4

5 2. Background and scope Background 2.01 Fleet management (FM) located in Kittybrewster is responsible for the fleet of vehicles and plant items for Aberdeen City Council. This facility includes a maintenance garage to perform repairs and MOTs, and houses a number of vehicles in the fleet. FM has recently put in place a service line agreement (SLA) with each service at the Council effective from April There is a strategy in place for FM to address replacement of the aging fleet at ACC over the next five years. Procurement of new vehicles is done through the PECOS central purchasing module with disposals being completed through auctioneers The five main services that require fleet vehicles are: 1) Environmental Services Waste Management 2) Building Services 3) Roads 4) Social Care and Education Support Transport 5) Environmental Services - Ground Services Strategy 2.03 The strategy document sets the goal for FM to manage and maintain a wide range of vehicles and mechanical plant to enable the variety of services to operate efficiently while meeting regulatory requirements to hold an operator s licence. It highlights the issue that there has historically been under-investment in replacing the aging fleet and that a replacement programme is in place for the next five years FM seek to become more efficient and to demonstrate best value. These efficiency gains are to be achieved via the Tranman system which is used by FM. The system holds key details for all vehicles in the fleet including registration, insurance, and service history. The strategy also addresses the need for FM to become more sustainable by investing in latest energy technology, limiting vehicles to 60mph to reduce emissions and reducing fuel consumption by up to 10%. There is also ongoing investigation into using alternative fuels like hydrogen and electric powered vehicles. 5

6 Procurement and Disposal 2.05 As part of the FM strategy a five year replacement plan has been created to address the aging fleet. Our analysis showed that there are around 35 vehicles out of 501 that were greater than five years past their useful economic life. Investment in replacing the fleet in 2013/14 is estimated at 1.4million for vehicles and 3.9million for plant items; however this varies annually, for example the investment in 2017/18 on vehicles is projected as 4.8million and on plant items is 382, Vehicle procurement follows the Council wide procurement process. The fleet manager identifies the vehicle requirement and creates a purchase order (PO) on PECOS, a purchasing module, which is linked to the central Scotland Excel system. Scotland Excel is a central procurement service used by a number of public sector bodies in Scotland. An will automatically be sent to the Finance Partner to approve the PO. An is sent to the supplier automatically with the order details. When the goods have been delivered to FM the fleet manager will update PECOS to signal it has arrived. The supplier will send an invoice to the creditors department of ACC for payment. PECOS is linked to E-Financials, the accounting system at ACC. If the PO and invoice match then payment will be made and any issues are raised with the Finance Partner for resolution. The Finance Partner also keeps a paper copy of the invoice and agrees this to PECOS as an additional check. PECOS keeps an audit log of all requests and approvals and it also requires a unique user id and password. When a car is purchased it is registered with the DVLA, added to insurance online with Zurich, and input into the Tranman system. If a vehicle is not insured but registered, then the DVLA will send a letter to FM requesting them to update the details of insurance or complete a Statutory Off Road Notice If a service requires an additional vehicle then it must be funded through their existing budget or via a business case justifying the expenditure linked to benefits and future costs. The business case is prepared on a Council template with details and rationale of the case and expected budget. In each case officers from Finance review the best financial option of direct purchase or lease Vehicles are disposed of using two auctioneers. Higher prices could be achieved through private sales but the use of auctioneers ensures a transparent process. The auctioneers provide FM with a receipt for each vehicle delivered and a cash receipt when it is sold. Paper copies are kept on file including the V5 (vehicle registration form). Once the vehicle is disposed of it is removed from insurance on Zurich and deleted from Tranman. Tranman keeps a report of all vehicles that have been deleted. Maintenance 2.09 All vehicles receive, at a minimum, an annual service. To operate heavy goods vehicles (HGV) to deliver its services ACC must hold an operator s licence. This is issued by the Vehicle & Operations Service Agency (VOSA) which is valid for five years and must be renewed online by FM The key risks associated with the operators license are: Driver compliance Vehicle condition Operating hours Records management 6

