Fuel DistributionMIAMI BEACH
BUDGET AND PERFORMANCE IMPROVEMENT
Internal Audit Division INTERNAL AUDIT REPORT
TO:
VIA:
FROM:
Jorge M. Gonzalez, City Manager A Q_.
Kathie G. Brooks, Budget and Perfor, ~~e Improvement Director /PY
James J. Sutter, Internal Audita~ ),;;&b
DATE: November 19, 2009
AUDIT: Fuel Distribution
PERIOD: October 1, 2006, through March 31, 2009
INTRODUCTION
This report is the result of an audit performed on the City's fuel distribution activities, in accordance
to our Audit Plan. The Fleet Management Division is responsible for all daily operations of fuel
availability and distribution to City vehicles and locations, consumption activity processing, and
reporting of all information associated with these processes.
Fuel distribution to City vehicles is primarily controlled through the RNI FueiOmat System (RNI),
which keeps track of gasoline and diesel fuel dispensed at the Fleet Management pumps or by its
tanker truck. Most City vehicles are equipped with a Vehicle Identification Unit (VIU) and a coil/ring
installed around the fuel inlet. These two devices operate together and allow fuel to be dispensed
from Fleet's pumps or from the tanker truck. A programmable fuel key is used as an alternative
device for vehicles and equipment not equipped with a VIU and coil/ring, so they may be fueled at
the Fleet's pumps or the tanker truck. There were 99 active fuel keys assigned at the time of our
audit. Approximately every two weeks, the truck delivers fuel to several City locations, such as
generators, storage tanks at golf courses, boats and other locations.
Other automated systems used by Fleet Management for its fuel availability and distribution
operations are the FASTER system, for asset management, automotive parts, mechanic labor and
fuel consumption tracking, and the Veeder-Root system, for measuring inventory levels of fuel in the
underground tanks. RNI and the FASTER system are integrated through a computer interface that
allows daily uploads of RNI records of fuel distributed from the Fleet pumps and tanker truck.
Most fueling of City vehicles takes place at the Fleet's pumps under the controls provided by the VIU
and coil/ring device or the fuel key. For fuel dispensed using a fuel key, the amount is controlled by
a quantity code that is programmed into the key. There are ten codes that restrict fueling amounts,
from 10, 20, 30, up to 200 gallons, or unlimited fueling, for emergency fuel keys and special needs
locations. However, fuel is also obtained for the City's fleet through the use of Chevron, Shell and
VISA credit cards issued to City employees for special fueling needs. There are 21 Chevron and 3
Shell credit cards issued. Among the City vehicles that require purchasing fuel in this manner are
the Fire Department and Fire Rescue trucks at the north end of the City, because of the distance
from Fleet Management; Police Department motorcycles, because these require premium gasoline
not available at Fleet's pumps; and off-road vehicles such as A TVs, because they need to be fueled
at the closest and safest location. These credit card fuel purchases are reviewed monthly when the
account statements are received at Fleet. The process involves tracing all the receipts provided by
City personnel to the charges identified on the credit card statements. If a receipt is not provided for
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Internal Audit Report
Fuel Distribution
November 19, 2009
a purchase listed on the statement, the charge is paid as part of the balance due without any
additional follow up. Fleet indicated that in previous occasions, they have emphasized the
importance of receiving all fuel purchases receipts. For record keeping and charge back purposes,
these purchases are manually entered in the RNI or FASTER systems to be subsequently allocated
to the respective departments.
All fuel purchases by Fleet Management for its underground tanks and tanker truck, as well as
purchases through credit cards are charged to General Ledger account #51 0-1780-000351 (Engine
Fuel & Lubricants). On a monthly basis Fleet Managements prepares all reports on fuel
consumption by departments and charges back along with fleet depreciation, repairs and parts to
their respective General Ledger expense accounts (Fleet Management-Internal Svc).
The City is allowed to request a reimbursement for state and federal excise taxes paid on purchases
of diesel and unleaded fuels. State tax information is gathered by Fleet from RNI and FASTER
records and forwarded to Finance on a monthly basis for completion of the Local Government User
of Diesel Fuel Tax Return form to be submitted to the Florida Department of Revenue in
Tallahassee for the tax refund.
