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Date:

October 10, 2014

Date: October 10, 2014  
 

To:

Keith Chapman, Interim Director, Department of Public Works

City of Hartford Department of Public Works Equipment Services Division Accounts and Operations Audit Report 1505

From: H. Patrick Campbell, Chief Auditor

Tele:

860.757.9951

HPC

 

I. Executive Summary

In accordance with our audit plan for the fiscal year ending June 30, 2015, we completed an examination in September 2014 of the City of Hartford Department of Public Works Equipment Services Division Accounts and Operations. The purpose of the examination was to evaluate and test internal accounting and operating controls, the accuracy and propriety of transactions processed, the degree of compliance with established operating policy and procedures, and to recommend improvements where required. The results of our examination were reviewed with K. Chapman, Interim Director, Department of Public Works; M. Fontaine, Assistant Superintendent, Department of Public Works; and, other responsible members of operating management. The summary, which follows, includes exceptions disclosed and recommended operating improvements. Management has also noted actions taken or planned including time periods to resolve each finding and/or recommendation in this report. We thank Department of Public Works management and staff for their cooperation and courtesies extended to us during our audit.

Background

The Equipment Services Division (ESD) is responsible for providing maintenance and repair to all of the City of Hartford’s (City’s) passenger, heavy equipment, and ancillary equipment fleet not including those managed separately by the Fire Department and Hartford Public Schools. With a staff of 14 employees, ESD is responsible for approximately 810 vehicles and other pieces of equipment with combined acquisition costs of more than $29.2 million. ESD uses the MUNIS Financial Management System (MUNIS) to manage the fleet, its maintenance requirements and parts inventories. ESD is also responsible for the City fueling operations which are managed through the FuelMaster System, a commercial software package. K. Chapman was appointed to the position of Interim Director in September 2013. M. Fontaine was hired as the Heavy Equipment Supervisor in March 2012 and promoted to the position of Assistant Superintendent in January 2013. For the fiscal year ending June 30, 2014, ESD’s expenses totaled approximately $4.1 million.

General

In general, we found that policies, procedures and controls relating to the parts inventory, fueling operations and work order and auction processes were not documented and needed improvement. We also noted that improvements were required over security and access to the MUNIS Inventory

City of Hartford Department of Public Works Equipment Services Division Accounts and Operations Audit

module and FuelMaster systems and related policies and procedures. We would also like to note that DPW management took action to address a number of the recommendations in our prior report, however, improvements are still required in various areas as noted in the details of this report.

Scope

The scope of our audit included various tests of operations, activity and transactions performed primarily during fiscal year ending June 30, 2014. The following audit procedures were performed:

Reviews and evaluations of policies, procedures and related internal operating and accounting controls;

Examinations of parts inventory;

Reviews and tests of the process for auctioning surplus vehicles and equipment;

Reviews and tests of work orders and related process; and,

Reviews and tests of FuelMaster transactions.

II. Detail Findings

Parts Inventory

Parts for vehicle and equipment repairs are either purchased to be used for specific immediate repair requirements or to be maintained on hand in stockrooms for future repair needs. ESD uses the Inventory module of MUNIS to account for and control part inventories. At the time of our review, the inventory included over 13,230 parts under 3,809 separate part numbers with a total cost of approximately $357,000. Various tests of 20 parts with a cost of more than $48,500 and reviews of related operations disclosed the following:

1. Policies and procedures relating to the management and oversight of parts purchased for repair work and those maintained in inventory were not documented. We recommend that DPW management document policies and procedures relating to purchased parts and related inventory. This should include, but not be limited to, purchasing levels and limits, control over parts from purchase to use, accounting for the parts in MUNIS and performing periodic physical counts of the inventory on-hand.

2. The cost of one part was incorrectly recorded in MUNIS as $5,180 instead of $5.18. In addition, although the part was used, it was not accounted for as relieved from the Inventory module. As a result, the inventory was overstated by $5,180. ESD management informed us that this was the result of an oversight. We recommend that DPW management take action to ensure that all parts are accounted for properly in the future.

3. Thirteen of the parts with an extended cost of $27,694 were either obsolete or overstocked because they had not been used in 12 to 60 months. As a result of our analysis and discussions with ESD management, we jointly estimated that as much as $100,000, or about 30%, of the

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City of Hartford Department of Public Works Equipment Services Division Accounts and Operations Audit

$357,000 parts inventory was either obsolete or overstocked. We recommend that DPW management take action to identify obsolete and excess inventory and determine the feasibility of either returning the items for refund or credit or selling them outright.

4. All parts did not have unit costs recorded in the MUNIS Inventory module. We noted that 72 part numbers with a total of 261 parts on-hand did not have a unit cost recorded in the Inventory module. Using an average part cost of $26, we estimated that aggregate cost of these parts could total as much as $6,900. This understates the inventory and asset values for financial reporting purposes. We recommend that DPW management take action to record the unit costs in the Inventory for the 72 part numbers noted above and ensure that unit costs are recorded in the inventory for all parts in the future.

5. A physical inventory of parts is performed by ESD periodically. The last physical inventory of parts was performed in September 2013 by a third party vendor. The City paid the vendor $4,950 to perform the physical inventory. While having a third party perform the inventory provides for a more independent review, we recommend that DPW management determine the feasibility and practicality of performing the physical inventory of parts with DPW employees to avoid having to pay for these services. DPW management informed us that they had planned to perform the next physical inventory of parts with City employees and that this would include identifying and addressing as appropriate the disposition of excess and obsolete parts.

6. Physical access to the stockroom and parts inventory was not adequately restricted. We noted that there is nothing to prevent anyone from entering the stockroom and gaining access to parts. While the desk of the Parts Clerk is located adjacent to the stockroom, there is nothing to prevent someone from entering the stockroom unobserved when this individual is away from the desk for any reason. As a result, there are opportunities for parts to either be misappropriated or used and not accounted for without being detected. We recommend that DPW management more adequately restrict access to the stockroom and parts inventory.

Management Response:

Due Date: December 31, 2014 Responsible Person: Keith Chapman, Interim Director, Department of Public Works

We will take action to follow-up on and address the findings and recommendations as noted above.

Work Orders

Various tests of work orders initiated during the fiscal year ended June 30, 2014 and reviews of related operations disclosed the following:

1. We identified a number of work orders with large dollar costs. The top ten work orders we indentified had a total aggregate cost of about $86,895 and ranged in amounts from $5,616 to $12,505. The model years of these vehicles ranged from 2000 to 2012. We also noted that that there were 12 vehicles with aggregate annual work order costs exceeding $10,000. The aggregate costs of the work orders for these 12 vehicles

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City of Hartford Department of Public Works Equipment Services Division Accounts and Operations Audit

ranged from $10,114 to $23,533. The model years for these vehicles ranged from 2000 to 2009. We reviewed these costs with ESD management and were informed that they were reasonable given the type of vehicle, related repair work done and other factors. ESD management also informed us that a cost benefit analysis is performed before significant repairs are undertaken on a vehicle to determine the cost/benefit of repairing or retiring the vehicle or equipment. We noted, however, that related policies and procedures, including appropriate thresholds for repair costs, vehicle model years and other factors involved in making the decision; and the related analyses currently being performed are not documented. We recommend that DPW management take action to develop management reports to identify vehicles and equipment with high aggregate or one-time repair costs; and, document the policies and procedures for determining the cost/benefit of repairing or retiring these vehicles and the related analyses performed to make these decisions in the future. DPW management informed us that there is a Vehicle Replacement Schedule that was previously developed, but not in use that can and will be used to assist in the process for making vehicle repair or replace decisions in the future.

2. There were 169 work orders with costs totaling $50,311 that were not linked in MUNIS to the respective vehicle or piece of equipment. We were informed by ESD management that this was because the Finance Department had not entered these vehicles in the MUNIS Fixed Asset module as requested on a number of occasions. This presents a number of problems including, but not limited to, the following:

a. Repairs and costs cannot be monitored and tracked for these vehicles and equipment.

b. MUNIS cannot be used to perform or meet scheduled maintenance or other repair requirements for these vehicles or equipment.

c. Fixed Assets are not accounted for properly and are understated by more than $1.5 million in MUNIS and the resulting financial statements. The $1.5 million represents the costs associated with 39 of the 73 vehicles. ESD management did not have costs associated with the remaining 34 vehicles.

We referred the 73 vehicles to Finance Department management for follow-up and recording in the MUNIS Fixed Asset module as required. We recommend that DPW work with Finance Department management to ensure that is done in a timely manner and update the work order history for these vehicles accordingly after they have been recorded as required in MUNIS. We also recommend that DPW management work with Finance Department management to determine if it would be appropriate and practical to provide ESD management with the ability to add vehicles and equipment to the MUNIS Fixed Asset module to expedite the process.

Management Response:

Due Date: December 31, 2014 Responsible Person: Leigh Ann Ralls, Acting Director, Finance Department; Keith Chapman, Interim Director, Department of Public Works

DPW management will take action to follow-up on and address the findings and recommendations as noted above.

Historically, when adding vehicles to the fixed asset module in MUNIS, the Finance Department waited to receive the titles as proof of ownership

before entering them into MUNIS.