7 Each HGV driver has an electronic card which they use in every vehicle to monitor their speed and hours driven. This is downloaded and analysed by VOSA to ensure compliance with regulations. This only applies to HGV and not normal fleet vehicles. Council vehicles are limited to 60mph but do not contain GPS data to monitor where an individual has breached a speed limit above 60mph. As part of their employment contract with ACC, a driver must notify their service manager of any driving infractions either while work or off-duty. Services perform a manual licence check every 6 months. Tranman produces a variety of reports to show when a service is due, overdue, or completed. It also provides a record of all services and repairs over the life of the vehicle. For each job performed, the mechanic will complete a job card with details of work performed that is recorded on Tranman. Service Line Agreements 2.11 Service Level Agreements (SLA) are in place between FM and five services at the Council The details of each vehicle assigned to the service and daily vehicle requirements are included in the SLA. FM will meet the daily vehicle requirement which may involve hiring vehicles if a fleet vehicle is off-road for repairs. Each service is responsible for taking due care of the vehicle, having appropriate licences, and to notify their service manager of any convictions. FM will re-charge to the service anything that is beyond normal wear and tear. There are defined activities in the SLA for what constitutes unfair wear and tear or accidental damage; it also specifies what is considered fair wear and tear. Scope and limitations of scope 2.13 The overall scope of this review was to consider the design and operational effectiveness of the Council s controls and procedures surrounding fleet management arrangements. The sub-processes and related control objectives in this review include; Fleet Management Strategy; procurement and disposal and service level agreements This was undertaken through: Obtaining an understanding of the policies and procedures for fleet management through review of the relevant documents and discussion with staff. Performing review of the fleet management strategy by comparing with best practice and other fleet management strategies seen elsewhere. Identifying the key risks in relation to the areas reviewed. Evaluating the design of the controls in place to address the key risks Testing the operating effectiveness of the key controls on a sample basis Our full and agreed terms of reference is set out at Appendix 2. 7

8 3. Detailed findings and recommendations 3.01 Service Level Agreements are still to be signed by each service control design Finding Service Line Agreements (SLA) between Fleet Management (FM) and the services at the Council have been effective since April 2013 but have not yet been signed by any service. Each service line has been sent a copy of the SLA and is aware of changes to it from previous SLA in place. At time of our review FM was continuing to request that the SLA be signed by each service. Risks There is a risk to both FM and the services for non-performance or compliance with agreements in the SLA. This could lead to disagreement over re-charges for unfair wear and tear to services from FM, services not satisfying responsibilities listed in SLA, or FM not meeting vehicle requirements. Action plan Finding rating Agreed action Responsible person / title Risk rating: Low The SLA between Fleet Management and each of the five Services will be agreed and signed. Fleet Manager Target date: 31 March

9 3.02 Driver License Checks linked into Tranman system control design improvement Finding Driving licence checks are performed manually every six months by each service. There is a risk that a duplicate or outdated licences could be used for this check that would not contain any recent infringements or suspensions. It is possible a licence may be suspended in between checks and this not be flagged to service managers. A number of entitlements for drivers are required to be renewed regularly and there is a risk these will expire and not be identified by the service. Risks A driver that is not eligible to drive due to infractions or qualifications exposes ACC to violations with regulations. FM is required to notify VOSA of infractions as part of requirements for its operator s licence. Action plan Finding rating Agreed action Responsible person / title Risk rating: Low Licence information will be input directly into Tranman and set-up to be regularly checked with DVLA. This will provide greater comfort that infractions will be highlighted early and allow FM to monitor that driver qualifications are suitable for their role Fleet Manager Target date: 30 June

10 3.03 Inclusion in the Price List within the SLA in respect of what constitutes unfair wear control design Finding There is no price list in the SLA to provide an estimation of what re-charges to services for unfair wear and tear may be. Unfair wear and tear is defined in the SLA and can range from minor items like damage to paint work or lights to large repairs resulting from accidents or misuse. The nature of each repair can be different so it is difficult to accurately estimate what costs will be. Historical prices are kept within the Tranman system which could be used to give services guidance on what potential costs for repairs might be. This provides historical costs but actual repairs might be higher or lower depending on extent of damage and availability of parts. Risk Lack of clarity over what re-charges might be can have a budget impact to the service; availability of historical costs for previous repairs will give guidance to services in potential budget impacts. Action plan Finding rating Agreed action Responsible person / title Risk rating: Low Historical costs for repairs as listed in Tranman will be made available to services to help them understand potential budget impacts, with a caveat that actual repairs may be higher or lower depending on extent of damage and availability of replacement parts. Fleet Manager Target date: 31 March

