City of West Palm Beach Internal Auditor s Office

Transcription

1 POST AUDIT REVIEW OF WAREHOUSE AND INVENTORY Report No. PAR December 17, 2018 City of West Palm Beach Internal Auditor s Office Beverly Mahaso, Chief Internal Auditor, Esq., CIA, CFE Elena Georgiev, Senior Internal Auditor, CPA, CGMA, CIA Ellen Misita, Senior Internal Auditor, CGAP

2 December 17, 2018 Audit Committee City of West Palm Beach 401 Clematis Street West Palm Beach, Florida RE: POST AUDIT REVIEW OF WAREHOUSE AND INVENTORY, AUD Dear Audit Committee Members: In FY15, the Internal Auditor s Office released an audit of Warehouse and Inventory. We performed certain procedures, as enumerated below, with respect to activities of the Public Utilities Department, 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 3, 4, 5, 6, 7, 8, 9, 10, 12, and 14 were implemented, and recommendations 1, 2, 11, and 13 were partially implemented. We have enclosed a table listing all the recommendations with the current statuses. We found that management made significant efforts to take corrective action. Further, we note that the Public Utilities Department is actively continuing to make improvements. As such, additional steps may have been taken to implement the recommendations after the conclusion of this Post Audit Review. We will conduct another Post Audit Review in approximately 6 to 12 months, at which time we will review all additional changes made after the conclusion of this Post Audit Review. 1

3 Recommendations Status with Low - 1 Medium High - 5 Implemented Medium - 2 High - 2 Partially Implemented Not Implemented We thank the personnel at the Public Utilities Department for their assistance in conducting this review. Respectfully Submitted, /s/ Beverly Mahaso Chief Internal Auditor cc: Paula Ryan, Commission President Kelly Shoaf, Commissioner Cory Neering, Commissioner Keith James, Commissioner Christina Lambert, Commissioner Jeri Muoio, Mayor Jeffrey Green, City Administrator Dorritt Miller, Deputy City Administrator Scott Kelly, Assistant City Administrator Poonam Kalkat, Director of Public Utilities Frank Hayden, Director of Procurement Encl. 2

4 No. 1 High The warehouse is in a state of total disrepair. It is dark and humid, it is not air conditioned, and there are no emergency lights. We noted that items are being temporarily stored between the aisles making it easy for the staff to trip over. Years ago the City began the implementation of a bar code system, but the project was inadequately funded and was abandoned mid-way through implementation. The roof has not been repaired recently and in rainy weather, especially during hard rain, it leaks through the old sky lights. The loading dock s metal plate has begun to separate from the concrete, becoming a tripping hazard. In addition, we noted that the railing on the stairs was unstable; it had separated from the concrete. Also, there was vegetation growing where the concrete had cracked. During our tour of the warehouse yard, we noted significant inventory placed outside exposed to the weather, AUDIT S We concur with this recommendation. We will immediately begin to address safety issues at the warehouse. The Risk Manager has already conducted a site visit and has prepared a list of items that are currently being addressed. See Appendix B. A cross-functional team has been formed to implement process improvements and develop a long term plan to ensure the warehouse is operated in an efficient manner. The warehouse will be transitioned to the Utilities Department by September 30, 2015, and many of the best practices they have instituted will be duplicated. A budget for capital improvements will be developed and submitted for the 2016 capital improvement plan. PARTIALLY IMPLEMENTED This is the status of the various recommendations the auditor made in regards to the physical state of the warehouse: * 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 * storing items between aisles - this is still the case since items need to be removed from the old racks. * bar code system - the goal of management is to start using a software named "HiperWeb", which has bar code capabilities. The Warehouse Supervisor is waiting on the Utilities and IT Directors to approve the purchase. * leaking roof - the supervisor is collecting quotes for the repairs. 3

5 which appeared to not have been moved in years. Finally, the equipment assigned to the warehouse, including the two forklifts and the two delivery vans, appear to be quiet old. One of the fork lifts was put into service twenty (20) years ago in the summer of : We recommend that the Procurement Director addresses the conditions described in opportunity for improvement #1 with Administration and obtain emergency funding to allow him to bring the facility up to appropriate warehouse standards. Please note that implementing a bar coding system will be most helpful to the warehouse staff. Utilizing a network of hardware and software to automate data collection where hand recording is neither timely nor cost effective will clear time for them to address other pending issues within the facility. We recommend that a team be formed including the two warehouse clerks and IT employees to evaluate the 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 - 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. It was brought to our attention that currently the warehouse building still belongs to the Purchasing Department and it needs to be legally transferred to the Public 4

