HIGHLANDS COUNTY BOARD OF COUNTY COMMISSIONERS

Transcription

1 HIGHLANDS COUNTY BOARD OF COUNTY COMMISSIONERS ROAD AND BRIDGE FOLLOW-UP INTERNAL AUDIT REPORT NO JUNE 2, 2011 Prepared by: Robert W. Germaine Highlands County Clerk of Courts

2 ROAD AND BRIDGE FOLLOW- UP INTERNAL AUDIT TABLE OF CONTENTS EXECUTIVE SUMMARY Background...1 Statement of Standards...3 Audit Objectives...3 Scope & Methodology...3 Follow-up Audit Conclusion...4 STATUS OF PREVIOUS FINDINGS AND RECOMMENDATIONS Finding 1: Missing Control - There is no process in place to monitor and revise approved project budgets...5 Finding 2: Duplicate payment Invoice totaling $4,300 was double paid...5 Finding 3: Missing Control: No process in place to ensure the purchase of equipment (with a value less than $1,000) is inventoried and tracked...6 Finding 4: Inconsistency in Transportation Trust Fund Activity...8 Opportunity for Improvement 1: Contract management of outsourced road projects by the Engineering Department...10 Opportunity for Improvement 2: Lack of formal written hauling/disposal policy...12 Opportunity for Improvement 3: Inadequate segregation of duties Purchasing and receiving..12 Opportunity for Improvement 4: Equipment breakeven rate...13 Opportunity for Improvement 5: Incorrect supporting documentation for invoice payment...14 AUDIT REPORT APPROVAL...16

3 BACKGROUND As part of the Highlands County Clerk of Courts (Clerk) s 2010 Audit Plan, a follow-up audit was performed to the Road & Bridge Internal Audit released October 29, This audit was authorized, completed, and approved for release under the direction of the Clerk of Courts, Robert W. Germaine. The Road & Bridge Department is responsible for maintenance and repair of the County road and bridge system, which consists of 1 : miles of paved roads miles of unpaved roads 32 bridges Numerous drainage structures, retention ponds, canals, and over 3,000 drainage culverts Mowing of approximately 35,000 acres of county rights-of-ways 2 Maintenance of the County s fleet vehicles and equipment (mechanic shop crew) Operation of the County s 184 acre shell pit and 80 acre marl pit Reconstruction of approximately 5 miles of roads, construction and paving of 3 miles of dirt roads and, resurfacing of approximately 30 miles of roads annually. Operation of the County s Asphalt Plant (funded by the Energy Recovery Fund - 420). Road & Bridge operations are primarily funded by fuel tax revenues and road related infrastructure projects (i.e. fixed capital outlay with a life expectancy of five or more years) are funded via discretionary sales surtax revenues. The Highlands County Board of County Commissioners (Board) has established two (2) special revenue funds to account for these revenues. Transportation Trust Fund (fund 110) Local Government Infrastructure Surtax Fund (fund 151) Transportation Trust Fund (fund 110) The Transportation Trust Fund is utilized to account for state and local gas tax revenues. Per Florida Statutes, counties are authorized to levy up to 12 cents of local option gas taxes in the form of three (3) separate levies. Expenditure of these funds is restricted to transportation-related expenditures as defined by applicable statutes. As of fiscal year ending 2010, the total fund balance for the Transportation Trust Fund was $5.4 million compared to fiscal year ending 2009 of $4.4 million. The $1.0 million increase in fund balance resulted from the difference between revenues collected and expenditures 1. 1 Information was obtained from the Comprehensive Annual Financial Report for Highlands County, available online at: 2 Information was obtained from the Road and Bridge Department Annual Report FY Executive Summary 1