Going forward, to ease the burden on DPW, Finance will enter the vehicles in a more timely fashion so that

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City of Hartford Department of Public Works Equipment Services Division Accounts and Operations Audit

DPW may better utilize the work order system when maintaining these vehicles.

FuelMaster System Transactions and Activity

Tests of all FuelMaster transactions recorded during the fiscal year ended June 30, 2014 and reviews of related operations disclosed the following:

1. Policies and procedures relating to the management and oversight of the fueling operations and FuelMaster system were not documented and needed improvement.

2. There were no management reports available to identify transactions missing key data or unusual or potentially excessive transactions and

activity.

We noted a number of FuelMaster transactions and/or certain activity that was unusual or questionable and required follow-up and

review.

a. Certain employees were responsible for a relatively significant amount of fuel use. We noted that 19 employees were responsible for using more than 1,000 gallons of fuel each. This included five employees using in excess of 2,000 gallons of fuel and two employees using in excess of 3,000 gallons of fuel. According to ESD management, these individuals would typically use a more significant amount of fuel due to their respective positions. Most of the information for these transactions is manually recorded in the FuelMaster system.

b. Employee identification numbers (IDs) for certain transactions were associated with employees that were terminated before the related transaction dates. We noted transactions for 1,800 gallons of fuel that were associated with employees that had termination dates from one to six years prior to the earliest transaction date of July 1, 2013. Most of these were Hartford Public Schools employees. DPW management informed us that they were unaware that the IDs for terminated employees had not been deactivated in the FuelMaster system because there was no process in place for them to be notified to deactivate the IDs and related access.

c. Certain transactions were associated with active employees that did not appear to be typical fuel users. This included 1,442 gallons of fuel used by 14 HPS teachers, paraprofessionals, tutors and others.

d. The employee ID associated with one transaction for 15.6 gallons of fuel could not be located in MUNIS. The employee ID was most likely entered in error.

e. More than 2,000 gallons of fuel per year associated with each of 25 vehicle IDs including 4,146 gallons of fuel associated with one vehicle ID. According to ESD management, these vehicles are driven by City employees that would typically use a more significant amount of fuel due to their respective positions. In addition, DPW management informed us that the 4,146 gallons of fuel noted above occurred because two vehicles were assigned the same vehicle ID number in error. The information for these transactions is automatically recorded in the FuelMaster system.

f. Weekend activity that occurred during the first five months of fiscal year 2014 which included 96 transactions for 1,307 gallons of fuel

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City of Hartford Department of Public Works Equipment Services Division Accounts and Operations Audit

associated with City or HPS employee IDs. DPW management informed us that this would not necessarily be an issue because certain City and HPS entities can and do operate 24 hours a day seven days a week.

g. Certain transactions without either an employee or vehicle ID recorded. We noted eight transactions for a total of 130.9 gallons of fuel without either an employee or vehicle ID recorded.

We recommend DPW management take action to document policies and procedures relating to the management and oversight of the fueling operations and FuelMaster system. In addition, we recommend that DPW management develop and implement the use of management reports to identify transactions missing key data or potentially unusual or excessive transactions and activity for subsequent follow-up and resolution. We also recommend that DPW management work with the City’s Human Resources Department and HPS Office of Talent Management to identify any FuelMaster IDs associated with terminated employees or those that no longer need access to fuel vehicles. In addition, DPW management should establish a procedure for periodically reviewing FuelMaster IDs to ensure that they are correct and assigned to active employee that need access. We also provided DPW management with documentation to support the unusual transactions noted above for follow-up and resolution.

Management Response:

Due Date: December 31, 2014 Responsible Person: Keith Chapman, Interim Director, Department of Public Works

We will take action to follow-up on and address the findings and recommendations as noted above.

Vehicle and Equipment Auctions and Process

Various tests of 61 vehicles auctioned during calendar year 2014 for a total of $100,987 and reviews of related operations disclosed the following:

1. Policies, procedures and controls relating to the auction process were not documented and needed improvement.

2. Controls were not adequate to ensure that vendor checks from auction proceeds are received, accounted for and deposited in the City’s designated bank account. We noted that the checks were being sent to the DPW employee responsible for vehicles and equipment and the auction process. This results in an inadequate segregation of duties. In many cases, these checks were then being sent to another DPW employee before being forwarded to the Finance Department Revenue Unit for accounting, recording and deposit. Checks should be sent by the vendor directly to the Finance Department Revenue Unit for processing which can then notify DPW that they have been received, deposited and accounted for as required.

3. A review of a summary we obtained of the checks paid by the vendor to the City for auction proceeds disclosed that the proceeds totaling $685 from the auction of four vehicles on April 24, 2014 had not been accounted for in MUNIS or deposited in the designated bank account. We subsequently confirmed with the vendor that these checks had not been cashed. In addition, they could not be located by ESD management.

