ARLINGTON COUNTY GOVERNMENT

Transcription

1 ARLINGTON COUNTY GOVERNMENT INTERNAL AUDIT REPORT ACCOUNTING FOR TANGIBLE ASSETS WITH A LESS-THAN $5000 PURCHASE PRICE DEPARTMENT OF ENVIRONMENTAL SERVICES: WATER, SEWER, STREETS BUREAU WATER POLLUTION CONTROL BUREAU Reprt Date: May 24, 2017 Prepared by: Internal Audit Department f Management and Finance Arlingtn Cunty Gvernment 2100 Clarendn Blvd. Suite 501 Arlingtn, VA

2 Table f Cntents Transmittal Letter... 3 Executive Summary... 5 Backgrund, Objectives and Apprach

3 DEPARTMENT OF MANAGEMENT AND FINANCE INTERNAL AUDIT 2100 Clarendn Bulevard, Suite 501 Arlingtn, VA Mr. Greg Emanuel Directr, Department f Envirnmental Services 2100 Clarendn Blvd, Suite 900 Arlingtn, VA The Prpsed Risk-Based Internal Audit Wrk Plan (the Plan) identified Asset Management as an area fr audit. In accrdance with the Plan, the Department f Management and Finance Internal Audit Unit has reviewed Arlingtn Cunty s prcedures and identified prcesses related t accunting fr purchases f tangible assets with an initial, individual cst f less than $5,000 and an estimated useful life f three years r less ( LT5K ) fr further review. The Department f Envirnmental Service s Water, Sewers, Streets Bureau and the Water Pllutin Cntrl Bureau were selected t audit. Arlingtn Cunty s plicy is t expense LT5K as incurred. This reprt is rganized as fllws: Executive Summary Backgrund Objective and Apprach This sectin gives a backgrund summary f the functin and a detailed descriptin f the issues nted during this cycle audit, recmmended actins, and management s crrective actin plan, including the respnsible party and estimated cmpletin date. This sectin prvides an verview f the functin within the prcess and pertinent peratinal cntrl pints and related cmpliance requirements. The review bjectives and fcus are expanded upn in this sectin as well as a review f the varius phases f ur apprach. We wuld like t express ur appreciatin t the staff and all thers invlved with this review. Respectfully Submitted, Internal Audit, Department f Management and Finance 3

4 EXECUTIVE SUMMARY 4

5 EXECUTIVE SUMMARY Each department emplys prcesses that are necessary t address its particular needs and may nt be representative f ther departments in Arlingtn Cunty. Departments emply varius sftware applicatins such as Excel, Cartegraph, MP2, etc. t accunt fr LT5K assets. The verall bjective f this audit is t assess whether systems and prcesses are adequate and apprpriate t permit the prper accuntability f LT5K assets. Accuntability is generally described as maintaining adequate recrds that permit the Cunty t: Knw the quantity, quality, lcatin, cnditin, and value f assets Safeguard assets frm physical deteriratin, theft, lss, r mismanagement Minimize unnecessary strage r maintenance csts Prperly recgnize, allcate, r therwise charge the use/requisitin/depletin f these assets t the prper prgram/accunting perid etc. Gather reliable, accurate infrmatin in rder t make infrmed decisins The scpe f this audit encmpassed the current-state prcesses at the Department f Envirnmental Service s (DES) Water, Sewers, Streets Bureau (WSS) and the Water Pllutin Cntrl Bureau (WPCB) and an audit f selected transactins n a sample basis. Testing was custmized t address the prcesses and prcedures in place fr each bureau. Fr purpses f this audit, items cnsidered as cnsumable inventry, replacement parts, supplies, etc. are nt in scpe. A detail f the issues identified and their relative risk ratings is prvided belw, including recmmendatins fr remediatin and management s respnse. Relative risk factrs have been assigned t each issue identified. This is the evaluatin f the severity f the cncern and the ptential impact n the peratins. There are many areas f risk t cnsider in determining the relative risk rating f an issue, including financial, peratinal, and/r cmpliance, as well as public perceptin r brand risk. Items are rated as High, Mderate, r Lw. High Risk Items are cnsidered t be f immediate cncern and culd cause significant peratinal issues if nt addressed in a timely manner. Mderate Risk Items may cause peratinal issues and d nt require immediate attentin, but shuld be addressed as sn as pssible. Lw Risk Items culd escalate int peratinal issues, but can be addressed thrugh the nrmal curse f cnducting business. 5

6 Issues Absence f dcumented, Cunty-wide LT5K plicy Cunty Level Risk Rating Mderate Currently, n Cunty-wide plicy exists that describes the plicies and prcedures necessary t prperly accunt fr tangible assets with an initial, individual cst f less than $5,000 and an estimated useful life f three years r less. Prperly crafted plicies infrm emplyees, departments, bureaus etc. f the Cunty s expectatins necessary fr it t achieve its verall missin. Effective plicies link the Cunty s visin t its day-t-day peratins. Recmmendatins The plicy shuld identify the key activities and prvide a general strategy n hw t achieve desired accuntability fr these assets. The fllwing are general subject matter areas t cnsider in the plicy: Plicy Statement Frmulate a statement that describes the purpse f this plicy such as: The purpse f this plicy is t set frth the guidelines fr the physical and reprting cntrl f the Cunty s tangible assets with an initial, individual cst f less than $5,000 and an estimated useful life f three years r less. Reasn fr Plicy State that the intent f the plicy is t describe the standard plicies required fr recrding new and existing Assets, changes in Assets and the methdlgy f recrd keeping. Rles and Respnsibilities Discuss hw each department/divisin which has custdy ver the assets are respnsible t establish effective prcedures necessary t cmply with the plicy. Types f Assets Itemize, in general terms, the types f assets subject t this plicy. Valuatin f Assets Assets are recrded at histrical cst and are peridically reviewed fr prper valuatin. Effective asset identificatin measures such as: Perfrming peridic physical inventry cunts and establishing an identificatin system (tag, bar cde) Effective segregatin f duties Prcesses fr prperly dispsing f assets Management Respnse DMF will cnsider all f the recmmendatins prvided abve and draft the necessary Cunty-wide plicy. Once the new plicy is apprved, it will be psted n the Cunty s intranet. Respnsible Party: DMF Cmptrller Estimated Cmpletin Date: Mdified t crrect t May 1,

7 Issues Absence f Dcumented Departmental Prcedures- WSS and WPCB Risk Rating Mderate Currently, WSS and WPCB d nt have dcumented prcedures t accunt fr their LT5K assets. Establishing and dcumenting prcedures are essential. Prcedures demnstrate management s cmmitment t effectively maintaining accuntability fr LT5K assets as well as establishing prcesses and prviding all persnnel clear cmmunicatin and cmprehensive instructins and guidelines. Establishing written prcedures helps ensure cnsistent and accurate cmpliance and applicatin needed t achieve high levels f integrity and accuracy. Recmmendatin Upn cmpletin f the Cunty-wide LT5K plicy (as discussed abve), WSS and WPCB shuld each develp a Standard Operating Prcedure t prperly accunt fr LT5K assets. Effective prcedures will achieve the fllwing bjectives: Prvide emplyees the prper awareness and wherewithal t execute their rles and respnsibilities within these prcesses, minimize ambiguity, and firmly establish management expectatins Facilitate transitining f rles and respnsibilities when staff leave Affrd a basis fr training and infrming staff; cnsider including checklists t supprt prcedures Frmally dcument an internal cntrl framewrk and ensure accuntability and cnsistency in daily transactins and financial reprting Include all aspects f a physical cunt prcess, including the activities r tasks that take place befre, during, and after the physical cunt, bjectives f the cunt, types and timing f cunts, instructins fr cunting and recrding, and researching and adjusting variances. Items t cnsider: Establish respnsibility fr verall cunt and accuracy gals Select an apprach such as cycle cunts (such as annual, bi-annual, etc.), full-cunts, surprise cunts as well as which items t cunt Maintain segregatin f duties such as thse perfrming cunts d nt have recrdkeeping respnsibilities Train staff n prper cunt practices and prvide prper supervisin Ensure cmpleteness f cunt including effective cutff prcedures Perfrm effective reviews, evaluate cunt results and timely reslve differences between recrds and cunt ttals Create prtcls that describe prcedural steps when an asset is received, hw it is recrded and hw its dispsitin is reflected in the department s recrds Elements t cnsider: Establish accuntability and respnsibility fr physical cunts, set accuracy gals Select apprach - cycle cunts (prtins f inventry cunted n a rtating basis), wall-t-wall cunts (full cunt at a particular time), blend f the cycle and wall-t-wall etc. 7

