City of West Palm Beach Internal Audit Department

Transcription

1 POST AUDIT REVIEW OF THE WAREHOUSE AND INVENTORY Report No. PAR October 17, 2016 City of West Palm Beach Internal Audit Department Roger Strout, City Internal Auditor, CIA, CRMA, CFE, CICA Beverly Mahaso, Deputy City Internal Auditor, JD, CFE Elena Georgiev, Senior Internal Auditor, CPA, CGMA Ellen Misita, Senior Internal Auditor

2 10/17/2016 Audit Committee City of West Palm Beach 401 Clematis Street West Palm Beach, Florida RE: POST AUDIT REVIEW OF THE WAREHOUSE AND INVENTORY Dear Audit Committee Members: On March , the Internal Audit Department released an audit of the 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 4, 8, 10 and 14 were implemented, recommendations 1, 2, 3, 5, 6, 9, 11, 12, and 13 were partially implemented, and recommendation 7 was not implemented. 1

3 Recommendations Status 7% 64% 29% Implemented - 4 Partially Implemented - 9 Not Implemented - 1 We have enclosed a table listing all the recommendations with the current statuses. We found that management has made progress with respect to corrective action. However, additional tasks remain to be completed. We thank the personnel at the Public Utilities Department for their assistance in conducting this review. We encourage them to continue their efforts and fully implement the recommendations provided. Respectfully submitted, /s/ Roger Strout City Internal Auditor cc: Shanon Materio, Commission President Keith James, Commissioner Sylvia Moffett, Commissioner Paula Ryan, Commissioner Cory Neering, Commissioner Jeffrey Green, City Administrator Dorritt Miller, Deputy City Administrator Poonam Kalkat, Director of the Public Utilities Department Encl. 2

4 AUDIT RECOMMENDATIONS 1 We recommended that the Procurement Director address the conditions described in recommendation. We will opportunity for improvement #1 with immediately begin to address Administration and obtain emergency funding safety issues at the warehouse. to allow him to bring the facility up to The Risk Manager has already appropriate warehouse standards. Please note conducted a site visit and has that implementing a bar coding system will be prepared a list of items that are most helpful to the warehouse staff. Utilizing a currently being addressed. See network of hardware and software to automate Appendix B. A cross-functional data collection where hand recording is neither team has been formed to timely nor cost effective will clear time for implement process them to address other pending issues within the improvements and develop a facility. We recommended that a team be long term plan to ensure the formed including the two warehouse clerks and warehouse is operated in an IT employees to evaluate the situation, research efficient manner. The available options and implement the one best warehouse will be transitioned suited for this warehouse environment. We also to the Utilities Department by noted during our tour of the City of Miami September 30, 2015 and many warehouse that its manager utilizes the services of the best practices they have of other City employees familiar with inventory instituted will be duplicated. A and the inventory process during peak times budget for capital like mornings when department representatives improvements will be pick up their orders. These are usually developed and submitted for tradesmen who have availability for a limited the 2016 capital improvement time. Their help is essential since it relieves the plan. 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. Partially Implemented: We found the warehouse remains: Dark, humid, no A/C, no emergency lighting - lights have been purchased, but cannot be installed prior to the installation of the new racks. Mr. Oluwarotimi "Timi" Dada, Warehouse Supervisor, expects to complete these projects by December Storage of items between aisles - this is still the case since items need to be removed from the old racks. No bar code system - the goal of management is to start using a software named "Hyperweb", which has bar code capabilities. Mr. Dada is waiting on the Utilities and IT Directors to approve the purchase. Unrepaired leaking roof - the supervisor is collecting quotes for the repairs. 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 unrepaired - 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. 3

5 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 shelfs 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. 2 We recommended 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 be kept locked at all times and opened only upon request. 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 limit stop on top is missing thus presenting a serious hazard to anyone in close proximity. A Traffic/Parking study is commencing in October 2016, which will help management decide on a more centralized entry to the 4

6 Complex. The overhead door in the concrete room has been replaced. 3 We recommended 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. 4 We recommended 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 organization they represent and the time of arrival and departure. 5 We recommended 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 The installation of an alarm system will be considered as we develop an improvement plan for the warehouse operations. We agree with this recommendation. A visitors log was put into effect the beginning of February. recommendation to develop a policies and procedures manual. We will update the Policy and Procedures by September 30, Partially Implemented: An alarm system has not been installed. Currently, management is collecting quotes for an alarm and trying to procure additional lighting. 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. Implemented: We were provided with a copy of the visitors log. However, there were only three sign-ins in the period June 17 to September 8. We were told that only vendors' representatives, not vendors' delivery personnel, are required to sign-in and that is why there are so few entries in the log. All non-city employees and vendors are required to sign in on the visitor's log. Partially Implemented: A new set of policies and procedures is currently being created. However, we have not been provided with a draft. In order to implement the necessary controls, management needs additional staff. A new set of policies and procedures has been created, pending approval from the Public Utilities Director. 5