6 situation, research available options and implement the one best suited for this warehouse environment. We also noted during our tour of the City of Miami warehouse that its manager utilizes the services of other City employees familiar with inventory and the inventory process during peak times like mornings when department representatives pick up their orders. These are usually tradespeople who have availability for a limited time. Their help is essential since it relieves the 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. Utilities Department in order for the more serious repairs to commence. 06/2016: New racking and lighting has been purchased and installation is 75% complete. Expected completion date is March 31, All offices, breakrooms and restrooms have A/C. Items stored between the aisles are being placed on the shelves as they are installed. We have been working closely with the IT department and will begin implementing the software change as it fits into IT's schedule. Bids were sent out to repair the leaking roof, but responses were not received. We are in the process of weatherproofing the office to provide extra protection until the main building roof is repaired; this should be completed by December 31, The loading dock has been completely replaced with a newer model. Building - This was discussed with legal and it was determined that Utilities could make repairs to the building. 5

7 07/2017: New racking and lighting has been purchased and installation is 100% complete. Items stored between the aisles have been placed on the shelves. The Public Utilities Department has been working closely with the IT department on obtaining a new barcoding system, but it is still a few years away. A new Request for Proposal (RFP) will be sent out regarding the repairs to the leaking roof. The offices have been waterproofed. Regarding the inventory being kept in the yard, very few items are left in the yard, however, warehouse staff will build a cover and keep the expensive items there. The updated target implementation date is November In addition, the old equipment is being replaced with new equipment shortly. 11/2018: 6

8 The Warehouse roof repair was completed in August Medium During our tour of the warehouse, we noted that the gate was open. Upon inquiry of the warehouse staff, we noted that it is normally open (from 07:00 am to 04:00 pm Monday through Friday). Furthermore, there are a total of five (5) bay doors (4 leading in the main warehouse and 1 leading into the adjacent concrete room), all are kept unlocked during business hours. There are four (4) push bar style doors leading into the warehouse, only one is keyed. A hand recognition device was installed at one of these doors and operated until ten (10) years ago when management declined to spend money to fix it. There is one (1) regular door leading into the concrete room, which is kept open during business hours. : We agree with this recommendation. An entry control system to the warehouse will be researched and a budget request will be made as part of the 2016 Capital Improvement Plan. 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 stopper on top is missing thus presenting a serious 7

9 We recommend that the Procurement Department research and obtain an entry control system, which allows City employees to enter the warehouse via a swipe of their ID cards. The number of people entering can be further reduced by granting access to select employees. The use of a system such as this 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 recommend that the doors are kept locked at all times and opened upon request. hazard to anyone in close proximity. 06/2016: A Traffic/Parking study is commencing in October 2016, which will help management decide on a more centralized entry to the Complex. The overhead door in the concrete room has been replaced. 07/2017: The General Services Manager is working with a consultant to develop a master plan for the Complex, which includes an alternative drop-off point. The updated target implementation date is December /2018: Same as above. However, based on discussions with the Engineering Department, an 8

10 alternative drop-off point may not be possible. 3 Medium Upon inquiry of the warehouse staff, we noted that there is no alarm system installed. There is a security guard patrolling the City complex area between 6pm and 6am and there are also cameras. The recordings from these cameras are saved for thirty (30) days and then recorded over. They are not equipped with night vision. The installation of an alarm system will be considered as we develop an improvement plan for the warehouse operations. IMPLEMENTED An alarm system was not installed. Currently, management is collecting quotes for an alarm and trying to procure additional lighting. 06/2016: : We recommend 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. Management has determined that an alarm is not needed at this time. Additional cameras, and, possibly, an alarm system, will be considered as part of the Operations and Management Complex upgrades being completed by Fleet. 9

11 07/2017: The Public Utilities Department staff is working with the Procurement Department staff to obtain 3 quotes for the installation of an alarm system and then start the contract process. The updated target implementation date is December /2018: 4 Low Upon inquiry of the warehouse staff, we noted that there is no log of who visits the warehouse throughout the course of a day. : We recommend 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 We agree with this recommendation. A visitors log was put into effect the beginning of February. An alarm has been installed and is operational. IMPLEMENTED A visitors log was created. However, so far, only vendors' representatives, not vendors' delivery personnel, are required to sign-in. 06/2016: 10