8 Effective segregatin f duties: Recmmendatin (Cnt d) Optimal segregatin f duties ccurs when n ne individual has custdy f inventry, access t systems that recrd and prcess inventry, and the ability t apprve transactins. Individuals wh perfrm the inventry cunts shuld be independent f these prcesses. If nt pssible cnsidering limited resurces, cst/benefit etc. cnsider alternatives means such as engaging a resurce frm anther department t perfrm the cunt(s) Train participants n effective cunt prcesses, expected results, unique elements f the inventry etc. Prvide prper supervisin including clear instructins, prper cmpletin f cunt sheets, dispsitin f differences between recrds and cunts, etc. Cnsider blind cunts r surprise cunts : Blind cunts are inventry cunts perfrmed withut its assciated recrds Surprise cunts are inventry cunts withut prir ntice Ensure cmpleteness f cunts: Verify prper cut-ff such as nly cunting assets that the department has custdial respnsibilities ver, items in-transit, items deemed retired but nt remved frm service, etc. Evaluate results Cmpare/cntrast recrds again physical cunts, immediately review unexpected differences Debrief/reprt t stakehlders Mdify plicies/prcedures t imprve prcess Management Respnse WSS and WPCB will draft their respective LT5K plicy within six mnths after the Cunty s plicy is apprved. Respnsible Party: WSS Bureau Chief and WPCB Bureau Chief Estimated Cmpletin Date: Six mnths after effective date f Cunty Plicy. 8

9 Access t the Small Engine Shp WSS Issue Risk Rating Lw Access t the Small Engine Shp (the Shp) is nt prperly restricted. The WSS Bureau Chief and Small Engine Shp custdian advised Internal Audit that access rights granted t emplyees via card swipe r shp key wrests amng t many emplyees. Furthermre, while perfrming test cunts f the Small Engine shp, we nted the Shp dr was pen and emplyees were walking in and ut. Management als advised me the lg that dcuments the issuance and subsequent return f equipment is nt updated at the time when an item is issued r returned but n a peridic basis. Recmmendatins Access t the Shp shuld be restricted t emplyees n an as-needed basis. On a regular basis, the WSS Bureau Chief shuld review current key card access rights as well as thse wh have an actual key and eliminate such access fr thse wh d nt need it. The Shp shuld be lcked when a custdian is nt present. Als, the sign-in/sign-ut lg must reflect each transactin n a current basis; ding s will prmte accuntability/mvement f assets. After-hur entrance t the Shp shuld require a manager, supervisr, r security fficer t accmpany the emplyee needing t enter the Shp. In the remte instance where access is necessary fr an emplyee wh des nt have access rights, a key shuld be btained frm the Cntrl Center. A lg shuld be maintained in the Cntrl Center that dcuments wh the key was issued t and the day and time it was issued and returned. Management Respnse WSS Bureau Chief has implemented the new access cntrl prcess in early April thrugh the Security System Manager by limiting the entry t the Small Engine Shp t Supervisrs and abve in the management team. The Head Mechanic cntinues t use the sign-in and ut sheet fr equipment check ut. It has been the nrmal practice at the Cntrl Center t lg in/ut fr key access f warehuse and small engine shp. Respnsible Party: WSS Bureau Chief Estimated Cmpletin Date: Cmpleted 9

10 Issue Risk Rating Furniture and Fixture Recrds- WSS Lw The furniture and fixtures inventry cunts were manually entered n a pdf f a prir inventry listing prepared by a third-party vendr. Recmmendatin WSS shuld cnsider recrding its furniture and fixture assets in an applicatin that enables it t dcument the quantity, quality, lcatin, cnditin and value f its assets n a cntinuus basis. Management Respnse Tracking is a centralized functin thrugh DES Facilities and Engineering Divisin. The tracking is nt per unit f furniture but thrugh mnitring replacement and repair rders fr furniture per each business unit Furniture and fixtures are effectively mnitred via crdinatin with DES Facilities and Design Cnstructin as well as review f financial activity tward identifying unexpected spend/replacement trends. The tracking and mnitring prcess currently in place prvides the ability t accunt fr furniture and fixtures at WSS. Furniture assets are nticeable and likely t be missed, if stlen, etc., and since all furniture rders are prcessed centrally thrugh the DES Facilities and Engineering Divisin, irregularities are likely t be quickly discvered at the time f (re)rdering. A furniture tracking system culd be intrduced starting with installatin f new furniture as part f the Curt Huse Plaza interir renvatin during CY Additinal Interirs Grup resurces wuld be needed t establish and cntinually mnitr the data base, which wuld include tracking relcatins f existing inventry as rearrangements ccur and new inventry is added. Creating the data base fr existing furniture wuld require utside resurces t inventry furnishing in all Cunty buildings. Such an activity culd be initiated after a Cunty-wide plicy is created addressing inventry cntrl and tracking fr all LT5K assets. Respnsible Party: NA Estimated Cmpletin Date: NA 10