The following represents total fuel cost for the audit period obtained from the Engine Fuel &
Lubricants account. The amounts shown are net of lubrication expenses, which are also posted to
this General Ledger account:
FY 2007 FY 2008 FY 2009 111 Grand Total
$2,001,177 $3,089,259 $830,587 $5,921,023
(1) Partial year expenditures (October 1, 2008-March 31, 2009)
OVERALL OPINION
As a result of our testing during the audit we were able to determine that the Fleet Management
Division maintains an adequate level of internal controls over fuel purchases ·and distribution
activities for the City. Fuel costs are properly being charged back to the departments and tax
reimbursement returns for city vehicle consumption are properly prepared and submitted timely to
Florida's Department of Revenue. However, our testing also identified some deficiencies in
reference to the following:
1. For the month of February 2009 that was tested, differences were found between the amount
of unleaded fuel purchased for Fleet Management's underground tanks and inventory levels
kept by the Veeder-Root system.
2. Incorrect fuel cost allocations and chargeback amounts for Police Department fuel purchases
done with credit cards, since charge back amounts are based on the average price paid by
Fleet Management on large fuel purchases in the month rather than credit card purchase cost.
3. Fuel purchases made by police officers using the City's Visa Purchasing card posted to an
incorrect General Ledger account.
4. There are no written procedures describing Fleet Management processes for the City's fuel
distribution operations.
5. The City is not requesting a tax reimbursement on fuel purchased at a Hess station for the Fire
Department equipment located on the north end. Also, the City is exempt from payment of
Federal Excise Tax, but it is being paid on these purchases.
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Internal Audit Report
Fuel Distribution
November 19, 2009
6. Fuel purchases for Police and Fire Department vehicles are made with several credit cards,
which in some cases do not provide required information for Fleet Management's records and
reports, as well as not deducting tax exemptions allowed to the City.
7. Some credit card purchases made by police officers, described by a card or reference number
identifying the officer, were not supported by receipts. Also, motormen purchased fuel in
excess of their equipment's fueling capacity.
8. Record keeping of fuel keys issued is not maintained up to date.
9. File backups of RNI system records require more frequent transfers to the City's network for
additional protection.
Additional details regarding the above mentioned and other areas in need of correction have been
provided on the Findings, Recommendations, and Management Responses section of this report.
PURPOSE
The purpose of this audit is to determine whether the Fleet Management Division maintains
adequate levels of internal controls for the purchase of gasoline and diesel fuel, storage of this
inventory, and distribution to City vehicles and locations.
SCOPE
1. Review internal controls over fuel purchases for Fleet Management's underground tanks and
tanker truck, and evaluate the process of vendor selection for cost considerations.
2. Determine adequacy of internal controls for fuel distribution at Fleet Management's pumps and
tanker truck dispensing.
3. Review internal controls over credit card fuel purGhases, including reconcilement of sales
receipts to account statements. Ensure that amounts recorded on Fleet Management systems
are being properly reconciled.
4. Determine that fuel distribution reports are completed monthly and fuel costs are being
properly charged back to user departments.
5. Evaluate adequacy of controls over fuel dispensed at one of the golf course locations.
6. Verify if tax reimbursement returns for City vehicles' fuel consumption are prepared properly
and submitted in a timely manner.
FINDINGS, RECOMMENDATIONS, AND MANAGEMENT RESPONSES
1. Finding -Fuel Inventory Monitoring
We reviewed fuel purchases for Fleet Management's underground tanks and reconciled these
to inventory records from the Veeder-Root system. Fuel volume levels are maintained by this
system for Fleet's two unleaded fuel tanks and two diesel fuel tanks. The system's monthly
Inventory Report, set up to provide hourly fuel levels, and the Delivery Report, reflecting
increases in fuel levels were used for this reconciliation of purchases and inventory records.
For the month of February 2009 that was tested, differences were noted between the amount
of unleaded fuel purchases from Petroleum Traders Corp. and the fuel volume increases
recorded by the Veeder-Root system on its Delivery Report. These differences ranged from
247 gallons (3%) to 1,119 gallons (13%) on all six purchases for the unleaded underground
tanks. Fleet Management was made aware of the discrepancies between the purchased fuel
amounts and their inventory records, but was unable to provide an explanation, other than it
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Internal Audit Report
Fuel Distribution
November 19, 2009
may be a meter calibration problem with the tanks. No significant difference was noted for the
one diesel fuel purchase from B.V. Oil Company during the month.