4 Gasoline tax revenues for the past five fiscal years are detailed below 1 : State Gas Taxes Collected Fiscal Year Fifth & sixth-cent $1,787,189 $1,794,553 $1,701,961 $ 1,690,275 $ 1,670,184 Seventh-cent 795, , , , ,065 $2,582,734 $2,576,253 $2,443,651 $ 2,422,575 $ 2,399,249 Local Option Gas Taxes Collected Fiscal Year Sixth-cent local option $3,954,218 $3,897,733 $3,894,863 $2,424,624 $2,396,561 Five-cent local option 535, , ,124 1,567,209 1,463,189 Ninth-cent local option N/A N/A N/A 517, ,840 4,408,987 $4,509,156 $4,370,590 Total Gas Taxes $7,072,431 $6,999,463 $6,852,638 $6,931,731 $6,769,839 Local Government Infrastructure Surtax Fund (fund 151) The Local Government Infrastructure Surtax Fund is utilized to account for an approved one-cent discretionary sales surtax. Florida Statutes (2) provides that the governing authority in each county may levy a discretionary sales surtax upon referendum vote. Generally, the proceeds must be expended to finance, plan, and construct infrastructure; to acquire land for public recreation, conservation, or protection of natural resources; and to finance the closure of local government-owned solid waste landfills that are already closed or are required to close by order of the Department of Environmental Protection. The surtax was approved for continuance during a July 20, 1999 special election. Per the County Referendum, the one-cent sales tax is to be used for Local Governmental Projects, including: Road system upgrade and expansion. Parks and recreations. Lake and waterway improvements. Governmental facilities upgrade, expansion, construction, and acquisition. Municipal improvement projects. Construction or acquisition of satellite offices. As of fiscal year ending 2010, the total fund balance for the Local Government Fund was $23.4 million compared to fiscal year ending 2009 of $23.7 million. The unreserved fund balance increased for $15.6 to $17.2 million. The increase is result of the reduction in encumbrances at the end of the fiscal year 2. 1 Information was obtained from the following: Comprehensive Annual Financial Report for Highlands County, available at: Comprehensive Annual Financial Report for Highlands County, available at: Comprehensive Annual Financial Report for Highlands County, available at: Comprehensive Annual Financial Report for Highlands County, available at: Comprehensive Annual Financial Report for Highlands County, available at: 2 Information was obtained from the Comprehensive Annual Financial Report for Highlands County, available online at: Executive Summary 2

5 STATEMENT OF STANDARDS This audit was conducted in accordance with applicable standards as published in the International Standards for the Professional Practice of Internal Auditing, issued by the Institute of Internal Auditors. We believe that our audit provides a reasonable basis for the conclusions and recommendations presented herein. AUDIT OBJECTIVES The objective of this follow-up audit is to determine the adequacy, effectiveness, and timeliness of actions taken by Board management related to the five (5) opportunities for improvement and four (4) internal control weaknesses identified in the Road and Bridge Internal Audit. The objectives of the original audit were to: Assess areas of risk, internal controls, efficiency, effectiveness and compliance with policies and procedures related to: planning, budgeting, management and billing of projects disposition of fill dirt/spoiled material SCOPE & METHODOLOGY The scope of the follow-up audit includes a review of the internal control weaknesses discovered during the initial Road and Bridge Internal Audit and the procedures which have been implemented to correct those weaknesses. Methodology included discussions with Board staff, observations, a review of current procedures, and inventory testing. The scope of this audit did not include a review of activities performed by the Road & Bridge Maintenance Shop, Mowing Crews, Shell Pit, or Asphalt Plant. Executive Summary 3

6 FOLLOW-UP AUDIT CONCLUSION As reported in the initial Road and Bridge Internal Audit, a total of four (4) Findings attributed to internal control weaknesses were identified and considered significant in nature and an additional five (5) Opportunities for Improvement were noted. Based on our follow-up audit it has been concluded that three (3) findings and recommendations have been fully implemented and one (1) partially implemented. Each of the recommendations related to the five (5) Opportunities for Improvement have been implemented. The finding and recommendation related to Inconsistency in Transportation Trust Fund activity (Finding 4) was conceded partially implemented since the evaluation of the fund activity has only recently begun. Other minor findings, not included in this report, were communicated to Management and/or corrected during the audit process. Responses were received May 6, The Compliance and Internal Audit Department would sincerely like to thank the Road & Bridge Department, County Administration, the Clerk s Accounting Department, and the Clerk s Payables / Receivables Department for their cooperation throughout this audit. Executive Summary 4

7 STATUS OF PREVIOUS FINDINGS AND RECOMMENDATIONS Finding 1: Missing Control - There is no process in place to monitor and revise approved project budgets. Cost estimates for road projects (resurfacing, reconstruction, and dirt road construction) are developed 2-5 years prior to actual initiation of the road project. The Road & Bridge Department budgets a 15% contingency to allow for fluctuations in costs. Once the cost estimate is finalized and approved by the Board, additional funds are not available to apply to the projects. This creates the potential for incomplete funding when work is initiated on the project. Recommendation- Implemented: Project budgets should be monitored on an ongoing basis to ensure fluctuations in resources and industry pricing does not adversely impact the viability of planned and ongoing projects. A process should be developed to revise/amend project budgets as needed. Road & Bridge Department and County Administration Management Response: Management concurs with the finding and the change has been implemented: Road Projects are now being budgeted at the beginning of each fiscal year with current cost estimates. Follow-up Status: The Road and Bridge Department has re-evaluated the project budgeting process and modified the existing process. Project budgets are now monitored ongoing and necessary adjustments are made accordingly. A review of two sampled projects noted ongoing tracking of costs and revisions to project amounts when needed. Follow-up Road & Bridge Department and County Administration Management Response: Management concurs with the Follow-up status. Road and Bridge monitors project budgets and adjusts accordingly. Finding 2: Duplicate Payment Invoice totaling $4,300 was double paid. On June 28, 2006 the Road & Bridge Department entered into an agreement with GS Equipment, Inc. (PO 61968) for the rental of a vibratory roller at a monthly cost of $4, The rental was related to road work performed on the Orange Blossom Estates project (#02102). During our review, it was noted that invoice (for equipment rental during the period of 10/18/06 thru 11/14/06) was paid on two (2) separate PO's. The first payment of $4, was made on 11/7/06 (check #229394) under PO (fund 128 / cost center 7975). The second payment of $4, was made on 11/21/06 (check #229703) under Findings, Recommendations and Management Responses 5

8 PO (fund 110 / cost center 4102). Both payments were on the same invoice: Invoice # , Date 10/24/06, Period 10/18/06 thru 11/14/06, ID# SW , Serial #VSW , Model SW850. Recommendation - Implemented: The Road & Bridge Department, in coordination with the Clerk's Payable/Receivable Department, should review the payments and determine whether a reimbursement should be requested from the vendor. All invoices should be adequately reviewed to ensure that proper payment is made. Road & Bridge Department and County Administration Management Response: Management concurs with the finding and invoices presented for payment are now reviewed by more than one person in the operating department. The vendor was contacted and a credit has been issued. Clerk s Payable/Receivable Department Management Response: The Clerk s Accounts Payables/Receivables Department concurs with the finding. Payments will be more closely monitored to ensure that duplicate payments do not occur. Follow-up Status: The Road & Bridge Department worked in conjunction with the Clerk's Payable/Receivable Department to communicate the above noted error to the vendor. The vendor remitted a refund check for $4,300 and fund 110 was reimbursed. Follow-up Road & Bridge Department and County Administration Management Response: Management concurs with the Follow-up status and the Road and Bridge Department will continue to monitor invoices presented for payment more closely to ensure that duplicate payments do not occur. Follow-up Clerk s Payable/Receivable Department Management Response: All payments continue to be closely monitored to ensure that duplicate payments do not occur. Also, the department has recently initiated a procedure where samples of payable batch invoices and postings are reviewed by the Department Director and/or Manager on a weekly basis. Finding 3: Missing Control No process in place to ensure the purchase of equipment (with a value less than $1,000) is inventoried and tracked. During the course of the audit an impairment to segregation of duties was noted in the purchasing / receiving process (see Opportunity for Improvement 3: Inadequate segregation of duties Purchasing and Findings, Recommendations and Management Responses 6

9 receiving below). Following this discovery and concerns expressed by management, the audit scope was expanded to include a review of Road & Bridge Department purchases. The review included purchases made through the formal procurement process and a sample of Road & Bridge purchasing cards. Purchasing cards of six (6) Road & Bridge employees and all purchase orders for fiscal years (October 1 to May 14 for fiscal year 2009) were reviewed. The review resulted in the identification of several items (i.e. chain saws, binoculars, digital cameras, etc.) which could not be located and numerous items that were not initially identified. Recommendation- Implemented: The Road & Bridge Department should develop a process to ensure county assets are tracked and inventoried on an ongoing basis. A minimum dollar threshold, for the inventory of purchased items, should be established. Items with a purchase value greater than the minimum and less than $1,000 (county assets with a value of $1,000 or greater are tracked and inventoried annually) should be inventoried and maintained on a current inventory list. When items are surplused/disposed or cannibalized (i.e. using a broken/damaged item for parts and repair of other county assets) they should be removed from the current inventory list and placed on a surplus/disposal list. It should be noted the Road & Bridge Department and County Administration responded immediately to the concerns identified in this finding and a formal investigation was conducted. A full inventory of current items (with an estimated value of greater than $200 and less than $1,000) was performed and a process was implemented to remediate this finding. Road & Bridge Department and County Administration Management Response: Management concurs with the recommendation and the following procedures have been implemented: 1. An inventory procedure has been established for items valued at $ or more whereby two employees have access to the inventory files, and 2. Inventory spot checks will be performed periodically. Follow-up Status: The finding noted above was initially communicated while the original audit was in progress and Road and Bridge Management immediately began implementing a process to track all non-consumable inventory with a value greater than $200 and less than $1,000 (tracking of all County assets with a value over $1,000 is maintained in the fixed asset system). Value of assets purchased prior to 6/9/2009 was determined from existing invoices and/or estimated value based upon professional judgment. The value of assets purchased after 6/9/2009 is based upon actual purchase cost. In addition to maintaining a current list of assets the Road and Bridge Department performs random unannounced inventory checks. The Internal Audit Department randomly sampled thirty seven inventory items with a success rate of 95% (or 35 items). The two discrepancies noted are minor and have no material impact. One of the items Findings, Recommendations and Management Responses 7

10 sampled had a discrepancy in physical recording (the item was replaced the previous day and not yet noted on the Road and Bridge inventory list) and one item was located by Road and Bridge staff after Internal Audit left the site. Road and Bridge Management and staff are commended on the timely and successful development of an inventory tracking process and implementation of controls to safeguard county resources. Follow-up Road & Bridge Department and County Administration Management Response: Management concurs with the Follow-up status. The Road and Bridge Department completes inventory spot checks throughout each fiscal year on non-consumable inventory with a value greater than $ and less than $1, Finding 4: Inconsistency in Transportation Trust Fund Activity (fund 110) Unallowable Expenditures. The Board has established a Transportation Trust Fund (fund 110) in accordance with F.S (1) to account for fuel tax revenues received from the State. The use of fuel tax revenues is statutorily restricted to transportation-related expenditures as defined by s (7), F.S. In addition to various fuel tax revenues, the Transportation Trust Fund (fund 110) is being utilized to account for additional revenues including the Communication Services Tax, Driveway Permits, and Inspections. The process noted below, relates to Road & Bridge activity in fund 110, and identifies several issues of potential concern. All Road & Bridge activity (i.e. labor, equipment, and materials) is initially funded through fund 110. All project work is not statutorily allowable under the Transportation Trust Fund. o During the testing of special projects it was noted unallowable expenses (totaling $152,286.90) incurred by the Road & Bridge Department, while working on the Sports Complex, were funded by the Transportation Trust Fund. Each project is budgeted and approved by the Board. Project budgets are not revised on an ongoing basis. Reimbursements to the Transportation Trust Fund are only for the budgeted amounts. When the cost of the project exceeds the planned approved budget, funds are not reimbursed. Several departments are funded from the Transportation Trust Fund (fund 110). This creates difficulty in associating fund activity to a specific department. Annually, an interfund transfer is made to the Transportation Trust fund (fund 110) from the General fund (fund 005) to ensure the fund (fund 110) budget is sufficient; however, there is not sufficient detail to ensure the transfer covers the unallowable activity performed by the Road & Bridge Department. o In fiscal year 07/08 a transfer of $2 million dollars was made from the General Fund (fund 005) into the Transportation Trust Fund (fund 110) for various unallowable expenses incurred by the Transportation Trust Fund. This transfer may have reimbursed the unallowable expenses incurred by the Road & Bridge Department while working on the Sports Complex (noted above). Findings, Recommendations and Management Responses 8