11 3.04 Vehicle Replacement Working Paper control effectiveness Finding The working paper used to monitor vehicle replacement does not record the purchase order from PECOS or identify the variance between estimated and actual cost. PECOS and Tranman (vehicle management system) are not linked so the manually updated working paper provides management with oversight of purchases made in PECOS and registration of new / disposal of replaced vehicles in Tranman. Including the purchase order number on working paper provides a clear link between details of vehicle in Tranman and information in PECOS. Budget variances are currently calculated using an informal process by FM. Formal budget variance would allow management to analyse the cost of replacement programme, so that cost overruns or underspends can be communicated and trends in budget variances can be identified, for example if similar type of vehicles tend be over or under estimated. Risks The design of the vehicle replacement working paper has two implications; 1) By not having the PECOS PO number it proves difficult to reconcile the working paper to PECOS and Tranman, and; 2) Without formal budget variance analysis then trends in the vehicle replacement programme might not be identified or FM may not be able to quickly identify the causes of under/over spends against budget. Action plan Finding rating Agreed action Responsible person / title Risk rating: Low PECOS PO number will be recorded on vehicle replacement working paper. Budget variance process will be formalised to calculate differences between budget and actual cost to identify trends in the vehicle replacement programme and to be able to quickly identify causes of cost under/over runs. Fleet Manager Target date: 31 March

12 3.05 Inflation Impact on Replacement Programme control design Finding The replacement programme does not take into account potential inflation costs over the five years. This is estimated at 900,000 over the five year programme Yr 0 1,445,000 3,486,000 3,666,000 4,642,000 4,844,000 Yr 1-3,555,720 3,739,320 4,734,840 4,940,880 Yr ,814,106 4,829,537 5,039,698 Yr ,926,128 5,140,492 Yr ,243,301 Total Inflation Impact - 69, , , , ,255 Risks At a conservative estimate of inflation at 2% per annum it is calculated that this would have an impact of 900,000 over the life of the programme. In the final year of the programme this represents an additional cost of 399,000. As ACC operates on a balanced budget basis this would require either additional funds or reduction in vehicles to be acquired in investment programme. Action plan Finding rating Agreed action Responsible person / title Risk rating: Low Inflation impacts and scenarios will be included in the replacement programme and it will be determined if funding should be increased or if there should be a reduction in vehicles to be replaced. Fleet Manager Target date: 31 March

13 Appendix 1 Basis of our classifications Individual finding ratings Finding rating Assessment rationale Critical A finding that could have a: Critical impact on operational performance; or Critical monetary or financial statement impact; or Critical breach in laws and regulations that could result in material fines or consequences; or Critical impact on the reputation or brand of the organisation which could threaten its future viability. High A finding that could have a: Significant impact on operational performance; or Significant monetary or financial statement impact ; or Significant breach in laws and regulations resulting in significant fines and consequences ; or Significant impact on the reputation or brand of the organisation. Medium A finding that could have a: Moderate impact on operational performance; or Moderate monetary or financial statement impact; or Moderate breach in laws and regulations resulting in fines and consequences; or Moderate impact on the reputation or brand of the organisation. Low A finding that could have a: Minor impact on the organisation s operational performance; or Minor monetary or financial statement impact; or Minor breach in laws and regulations with limited consequences; or Minor impact on the reputation of the organisation. Advisory A finding that does not have a risk impact but has been raised to highlight areas of inefficiencies or good practice. 13

14 Report classifications Findings rating Points Report classification Points Critical 40 points per finding Low risk 6 points or less High 10 points per finding Medium risk 7 15 points Medium 3 points per finding High risk points Low 1 point per finding Critical risk 40 points and over 14