Recommendation(s)
We recommend that differences be researched and that subsequent purchases also be
included in this review to determine the cause of the discrepancies. Depending on the results,
the Veeder Root system vendor should be contacted as soon as possible for any necessary
repairs, to ensure inventory records properly reflect fuel volume levels. In addition, a monthly
reconciliation of fuel purchases should be performed to ensure no discrepancies exist.
Management's Response
Fleet Management is in the process of reviewing the Veeder Root system's depth sensors and
computer calibration. We will compare the actual stick reading with the Veeder Root system at
the time of a delivery. We will also request the services of Veeder Root and Great Dane
Petroleum Contractors to identify any variance issues.
2. Finding -Incorrect Fuel Cost Allocated for Credit Card Purchases
a) The cost of fuel entered on the RNI Fuel Om at system (RNI) is determined by the average
price paid by Fleet Management for large fuel purchases during the month, which is then
automatically assigned to each fueling transaction on the system. When fuel purchased
for Police Department motorcycles is added to RNI, this is the per gallon cost assigned,
which is lower than the actual price paid at Chevron stations and posted to the Engine
Fuel & Lubricants General Ledger account #51 0-1780-000351 where fuel purchase
transactions are entered. However, the examples listed in the table below show that the
cost/gallon being used results on the amount charged back to the department being less
than the actual price paid to the vendor.
RNI Transaction CHEVRON RNI Record Charge back
Date Gallons Payment Cost/Gallon Amount Cost/Gallon Difference
07/07/08 187.11 $ 811.79 $ 4.34 $ 682.95 $ 3.65 $ 128.84
07/20/08 201.57 $ 871.69 $ 4.32 $ 735.73 $ 3.65 $ 135.96
02/26/09 277.00 $ 621.53 $ 2.24 $ 484.75 $ 1.75 $ 136.78
04/16/09 283.43 $ 633.27 $ 2.23 $ 543.77 $ 1.95 $ 89.50
b) Similar to the Chevron purchases, Shell credit card purchases entered on RNI for Police
Department's A TVs and other vehicles, reflect a cost for the fuel purchased at Shell
stations lower than the actual price paid for this fuel and posted to the General Ledger.
RNI Transaction SHELL RNI Record Chargeback
Date Gallons Payment Cost/Gallon Amount Cost/Gallon Difference
07/11/08 98.08 $ 440.38 $ 4.49 $ 357.99 $ 3.65 $ 82.39
02/26/09 46.58 $ 107.43 $ 2.31 $ 81.52 $ 1.75 $ 25.91
Recommendation(s)
We recommend that to accurately charge back the cost of fuel purchased with credit cards at
Chevron and Shell stations, the transactions be entered into the RNI system with actual credit
card charges and number of gallons purchased, instead of using the average cost per gallon.
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Management's Response
A new Location [06] in RNI Fuelomat system has been created named Manual Entry. All
outboard fuel transaction will now be entered into this location with actual gallons and cost.
3. Finding -Fuel Purchases Incorrectly Classified.
During our review of fuel chargeback to department 1140 (Police-Crime Investigation) for
February 2009, we noted 23 Visa Purchasing Card charges totaling $756.49 made between
12/11/08 and 6/16/09. These purchases from two department officers were posted to General
Ledger account #011-1140-000503 (Fleet Management-Internal Svc). This was brought to the
attention of the Fleet Management's Administration, since this expense account is reserved for
charge back purposes. They agreed that this account is not for direct purchases of fuel and
also noted that both officers have an assigned fuel key. Although the $756.49 was re-classed
from this account to General Ledger account #011-1140-000351 (Engine Fuel & Lubricants),
subsequent purchases (7) totaling $233.20 remain in the first account.
Recommendation(s)
We recommend that remaining charges for $233.20 be re-classed to the proper account.
Management's Response
This issue is between Finance and the Police Department. Fleet Management will run
quarterly detail department *-*-000503 account report rather than the Monthly summary report
to ensure no other departments have charged the Fleet Chargeback account.