11 Sufficient detail of the reimbursement was not available to determine whether the $2 million dollar transfer covered the $152, unallowable expense. Recommendation Partially Implemented: In accordance with statutory requirements, the Transportation Trust Fund (fund 110) should only be used to fund allowable transportation-related expenditures; therefore, Road & Bridge cost center 4102 should only be used to account for transportation-related expenditures. Activities performed by the Road & Bridge Department which are not transportation-related should be funded from another source. The Road & Bridge Department, Office of Management and Budget (OMB), and the Clerk s Accounting Department should review the current fund structure and consider options to ensure compliance with statutory requirements. An option for consideration would be to establish a new cost center within the General Fund (fund 005) to account for all Road & Bridge activity up-front. Allowable transportation-related expenditures (fund 110) or infrastructure expenditures (fund 151) could be reimbursed to the General Fund. If this method is chosen, reimbursement from the Transportation Trust Fund (fund 110) or the Infrastructure Surtax Fund (fund 151) should be made to the expenditure account rather than a revenue account to prevent the "doubling-up effect" within the Governmental Funds. Road & Bridge Department, Office of Management and Budget, and County Administration Management Response: Management concurs with the finding. The overwhelming majority of Road & Bridge functions are transportation-related and are properly funded from the Transportation Trust Fund (110). In addition, multiple Board departments perform transportation-related functions that fall within F.S Established procedures require that any non-transportation project work completed by Road & Bridge be directly reimbursed to the Transportation Trust Fund. Future identifiable indirectly reimbursed General Fund projects performed by the Road & Bridge Department will be noted in the budgeted Interfund Transfers. Future transportation project budgets will be revised during the budget and Capital Financial Strategy preparation. A follow-up procedure will be added to verify that the reimbursement has occurred. Clerk s Accounting Department Management Response: The specific and restricted funds, such as the restricted state and local gas revenues, are accounted for in specific revenue accounts within the County Transportation Trust Fund as derived from the State of Florida Uniform Accounting Manual. Other revenues from various sources are received into the County Transportation Trust Fund and separately accounted for within that fund. The County is obligated to expend all restricted funds in accordance with statutory limitations. When Board management limits the scope of the County Transportation Trust Fund to account for only the restricted state and local gas revenues and related statutorily authorized expenditures, then the Clerk s Accounting Department will Findings, Recommendations and Management Responses 9

12 implement the appropriate accounting system and reporting changes. Follow-up Status: BOCC Management has begun a process to review the current fund structure and consider options to ensure compliance with statutory requirements. Potential options under consideration include establishing a new cost center and establishing project record detail. The Clerk's Accounting Division will provide assistance, where necessary, to Board Management and staff during the review and implementation of changes to the fund structure. Follow-up Road & Bridge Department, Office of Management and Budget, and County Administration Management Response: Future identifiable indirectly reimbursed General Fund projects performed by the Road & Bridge Department will be noted in the budgeted Interfund Transfers. Changes to the cost center designations will be review during budget development for the FY year that is currently in progress. Follow-up Clerk s Accounting Department Management Response: The Clerk s Accounting Division will provide assistance, where necessary, to board management and staff during the review and implementation of changes to the fund structure. Opportunity for Improvement 1: Contract management of outsourced road projects by the Engineering Department Expenses reported under activity of the Road & Bridge Department (fund 151 / cost center 4102A). The Local Government Infrastructure Surtax Fund (fund 151) accounts for revenues and expenditures from discretionary sales surtax. Surtax proceeds are statutorily restricted to finance, plan and construct infrastructure and acquire land for public recreation, conservation, or protection of natural resources. The Road & Bridge Department (cost center 4102A) utilizes this fund to account for road related activity. During a review of Road & Bridge (cost center 4102A) expenditures, it was noted that several Engineering projects were being funded from and reported for financial statement purposes under activity of the Road & Bridge Department (fund 151 / cost center 4102A). Using this reporting method, activity/expenditures of the Road & Bridge Department appear overstated; while activity/expenditures of the Engineering Department appear understated. It should be noted that the net effect to the Local Government Infrastructure Surtax Fund (fund 151) is zero. Recommendation - Implemented: Findings, Recommendations and Management Responses 10

