Public Works Department Warehouse InventoryMIAMI BEACH
BUDGET AND PERFORMANCE IMPROVEMENT
Internal Audit Division INTERNAL AUDIT REPORT
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TO: Jorge M. Gonzalez, City Manager J.
VIA:
FROM: James J. Sutter, Internal Auditor""~ ("!
DATE: December 29, 2007
AUDIT: Public Works Warehouse lnven ory Audit
PERIOD: Fiscal Year Ended September 30, 2007
This report is the result of a regularly scheduled audit of the Public Works Warehouse Inventory as
of September 30, 2007, performed in conjunction with the external auditor's annual financial audit of
the City.
INTRODUCTION .
The Public Works warehouse located at 451 Dade Boulevard, supplies materials for all phases of
the Public Works operations. These materials are issued to the various divisions and are charged
to either budget operating accounts or job orders. In addition to material receipt, storage and
distribution, the warehouse orders, maintains and supplies parts to outside contractors in support of
other City capital projects.
Warehouse personnel currently consists of a Warehouse Supervisor, a Storekeeper Ill, a
Storekeeper II, a Storekeeper I, a Municipal Service Worker I and an Administrative Aide I. These
personnel interact with the Procurement Division, Finance Department, and vendors in the purchase
of goods, deliveries, issuance and payments.
$2,280,024 in funding obtained from the General Obligation Bond Neighborhoods and $580,976
from the General Obligation Bond Parks was previously allocated in 1997 to the replacement of the
current Public Works yard facility. Tentative plans included the renovation of the 20,000 square foot
facility, a 5,000 square foot expansion, American Disabilities Act compliance, an access road,
environmental remediation, paving, drainage, lighting, parking and a fueling facility for City vehicles.
This project has been delayed for a variety of reasons over the last several years. However, the
reconstruction of the water tanks and pump station was added to Fire Station No. 2's scope of
services and was completed during the 2005/06 fiscal year. Meanwhile, the remaining work is
currently on hold according to the City of Miami Beach General Obligation Oversight Committee
Monthly Project Status Report for October 2007.
Public Works Inventory was valued at the following amounts for the last five fiscal years:
9/30/2003 9/30/2004 9/30/2005 9/30/2006 9/30/2007
$2,070,045 $1,953,161 $1,797,500 $1,981,523 $2,194,784
This fiscal year's ending inventory of $2,194,784 was 10.76% higher than the previous year. The
primary reasons for the increase according to warehouse staff was the stockpiling of hurricane
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Internal Audit Report
Public Works Warehouse Inventory Audit
December 29, 2007
materials and the advance purchase of critical inventory to help prevent stockouts that may occur
while waiting for the creation of 2007/08 fiscal year standing orders. Internal Audit conducted test
counts of one hundred twenty-three (123) part numbers totaling 4,963 items with a value of
$557,731.22 or 25.41% of the current inventory value.
We commend the Public Works warehouse staff and supporting personnel who overcame the
problems associated with the temporary relocation of parts to the golf course. They were also
hindered by interruptions due to the need to disburse emergency items during the approximately
three weeks that the warehouse was closed for inventory.
OVERALL OPINION
Based upon the results of the test counts and the inventory reports, we recommend that the
valuation of $2,194,784 be used as the September 30, 2007 inventory value. The annual physical
inventory of the items was conducted in an efficient, effective and timely manner, and the
corresponding valuation was deemed reasonable. Finally, invoices selected for review were
supported by proper approvals by authorized personnel.
The areas listed below are in need of improvement:
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Cityworks, the inventory system effective 04/01/06, has not been fully implemented to better
satisfy the warehouse's operational needs.
Possible improvements to the camera system are listed which should increase their
effectiveness.
The City's water tanks are not properly safeguarded from damage by driven vehicles or
unauthorized intruders.
Storage conditions noted on the temporary golf course site hinder inventory location,
accessibility, and valuation.
Leaks in warehouse roof should be repaired to avert possible injuries .
PURPOSE
The purpose of this audit is to determine whether events, transactions, adjustments, and processing
procedures are established, authorized, and maintained in accordance with laws, regulations,
contracts and management's policy; whether events and transactions are accounted for,
economically and efficiently processed, accurately and promptly recorded, reported, followed up;
whether recorded balances are periodically substantiated and evaluated; and whether City assets
and key forms, records, and files are properly safeguarded and controlled, and access thereto is
restricted in accordance with management's criteria.
SCOPE
1. Confirm that documented operating policies, standards and procedures exist to ensure
efficient and effective administration of the warehouse and that there is compliance with
these policies, standards and procedures, as well as all laws and regulations.
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2. Confirm that warehouse inventory items are stored in an orderly manner, are clearly labeled,
are not obsolete, are properly safeguarded and are reasonably valued.
3. Confirm that the physical inventory was performed in an efficient, effective and timely
manner with sufficient personnel and adequate procedures to ensure an accurate count.