12 5 Medium organization they represent and the time of arrival and departure. The warehouse policies and procedures are outdated and do not reflect the current staffing and process. Also, they are not communicated to personnel including personnel outside of the Purchasing Department. : We recommend 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 her role in carrying out inventory policies and procedures. We concur with this recommendation to develop a policies and procedures manual. We will update the Policy and Procedures by September 30, All non-city employees and vendors are required to sign in on the visitor's log. IMPLEMENTED A new set of policies and procedures is currently being created. However, in order to implement the necessary controls, management needs additional staff. 06/2016: A new set of policies and procedures has been created, pending approval from the Public Utilities Director. 07/2017: The new set of policies and procedures has been approved. Warehouse staff is training fellow City staff on how to utilize these. 11

13 6 Medium Upon inquiry, the warehouse staff informed us that Minimum/ Maximum reports and Transaction Historical Summary reports are not utilized. Instead, both employees take notes as to what is being depleted and needs to be reordered as they perform their daily duties. Then, orders are placed. : We concur with this recommendation to provide training to staff. We will assess the competencies and coordinate training with the IT Department. IMPLEMENTED Staff has not been trained, thus everything is still done the same way. Per discussion with the Public Utilities Department Director, she recently placed a phone call to Oracle to inquire as to what functions could be utilized to make the process more efficient. We recommend that staff is trained to utilize these reports or similar reports within the Oracle system. 06/2016: Training needs have been identified by Public Utilities staff. Internal training will commence in October/November In the meantime, the IT Department is assisting departments in obtaining necessary Oracle training. 07/2017: 12

14 7 High Upon inquiry, the warehouse staff informed us that before ordering from any vendor a quote is first obtained since many contracts have expired and this is the one sure way to obtain up-to-date pricing. : We recommend that the Procurement Department ensure that all vendor contracts are current. We concur with this recommendation to update all contracts with vendors; we are currently implementing this recommendation. Completion date for all contracts with vendors will be September 30, Warehouse staff is currently being trained to use the reports that best suit their needs. IMPLEMENTED Per discussion with the Procurement Department Director, his department is working on this. They have compiled a list of their largest suppliers and expect to have contracts with them by January 1, /2016: Public Utilities staff met with the Procurement Department Director to formalize a plan to move forward with this. 07/2017: The majority of the contracts have been updated. One contract has been signed and is being forwarded for processing, the other is still pending the Procurement Department review of the contract 13

15 between the company and the other agency to determine if that contract meets the City's piggyback criteria. The updated target implementation date is December /2018: 8 High The same employee places orders, receives inventory, keeps records, issues inventory and updates inventory in Oracle, etc. : We recommend that tasks are 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 We concur with this 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, All contracts have been updated. 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 uses and to be trained in order for him to perform some of his supervisory duties. 06/2016: This is completed, however, duties will be further segregated and 14

16 9 High services of other City employees similar to the way the City of Miami does, as outlined in our recommendation for improvement No. 1. Upon inquiry, the warehouse staff informed us that they rely on visual inspection and the vendor s bill of lading/packing slip when determining if the correct items and/or correct quantities were shipped. : We concur with this recommendation and will begin on March 1, assigned with the addition of a warehouse leader next fiscal year. The language in the warehouse SOPs will reflect this. 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. We recommend that the warehouse staff begin to utilize purchase orders without quantities ordered displayed during receiving. 06/2016: The system still does not allow staff to print POs without quantities for receiving purposes. Also, additional staff has been authorized for the next fiscal year. Finally, we began to research different options with IT/Oracle in September /2017: 15

17 10 Medium Warehouse Requisition Forms are not completed in full by Departments. Upon inquiry, the warehouse staff informed us that they would often have to complete the requisition, fill out the stock numbers, etc. : We recommend that the Procurement Department train City employees on how to requisition items from the catalogue. This training should be done periodically. We concur with this recommendation regarding training of city employees on how to use the catalogue. We will implement training for warehouse requisitions on July 1, Per discussion, warehouse staff is required to retrieve the PO, count the items delivered and document on it the quantity of items actually received. IMPLEMENTED Staff no longer accepts 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-onone basis to anyone. 11 High In the past, cycle counts were performed weekly. The discrepancy reports resulting from these cycle counts were kept by the Procurement Division (now the Purchasing Department). Currently, We concur with this 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 PARTIALLY IMPLEMENTED An inventory count was completed on May 5, 2015, by a team of warehouse and procurement 16