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City of Hartford Department of Public Works Equipment Services Division Accounts and Operations Audit

The vendor agreed to take immediate action to place stop payments on and reissue these checks to the City.

4. During the period of our review, DPW was using a vendor to provide auction services, that did not go through the standard purchasing vendor selection process. DPW management informed us that they were unaware that this service needed to go through the purchasing selection process. In addition, DPW management indicated that they decided to contract with this vendor because they are used to perform auction services for the State of Connecticut. Finally, DPW management noted that the service provided by this vendor costs less and was better than that of the prior vendor.

5. There is currently no process in place to ensure that all other required City operations are notified that vehicles and equipment have been disposed of through the auction process and accounted for properly. This would include the Finance Department so that the item can be removed from the Fixed Asset Ledger.

6. Because of questions regarding which vendor should be providing the City with auction services, there is currently a backlog of 22 vehicles that are available to be auctioned. Some of these vehicles have been out of service and available to be auctioned since at least June 2014. We estimated that the auction proceeds for these vehicles would total about $5,500.

We recommend DPW management take immediate action to document policies, procedures and controls over the auction process. This should include ensuring that all of the matters noted above are adequately addressed.

Management Response:

Due Date: December 31, 2014 Responsible Person: Keith Chapman, Interim Director, Department of Public Works

We will take action to follow-up on and address the findings and recommendations as noted above.

System Security and Access Controls

ESD uses the MUNIS Inventory module to account for and control its parts inventory. ESD also uses the FuelMaster system to account for and control the use of fuel. Various tests of the system security and access controls over the MUNIS Inventory module and FuelMaster system and reviews of related operations disclosed the following:

1. Policies and procedures relating to security and access to the MUNIS Inventory module and FuelMaster system were not documented and needed some improvement. These procedures should include, but not be limited to, performing periodic reviews to ensure that users only have access to activities and functionality required for them to do their respective jobs.

2. We noted the following relating to the security and access to the MUNIS Inventory module:

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City of Hartford Department of Public Works Equipment Services Division Accounts and Operations Audit

a. The user IDs for 17 former employees that no longer work for the City were still active.

b. The user IDs for nine employees that either no longer work in ESD or require access to the MUNIS Inventory module were still active.

c. There were nine employees that had more than one active user ID that allowed access to the MUNIS Inventory module.

It should be noted that the DPW is not the only Department that uses the MUNIS inventory module and is not solely responsible for related security and access.

3. We noted the following relating to the security and access to the FuelMaster system:

a. There were two active employee user IDs in FuelMaster.

employees were granted or if the access levels were appropriate and only sufficiently necessary for them to do their respective jobs.

b. There is an active Administrator security ID. This is the most powerful security level available and essentially allows the user to perform all functions in the system including granting and updating security and access. It is our understanding there is a generic password for this user ID that is widely known. This presents significant security and access issues and concerns. We believe that this should be addressed immediately. Ideally, this user ID should only be granted to and used by the individual in Metro Hartford Information Services that is responsible for supporting this system.

It was not clear, however, what level of access and capabilities these

We recommend that DPW management develop and implement policies and procedures relating to the security and access to the MUNIS Inventory module and FuelMaster system. These procedures should include performing periodic reviews to ensure that users only have access to activities and functionality required for them to their respective jobs.

Management Response:

Due Date: December 31, 2014 Responsible Person: Keith Chapman, Interim Director, Department of Public Works

We will take action to follow-up on and address the findings and recommendations as noted above.

Other Matters

Our City of Hartford Vehicle Inventory, Assignment and Use Audit Report 1405 dated October 17, 2013 identified a number of matters regarding the management and oversight of the City’s fleet of vehicles. It is our understanding that DPW management has taken action to follow-up on and address many of the findings and recommendation in that report. We recommend that DPW management continue work to ensure that all of the findings and recommendations in this report are resolved as required.

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City of Hartford Department of Public Works Equipment Services Division Accounts and Operations Audit

Management Response:

Due Date: December 31, 2014 Responsible Person: Keith Chapman, Interim Director, Department of Public Works

We will take action to follow-up on and address the recommendation as noted above.

Distribution:

Audit Team:

City Council Members

P. Campbell

Internal Audit Commission Members

J. Caruso

A.

Cloud, City Treasurer

J.

Figueroa, Acting Chief of Staff, Mayor’s Office

D.

Hill, Chief Operating Officer

J.

Mazzuoccolo, Manager, McGladrey and Pullen, LLP

L.

A. Ralls, Acting Director, Finance Department

J.

Sanchez, Director, Department of Management, Budget and Grants

P.

Segarra, Mayor

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