The City's Municipal Utilities Department maintains an inventory of materials and supplies which are needed to operate facilities. The value of that inventory as of June 30, 1996 was approximately $1,200,000. Due to work our office had done in coordination with external auditors and a request for assistance, we determined a need to audit storekeeping operations at Municipal Utilities.

AUDIT PROCESS

We interviewed employees to gain a basic understanding of inventory procedures. On-site observations were made to confirm our understanding of procedures. We made test counts that were compared to data in the automated system. We also analyzed some of the information in the automated system. We conducted the audit in accordance with Generally Accepted Government Auditing Standards.

AUDIT RESULTS

Based on the results of our audit procedures, we have concluded that improvements are needed to provide adequate safeguards against loss, unauthorized use or misappropriation of Municipal Utilities inventory. We discussed the results of our work with management. Action plans have been developed with scheduled implementation dates through January 1, 1998.

As part of our planned follow-up activities, Auditing will conduct follow-up reviews, as necessary, to verify corrective action.

Additional information about our audit and audit results can be found in the following INTERNAL AUDIT REPORT

ORIGINAL SIGNED BY:

F. MICHAEL TAYLOR
CITY AUDITOR

INTERNAL AUDIT REPORT
MUNICIPAL UTILITIES STOREKEEPING

We have completed an audit of Municipal Utilities storekeeping operations. This work was not part of our original schedule, however, we modified our plan to include this work because earlier work with the City's external auditors led us to believe that improvement opportunities did exist in storekeeping operations at the Municipal Utilities Department (MUD). We performed our audit in accordance with Generally Accepted Government Auditing Standards.

The City operates two separate warehouse operations. One is Central Stores which supplies items to all City departments. The second is MUD Stores which supports operations of the Municipal Utilities Department. These two separate operations use a single automated inventory system supplied by HTE, Inc.

MUD Stores is staffed by a supervisor and two warehouse assistants who work staggered shifts between 7:00 a.m. and 4:00 p.m. weekdays. For after hours emergencies, the warehouse is accessible to a limited number of additional employees.

Nearly 3,500 different items are maintained in inventory. The June 30, 1996 value of the MUD Stores inventory was approximately $1,200,000.

Our purpose was to identify areas where the system of internal control could be strengthened and operational efficiency could be improved.

Our review included processes, transactions and results of transactions related to the June 30, 1996 inventory of the Municipal Utilities Department. Our scope did not include an evaluation of the automated inventory system, however, a number of our findings and recommendations relate to the reliability and accuracy of data and information maintained in the automated system.

We interviewed employees to gain a basic understanding of inventory procedures. On-site observations were made to confirm our understanding of procedures. We made test counts that were compared to data in the automated system. We also analyzed some of the information in the automated system.

Based on the results of our review of MUD Stores operations, it is our opinion that improvements are needed to provide adequate safeguards against loss, unauthorized use or misappropriation of City resources. Opportunities also exist to improve operational efficiency.

Management has developed plans to address audit findings. These improvements have scheduled implementation dates through January 1, 1998. Below are some of the areas where improvements are planned along with management's planned action.

ACCOUNTABILITY FOR INVENTORY

Differences between a physical count of inventory and the stock level in the electronic system occur, but accurate recording and follow-up does not take place. Operational changes will highlight inventory adjustments for management review and follow-up.

Employees are not required to sign for goods when they are removed from inventory. Management is improving accountability for inventory transactions to better document the removal of goods from inventory.

STOCK LEVELS

A number of items sampled are ordered frequently and in small quantities. Higher than necessary processing costs occur. Management is undertaking an analysis of all inventory items to identify stock that can be ordered more economically. Plans are also being made to have vendors deliver orders instead of using City staff.

EFFICIENCY

Municipal Utilities stocks many items that are used only by their unique operations in the City. They also stock some commonly used items. However, crews from Municipal Utilities sometimes have to stop at Central Stores to pick up items not stocked at Municipal Utilities. Crews lose time by making this extra trip. Management will be examining usage to stock needs.

In comparing prices paid for goods stocked by both Municipal Utilities and Central Stores, we found that in some cases Municipal Utilities paid more for the same goods. Management is looking to cooperative purchasing between Municipal Utilities and Central Stores to be more cost effective and to improve efficiency.

As part of our planned follow-up activities, Auditing will conduct follow-up reviews, as necessary, to verify corrective action.

ORIGINAL SIGNED BY: