Audit Department Report for June 2014

Transcription

1 Report Report Office of the General Auditor Audit Department Report for June 2014 Summary Three reports were issued during the month: Gas Card Program Audit Report and Management Response ABSG Consulting, Incorporated , Jacobs Associates , and URS Corporation Americas Audit Report Quarterly Board Report Review Discussion Section This report highlights the significant activities of the Audit Department during June In addition to presenting background information and opinions expressed in the audit reports, a discussion of findings noted during the examination are also provided. Gas Card Program Audit Report and Management Response Background The Audit Department has completed a review of the accounting and administrative controls over the Gas Card Program (Program), as of October 31, Our review consisted of evaluating the controls over the Program by testing compliance with Metropolitan s policies and procedures, and with the Gas Cardholder (Cardholder) agreement requirements. This included reviewing the gas card issuance process and deactivation process, following employee s transfer, resignation, or retirement. We verified selected transactions with supporting documentation for propriety and accuracy of charges. Finally, we analyzed the Gas Card Transaction Database to search for unusual patterns or potentially improper usage. Our review focused on the period of July 1, 2011 through October 31, A gas card is a Metropolitan credit card issued to an employee to fuel Metropolitan vehicles at remote locations where there are no Metropolitan fuel services. Authorized employees primarily in the Water Services Operation Group may use these gas cards at any gas station for business purposes, as specified in the Cardholder agreement. These gas cards replaced the prior need for Travel Expense Reimbursements or Petty Cash disbursements for gas purchases. As of October 31, 2013, there were 41 active gas cards with spending limits ranging from $1,000 to $30,000 per month. Gas card purchases totaled $114,078 in fiscal year 2011/12, $141,764 in fiscal year 2012/13, and $35,174 in fiscal year to date through October 31, Metropolitan s Program is under the auspices of a State of California negotiated gas card contract with U.S. Bank National Association ND (U.S. Bank). The Contracting Services Unit of the Business Technology Group administers the Program including facilitating the issuance and processing of gas cards, monitoring, reconciling, and approving payment of gas card invoices. Individual Cardholders are responsible for submitting log sheets summarizing gas purchases and related gas receipts, while a Cardholder s supervisor or manager is responsible for approving Gas Card Request (Request) forms and for reviewing and approving gas card transactions.

2 Page 2 Opinion In our opinion, the accounting and administrative procedures over the Program provide for a less than satisfactory internal control structure. This opinion is the result of the failure to maintain control documents including Request forms and Cardholder agreements, lack of supporting purchase logs and receipts for selected gas card transactions, and use of cards for nongas purchases totaling $5,477. It should be noted that Program management has initiated corrective actions in response to our concerns. We will continue to assist management with the evaluation of solutions to these internal control structure concerns. Comments and Recommendations POLICIES AND PROCEDURES Compliance with policies and procedures is necessary to ensure accurate accounting records, proper supporting details, and adequate controls over gas cards. Policies and procedures provide the framework for helping to accomplish Metropolitan s goals. Procedures also assist management in the training of new employees, cross-training of staff, and providing guidance and reference for consistent performance of related tasks. Our review of gas card issuance routines revealed that upon inception of the current Program, U.S. Bank issued 38 replacement gas cards to employees in December 2011, and subsequently issued seven gas cards. However, we could not locate the related approved Request forms for 38 replacement gas cards, or for three of seven issued gas cards. This is in contrast to Metropolitan s Operating Policy C-05, Metropolitan Credit Cards, that requires retention of Request forms. It should be noted that gas card transactions totaled $291,016 during the period from July 2011 through October In addition, we could not locate any of the signed Cardholder agreements affirming the employees understanding of the Program rules, and their agreement to follow established guidelines. We also could not locate four deactivated gas cards, or list of current Cardholders that should be provided to the Controller and Human Resources. Additionally, we noted that six active cards were issued in the name of fleet vehicles, such as Desert Fleet One, with as many as seven authorized users rather than an individual Cardholder name. These observations are all in contrast to the requirements in the Fleet Card Procedures Manual, which was last updated in December Finally, we noted that Metropolitan s Operating Policy C-05, Metropolitan Credit Cards, was last updated in April 2008 and does not reflect current responsibilities, processes, and business functions. We recommend Program management obtain management authorization of current Cardholders, charging limits, and Cardholder agreements from all current Cardholders. We also recommend Contracting Services management remind personnel of the importance of complying with established card issuance/replacements, cancellations, or renewal procedures and conduct periodic reviews to ensure compliance. Finally, we also recommend management update Metropolitan s Operating Policy C-05, Metropolitan Credit Cards, and Contracting Services Fleet Card Procedures. REVIEW AND APPROVAL Review and approval controls serve to protect against unauthorized, inaccurate, or improper transactions; identify potentially erroneous entries; and describe follow-up procedures for exceptions. For gas card activity, these controls serve to ensure transactions are reviewed for propriety, supported by adequate documentation, and charged to the proper expense category. In addition, a Cardholder s activity should be reviewed periodically by someone independent of the Cardholder.

