Internal Audit Report. Non-Revenue Vehicle Program Audit

Transcription

1 Internal Audit Report Report Number: Report Date: March 6, 2018

2 Executive Summary Audit Report No.: March 6, 2018 WE AUDITED the Non- Revenue Vehicle (NRV) program to assess the controls in place over inventory, operating costs, and utilization. WHAT DID WE FIND? The agency maintains a fleet of non-revenue vehicles (NRVs), including sedans, pickups, etc. for short duration, intraday transportation needs. The Operations Department under Policy 7 is solely responsible for the lifecycle of the NRVs from acquisition to disposal. The agency utilizes Washington State Department of Enterprise Services Contract to purchase vehicles and dispose surplus vehicles through auctions. Each year, a cost analysis is prepared to identify a replacement need for vehicles older than 10 years or with 100,000+ miles with more fuel-efficient vehicles. AUDIT OBJECTIVE was to determine whether : The agency has the effective controls over nonrevenue vehicles in the following areas: o Inventory o Operating costs o Utilization The audit examined management controls in place as of September An efficient use of a NRV is currently defined as follows: weekly vehicle use of four or more days average monthly mileage in excess of 900 miles Operating costs mainly include fuel, parts, and scheduled maintenance. The agency expended ~$277K in 2016 and ~$202K as of September 2017 in operating costs. Fuel accounts for the majority (approx. 68%) of the total operating costs. The audit concluded that the agency has reasonable controls over NRV inventory. However, the controls related to NRV utilization and operating costs are not effective. Jack Hutchinson, CPA, CIA, CISA Internal Audit Director

3 Table of Contents Executive Summary... i Background... 1 Audit Objectives... 2 Scope and Methodology... 2 Conclusion... 3 Findings and Recommendations Prior Audit Issues Related to Evaluating Vehicle Utilization and Monitoring Fuel Cards Usage Have Not Been Addressed.... 4

4 Background The agency maintains a fleet of non-revenue vehicles (NRV), including sedans, pickups, passenger vans and specialty vehicles. As of September 2017, there were 204 non-revenue vehicle, as follows: Central Link Operations Fleet Pool Operations DECM Other Departments Total Vehicle Specialty Truck Equipment Total Source: Fleetcommander-online agency fleet management system Agency Policy 7 provides guidance and defines requirements for all aspects of the non-revenue vehicle program. Under the Policy, the Operations Department is solely responsible for the lifecycle of the NRVs from acquisition to disposal. The agency utilizes Washington State Department of Enterprise Services Contract to purchase vehicles and dispose surplus vehicles through auctions. Each year, the Operations Department prepares a cost analysis to identify a replacement need for vehicles older than 10 years or with 100,000+ miles with more fuel-efficient vehicles. For the period of January 2016 through September 2017, the agency acquired and disposed 26 and 23 vehicles, respectively. The Operations Department manages the uses of vehicles using Fleetcommander, an online fleet management system. An efficient use of a NRV is currently defined as 4+ days per week use or average monthly mileage in excess of 900 miles. Operating costs mainly include fuel, parts, and scheduled maintenance. The agency expended ~$277K in 2016 and ~$202K as of September 2017 in operating costs. Fuel accounts for the majority (approx. 68%) of the total operating costs. The graph below describes utilization and monthly operation costs for the audit period. NRV Monthly Miles and Other Costs* $20,000 $15,000 $10,000 $5,000 $- 80,000 60,000 40,000 20,000 - Other Costs* Monthly Miles Source: Non-revenue vehicle credit cards statements. *Includes all but fuel costs. 1

5 Audit Objectives To determine whether the agency has effective controls over non-revenue vehicles to ensure in the following areas: o Complete and Accurate Inventory o Appropriate and Reasonable Operating costs o Appropriate Fleet size at an expected Utilization rate Scope and Methodology We conducted this performance audit in accordance with Generally Accepted Government Auditing Standards and 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. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We gained an understanding of the non-revenue vehicle program at the agency and department/division level through data analyses, documentation reviews, and personnel interviews. We identified risks in the program and assessed management controls in place to mitigate those risks. Based on the assessment of management control effectiveness, we determined to focus on non-revenue vehicle inventory, operating costs, and utilization for the period January September To determine whether the agency has effective controls over non-revenue vehicles inventory, operating costs, and utilization, we performed the following procedures: 1. There were 204 non-revenue vehicles as of September 30, We selected 80 (or 40%) vehicles and conducted the following: a. reconciled with the agency enterprise asset management system to ensure all vehicles are accounted for consistently across the asset systems b. performed physical observation and inventory counting to ensure the existence of assets and the completeness of asset records c. reviewed disposal for timeliness and complete accounting 2. We obtained the mileage information from fuel credit card statements and the agency NRV management system for the period January 2017 through September In addition, we obtained Union Station parking garage access information for the same period. Based on the combined information, we conducted the following: a. calculated cost per mile and miles per gallon for reasonableness b. analyzed vehicle uses to determine a rate of utilization against the following requirements: 4 or more days of use per week average monthly mileage in excess of 900 miles c. analyzed overnight uses for reasonableness in compliance with the policy d. verified if the system had valid driver s license information 2

