10-28-08 corp yd pos audit update

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Office of the City Manager INFORMATION CALENDAR October 28, 2008 To: Honorable Mayor and Members of the City Council From: Phil Kamlarz, City Manager Submitted by: Claudette Ford, Director, Public Works Subject: Audit Update: Purchase Order Audit – Select Public Works Divisions at the Corporation Yard (CF12-05) INTRODUCTION The City Auditor conducted a performance audit of purchases made using purchase orders (POs) during FY 2004 in the Equipment Maintenance and Streets & Utilities Divisions of Public Works, which are located at the City’s Corporation Yard. The audit was conducted to determine whether purchasing and payment activities in these Divisions of Public Works were in compliance with written policies and procedures, and had an adequate internal control structure. The Auditor’s report was submitted to Council on March 15, 2005. The full audit, including the text of all findings and recommendations, can be found on the City’s website at: http://www.cityofberkeley.info/uploadedFiles/Auditor/Level_3_-_General/PurchasingFinalRpt71.pdf. An update on the recommendations was provided to the Council on December 6, 2005, and this audit was also included as part of the Citywide Response to Outstanding Audit Recommendations, submitted to Council on May 16, 2006. The original audit report contains 23 audit recommendations, and three were not fully implemented before now. Two outstanding recommendations are the responsibility of the Finance Department ...
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Office of the City Manager
2180 Milvia Street, Berkeley, CA 94704 ● Tel: (510) 981-7000 ● TDD: (510) 981-6903 ● Fax: (510) 981-7099
E-Mail:
manager@ci.berkeley.ca.us
Website:
http://www.ci.berkeley.ca.us/manager
INFORMATION CALENDAR
October 28, 2008
To:
Honorable Mayor and Members of the City Council
From:
Phil Kamlarz, City Manager
Submitted by: Claudette Ford, Director, Public Works
Subject:
Audit Update: Purchase Order Audit – Select Public Works Divisions at the
Corporation Yard (CF12-05)
INTRODUCTION
The City Auditor conducted a performance audit of purchases made using purchase
orders (POs) during FY 2004 in the Equipment Maintenance and Streets & Utilities
Divisions of Public Works, which are located at the City’s Corporation Yard. The audit
was conducted to determine whether purchasing and payment activities in these
Divisions of Public Works were in compliance with written policies and procedures, and
had an adequate internal control structure. The Auditor’s report was submitted to
Council on March 15, 2005.
The full audit, including the text of all findings and recommendations, can be found on
the City’s website at:
http://www.cityofberkeley.info/uploadedFiles/Auditor/Level_3_-
_General/PurchasingFinalRpt71.pdf
. An update on the recommendations was provided
to the Council on December 6, 2005, and this audit was also included as part of the
Citywide Response to Outstanding Audit Recommendations, submitted to Council on
May 16, 2006. The original audit report contains 23 audit recommendations, and three
were not fully implemented before now. Two outstanding recommendations are the
responsibility of the Finance Department, and they are both now fully implemented. The
one recommendation for Public Works has alternatives partially implemented, and the
next status report on further implementation will come to Council in October 2009.
CURRENT SITUATION AND ITS EFFECTS
Finance: The two outstanding recommendations for Finance are both from Finding 1:
The City’s Purchasing Manual Is Very Outdated.
Recommendation 1.1: Fully update, finalize, and distribute the Purchasing Manual to all
departments within six months of the date this audit report is presented to City Council.
Establish and implement policies and procedures in Finance for the updating of the
Purchasing Manual at least annually.
Audit Update: Purchase Order Audit – Select Public Works Divisions
INFORMATION CALENDAR
at the Corporation Yard (CF12-05)
October 28, 2008
Page 2
City Manager Response: Implemented. The City Attorney completed review of the draft
updated Purchasing Manual, which has been in Groupware since January 2005. The
final version of the Purchasing Manual is complete and is posted to Groupware.
Recommendation 1.3: Update the City’s on-line contract manual to incorporate the
definition for a service purchase as established in recommendation 1.2. Also update the
on-line contract manual to include procedural changes associated with the new service
purchase definition
City Manager Response: Implemented. Contracts Online was comprehensively revised,
with new forms and an entire subsection for Professional Services Contracts, in 2007.
Contracts Online will be revised on an on-going basis, as the need arises.
Public Works: The outstanding recommendation for Public Works is for Finding 4: No
Reconciliation is Performed to Identify Parts Purchases that are Neither on Hand in
Inventory Nor Recorded in the Fleet Management Module as Used for a Repair.
Recommendation 4.0: At least quarterly, parts and outside service expenditures
recorded in the FUND$ general ledger should be reconciled to the cost of these parts
and services charged to jobs in the Fleet Management Module, and the change in the
value of the in-house parts inventory. An employee who does not have significant
involvement with the activity being reconciled should perform the reconciliation and this
reconciliation should be documented in writing and retained. The cause of significant
differences should be researched, identified, and corrected. This procedure should be
part of the divisions’ written policies and procedures.
City Manager Response: Alternatives Partially Implemented. A Parts Technician was
hired in 2005 and has been working with the Equipment Maintenance parts inventory
since then. After several attempts and continued problems, the FUND$ module for Fleet
Management is not being used to track parts with the Purchasing & Inventory module.
In addition, the Electrical and Janitorial Inventory modules were closed out by Public
Works as of May 2008, and use of all other Inventory modules in the FUND$ system
has been discontinued. An annual inventory of all parts on hand is conducted to
determine the value of parts on hand for year-end closing. While written inventory and
reconciliation policies are not currently in place, these procedures are in development.
Public Works and IT staff will review available inventory and reconciliation software to
determine if any such applications meet our needs.
BACKGROUND
Citywide Procurement and Contract responsibilities are in Finance – General Services.
Revising and updating the City’s Purchasing Manual has been a major task. The
Contract Administrator was hired in 2006, and the position was subsequently vacated
and filled by the present incumbent in 2007. Extensive improvements have been made
to the content and materials in Contracts Online, published on the City’s intranet.
Audit Update: Purchase Order Audit – Select Public Works Divisions
INFORMATION CALENDAR
at the Corporation Yard (CF12-05)
October 28, 2008
Page 3
Public Works Divisions for Equipment Maintenance, and Streets and Utilities are located
at the City’s Corporation Yard. Equipment Maintenance also has a facility at the Solid
Waste Management Transfer Station. Equipment Maintenance is responsible for the
repair, maintenance and acquisition of City of Berkeley fleet vehicles and heavy
equipment; Streets and Utilities is responsible for maintenance and cleanliness of the
City’s roads and sewer systems.
POSSIBLE FUTURE ACTION
Public Works and Information Technology staff will continue to investigate and test
software applications for possible solutions to assist with inventory and reconciliation.
Public Works is also considering selection of an outside vendor to serve on-site for the
procurement and distribution of auto parts for Equipment Maintenance. The next status
report on this recommendation will be submitted to Council in October 2009.
FISCAL IMPACTS OF POSSIBLE FUTURE ACTION
The cost of purchasing and implementation of new software is presently unknown.
Fiscal and other impacts from contracting with an outside vendor for auto parts would
have to be explored if this option is given further consideration.
CONTACT PERSON
Andrew Clough, Deputy Director, Public Works, 510-981-6661
Sharon Thygesen, General Services Manager, Finance, 510-981-7329
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