3 Page 3 Our review of 20 selected gas card transactions revealed that five transactions totaling $1,042 were not supported with gas card purchase logs and gas receipts, in contrast to the requirements in the Fleet Card Procedures Manual. In addition, we performed analytical procedures of all gas card transactions totaling $291,016 for the period of July 2011 through October 2013 to search for unusual patterns in the data, or potentially improper transactions. These procedures revealed that $5,477 (1.9 percent) were related to nongas purchases including ground handling fees, ramp fees, and miscellaneous aviation items incurred by Metropolitan s Aviation staff. Finally, we noted that 13 of 41 (31 percent) active gas cards were not utilized during the period and 14 of 41 (34 percent) active gas cards had less than ten transactions during the same period, with total purchases ranging from $27 to $636. We recommend Program management remind Cardholders of the importance of complying with established procedures to use gas cards only for gas, oil, or emergency purchases and to submit proper supporting documentation. We also recommend Program management work with Cardholder s management to reevaluate gas card needs in instances where annual activity is low. Finally, we recommend Program management monitor gas card activities, and conduct periodic reviews to ensure compliance with established procedures. ABSG Consulting, Incorporated , Jacobs Associates , and URS Corporation Americas Audit Report Background The Audit Department has completed a review of the accounting and administrative controls over the consulting agreements with ABSG Consulting, Incorporated (ABSG), Jacobs Associates (Jacobs), and URS Corporation Americas (URS), as of January 31, Our review consisted of evaluating internal controls over the consultant selection process, reviewing agreement administration and reporting practices, and testing compliance with the terms and conditions of the agreements. In addition, we evaluated the validity and propriety of invoice payments for assurance that amounts billed were properly calculated and adequately supported. In September 2008, Metropolitan issued Request for Qualifications 884 (RFQ 884), to prequalify firms to provide structural and seismic Engineering services. It is important to note that prequalification does not guarantee a consultant an agreement. Metropolitan reserves the right to enter into an agreement with one or more consultants, based upon project needs. The Scope of Work for RFQ 884 included seismic evaluations, structural calculations and assessments, conceptual and final design seismic retrofit documentation, preliminary and final design services on structural repairs, and construction support. Proposals were received from 17 firms, of which nine were prequalified. ABSG received the highest score of 17 respondents to RFQ 884. Metropolitan entered into a three-year agreement with ABSG to provide seismic and structural evaluation studies, preliminary and final design services, and specifications for the Administration Building, East and West Filter Basins, Supported Control Buildings at the Diemer plant, and the concrete moment frames of the Headquarters Building at Union Station. The ABSG agreement was effective from May 15, 2010 through May 15, 2013, with maximum amount payable of $245,000 per contract year. The ABSG agreement was closed on August 15, 2013, with total payments of $398,975.

