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: August 15, 2017

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 Main Warehouse and Maintenance Warehouses physical inventory counts observed by Internal Audit were found to be excellent overall. Internal Audit noted that attention to slow moving and non-moving inventory items can reduced costs and reimburse idle expenditures to the School District. 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 2016/2017. The scope of this audit included two of the department physical inventories that make up the balance sheet Inventories amount in the CAFR for fiscal year ending June 30, Internal Audit chose to observe the physical inventories at the Main Warehouse and three Maintenance Warehouse locations. Food Services and Transportation were not audited this year-end. C. Overview Lake County School s performs physical inventories in the following departments for the close of the fiscal year ending June 30, 2017: 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 meet with the State Audit General Auditors to coordinate inventory observations that they planned to performed and ensure there would be no duplication of efforts. The State Auditors informed Internal Audit that they would not perform any year-end physical inventory observations, however, they would review Internal Audit s report when issued. 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 & the Main Warehouse 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 preparation procedures were employed, to gauge the accuracy of the department physical counts and perform an evaluation of the inventory value. The scope for Internal Audit included physical inventories at the Main Warehouse and Maintenance Warehouses as of June 30, B. Overview Eight weeks before year-end, Internal Audit distributed Inventory Preparation Procedure to help Department s prepare for their physical inventory. This guidance provides best practices in how to prepare for a physical inventory to assist in smooth and accurate counts. The School District s inventories consist of items not consumed during the fiscal year 2016/2017. The purpose of taking a physical inventory is to obtain an accurate count of onhand items, so that the total dollars can be adjusted to the year-end financials Inventories balance sheet account. C. Procedure & Findings Inventory Procedures Observations When management appropriates adequate time to prepare for a physical inventory by addressing their stock items: layout, orderliness and consolidation, the end results provide more efficient counts. Internal Audit s found the locations visited to be well organized and orderly during the inventory test counting. Inventory Test Counts and Test Cost Assessment Internal Audit performed test counts and valuation after the physical inventory were finished at the Main Warehouse and Maintenance Warehouses. Internal Audit test count selections were made by judgmentally picking a sample of high dollar value items and physically counting the products. The department s inventory count report were used for the selection of items for count verification: 1. Main Warehouse Skyward s Warehouse Inventory Report 2. Maintenance Warehouses Skyward s Warehouse Inventory Report 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, 2017 was reviewed. The outcome of the department s physical inventory reviewed by Internal Audit are as follows: The Main Warehouse Inventory Internal Audit performed inventory observations at the Main Warehouse. The results of Internal Audit s test counts for the Main Warehouse were as follows: Main Warehouse # of Items Total $ Inventory $ % Except Net Net Gross Gross Test Counts Test Counted Test Counted Total Tested Noted Variance Var % Variance Var % Main Warehouse 25 $ 300, $ 600, % 0 $ - 0.0% $ - 0.0% Total 25 $ 300, $ 600, % 0 $ - 0.0% $ - 0.0% 4

5 No exceptions were noted in the audit sample selection of items test counted. Therefore, there was no error rate to extrapolate for the total inventory at the Main Warehouse based on the June 30, 2017 inventory value of $600, 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: Main Warehouse 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 Warehouse 25 $ 298, $ 600, % $ (68.33) -0.02% Total 25 $ 298, $ 600, % $ (68.33) -0.02% The twenty-five (25) items test costed found an understatement in the inventory value of.02% or $ When this variance rate is extrapolated for the total inventory for the Main Warehouse it results in an inventory understatement of $ based on the June 30, 2017 inventory value of $600, Based on the results of the audited physical inventory for the Main Warehouse, there is reason to conclude a minimal level of risk exists related to the accuracy of the value for the physical inventory report. The deficiencies found in the valuation of the physical inventory were associated with the moving average cost calculation compared to the cost average of current on-hand items. Maintenance Inventory Internal Audit performed inventory observations at the Maintenance warehouse locations, and audited their physical inventory counts. The results of Internal Audit s test counts for Maintenance were as follows: Maintenance # of Items Total $ Inventory $ % Except Net Net Gross Gross Test Counts Test Counted Test Counted Total Tested Noted Variance Var % Variance Var % Maintenance North 32 $ 47, $ 237, % 0 $ - 0.0% $ - 0.0% Maintenance Grounds 15 $ 11, $ 21, % 0 $ - 0.0% $ - 0.0% Maintenance South 28 $ 43, $ 184, % 0 $ - 0.0% $ - 0.0% Total 75 $ 103, $ 442, % 0 $ - 0.0% $ - 0.0% No exceptions were noted in the audit sample selection of items test counted. Therefore, there was no error rate to extrapolate for the total inventory at the Maintenance warehouses based on the June 30, 2017 inventory value of $442, 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: Maintenance 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 North, South & Grounds Warehouses 75 $ 103, $ 442, % $ (341.66) -0.33% Total 75 $ 103, $ 442, % $ (341.66) -0.33% The seventy-five (75) items test costed found an understatement in the inventory value of.33% or $ When this variance rate is extrapolated for the total inventory for Maintenance it results in an inventory understatement of $1, based on the June 30, 2017 inventory value of $442,

6 Based on the results of the audited physical inventory for Maintenance, there is reason to conclude a minimal level of risk exists related to the accuracy of the value for the physical inventory (North, South & Grounds) reports. The deficiencies found in the valuation of the physical inventory were associated with the moving average cost calculation compared to the cost average of current onhand items. D. Findings Internal Audit recognized during the audit valuation test that 28% of the Main Warehouse and 89% of the Maintenance items reviewed did not have any purchases completed during 2016/2017 fiscal year. These slow-moving or non-moving inventory items represent an additional cost to the School District through carrying costs (i.e. interest costs, insurance costs, storage costs, staffing costs, inventory costs, etc.). These items must be eliminated or reduced to a lower total inventory there-by releasing dormant dollars back to the School Districts. E. Recommendations Internal Audit recommends the School District s Procurement Department work with the Department Inventory Managers to assist in evaluating how much of the slow moving inventory items are needed and dispositioning non-moving inventory items (if there is no possible use in the School District) to reduce or eliminate the carry cost to the School District and recovering prior years expenditure dollars. Internal Audit s prior year recommendation concerning Food Services perpetual inventory system is moving forward, as they recently purchased the module that will house their perpetual inventory data. Food Services plans to have the perpetual inventory system in place in the 3 rd /4 th quarter of 2017/2018 school year. F. Conclusion Overall the Internal Audit physical inventories observed in the District: were well organized, used good preparation procedures and employ accurate counting methods, this has resulted in a highly accurate physical inventory count. Sincerely, Thomas A. Mock Director of Internal Audit 6