7 procedures. 6 We recommended that staff is trained to utilize these reports or similar reports within the Oracle system. 7 We recommended that the Procurement Department ensure that all vendor contracts are current. 8 We recommended that tasks be 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 services of other City employees similar to the way the City of Miami does, as outlined in our recommendation to provide training to staff. We will assess the competencies and coordinate training with the IT Department. recommendation to update all contracts with vendors; we are currently implementing this recommendation. Completion date for all contracts with vendors will be September 30, 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, Partially Implemented: Staff has not been trained and everything is still being done the same way. Per discussion with Ms. Poonam Kalkat, Public Utilities Department Director, she recently placed a phone call to Oracle to inquire of what functions could be utilized to make the process more efficient. Training needs have been identified by Tim Dada and Josh McDermott. Internal training will commence in October/November In the meantime, the IT Department is assisting departments in obtaining necessary Oracle training. Not Implemented: Per discussion with Mr. Frank Hayden, the Procurement Department is working on this. They have compiled a list of their largest suppliers and expect to have contracts with them by January 1, Tim Dada and Josh McDermott met with Frank Hayden to formalize a plan to move forward with this. 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 his supervisory duties. This is completed, however, duties will be further segregated and assigned with the addition of a warehouse leader next fiscal year. 6

8 recommendation for improvement No. 1. The language in the warehouse SOPs will reflect this. 9 We recommended that the warehouse staff begin to utilize purchase orders without quantities ordered displayed during receiving. 10 We recommended that the Procurement Department train City employees how to requisition items from the catalogue. This training should be done periodically. 11 We recommended that the Procurement Department re-initiates cycle counts and complete yearly inventory counts to help ensure that records are brought up-to-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. recommendation and will begin on March 1, recommendation regarding training of city employees on how to use the catalogue. We will implement training for warehouse requisitions on July 1, 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 Department. We anticipate a completion date by July Partially 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. 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 Implemented: Staff no longer accepts incomplete forms. They and the catalogue were changed to make it easier for employees to find the items needed. Furthermore, training is available on one-on-one basis to anyone. Partially Implemented: An inventory count was completed on May 5, 2015, by a team of warehouse and procurement personnel. With the warehouse currently undergoing a reorganization and lacking proper labeling of items, the involvement of outside personnel is not feasible. New labels are applied as the new racks are installed and merchandise is put in place. 7

9 12 We recommended that records be kept of all the items stored at the warehouse. recommendation to keep records of all items stored at the warehouse. We will also develop a policy to address non-stock items. Partially 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 from Ms. Kalkat to all departments informing them of some of the changes to the warehouse nonstock items rules. Currently, we do not store items from other department in the warehouse (due to the renovation). After it is completed, as per the memo sent out by Ms. Kalkat, any department requesting storage will be required to provide a list of items to be stored and the duration of storage. 13 We recommended 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 recommended that those with technical expertise relating to specific inventory items be consulting when evaluating items for obsolescence. 14 In light of the opportunities for improvement (No. 1 to No. 13), our visits to the Palm Beach County warehouse and the City of Miami warehouse, and independent research, we recommended several different options for management s consideration. A. The Purchasing Department should prioritize the significant issues currently recommendation. Obsolete items will be identified during the upcoming physical inventory and will be appropriately disposed of no later than September 30, 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 Partially Implemented: In order to achieve maximum efficiency, this recommendation will be fully implemented along with the new racks installation. The installation of the new racks is ongoing. Operations and Management staff is assisting in this task with close supervision by the warehouse supervisor. The estimated completion date is December Implemented: On July 1, 2015 the responsibility for managing 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. 8

10 affecting the warehouse. The Purchasing warehouse items are assigned Director should request that emergency funding to the Utilities Department, be directed to his Department in order to greater efficiencies can be implement the most pressing warehouse needs. achieved and proper separation Items that may directly affect the state of the of duties can be instituted inventory and the well-being of the warehouse without adding more staff. The staff and visitors should be addressed first Procurement Director along followed by the installation of a bar code with the cross-functional team system to automate the process and make it will work with Utilities staff to more efficient. enable a smooth and efficient B. The Purchasing Department may wish to transition no later than request that the Public Utilities Department September 30, takes 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 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 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 9

11 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 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. 10