15 Appendix 2 Terms of reference This review is being undertaken as part of the 2013/2014 internal audit plan approved by the Audit and Risk Committee in February Background Aberdeen City Council (ACC) has a fleet management team based within the Enterprise, Planning and Infrastructure service. The team is responsible for overseeing the operating licence requirements which allow the Council to make use of their heavy goods vehicles and provide services to the public such as waste collection and gritting. The licence requirements govern the maintenance standards for vehicles which ACC must adhere to in order to retain its operating status. The Fleet management team provides services to the majority of ACC departments such as repairs, maintenance and insurance services. The overall arrangement is that the fleet management team controls the capital budget and purchases vehicles on behalf of other departments in accordance with individual requirements. Departments pay a monthly fixed charge to fleet management to cover capital, maintenance and insurance charges. Scope The overall scope of this review will be to consider the design and operational effectiveness of the Council s controls and procedures surrounding fleet management arrangements. The sub-processes and related control objectives included in this review are: Sub-process Control Objectives Strategy There is a fleet management strategy in place that covers key principles and policies in respect of fleet management and includes a replacement plan for ACC s ageing fleet. The useful lives of the fleet have been assessed and this is reflected in the strategy and the replacement plan. Procurement and disposal Fleet is procured in line with the replacement plan and only after obtaining appropriate authorisation. Arrangements are in place for considering the costs and benefits associated with a particular course of action and ensuring value for money is achieved, and these are 15

16 implemented in line with Council procurement arrangements. Vehicles are disposed of in line with ACC policies and procedures. Service Level Agreements Service level agreements are in place between the fleet management department and those departments that require use of the fleet. Assumptions underlying the service level agreements and pricing are updated on an annual basis to ensure current conditions are reflected and also to ensure users receive value for money. Monitoring of service level agreement conditions is performed to ensure requirements are met, from both sides. Limitations of scope The scope of our review is outlined above. Testing was undertaken on a sample basis for the period 1 April 2013 to 31 October Audit approach Our audit approach is as follows: Obtain an understanding of the policies and procedures for fleet management through review of the relevant documents and discussion with staff. Perform review of the fleet management strategy by comparing with best practice and other fleet management strategies seen elsewhere. Identify the key risks in relation to the areas reviewed. Evaluate the design of the controls in place to address the key risks Test the operating effectiveness of the key controls on a sample basis. 16

17 Appendix 3 - Limitations and responsibilities Limitations inherent to the internal auditor s work We have undertaken a review of Fleet Management. Internal control Internal control, no matter how well designed and operated, can provide only reasonable and not absolute assurance regarding achievement of an organisation's objectives. The likelihood of achievement is affected by limitations inherent in all internal control systems. These include the possibility of poor judgment in decision-making, human error, control processes being deliberately circumvented by employees and others, management overriding controls and the occurrence of unforeseeable circumstances. Future periods Our assessment of controls relating to Fleet Management is for the period to 1 October 2012 to 30 October Historic evaluation of effectiveness is not relevant to future periods due to the risk that: the design of controls may become inadequate because of changes in operating environment, law, regulation or other; or the degree of compliance with policies and procedures may deteriorate. Responsibilities of management and internal auditors It is management s responsibility to develop and maintain sound systems of risk management, internal control and governance and for the prevention and detection of irregularities and fraud. Internal audit work should not be seen as a substitute for management s responsibilities for the design and operation of these systems. We endeavour to plan our work so that we have a reasonable expectation of detecting significant control weaknesses and, if detected, we shall carry out additional work directed towards identification of consequent fraud or other irregularities. However, internal audit procedures alone, even when carried out with due professional care, do not guarantee that fraud will be detected. Accordingly, our examinations as internal auditors should not be relied upon solely to disclose fraud, defalcations or other irregularities which may exist. 17

18 In the event that, pursuant to a request which Aberdeen City Council has received under the Freedom of Information Act 2000 or the Environmental Information Regulations 2004 (as the same may be amended or re-enacted from time to time) or any subordinate legislation made thereunder (collectively, the Legislation ), Aberdeen City Council is required to disclose any information contained in this document, it will notify PwC promptly and will consult with PwC prior to disclosing such document. Aberdeen City Council agrees to pay due regard to any representations which PwC may make in connection with such disclosure and to apply any relevant exemptions which may exist under the Legislation. If, following consultation with PwC, Aberdeen City Council discloses any this document or any part thereof, it shall ensure that any disclaimer which PwC has included or may subsequently wish to include in the information is reproduced in full in any copies disclosed. This document has been prepared only for Aberdeen City Council and solely for the purpose and on the terms agreed with Aberdeen City Council in our agreement dated 4 October We accept no liability (including for negligence) to anyone else in connection with this document, and it may not be provided to anyone else PricewaterhouseCoopers LLP. All rights reserved. In this document, "PwC" refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom), which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.