Lake County School District s Physical Inventory Audit for Executive Summary & Detailed Audit Report Fiscal Year

Transcription

1 Lake County School District s Physical Inventory Audit for Executive Summary & Detailed Audit Report Fiscal Year Completed By: Thomas A. Mock, CIA Date: September 15, 2016

2 TABLE OF CONTENTS Cover Page 1 Table of Contents.. 2 Executive Summary A. Summary of Findings B. Objective and Scope.3 C. Overview. 3 Detailed Audit Report A. Objective and Scope B. Overview C. Procedures and Findings D. Recommendations E. Conclusion

3 Executive Summary A. Summary of Findings The overall results for the physical inventory counts observed by Internal Audit were found to be excellent overall for Transportation and Food Services. Internal Audit noted in the test cost work performed for Food Services that Federal Subsidies were not being applied to the costing of products that applied to this program, and resulted in a small overstatement to the Inventory Valuation. The prior year s recommendation for Food Services to implement a perpetual inventory system will be instituted this school year. Internal Audit understands, Food Services has purchased software and is in the process of entering school dietary menu information into the software, next they will work with schools to input daily food production data. Anticipating all procedures go well for schools, Food Services will enter the physical inventory portion into the software at the end of the school year in Internal Audit will review the cycle-counting procedures that Transportation is using to maintain accurate inventory counts throughout the year in the Follow-up Transportation Audit in January Based on Transportations cycle-count procedures, Internal Audit will determine if recommendations could be made to streamline the year end physical inventory process. B. Objective and Scope The objective of the year-end physical inventory audit was to assess the accuracy of the counts and review the inventory valuation for the close of fiscal year The scope of this audit included the physical inventories at Food Services and Transportation that make up the balance sheet Inventories amount in the CAFR for fiscal year ending June 30, Internal Audit observed the physical inventories at Food Services and Transportation. C. Overview Lake County School s performs physical inventories in the following departments for the close of the fiscal year ending June 30, 2016: Food Services, Transportation, Maintenance and Procurement (Main Warehouse). Prior to the start of each department s physical inventory, Internal Audit sent out inventory preparation guidance to each department head to help in how they prepare and facilitate them to a successful physical inventory. Internal Audit also coordinated the inventory observations performed by the External Auditor (Purvis & Gray) and Internal Audit to ensure no duplication of effort would occur. The information in this report covers only the work completed by Internal Audit. If there are any findings by the External Auditor from the scope of their work, they will issue under separate cover once their work is finalized. The School District currently has two different management information systems to track and account for physical inventory in the four departments. The existing management information systems used are: Food Services utilizes Excel Spreadsheets and Transportation, Maintenance & Procurement use the Skyward Management Information System. Food Services method with Excel Spreadsheets requires manual research to determine product activity detailed for each SKU s movement (receipt, usage and/or transfers). 3

4 Internal Audit s Detailed Report A. Objective and Scope The objective of the year-end physical inventory audit is to assess if proper inventory count procedures were employed, to test the accuracy of the department counts and perform an evaluation of the inventory value. The scope for Internal Audit included physical inventories at Food Services and Transportation as of June 30, B. Overview Internal Audit distributed physical inventory preparation best practice procedures seven to eight weeks prior to the start of each department s physical inventory to help them prepare. The School District s inventory consist of items not consumed during the fiscal year 2015/2016. The purpose of taking this physical inventory is to obtain an accurate count of on-hand items, so that the total dollars can be adjusted to the year-end financials Inventories balance sheet account. C. Procedure & Findings Inventory Procedures Observations Internal Audit selected locations within Food Services and Transportation to perform audit test counts after the conclusion of their physical inventory. The purpose of this audit was to gauge their accuracy in the performance of the counts for items in their inventory. Internal Audit noted overall for the locations visited that inventory counting procedures are well performed. Inventory Test Counts and Test Cost Assessment Internal Audit performed test counts after the physical inventory were finished at Food Services and Transportation locations. Internal Audit test count selections were made by judgmentally picking a sample of high dollar items and physically counting the products. The department s inventory count report were used for the selection of items for count verification: 1. Food Services Excel Spreadsheets 2. Transportation Skyward Inventory reports The audit sample of items tested were used to assess the overall level of accuracy in the counting completed by the Department s personnel. Each item test counted by Internal Audit was also used to assess the accuracy of the valuation of the inventory. To complete this vendor invoice(s) for purchases made prior to June 30, 2016 was reviewed. The outcome of the department s physical inventory reviewed by Internal Audit are as follows: Food Services Inventory Internal Audit randomly selected four out of forty-four schools for audit in Food Services, in addition Internal Audit reviewed the inventories for the two schools with Summer Food Programs. Internal Audit visited the schools selected and audited the Food Services physical inventory counts completed. The results of Internal Audit s test counts for Food Services at the six schools tested were as follows: 4

5 Food Services # of Items Total $ Inventory $ % Excpt Net Net Gross Gross School's Test Counts Test Counted Test Counted Total Tested Noted Variance Var % Variance Var % Treadway Elementary School 18 $ 9, $ 11, % 1 $ % $ % Spring Creek Charter 16 $ 3, $ 6, % 0 $ - 0.0% $ - 0.0% Ceil Gray Middle School 15 $ 8, $ 17, % 2 $ % $ % East Ridge High School 15 $ 8, $ 8, % 0 $ - 0.0% $ - 0.0% Total 64 $ 29, $ 43, % 3 $ % $ % Food Services # of Items Total $ Inventory $ % Excpt Net Net Gross Gross Summer FeedTest Counts Test Counted Test Counted Total Tested Noted Variance Var % Variance Var % Lake Hill School 23 $ $ 2, % 0 $ - 0.0% $ - 0.0% Tavares High School 10 $ 5, $ 20, % 0 $ - 0.0% $ - 0.0% Total 33 $ 6, $ 23, % 0 $ - 0.0% $ - 0.0% Totals Combined 97 $35, $67, % 3 $ % $ % The three (3) exceptions noted in the audit yielded an inventory understatement net variance of $ or 0.7% based on the samples completed. When this error rate is extrapolated for the total inventory for Food Services it results in an immaterial inventory understatement of $3, based on the June 30, 2016 inventory value of $469, For each of the items Internal Audit test counted at the physical inventory, a verification of the costing was performed. Internal Audit requested vendor invoices for each of the items counted to support the quantity on-hand at the physical inventory. The results of the audit for the costing of inventory is as follows: Food Services # Items Total Value of Total Value of % of $'s Test Cost % Total School Test Cost Completed Tested Items Tested Food Inventory Test Counted Net Variance Inv Var Treadway Elementary School 18 $ 9, $ 16, % $ 1, % Spring Creek Charter 16 $ 3, $ 8, % $ % Ceil Gray Middle School 15 $ 8, $ 21, % $ % East Ridge High School 15 $ 7, $ 14, % $ % Lake Hill School 23 $ $ 2, % $ % Tavares HS 10 $ 5, $ 20, % $ % Total 97 $ 35, $ 84, % $ 3, % The ninety-seven (97) items test costed found an understatement in the inventory value of 4.18% or $3, When this variance rate is extrapolated for the total inventory for Food Services it results in an inventory overstatement of $19, based on the June 30, 2016 inventory value of $469, Based on the results of the audited physical inventory for Food Services, there is reason to conclude a moderate level of risk exists related to the accuracy of the physical inventory reports. The deficiencies found in the physical inventory were isolated to food that receives Federal Subsidies. Transportation Inventory Internal Audit performed inventory observations at Transportation locations, and audited their physical inventory counts. The results of Internal Audit s test counts for Transportation were as follows: Transportation # of Items Total $ Inventory $ % Except Net Net Gross Gross Test Counts Test Counted Test Counted Total Tested Noted Variance Var % Variance Var % Transportation Main 16 $ 28, $ 155, % 1 $ % $ % Transportation South Lake 13 $ 17, $ 47, % 1 $ % $ % Transportation Leesburg 11 $ 12, $ 40, % 0 $ - 0.0% $ - 0.0% Total 40 $ 58, $ 243, % 2 $ % $ % 5

6 The two (2) exceptions noted at Transportation yielded an inventory net variance of $ or 1.2% based on the audit sample completed. When this error rate of 1.2% is extrapolated for Transportation locations, it results in an inventory understatement of $4, based on the June 30, 2016 Transportation inventory value of $333, For each of the items Internal Audit test counted at the physical inventory, a verification of the costing was performed. Internal Audit requested vendor invoices for each of the items counted to support the quantity on-hand at the physical inventory. The results of the audit for the costing of inventory is as follows: Transportation Inventory # Items Total Value of Total Value of % of $'s Test Cost % Total Test Cost Completed Tested Items Tested Inventory Test Counted Net Variance Inv Var Main, SL & Leesburg Warehouses 40 $ 58, $ 333, % $ (628.12) -1.07% Total 40 $ 58, $ 333, % $ (628.12) -1.07% The forty (40) items test costed found an understatement in the inventory value of 1.07% or $ When this variance rate is extrapolated for the total inventory for Transportation it results in an inventory understatement of $3, based on the June 30, 2016 inventory value of $333, Based on the results of the audited physical inventory for Transportation, there is reason to conclude a very low level of risk exists related to the material inaccuracy of the physical inventory reports. The deficiencies found in the physical inventory were isolated and negligible and do not expose the District to risk related to the overall accuracy of record keeping by Transportation. D. Recommendations Internal Audit recommends Food Services incorporate the reduced cost of all products purchased under the subsidy provided by the Federal Government. In addition, Food Services is encouraged to work through the implement process for their new perpetual inventory system by the end of the school year. Internal Audit recommends Transportation document the procedures they are using to perform cycle-counts during the year. After Internal Audit reviews the cycle-counting procedures, it might be feasible to recommend the streamlining of physical inventory procedures at year-end. E. Conclusion Overall physical inventories in the District were completed in an acceptable manner, with good preparation procedures and accurate counting methods employed. Sincerely, Thomas A. Mock Director of Internal Audit 6