4 Page 4 In December 2009, Metropolitan issued Request for Qualifications 931 (RFQ 931), to prequalify firms to provide geotechnical and tunnel design services. Jacobs and URS were among 16 consulting firms selected for prequalification, out of 23 Respondents. Metropolitan entered into agreements with Jacobs and URS to provide services on various projects throughout Metropolitan. Under the agreement terms, Jacobs was required to provide tunnel design Engineering services related to the repair and rehabilitation of the Colorado River Aqueduct Iron Mountain Tunnel, and San Jacinto Tunnel East entrance adit. The Jacobs agreement was effective from June 1, 2011 through May 31, 2014 and was amended twice to include final design and construction support services. These amendments increased the maximum amount payable from $150,000 to $575,000. As of January 31, 2014, payments to Jacobs totaled $358,325. Under the agreement terms, URS was contracted to provide on-call geotechnical consulting services throughout Metropolitan s distribution system and service areas. The URS agreement was effective from February 1, 2011 through January 31, 2014, with a maximum amount payable of $240,000 per contract year. As of January 31, 2014, payments to URS totaled $445,097. Opinion In our opinion, the accounting and administrative procedures over the consulting agreements with ABSG, Jacobs, and URS include those practices usually necessary to provide for a generally satisfactory internal control structure. The degree of compliance with such policies and procedures provided effective controls for the period March 2010 through January Comments and Recommendations REVIEW AND APPROVAL Review and approval controls are designed to verify billing accuracies for goods and services, provide assurance as to the propriety of transactions, and ensure that follow-up procedures exist for exception processing. The reviewer or approver should review invoiced items for propriety, and agree them to source documentation for accuracy. We reviewed 19 invoices totaling $375,728 paid from May 2010 through January These selections consisted of eight ABSG invoices totaling $82,738, six Jacobs invoices totaling $116,460, and five URS invoices totaling $176,530. Our review revealed: 1. ABSG: a. Consultant payment of $10,082 on one invoice was incorrectly charged to the Diemer Filter Building Seismic Upgrades Project , rather than to the Diemer Administration Building Seismic Upgrades Project Jacobs: a. Labor charges of $5,544 on one invoice were for a Jacobs employee not identified in the Fee Schedule or Task Order. This is in contrast to agreement Section 7c, which states that Metropolitan will only pay Consultant s expenses to the extent allowable expenses are identified in this agreement, or on a signed and approved Task Order. It should be noted that the agreement administrator had approved the addition of the Jacobs employee via .

5 Page 5 b. Labor charges of $742 on one invoice were incurred nine days prior to the July 29, 2011 Task Order approval date. 3. URS: a. Labor charges were billed for a URS employee at the Engineer rate of $82, rather than at the Intern rate of $39. This resulted in an overbilling to Metropolitan of $387. b. Labor charges totaling $30,643 were billed on five invoices for ten URS employees not identified on the Fee Schedule or Task Order. This is in contrast to agreement Section 7c, which states that Metropolitan will only pay Consultant s expenses to the extent allowable expenses are identified in this Agreement, or on a signed and approved Task Order. It should be noted that the agreement administrator gave URS approval to assign additional employees to the project via . c. Labor charges of $9,520 on one invoice were incurred three months prior to the October 5, 2012 Task Order approval date. We recommend the agreement administrators resolve the noted overbillings and inconsistencies. COMPLIANCE WITH TERMS AND CONDITIONS OF THE AGREEMENTS Compliance with contractual requirements is necessary to ensure accurate accounting records, proper supporting details, and adequate controls over administration of the agreements. Furthermore, compliance with contract terms and conditions ensure that parties fully discharge their duties and obligations, and exercise their legal rights associated with the agreements. Our review of 19 invoices totaling $375,728 (eight ABSG, six Jacobs, and five URS) revealed: 1. ABSG: a. Time records supporting labor charges totaling $81,400 on all eight invoices selected for testing were not provided promptly by ABSG when requested. This is in contrast to the agreement which requires ABSG maintain all supporting documentation for its billings to Metropolitan. It should be noted that ABSG provided timesheets supporting billed labor charges, subsequent to our testing. 2. URS: a. Five invoices tested did not identify the beginning date of the billing period, as required by the Billing and Payment Section of the agreement. b. One of five invoices tested did not include the maximum amount payable and total amount previously invoiced, as required by the Billing and Payment Section of the agreement. In addition, 12 of 16 invoices tested (eight ABSG, two Jacobs, and two URS) were paid between four to 46 days, after the due date. This is in contrast to the Billing and Payment Section of the agreements that requires payment within 30 or 45 days, after invoice receipt

6 Page 6 We recommend management remind agreement administrators of the need for compliance with the terms and conditions of the agreements, and to conduct periodic reviews to ensure compliance. Quarterly Board Reports Review Scope and Purpose of Review We reviewed the quarterly reports for consulting and routine service contracts for quarter ending March 31, 2014 issued by the Business Technology Group. This review included the Quarterly Professional Services Agreement (Professional) Report and the Contracts for Equipment, Materials, Supplies, and Routine Services of $250,000 or Above (Contracts) Report. The purpose of this review was to gain reasonable assurance that information included in these quarterly reports is accurate, complete, and in compliance with the Administrative Code. Quarterly Professional Services Agreements Report Background Administrative Code Section 2720(a)(2) requires the General Manager report to the Engineering and Operations Committee on the employment of any professional and technical consultant, the extension of any professional and technical consulting agreement, and on the Exercise of Authority under Sections 8121(c) and 8122(h) during the preceding calendar quarter. Administrative Code 2720(a)(2) also requires the Professional Report indicate when consultant is a former Metropolitan employee. Further, Administrative Code Sections require the General Counsel, General Auditor, and Ethics Officer report quarterly to their respective committee concerning any expert or professional service agreements executed pursuant to their authority under the Administrative Code. Finally, the Professional Report is prepared on a quarterly basis to comply with these Administrative Code requirements and identify those contracts administered by the General Manager, General Counsel, General Auditor, and Ethics Officer. During the quarter ending March 31, 2014, the Professional Report disclosed that $37.8 million was paid for professional services. We compared amounts expended on professional services during this quarter against prior quarter amounts, and noted an increase of $13 million. It should be noted that the totals reported under the General Counsel s authority exclude payments related to the San Diego County Water Authority litigation, which is accounted for under the Self-Insurance Retention Fund. General Manager General Counsel General Auditor Ethics Officer Contract Totals $37,160,321 $255,552 $299,168 $38,844 Active Agreements * 2 3 Agreements Terminated *Agreements with transactions during the current fiscal year. Testing Procedures Performed Our procedures included a cursory review of the reasonableness of professional service expenditures, and consultants with multiple active agreements to determine whether an agreement was split into smaller contract amounts to circumvent established approval limits. We also evaluated whether statistics in the Professional Report were adequately supported. Finally, we assessed the board reporting timeliness.

7 Page 7 Testing results Our review did not reveal any agreements that appeared to be unreasonable or split to override established approval limits. In addition, our review did not reveal any material differences between reported amounts and supporting documentation. We also noted the board report was issued 54 days, after the quarter-end. Contracts for Equipment, Materials, Supplies and Routine Services of $250,000 or Above Report Background Administrative Code Section 2720(b)(2) allows the execution of any contract authorized under Section 8122(g)(2), Contracts for Equipment, Materials, Supplies, and Routine Services for purchasing certain goods and services. The General Manager may execute contracts for the purchase of materials, supplies, other consumable items such as fuels, water treatment chemicals, materials for construction projects and other bulk items, and for routine services such as waste disposal and maintenance services which are generally identified in the budget regardless of dollar value, provided that sufficient funds are available within the adopted budget for such materials, supplies, and routine services. The Contracts for Equipment, Materials, Supplies, and Routine Services of $250,000 or Above (Contracts) Report is prepared on a quarterly basis to comply with these Administrative Code requirements. During the quarter ending March 31, 2014, the Contracts Report disclosed ten contracts that fit these criteria. It is noted that the total maximum amount payable for these contracts was $20.1 million. Five of these contracts were awarded as a result of competitive bidding, and five were sole source contracts authorized under Administrative Code Section Testing Procedures Performed Our procedures included a cursory review of the reasonableness of expenditures. We also verified that all contracts of $250,000 or more for the specified items were included in the Contracts Report and adequately supported. Further, we evaluated the process to determine whether the best market rate was obtained for sole source agreements. Finally, we assessed the timeliness of board reporting. Testing results Our review did not reveal any discrepancies between the number of contracts and amounts shown in the Contracts Report and supporting documentation. However, we noted that the Contracts Report was presented to the Board on Tuesday, June 10, 2014, or 70 days after the quarter ended. Further, we noted that policies and procedures for competitive bidding, cooperative agreements, and awarding sole source agreements are in place. It should be noted that we did not conduct detailed tests on the contract pricing competitiveness, as this was outside our scope parameters.

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