4. Confirm that the final inventory report accurately reflects the final inventory valuation as ·
determined by the physical count and that this information is communicated to the external
auditors.
5. Confirm that unit costs on sampled purchase invoices are accurately reflected on inventory
reports and that all sampled invoices are properly approved and authorized.
FINDINGS, RECOMMENDATIONS AND MANAGEMENT RESPONSES
1. Finding -Cityworks Inventory System
The current Public Works warehouse inventory computer system called Cityworks was
implemented April 1, 2006. Although this system contains many improvements over the
previous PWK system, the following shortcomings were noted to exist at fiscal year end:
a. Inventory items continue to be valued using a weighted average costing approach
that includes all purchases made of the item since 1984. Technology advancements
and component materials' price changes have caused some parts' most recent
purchase prices to vary both negatively and positively from the recorded weighted
average prices. As a result, fiscal year end inventory valuations continue to be
impacted.
b. Maximum and minimum quantities have not yet been recorded in Cityworks to
facilitate ordering. In their absence, ordering continues to be done manually which
could lead to inadvertent stockouts or overstocks thereby negatively affecting
carrying costs and inventory turns.
c. Internal Audit's verified counts differed from the Cityworks recorded countfor47.97%
(59/123) of the items tested. The reasons for the difference (shrinkage, sloppy
recordkeeping, Cityworks shortcomings, etc.) could not be determined.
Recommendation(s)
The inventory valuation method should be converted during the 2007/08 fiscal year from
weighted average to first-in-first-out to more accurately reflect the actual value of the
inventory currently in stock. Among other improvements, the full adoption of Cityworks
should help reduce labor costs and the warehouse's downtime in future fiscal year
inventories. Full scale physical counts should only be needed if Internal Audit's test counts
reveal material differences when compared to the recorded inventory levels.
Management Response
A, B, and C above-Mr. Bert Dorrestyn, GIS Manager, and Ms. Martha Torres, Warehouse
Supervisor, will be assigned to address the City Internal Audit recommendation,
improvements and adoption of Cityworks that relates to the overall recorded inventory levels.
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2. Finding -Security Cameras
Eleven of the twenty-five digital cameras used to protect the Public Works Warehouse
facility were either not visible or operational during a 09/29/07 site visit. The manufacturer
was promptly notified by warehouse staff and the needed repairs were timely made. Internal
Audit found all cameras were working properly during an 11/20/07 site visit.
The reviewed cameras were positioned throughout and recorded each day's activities on a
compact disc recorded in the control room. Although these cameras are currently protecting
areas that may not need to be safeguarded in the future, the following deficiencies were
noted:
• None of the cameras positioned on the golf course oscillated to cover a larger area.
• A black screen is typically recorded during the nighttime hours due to the absence of
lighting towers and/or infrared lighting.
• Camera positions should be adjusted so as to better protect Public Works inventory. For
example, cameras were not positioned inside the electrical room, warehouse or yard 1,
areas in which most of the inventory is stored.
• The outside of the security cameras were not clearly labeled to identify which were not
functioning properly, where they were positioned, etc.
Recommendation(s)
The positioning and effectiveness of the cameras should be more frequently reviewed to
maximize their benefit to the City. Furthermore, the manufacturer should immediately be
notified of any malfunctioning cameras so that they can be promptly repaired. Finally,
labeling the outside of the cameras in accordance with the viewing monitors should help
make them easier to locate.
Management Response
Ms. Martha Torres, Warehouse Supervisor, and Mr. Julian Perez, Pump Station/Control
Room Operations Supervisor, have been assigned to oversee and maintain ALL security
cameras in working condition and provide a monthly e-mail report to the Operations
Superintendents and Assistant Public Works Director, Mr. Mike Alvarez.
3. Finding-Water Tanks Safety
The Public Works yard houses two large water tanks located directly south of the warehouse
and yard 1. In previous inventory audits, we observed both City and personal vehicles
parking dangerously close to the tanks and were even told of a minor accident. Public
Works management took proper steps in the past year to reduce the risk by adding parking
stops, creating a new employee parking area on the golf course and by issuing a 10/05/07
Parking Policy memo to all employees. However, these steps were not always followed and
both City and personal vehicles continue to be observed parking in unauthorized spaces
near these water tanks bypassing the installed safeguards and rules.
Furthermore, the water tanks located at 751h Street and Dickens Avenue were only protected
from intruders by a chain link fence. Gaps in the chained gates, missing sections of barb
wire, overhanging trees, etc. made access easier. Future plans call for this facility to house
slow moving inventory currently stored on the aforementioned golf course. These examples
of lax security could also explain the large amounts of graffiti currently present on both water
tanks.
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The grass and weeds inside the 75th Street and Dickens Avenue facility are approximately
four feet high in some areas creating a hazardous area and may contain rodents, snakes,
etc. A risk exists that someone could be injured by tripping over the parts stored on the
premises or be bitten by a creature living in the outgrowth.