13 The Road & Bridge Department, Office of Management and Budget, and the Clerk s Accounting Departments should evaluate the reporting structure for outsourced road projects which are managed by the Engineering Department but funded by the Road & Bridge Department to ensure that the current reporting method accurately reflects the activity in both the Road & Bridge Department and Engineering Department cost centers. If the current method of managing/funding these projects is continued the Road & Bridge Department should be cognizant of the activity (i.e. revenues/expenditures) impacting the Road & Bridge Department cost centers (4102 & 4102A) on an ongoing basis. Road & Bridge Department, Office of Management and Budget, County Administration, and the Clerk s Accounting Department Management Response: Management is aware that Road and Bridge continues to work in conjunction with Engineering on contracted projects. The renaming of the cost center to more accurately reflect the purpose that the cost center serves would be in order. Clerk s Accounting Department Management Response: When Board management restructures the management and funding of the referenced projects, then the Clerk s Accounting Department will implement the appropriate accounting system and reporting changes. Follow-up Status: The Road and Bridge and Engineering Departments meet on a monthly basis to discuss current and upcoming projects and expenses impacting the Road and Bridge Department. Management is commended for initiating a process to communicate impacts to the Road and Bridge Department cost center. It should be noted the BOCC management has changed the name of the cost center to related to the noted opportunity from Roads and Bridges 151 to Transportation Projects. Follow-up Road & Bridge Department, Office of Management and Budget, and County Administration Management Response: Management concurs with the Follow-up information. Road and Bridge and Engineering meet on a monthly basis to discuss current and upcoming projects. Follow-up Clerk s Accounting Department Management Response: The Clerk s Accounting Division will provide assistance, where necessary, to board management and staff during the review and implementation of changes to the fund structure. Findings, Recommendations and Management Responses 11

14 Opportunity for Improvement 2: Lack of formal written hauling/disposal policy The Board has not developed a written policy or procedure detailing the hauling and disposal of spoiled materials. As of early 2008, the County established a policy to limit hauling and use of clean/spoiled material for County related functions. This policy has been communicated to all impacted departments and employees, but is currently not a written Board approved policy. Recommendation - Implemented: Formalized policies and procedures help ensure consistency in day-to-day operations and provide clarity to employees when dealing with accountability issues or activities that are of critical importance to the organization. The Board's position on the hauling and disposal of spoiled materials should be formalized into a written policy and presented to the Board of County Commissioner's for review and approval. A copy of the approved policy should be provided to employees of the Road & Bridge Department and any other impacted departments. Road & Bridge Department and County Administration Management Response: Management concurs with the recommendation and will develop and implement a written Hauling/Disposal Policy and/or procedures to supersede the verbal policy already in place. Follow-up Status: During the course on the initial audit the hauling and disposal of spoiled material was discussed with County Administration and Road and Bridge Management. The process of hauling and disposing of spoiled material to any location not owned by the county was halted unless otherwise approved by the BOCC. To date, the Road and Bridge department has written a procedure for the disposal of spoiled material. The procedure is contained in the Road and Bridge Policy and Procedure Manual and has been provided to County Administration for review and approval. Follow-up Road & Bridge Department and County Administration Management Response: Management concurs with the Follow-up information. Hauling and disposing of spoiled material to any location not owned by the county was halted, unless otherwise approved by the BOCC. Opportunity for Improvement 3: Inadequate segregation of duties Purchasing and receiving. During a review of Road & Bridge expenditures (cost centers 4102 & 4102A) instances were noted where adequate segregation of duties did not exist. On several occasions, one individual completed a requisition, signed a receiving report, received an invoice, approved an invoice for payment, and initiated changes (increases) to the same purchase order. There was no documented evidence that a second individual Findings, Recommendations and Management Responses 12