6 3. The agency expended approximately $479K in operating costs for the audit period. We selected ~$370K (or 77% ) in various items and tested for the following: Conclusion a. reviewed purchases for appropriateness and reasonableness b. reviewed maintenance frequency for reasonableness The agency has reasonable controls over NRV inventory. However, the controls related to NRV utilization and operating costs are not effective. See Finding #1. 3

7 Findings and Recommendations 1. Prior Audit Issues Related to Evaluating Vehicle Utilization and Monitoring Fuel Cards Usage Have Not Been Addressed. Internal Audit previously conducted an audit of the Non-Revenue Vehicle (NRV) program and reported the result of one finding in June The finding noted weaknesses in management monitoring controls over vehicle usage. The audit recommended a number of control improvements, with which management concurred. Internal Audit subsequently performed a follow-up on the 2013 audit to determine whether the weaknesses had been addressed or in the process of being addressed. The follow-up concluded in April 2015 that the prior issue had not been effectively addressed. Additional recommendations were suggested for improvement, and management concurred to continue improvement efforts. The current audit noted two finding issues of the prior audits that remain unresolved: 1) inadequate monitoring of vehicle utilization and 2) inadequate monitoring of NRV fuel card purchases. Inadequate Monitoring of Vehicle Utilization I. Assigned Vehicles and Fleet Pool In efforts to right-size a fleet of vehicles for business use, management has established the following set of utilization criteria 1 as a baseline economic justification: weekly vehicle use of four or more days average monthly mileage in excess of 900 miles Continuous monitoring of vehicle usage at regular intervals against the criteria helps to maintain an appropriate fleet size at an expected utilization rate. Moreover, regular monitoring would prevent unnecessary vehicle acquisitions and avoid inventory/operating costs for less than optimally utilized vehicles. Following the two prior audits, management has implemented a new procedure whereby per-vehicle mileage information is reviewed monthly and annually to determine utilization. The design of this control appears inadequate as it only considers mileage driven. While mileage is the most commonly used determinant of vehicle utilization, other information such as frequency of use and per-trip mileage can be beneficial in assessing the overall fleet utilization. Further, it is not clear to what extent the information from the monthly/annual reviews was used to improve the program (e.g., in/decreasing the fleet size). The audit noted no specific program improvement steps taken as a direct result of the monthly/annual reviews. Tests to determine the control effectiveness were conducted based on the following information for the period January 2017 through September 2017: Ins/Outs of NRVs as recorded by Union Station Parking Garage Intraday uses based on self-reported mileage information from Fleetcommander 1 Department/Division Assignment Request form specifies requirements for assigned vehicles, but there are no such requirements for fleet pool. In the absence, the assigned vehicle requirements are used as criteria for fleet pool for the audit. 4

8 Average monthly mileage driven based on self-reported mileage information from fuel cards The following test result indicates that the current management control is not effective. Use Frequency Requirement Number of Weeks Used 4+ per week Assigned NRV Fleet Pool 5 Avg. Miles Driven per Month Avg. Monthly Mileage Assigned NRV Fleet Pool Total Total According to the test result, assigned and pool vehicles as a whole are underutilized. Overall, only 13 vehicles (i.e., the last row in the above tables) of 72 NRVs met both the use frequency and mileage utilization requirements. 18 vehicles (i.e., the first row in the above tables) are rarely used. Management added seven new vehicles to the fleet during Of the seven vehicles, only three met the utilization requirements during the period examined. II. Central Link Operations/Maintenance Fleet King County personnel operates the vehicles assigned to Central Link Operations and Maintenance under its own non-revenue vehicles policy. The agreement with the county stipulates financial responsibilities for the agency but does not include specific utilization responsibilities for either party. Notwithstanding absent requirements, management has a due diligence duty to ensure that agency assets are used responsibly. The agency does not have formal procedures to monitor regularly the utilization of vehicles assigned to King County personnel. Utilization information is not readily available and shared with agency staff, making monitoring unnecessarily difficult. During the audit, utilization information was not made available to allow meaningful analyses. Inadequate Monitoring of NRV Fuel Card Purchases The NRV program utilizes credit cards for NRV related purchases such as fuel, car wash, oil change, etc. Each NRV is assigned a card to facilitate accounting of purchases and monitoring for irregular activities. To prevent inappropriate purchases, management has implemented certain restrictions on credit cards. Currently, the use of the NRV cards is limited to automotive businesses. Management reviews the monthly credit card statement to ensure purchasing items are business related and appropriate. The statement includes an adequate amount of information

