Internal Audit Report. Bulk Fuel Management and Reporting TxDOT Internal Audit Division

Transcription

1 Internal Audit Report Bulk Fuel Management and Reporting TxDOT Internal Audit Division

2 Objective To determine if bulk fuel, including amounts spent and used, is accurately tracked and reported. Opinion Based on the audit scope areas reviewed, control mechanisms require improvement and only partially address risk factors and exposures considered significant relative to impacting reporting reliability, operational execution, and compliance. The organization's system of internal controls requires improvement in order to provide reasonable assurance that key goals and objectives will be achieved. Improvements are required to minimize existing process variation and control gap corrections that may result in potentially significant negative impacts to the organization including the achievement of the organization's business/control objectives. Overall Engagement Assessment Needs Improvement Finding 1 Title Management and Reporting of Bulk Fuel Findings Control Design Operating Effectiveness Rating x x Needs Improvement Management concurs with the above finding and prepared management action plans to address deficiencies. Control Environment Support Services Division (SSD) is responsible for 1) overseeing the bulk fuel management and reporting process and 2) establishing related policies and procedures. SSD utilizes two separate systems to perform the process of bulk fuel management and reporting. The first system, Fleet Navigator (FNAV), is a perpetual inventory system that automatically captures information for bulk fuel management and reporting. The second system, PeopleSoft, is the system of financial record for TxDOT that contains manually entered information for bulk fuel reporting. Fuel use for official state business is addressed in the Human Resources Policy Manual, the annual Ethics training, and FNAV procedures which is required for all employees who operate TxDOT vehicles. Districts are responsible for their own bulk fuel management and report their usage information to SSD real time through FNAV. Although there are no documented reporting policies and procedures, districts are expected to manually record usage information from FNAV into PeopleSoft to provide an accurate account of bulk fuel usage and inventory. Each quarter, SSD reconciles bulk fuel as reported in the two systems and reports usage and inventory balances to the Financial Management Division (FIN). FIN utilizes the bulk fuel reporting to calculate and prepare quarterly tax returns and payments for on-road usage of dyed diesel fuel to the Texas Comptroller of Public Accounts. August

3 Summary Results Finding Scope Area Evidence 1 District Bulk Fuel Management and Reporting Division Bulk Fuel Management and Reporting From October 1, 2014 through December 31, 2015, statewide reported usage of dyed diesel fuel varied 31% between FNAV and PeopleSoft (3.26 million gallons in FNAV compared to 2.25 million gallons in PeopleSoft (excluding Ferry usage which is not tracked in FNAV). The total weighted average fuel cost of the variance is $2.5 million. Further testing in five districts covering five quarters of activity reported 189,310 gallons of usage through FNAV and 89,346 gallons of usage in PeopleSoft, a variance of 53% from FNAV totals. The total weighted average cost of the variance is $237,318. Audit Scope Audit testing was completed on SSD s bulk fuel management and reporting for the period October 1, 2014 through December 31, Bulk fuel usage was evaluated by reviewing statewide bulk fuel transactions from FNAV and PeopleSoft to determine overall purchases and usage. Additional testing was performed to determine the taxable amount of dyed diesel fuel usage and the associated quarterly tax payments. Fieldwork testing was conducted in five districts: Houston, Corpus Christi, Lubbock, San Antonio, and El Paso. The audit was performed by Alma Alvarez, Azana Headspeth, and Casey Kopcho (Engagement Lead). The audit was conducted during the period from March 14, 2016 to April 29, Methodology The methodology used to complete the objectives of this audit included the following: identified the process for bulk fuel management and reporting obtained and reviewed documentation related to bulk fuel purchases, usage, and reporting reviewed bulk fuel tax reporting documentation reviewed current laws and TxDOT policies and procedures interviewed SSD management and district staff responsible for bulk fuel management selected a sample of districts based on bulk fuel usage from October 1, 2014 through December 31, 2015 reviewed and analyzed statewide fuel usage exception reporting re-performed quarterly dyed diesel fuel tax calculations for October 1, 2014 through December 31, 2015 conducted an on-site visit to San Antonio to review processes for managing and reporting bulk fuel usage computed the variances in usage reported between FNAV and PeopleSoft August