15 validated or performed any portion of the above process. Recommendation - Implemented: The purpose of segregation of duties is to reduce the likelihood that an error or omission (whether accidental or intentional) will occur. One individual should not have the ability to order, receive, approve payment, and initiate changes. When duties cannot be separated, compensating controls should be established to reduce potential risks. A process should be developed to ensure one individual is not performing the entire ordering, receiving and payment approval function. The individual completing the requisition and receiving the goods/services should not receive the invoice and approve it for payment. Road & Bridge Department and County Administration Management Response: Management concurs with the finding and has already implemented segregation of duties pertaining to requisitions, issuing, receiving goods and payment processing. This practice is still in use within the Road and Bridge Department. Procedures for use and payment authorization related to the Purchasing Cards (Pcard) are identified in the adopted purchasing policy. The authorization process for the P-card payment requires the review and authorization of the immediate supervisor for goods or services purchased. Follow-up Status: The opportunity noted above was communicated to Road and Bridge Management while the initial audit was ongoing. Management immediately implemented a change in the purchasing and receiving process to mitigate the segregation of duties concerns. The newly implemented process has separated the functions of requisition initiation/changes, receiving, and approval of invoices for payment. A random sample of purchase orders, receiving documentation and invoices did not note any exceptions. Follow-up Road & Bridge Department and County Administration Management Response: Management concurs with the Follow-up information. The changes have been implemented and appear to have properly addressed the opportunity for improvement. Opportunity for Improvement 4: Equipment breakeven rate Evaluate the breakeven rate calculation used by the Road & Bridge Department to charge-out vehicle and equipment usage. The Road & Bridge Department utilizes a breakeven rate to charge-out vehicle and equipment usage to various projects. The breakeven rate is calculated by the Workorder System on an annual basis using data maintained in the Workorder System (labor, parts, fuel, etc.) and data input (insurance cost, replacement cost, hours operated) by staff. Findings, Recommendations and Management Responses 13

16 During a review of the calculation, it was noted that vehicles/equipment are assumed to operate without experiencing any downtime throughout the fiscal year (2,080 hours). This assumption may not be reflective of actual usage and has the potential to result in an understated breakeven rate for vehicles/equipment which operates less then 2,080 hours during a fiscal year. Recommendation - Implemented: The Road & Bridge Department is commended for establishing and utilizing a breakeven rate to charge-out vehicle/equipment usage to various projects. Although the current calculation may not provide the most accurate rate, it has allowed the Department to charge-out the operation of vehicles/equipment to specific projects. To ensure a more realistic and accurate project cost, it is recommended that the current breakeven calculation be reviewed and evaluated. Road & Bridge Department and County Administration Management Response: Management concurs with the Recommendation that the methodology for calculating breakeven rates should be reviewed. Staff will work with the Clerk s Information Technology and Audit Staff on the calculation of revised equipment breakeven rates. Equipment rates and the rate calculations including the fuel costs, already included, will be reviewed. Follow-up Status: The Road and Bridge department has re-evaluated each component of the equipment breakeven rate and allocated more accurate figures for entry into the Workorder System. During evaluation Road and Bridge made adjustments to both the hours of operation and equipment insurance cost. The updated data used in the calculation provides a more realistic breakeven rate and reduces the likelihood of an understatement of future and current project cost. Follow-up Road & Bridge Department and County Administration Management Response: Management concurs with the Follow-up information. The Road and Bridge Department revised the calculations and now have a more realistic break even rate for equipment. Opportunity for Improvement 5: Incorrect supporting documentation for invoice payment. The incorrect invoice (SP ) totaling $7, was used as supporting documentation for payments. On December 30, 2008 a payment (check #247078) was made to a vendor totaling $44,956.16, on four (4) invoices. During a review of the invoices and supporting documentation, it was determined that one of the invoices was paid twice on the check. The invoice (#SP ) totaled $7, Further review revealed that the incorrect invoice was submitted and used to support payment. Invoice #SP Findings, Recommendations and Management Responses 14

17 totaling $7, should have been submitted. Recommendation - Implemented: The Road and Bridge Department, in coordination with the Clerk's Payable/Receivable Department, should ensure that proper documentation is submitted for payment. All invoices should be adequately reviewed to ensure that proper payment is made. Clerk s Payables/Receivables Department Management Response: The Accounts Payables/Receivables Department concurs with the finding. Invoices and supporting documentation will be more closely reviewed prior to posting for payment. Follow-up Status: The Payables/Receivables Department has a documented process for the payment of BOCC Invoices. It was noted during discussion with the Clerk s Payable/Receivable Department Management that the importance of monitoring invoice back-up payment information for accuracy was discussed with department staff following the communication of the above noted opportunity. Follow-up Clerk s Payables/Receivables Department Management Response: The Payables/Receivable department continues to closely review invoices and supporting documentation prior to posting for payment. Also, the department has recently initiated a procedure where samples of payable batch invoices and postings are reviewed by the Department Director and/or Manager on a weekly basis. Findings, Recommendations and Management Responses 15

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