City of West Palm Beach Internal Audit Department

Transcription

1 POST AUDIT REVIEW OF THE WAREHOUSE AND INVENTORY AUDIT Report No. PAR November 20, 2017 City of West Palm Beach Internal Audit Department Roger Strout, City Internal Auditor, CIA, CGAP, CRMA, CFE, CICA Beverly Mahaso, Deputy City Internal Auditor, JD, CFE Elena Georgiev, Senior Internal Auditor, CPA, CGMA, CIA Ellen Misita, Senior Internal Auditor

2 November 20, 2017 Audit Committee City of West Palm Beach 401 Clematis Street West Palm Beach, Florida RE: POST AUDIT REVIEW OF THE WAREHOUSE AND INVENTORY AUDIT 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, 5, 6, 8, 9, 10, 12, and 14 were implemented and recommendations 1, 2, 3, 7, 11, and 13 were partially implemented. Remaining portion of this page left blank intentionally. 1

3 Recommendations Status with Priority 8 Low Medium-3 Medium High-4 High Implemented Partially Implemented High-0 Not Implemented 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: Cory Neering, Commission President Keith James, Commissioner Shanon Materio, Commissioner Sylvia Moffett, Commissioner Paula Ryan, 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 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 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 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 "Hyperweb", which has bar code capabilities. The Warehouse Supervisor is waiting on the High 3

5 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 tradesmen 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 and IT Directors to approve the purchase. * 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 - 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 4

6 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 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 5

7 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. 07/2017: New racking and lighting has been purchased and installation is 100% complete. Items stored between the aisles have been placed on the shelfs. 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 6

8 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 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. 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. In addition, the old equipment is being replaced with new equipment shortly. 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. Medium 7

9 Finally, we recommend that the doors are kept locked at all times and opened upon request. 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 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 8

10 3 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. The installation of an alarm system will be considered as we develop an improvement plan for the warehouse operations. consultant to develop a master plan for the Complex, which includes an alternative drop-off point. The updated target implementation date is December PARTIALLY IMPLEMENTED An alarm system was not installed. Currently, management is collecting quotes for an alarm and trying to procure additional lighting. Medium 06/2016: 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. 07/2017: 9

11 4 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 organization they represent and the time of arrival and departure. We agree with this recommendation. A visitors log was put into effect the beginning of February. 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 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. Low 06/2016: All non-city employees and vendors are required to sign in 10

12 5 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, 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. Medium 07/2017: The new set of policies and procedures has been approved. Warehouse staff is training fellow City staff on 11

13 6 We recommend that staff is trained to utilize these reports or similar reports within the Oracle system. We concur with this recommendation to provide training to staff. We will assess the competencies and coordinate training with the IT Department. how to utilize these. 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. Medium 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. 12

14 07/2017: 7 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. PARTIALLY 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, High 06/2016: Public Utilities staff met with the Procurement Department Director to formalize a plan to move forward with this. 07/2017: Majority of the contracts have 13

15 8 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 services of other City employees similar to the way the City of Miami does, as outlined in our recommendation for improvement No. 1. 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, 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 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 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. 06/2016: High 14

16 9 We recommend that the warehouse staff begin to utilize purchase orders without quantities ordered displayed during receiving. We concur with this recommendation and will begin on March 1, This is completed, however, duties will be further segregated and 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. High 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 15

17 options with IT/Oracle in September /2017: 10 We recommend that the Procurement Department train City employees how to requisition items from the catalogue. This training should be done periodically. 11 We recommend that the Procurement Department reinitiates cycle counts and complete yearly inventory counts to help ensure that records are brought up-to-date and are complete and accurate. 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, 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 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 one-on-one basis to anyone. PARTIALLY IMPLEMENTED An inventory count was completed on May 5, 2015, by Medium High 16

18 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. transfer of operations to the Utilities Department. We anticipate a completion date by July a team of warehouse and procurement personnel. With the warehouse currently undergoing a re-organization 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. 07/2017: 12 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 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 IMPLEMENTED High 17

19 develop a policy to address non-stock items. 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. 06/2016: 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 the Public Utilities Director any department requesting storage will be required to provide a list of items to be stored and the 18

20 duration of storage. 07/2017: 13 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 We concur with this recommendation. Obsolete items will be identified during the upcoming physical inventory and will be appropriately disposed of no later than September 30, 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 In order to achieve maximum efficiency, this recommendation will be implemented along with the new racks installation. 06/2016: Medium 19

21 obsolescence. 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: 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 would like to recommend several 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 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 implementation date is December IMPLEMENTED On July 1, 2015 the ownership of the warehouse passed from High 20

22 different options for management s consideration. 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 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. 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, 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 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 inhouse 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 vehicles service County structures in close proximity to many City of West Palm Beach 22

24 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. Remaining portion of this page left blank intentionally. 23