9 (e.g., NRV number, item description, etc.) on purchases for the review to be effective. However, the audit noted the management review although performed - was not effective, as evidenced by the following exceptions: Cards Assigned to King County Light Rail Operations 7 vehicles purchasing fuel multiple times per day for $1,289 1 credit card used to purchase fuel for multiple vehicles for $510 Given each vehicle has its own assigned card, there should not be instances of comingled use. If a comingled use is unavoidable, the management review should detect and comment on the transaction to prevent further examination as a potentially inappropriate use. The audit did not note such comments in the review documentation. Additionally, no information from Central Link Operations/Maintenance was available to explain the purchases. Card Assigned to the Program Staff 6 items for $ 233 from non-automotive business. The previously mentioned restrictions on non-automotive purchases should have prevented these purchases. The audit found that the restriction was removed to allow the purchases. Inadequate reviews of the credit card statement and a lack of segregation of duties among program staff contributed to the questionable purchases. Recommendations: We recommend the NRV program: Strengthen fleet utilization analysis procedures to facilitate buy/surplus decisions Strengthen the monthly review of operating costs process. The following specific procedures are suggested for management consideration: Define minimum vehicle utilization requirements for each pool of vehicles. The requirements should be revisited at regular intervals for necessary adjustments. Vehicle utilization should be analyzed at least quarterly to establish trends for fleet expansion or reduction. The analysis should include usage turnover rates to identify maximum required fleet availability. Institutionalize vehicle buy decisions by requiring a utilization analysis of existing vehicles for each acquisition request. Establish a process for data and information exchange at a reasonable interval with King County to facilitate utilization analysis of vehicles assigned to King County for Light Rail Operations/Maintenance. Provide training to program staff to ensure timely discovery and mitigation of improper purchases. Implement the segregation of duties such that the incompatible responsibilities of the card issuer, the card user, the card transaction reviewer, and the card payment approver are not concentrated in one or two individuals. The separation helps prevent attempts to issue ghost cards, conceal inappropriate purchases, etc. 6

10 Management Response: These audit findings are being reviewed and procedures developed which will be included in draft policy, procedures and Fleet Management Plans. Audit recommendations will be considered for adoption or adaptation in these documents. Vehicle Utilization: Management concurs that this audit assessment based on the governance criteria cited for utilization for all non-revenue vehicles does not yield high conformance, though the actual numbers provided in that assessment are believed to have some potential errors due to reservations longer than three days. Management recognizes that the Policy and Procedures currently governing NRV utilization must be updated and published in order to meet the current utilization criteria leveraged in practice to meet the Agency s need for vehicle availability, consider varied vehicle types and unique demands of specialty vehicles for a very diversified vehicle fleet. These policy and procedures are in draft and will leverage the pending Fleet Management Plan to inform usage frequency, mileage, run-hour and/or other criteria which define utilization criteria. These criteria will ensure responsible use of tax payer funds, a fleet in a State of Good Repair as well as provide for flexibility in meeting business needs of changing Agency demands. Inadequate monitoring of NRV fuel card purchases: Suspect charges noted as instances of fuel card purchase override are being independently investigated by appropriate ST staff. Management concurs that an appropriate segregation of duties and improved levels of invoice review are appropriate based on these findings. NRV Fleet has already adopted an administrative procedure prohibiting requestor override for fuel card purchases. Beginning in 2017 the NRV Fleet administration employed a requirement where actual purchase receipt backup is required for each invoice approval to ensure charges made are appropriate. In addition, NRV Fleet staff will work with the fuel card vendor to address deficiencies in transaction descriptions that inhibit effective review of transactions. King County light rail monitoring: The King County light rail assigned vehicles are governed under the existing Intergovernmental Agreement (IGA) with King County. The IGA specifies that King County will manage the fleet in accordance with the King County policy. Each year, the King County Rail Manager certifies that the fleet is being managed in accordance with the King County policy. However, the IGA does not specify detailed utilization monitoring and clear criteria for oversight. As the Agency negotiates a new IGA with King County, changes to clarify roles and responsibilities will be incorporated as appropriate. Management concurs that this audit assessment reveals gaps found in KCLR fuel card purchases which allow comingled use and greater controls should be put in place to restrict this. The cited purchases are being investigated. Administrative controls should be employed to ensure appropriate authorization and/or acceptable alternate processes are established and adhered to. 7