4 Background This report is prepared for the Texas Transportation Commission and for the Administration and Management of TxDOT. The report presents the results of the Bulk Fuel Management and Reporting audit which was conducted as part of the Fiscal Year 2016 Audit Plan. The Support Services Division (SSD) is responsible for the management and reporting of bulk fuel used to transport employees in fleet vehicles and for equipment used in construction and maintenance projects throughout the state. SSD purchases dyed diesel fuel tax-free. This dyed diesel fuel contains a color additive, to assist in identification and segregation of the fuel. For any dyed diesel fuel used on Texas roads, which was initially purchased tax-free, the Texas Comptroller of Public Accounts requires a tax of $0.20 per gallon to be paid. In coordination with the Fleet Operations Division, SSD implemented the Fleet Navigator (FNAV) system in FY 2014 to improve the safety, productivity, and efficiency of the fleet. This system also captures bulk fuel usage in real-time and stores the information digitally. In addition, FNAV contains detailed information for fuel usage that allows SSD to track fuel deliveries (i.e., purchases of fuel for TxDOT), as well as, taxable and non-taxable usage of dyed diesel fuel. TxDOT s districts are responsible for managing their fuel inventory usage and reporting up to SSD. Bulk fuel is obtained at state gas pumps within the districts by using a key fob, a small security device with built-in radio transmitted authentication. The key fobs are assigned to vehicles/equipment and allow FNAV to automatically associate the fuel dispensed with the equipment assigned to the key fob. Districts utilize this process to track and maintain inventory balances within FNAV. Although fuel usage information is tracked automatically by FNAV, fuel purchase and usage information must be manually input into the PeopleSoft system by district employees. The implementation of FNAV coincided with the PeopleSoft implementation in As shown in Fig 1.1 the initial Q4 calendar year (CY) 2014 variance in dyed diesel fuel usage reported between the two systems was 86%. Since then, that figure has generally trended downward to the Q4 CY2014 variance of 12%. August

5 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Fig 1.1 Dyed Diesel Reported Fuel Usage Variance Over Time Between Fleet Navigator & PeopleSoft Q Q Q Q Q Variance We conducted this performance audit in accordance with Generally Accepted Government Auditing Standards and in conformance with the International Standards for the Professional Practice of Internal Auditing. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. Recommendations to mitigate risks identified were provided to management during the engagement to assist in the formulation of the management action plans included in this report. The Internal Audit Division uses the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control Integrated Framework version A defined set of control objectives was utilized to focus on reporting, operational, and compliance goals for the identified scope areas. Our audit opinion is an assessment of the health of the overall control environment based on (1) the effectiveness of the enterprise risk management activities throughout the audit period and (2) the degree to which the defined control objectives were being met. Our audit opinion is not a guarantee against reporting misstatement and reliability, operational sub-optimization, or non-compliance, particularly in areas not included in the scope of this audit. August