4. Finding -Fuel Management Procedures
Fleet Management's established procedures for controlling and monitoring fuel distribution
operations for City vehicles and locations were not made available for our review. During the
planning phase of this audit we requested these procedures and were informed that they were
being updated and would be provided as soon as completed.
The fuel purchasing, distribution, monitoring and reporting performed by Fleet Management is
a very detailed and labor intensive process, primarily carried out by only one individual. Only
some limited assistance is provided as backup for RNI system uploads to the FASTER system
and to work with Veeder-Root inventory system reports. The lack of proper procedures to
ensure the uninterrupted operation of the City's fuel distribution is a matter of concern, given
the almost total dependence on one individual for the processes involved.
Recommendation(s)
Fleet Management Administration needs to prioritize the prompt completion of written
procedures to facilitate the continuation of all processes in the fuel distribution to City vehicles
and locations. Consideration should also be given to delegate some responsibilities to other
Fleet Management personnel to reduce the dependency on the one individual that presently
carries out this function.
Management's Response
Generating new and updating existing Fleet Management procedures has been an issue since
Fleet began experiencing employee reductions within the department at the same time the
Finance department transferred the Invoice Processing and the VISA process to the
department without a buyoff from end user departments. This put an extra burden on the
department without an additional employee. Fleet Management will make every attempt to
create new and update existing procedures by the end of the year 2009.
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5. Finding -Fuel Tax Reimbursement
On a monthly basis, the City requests a reimbursement from the State of Florida on taxes paid
for purchases of diesel and unleaded fuel. However, fuel purchased at the Hess station on
71 81 Street with Visa cards for Fire trucks and Fire Rescue vehicles at the north end of the City
is not being included on the monthly fuel tax return. The monthly account statement provided
by Sun Trust Visa does not include the number of gallons purchased, only the amount of the
transaction, which for the audit period was calculated at $78,654. This represents a significant
amount of fuel consumption that is not being included for tax reimbursement purposes.
Additionally, the City is not exempt of Federal Excise Tax payment when fuel is purchased with
the Visa Purchasing Card, while it is exempted when purchases are made with a fuel card
such as Chevron and Shell.
Recommendation(s)
We recommend that fuel purchases for the Fire Department equipment located at the north
end be included in the monthly fuel tax return sent to the State. Additionally, the City should
research whether it can receive reimbursement for the Federal Excise Tax paid on these and
any other fuel purchases done with the Visa card.
Management's Response
Two (2) years ago Fleet Management requested a Hess Diesel Only Credit Card from the
Finance Department, which provided a rebate program, but was rejected by the Finance
department. Using the VISA card provided a rebate depending on how much the City spent
the whole year. The VISA rebates are credited to the Cities General Fund rather than the Fleet
Fuel Reimbursement account.
Fleet will request the Finance Department to research in obtaining a Hess Credit Card or
Universal Fuel Credit Card, which is widely accepted and eliminate the need for multiple fuel
cards currently being utilized. This will also provide the ability to identify the Federal Excise
Tax on the Monthly Statements, which is provided by the Chevron and Shell Statements. Refer
to Recommendation(s) and Management Response in item#6.
6. Finding -Fuel Purchases Require the Use of Several Credit Cards.
Fuel purchases are currently made with Chevron and Shell credit cards for Police Department
vehicles, and the Visa Purchasing Card for purchases made by the Fire Department at a Hess
station located on the north end, and for payment of fuel purchases at the Miami Beach Marina
for Ocean Rescue boats. In the case of the Visa card, Fleet Management does not receive
detail purchase information required for fuel consumption records and to request tax refunds.
Additionally, purchases are not tax exempt when made with the Visa card.
Recommendation(s)
We recommend that the City give consideration to research the benefits of a "universal fuel
card" that could be used for all purposes indicated above under a uniform fuel purchasing
method for its fleet of vehicles. A universal fuel card would also facilitate the review and
recording of purchases made, as well as deduct applicable tax exemptions resulting in a lower
cost per gallon of fuel.
Management's Response
Fleet Management will request the Finance Department to review the feasibility to obtain a
Universal Fuel Card per the recommendation of the Internal Audit Department. Should this
process be implemented it would negate Management's Response in item# 5 Finding-Fuel
Tax Reimbursement.