11 Issues Maintenance f LT5K Assets in MP2 WPCB Risk Rating Mderate Our testing identified the fllwing: Varius WPCB s LT5K assets are maintained in MP2 alng with ther WPCB related assets. Hwever, they are nt designated as such nr is their cst basis included. In certain instances, the serial number and mdel number reflected n MP2 des nt agree with its related asset. LT5K furniture and fixtures and LT5K equipment n vehicles are nt maintained n MP2. Recmmendatins Maintaining cmplete and accurate MP2 recrds wuld permit the WPCB t effectively track the lcatin, quantity, cnditin and maintenance f its LT5K assets and prvides a safeguard frm theft, lss r mismanagement. The MP2 recrds shuld be revised t identify the LT5K assets and each asset s cst basis. A review f the serial numbers and/r mdel numbers between MP2 and its related asset is necessary. MP2 shuld be revised as needed. LT5K furniture and fixtures and LT5K equipment n vehicles shuld be recrded in MP2. Management Respnse I. WPCB will designate all future LT5K assets in MP2. Minr mdificatins t MP2 will be required t make this designatin pssible t be cmpleted within 4 mnths if cntract with vendr is in place. WPCB will wrk with DES t identify a prper tracking entity fr furniture and fixtures pssibly centralize within DES. II. Furniture assets are nticeable and likely t be missed, if stlen, etc., and since all furniture rders are prcessed centrally thrugh the DES Facilities and Engineering Divisin, irregularities are likely t be quickly discvered. If a mre labr-intensive apprach is desired, additinal resurces wuld be required n a Department and Cunty-wide level. A furniture tracking system culd be intrduced starting with installatin f new furniture as part f the Curt Huse Plaza interir renvatin during CY Additinal Interirs Grup resurces wuld be needed t establish and cntinually mnitr the data base, which wuld include tracking relcatins f existing inventry as rearrangements ccur and new inventry is added. Creating the data base fr existing furniture wuld require utside resurces t inventry furnishing in all Cunty buildings. Such an activity culd be initiated after a Cunty-wide plicy is created addressing inventry cntrl and tracking fr all LT5K assets Respnsible Party: WPCB Bureau Chief fr item I; NA fr item II Estimated Cmpletin Date: September, 2017 (item I) 11

12 Issue Wrkstatin Tl and Equipment Inventry - WPCB Risk Rating Lw There are n recrds that capture the quantity, cst r descriptin f tls and ther equipment lcated in the mbile tl cabinets. Recmmendatin An immediate physical inventry f such parts and equipment is necessary. Upn cmpletin f the inventry, the results alng with each item s cst and descriptin shuld be entered int MP2. Upn issuance f wrkstatin tls and equipment, each technician shuld sign an acknwledgement cnfirming the tls/equipment they have received fr their wrkstatin. Peridic, unannunced inventry cunts shuld be cmpleted as this is an effective measure t maintain prper accuntability f such assets. Management Respnse WPCB will cnduct a test inventry fr practical applicatin. The fcus will be t inventry nly unique r critical items f sufficient value. Respnsible Party: WPCB and DES Estimated Cmpletin Date: Octber,

13 BACKGROUND Overview Arlingtn Cunty Department f Management and Finance (DMF) has an established plicy where purchases f tangible assets with an initial, individual cst f less than $5,000 and an estimated useful life f three years r less are expensed as incurred ( LT5K ). As part f the FY17 Internal Audit Wrk Plan, Internal Audit reviewed and tested the plicies and prcedures currently in place t accunt fr LT5K assets. OBJECTIVES AND APPROACH Objectives The verall bjective f this review was t assess whether systems and prcesses are adequate and apprpriate t permit the prper accuntability f LT5K assets. Accuntability is generally described as maintaining adequate recrds that permit the Cunty t: Knw the quantity, quality, lcatin, cnditin, and value f assets Safeguard assets frm physical deteriratin, theft, lss r mismanagement Minimize unnecessary strage r maintenance csts Prperly recgnize, allcate, r therwise charge the use/requisitin/depletin f these assets t the prper prgram/accunting perid etc. Gather reliable, accurate infrmatin in rder t make infrmed decisins Apprach The verall apprach cnsisted f the fllwing phases: Understanding and Dcumentatin f the Prcess Research current plicies, prcedures, and prtcls Understand the prcesses in place t recrd, accunt fr, and analyze asset activity emplyed by DMF, WSS and WPCB Cnduct interviews with departmental leaders, prcess wners, and ther necessary resurces Obtain, review, and inspect relevant dcuments Evaluate the Prcesses and Cntrls Design and Test Operating Effectiveness The Prcess and Cntrl Evaluatin phase f this audit cnsisted f an evaluatin f the design and perating effectiveness f LT5K prcesses. We perfrmed walkthrughs and ther detailed testing f transactins t achieve the audit bjectives, including testing the prcesses currently in place. Prcedures we perfrmed include, but nt limited: Review reasnableness f pricing (when pssible) Cmpare, n a test basis, entries per recrds t physical inventry Test dcuments used t summarize inventry Observe inventry cunt (when pssible) 13