Recommendation(s)
Public Works management should better enforce the new yard parking rules and discipline
anyone that does not conform. Meanwhile, the water tanks at the 75t 11 Street location may
be better safeguarded through the placement of cameras, barbwire, security guards, etc.
Otherwise, the City's risk exposure is higher that an unauthorized intruder could enter and
escape undetected. Finally, Public Works should coordinate with Parks and Recreation
Department to have them more frequently mow the grass and better maintain the 75th Street
and Dickens Avenue facility.
Management Response
Mr. Elie Fakie, Acting Utilities Superintendent, and Mr. John Kranick, Streets, Streetlighting,
and Stormwater Superintendent, will be responsible for enforcing proper parking and to take
corrective discipline towards employees including Operations Supervisors that don't follow
the Yard's parking rules.
Mr. Elie Fakie and Mr. Julian Perez will investigate the possibility of installing cameras at
other water and sewer pump station facilities, including overall costs for budget preparation
FY 08/09.
Public Works Operations does request Parks Department to mow the grass during the year
but in the case of 75th Street, CIP contractor was not doing a very good job in keeping up
with mowing the grass. The grass has been mowed/cut by the Parks Department at the
request of Mr. Mike Alvarez, Assistant Public Works Director.
4. Finding -Golf Course Storage
The golf course continues to be temporarily used to store Public Works inventory previously
kept in yards 2 through 8. Many but not all of these items have been moved to more secure
fenced areas located near the two newly constructed water tanks in yards 1 and 2. Despite
the transitory nature of the usage of the golf course, several deficiencies noted should be
addressed:
a. The bottom layers of pipes were observed sinking into the ground due to their excessive
weight and the wet, soft earth. As a result, counting is impeded and expensive inventory
items may be inadvertently forgotten below the earth's surface.
b. The parts stored in the golf course require continual efforts by Public Works personnel to
remain organized in an effort to expedite locating and counting. For example, we found
that similar size pipes were stacked together despite the existence of different types (slip
joint, TR flex, etc.) at different costs during the test counts. These pipes were also
observed to consist of different lengths, surrounded by weeds and positioned closely to
other parts making it difficult to count.
c. The front gate is not operational to help prevent access by unauthorized individuals.
Inquiries revealed that this is a continual problem as outsiders are frequently cutting
through the Public Works facility and scaling the perimeter chain link fence to exit
thereby shortening their walking distance. Potential drawbacks include a heightened risk
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of injury and vandalism; as well as more frequent fence repairs as these intruders tend to
damage the fence making it easier to climb in the future.
d. More fragile equipment like lighting towers was observed being stored in close proximity
to driven vehicles where they can be damaged. The completion of the parking area on
the southeast corner of the golf course area should help alleviate this concern.
Recommendation(s)
The Public Works Department's Administration should consider the feasibility of
implementing the following recommendations:
a. Any parts subject to corrosion or sinking should be elevated from the ground through the
use of pallets, racks, etc.
b. Better organization by part number should reduce time spent trying to locate, count and
charge out needed parts. However, it would also require a full scale effort by those
Public Works personnel that access these parts with or without the warehouse's
knowledge.
c. A functional front gate that is kept closed should markedly reduce the number of
unauthorized intruders inside the Public Works facility.
d. Fragile equipment should be stored together whenever possible in a secure area to
reduce the threat of inadvertent damage.
Management Response
a. Many outside inventory parts are in pallets. Heavy parts such as pipes are not and will
be addressed first quarter of 2008.
b. Presently, looking into a Warehouse bar code system for FY 08/09 along with costs.
c. A new gate will be installed after Fire Station #2 is fully completed. Scheduled for
November 2008.
d. Will continue to enforce as much as possible, but Fire Station #2 is under construction
which creates parking space a challenge.
5. Finding -Other obseNations
Rain water abundantly seeped in through the warehouse roof during storms. The water
accumulated on the floor thereby increasing the possibility that employees could
inadvertently slip and fall.
Recommendation( s)
The warehouse roof should be repaired before someone is injured.
Management Response
Property Management has it in their schedule for minor to major repairs in early 2008.
EXIT CONFERENCE
An exit conference was held on December 18, 2007 in the Public Works Department. Participants
included Michael Alvarez (Assistant Public Works Director), Martha Torres (Warehouse Supervisor),
James Sutter (Internal Auditor) and Mark Coolidge (Senior Auditor). All parties were in agreement
as to the contents of this report. Management responses were solicited and included in our report.
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JJS:MC:mc
Audit performed by Mark Coolidge
F:\obpi\$AUD\DOC07-08\REPORTS-FINAL\PUBWKSINVRPT07.doc
cc: Robert C. Middaugh Jr., Assistant City Manager
Fred H. Beckmann, Public Works Director
Michael Alvarez, Assistant Public Works Director
Patricia Walker, Chief Financial Officer
John Kranick, Streets, Streetlighting, and Stormwater Superintendent
Elie Fakie, Acting Utilities Superintendent
Martha Torres, Warehouse Supervisor
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