18 cycle counts are not performed. Previously, the perpetual inventory records were reconciled to the general ledger monthly. Currently, this is only done once a year. In the past, an outside firm was hired to do a count of the entire inventory once a year. Upon inquiry, a complete count has not been conducted since This last count was conducted entirely by City employees, including the two store clerks. Department. We anticipate a completion date by July personnel. With the warehouse currently undergoing a reorganization and lacking proper labeling of items, the involvement of outside personnel is not feasible. 06/2016: New labels are applied as the new racks are installed and merchandise is put in place. : We recommend that the Procurement Department reinitiates cycle counts and complete yearly inventory counts to help ensure that records are brought upto-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. 07/2017: Per discussion, cycle counts are performed once a quarter, but monthly reconciliations are not being performed. Furthermore, the entire inventory has not been counted since The updated target implementation date is March /2018: The Central Warehouse annual physical inventory count was completed on 06/07/18 and 17

19 12 High Upon inquiry of the warehouse staff, we noted that many departments keep inventory on the premises temporarily. However, they are not required to fill out a non-stock inventory form prior to leaving their items for storage. : We recommend that records be kept of all the items stored at the warehouse. We concur with this recommendation to keep records of all items stored at the warehouse. We will also develop a policy to address non-stock items. 06/08/18. Discrepancies were identified and are being addressed by reviewing SOPs and ensuring SOPs are followed and warehouse personnel are trained in cycle counts and other aspects of warehouse duties. The Public Utilities Warehouse physical inventory count will take place in December Recurring cycle counts for both the Central and Public Utilities Warehouses will be implemented. New target date is January 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 by the Public Utilities Director to all departments informing them of some of the changes to the warehouse rules. 18

20 06/2016: Currently, we do not store items from other departments in the warehouse (due to the renovation). After it is completed, as per the memo sent out by the Public Utilities Director, any department requesting storage will be required to provide a list of items to be stored and the duration of storage. 07/2017: 13 Medium We concur with this recommendation. Obsolete items will be identified during the Per discussion, warehouse staff has changed its practice. Some departments have expressed a need to store items (related to certain projects) at the warehouse. Warehouse staff requests ample notice, stores only if space is available and only if time does not exceed 4 weeks. Furthermore, staff is not responsible for the items stored and we will not catalog those items. PARTIALLY IMPLEMENTED 19

21 Upon inquiry of the warehouse staff, general inventory items rarely become obsolete and thus are not examined. Also, utilities inventory items are seldom examined and the ones that have become obsolete are sold for scrap. Overall, it is up to the Procurement Director or his designee to direct staff regarding inventory obsolescence identification and disposal procedures; however, no formal obsolescence identification and disposal process and procedure has been provided or carried out. : We recommend 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 recommend that those with technical expertise relating to specific inventory items be consulted when evaluating items for obsolescence. upcoming physical inventory and will be appropriately disposed of no later than September 30, In order to achieve maximum efficiency, this recommendation will be implemented along with the new racks installation. 06/2016: The installation of the new racks is ongoing. Operations and Management staff are assisting in this task with close supervision by the warehouse supervisor. The estimated completion date is December /2017: Per discussion, the new policies and procedures stipulate how warehouse staff should handle slow moving and/or obsolete materials. In addition, many of the items have been identified and warehouse staff are awaiting instructions for disposition by the owner departments. The updated target 20

22 implementation date is December /2018: 14 High Please refer to the opportunities for improvement recommended in findings No. 1 through No. 13. The City s warehouse operation has been in need of greater funding for extended periods of time. : In light of the opportunities for improvement (No. 1 to No. 13), our visits to the Palm Beach County warehouse, the City of Miami warehouse, and independent research, we would like to recommend several different options for management s consideration. We agree with option C. City Administration has already made the determination to place 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, Public Utilities will run a turn-over report. Once obsolete items are identified, they will be surplused per the SOPs. Inventory on-hand quantities and reorder points will be adjusted accordingly. IMPLEMENTED On July 1, 2015 the ownership of the warehouse passed from the Purchasing Department to the Public Utilities Department. Overall, in order to provide a safe environment for staff and clients, and to implement the necessary controls, management needs additional staff. 21

23 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 take 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 22

24 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 Water Reclamation Facility (ECRWRF) and the City s water plant. D. The Administration may also wish to consider an arrangement with the Palm Beach 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 23

25 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. 24