6 Detailed Findings and Management Action Plans (MAP) Finding No.1: Management and Reporting of Bulk Fuel Condition Dyed diesel bulk fuel usage is not being properly recorded and reconciled as differences exist between the two fuel management and reporting systems (i.e., Fleet Navigator (FNAV) and PeopleSoft). Process variations for managing these two systems exist at the district level and unreconcilable differences exist between the two systems statewide resulting in tax overpayments being made quarterly to avoid fines and penalties. Effect/Potential Impact Without consistent and accurate tracking of bulk fuel usage the following potential issues could occur: Financial misstatement of inventory balances Unaccounted usage of bulk fuel Over/under paid dyed fuel usage tax due to over/under reported usage Periodic inventory adjustments or write-offs of unreconcilable items that may be the result misappropriation of bulk fuel Criteria Per Texas Tax Code, Chapter 162, dyed diesel fuels are subject to a state tax of $0.20 per gallon for on-road uses but for off-road use the dyed diesel fuels are tax free. Because dyed diesel fuel is purchased tax free, usage must be tracked and reported quarterly to ensure accurate tax payment and avoid penalties for late filing and payment to the Texas Comptroller of Public Accounts. Cause Since the conversion to PeopleSoft in October 2014, the two bulk fuel management and reporting systems have not been integrated. As a result, dual entry is required by the districts and divisions into PeopleSoft to keep bulk fuel inventory levels current. Standard Operating Procedures (SOPs) have not been developed to help instruct the districts and divisions on how to track and report bulk fuel usage, as well as, reconcile usage reports between the two systems on a periodic basis. Evidence A review of dyed diesel bulk fuel usage as reported in PeopleSoft and Fleet Navigator (FNAV) for Q4 CY 2014 Q4 CY 15 identified the following: Overpayment of dyed diesel fuels tax of $153,644 between Q4 calendar year (CY) 2014 Q4 CY 2015 Statewide, FNAV reported usage of 3.26 million gallons and PeopleSoft reported usage of 2.25 million gallons (excluding Ferry usage which is not tracked in FNAV), for a variance of 31% from FNAV totals. The total weighted average fuel cost of the variance is $2.5 million. Further testing in five districts covering five quarters of activity reported 189,310 gallons of usage through FNAV and 89,346 gallons of usage in PeopleSoft, a variance of 53% from FNAV totals. The total weighted average cost of the variance is $237,318. August

7 Management Action Plan (MAP): MAP Owner: Daryl Starkes, Material Management Section Director, Support Services Division (SSD) MAP 1.1 SSD will develop a Job Aid to: 1) Establish consistent processing of bulk fuel in PeopleSoft and Fleet Navigator (FNAV) 2) Provide accurate reporting of fuel usage 3) Direct the districts and Fleet Operations Division (FOD), who maintains the Camp Hubbard bulk fuel location, to be responsible for tracking and reconciliation of their bulk fuel operations Action Completed MAP Owner: Randy Hopmann, P.E., Director, District Operations MAP 1.2: The Director of District Operations will work with Support Services Division to host additional bulk fuel management training and explain the importance of bulk fuel accuracy for district personnel and complete this training by November 1. Additionally, a memo will be issued to districts stressing the expectation for accurate bulk fuel records and need to maintain these records on a frequent basis. This memo will be issued by August 15. November 15, 2016 MAP 1.3: Create and implement a Bulk Fuel Management Program that will incorporate districts and divisions input on how to better manage, monitor, and report on bulk fuel across the state. This program should include performance measures and a training curriculum to assist in the strengthening of controls around inventory at TxDOT. March 15, 2017 MAP Owner: Dalton Pratt, Director, Fleet Operations Division (FOD) MAP 1.4 Fleet Operations Division will prepare and submit a white paper, outlining the business case for the integration between FNAV and PeopleSoft. This white paper will then be presented to Administration for review and approval to move forward with software updates. December 15, 2016 August

8 MAP Owner: Teri Augustine, Project Manager, Information Management Division MAP 1.5 Information Management Division (IMD) will consult with Support Services Division (SSD), Fleet Operations Division (FOD), and other stakeholders to determine whether integration of FNAV and PeopleSoft is a cost effective and efficient solution to daily operations and reporting. IMD and SSD will jointly develop a recommendation which provides for improved cost effectiveness and efficiencies in daily operations and reporting of FNAV and PeopleSoft data. SSD will present this recommendation to Executive Administration. If approved, IMD will work on the proposed solution with the SSD, FOD, and appropriate stakeholders. As an enterprise solution, establishing costs will be the responsibility of IMD and will be submitted to Executive Administration as part of the recommendation. The implementation date will be determined by IMD once the appropriate project planning has completed. It is anticipated the solution could take more than a year to implement after executive approval of the project. December 15, 2017 August

9 Summary Results Based on Enterprise Risk Management Framework Closing Comments The results of this audit were discussed with Fleet Operations Division, Support Services Division, and the Houston, Corpus Christi, Lubbock, San Antonio, and El Paso districts on August 1, We appreciate the assistance and cooperation received from the districts and divisions contacted during this audit. August