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Fuel Distribution
November 19, 2009
7. Finding -Credit Card Purchases for Police Department Vehicles.
We reviewed Shell and Chevron credit card purchases for July 2008 and February 2009.
Account statements were reviewed for reasonableness of charges and to verify credit card
receipts turned in by police officers. The following deficiencies were found:
a) There were eight purchases totaling $157 included on three Shell card statements with
total purchases of $1,183 not supported by a receipt identifying the vehicle and officer
making the purchase. For July 2008 there were six charges for $138 and for February
2009 there were two charges for $19.
b) Motormen purchase fuel with a Chevron card at various stations because motorcycles
require premium grade gasoline that is not available at Fleet Management's pumps. There
were several Chevron card purchases (7 to 15 gallons) of non-premium gasoline where
the gallons purchased exceeded the motorcycles fueling capacity (6 gallons).
Recommendation(s)
For fuel purchases made by police officers that appear on the credit card statement, identified
by a card or reference number, but are not supported by a purchase receipt, we recommend
that Fleet Management identify these unsupported transactions on the statement and forward
a copy to the Police Department ranking officer to ensure support documentation is provided
or proper approval is given prior to making the payment. In addition, motormen should be
reminded that credit card purchases are for the sole purpose of fueling their own equipment,
thus ensuring proper accountability of fuel consumption by motorcycle.
Management's Response
Fleet will provide a Memo to the Police department to ensure all receipts are provided to Fleet
Management relating to Credit Card charges.
8. Finding -Fuel Key Issue Log
We reviewed fueling activity by fuel key holders during February 2009 (5,820 gallons) and
verified Key IDs recorded on the RNI system to those on the Fuel Key Issue Log as of 4/15/09.
The results revealed that three Key IDs recorded on RNI (PHILLI, RICK and JONES) had
fueling activity during the month but were not reflected on the Fuel Key Issue Log. Fleet
Management indicated that all three fuel key holder had lost/misplaced their key, the original
keys were deactivated and new keys re-assigned [We were informed that all three original
keys were later found]. Three other fuel keys (0123, 0124, and 0125) listed under Marine
Police Patrol had fueling activity totaling 438 gallons, but reflected being assigned to a retired
employee [We were informed that keys were re-issued to someone else in Marine Patrol]. In
all instances, Fleet Management indicated that the Log was not updated in a timely manner.
Recommendation(s)
We recommend that Fleet Management perform a monthly review of fuel keys to compare and
reconcile the information on the Fuel Key Issue Log to other records such as those maintained
in RNI and/or the issued keys forms.
Management's Response
Fleet will maintain the log on a daily transaction basis to ensure the Excel Log sheet will be in
sync with the RNI Black list. The RNI upload to the computer will be completed when there is a
low time of fuel being dispensed. When uploading the Black List no one can fuel at the pumps.
500+ records are being uploaded for the Black list.
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9. Finding -Backups of Fuel Distribution Records.
File backups for RNI system records are done daily to an external hard drive; however, this
device remains connected to the computer at all times. We were informed that a service
representative for AHA Electronic & Fuel Systems periodically backs up system files to the
City's network F: drive. This vendor is primarily used to purchase control devices necessary
for the RNI system and provide technical support for this system. Although daily backups to
the external hard drive is a sound practice, it could be jeopardized by the fact that both the
computer and the hard drive are physically next to each, and if some catastrophe were to
happen to this office location, all files would be lost. We were also informed that transferring
the RNI system from an application installed on a Fleet Management computer to a City
network application, to take advantage of network backups, is not a feasible alternative due to
administrative rights requirements.
Recommendation(s)
In order to improve the adequacy of backup procedures for valuable fueling records, we
recommend that backups to the City's network F: drive be done at least on a weekly basis.
Management's Response
Fleet will comply with the recommendations of the Internal Audit Department to backup the
fueling records on to the Cities provided F: Drive
EXIT CONFERENCE
An exit meeting was held on August 17, 2009, to discuss the audit report and to solicit management
responses noted above. Attendees were Andrew Terpak, George Fisher, James Sutter and Luis
Lopez. Management responses were received shortly thereafter. All were in agreement with the
contents of this report.
JJS:LL:II
Audit performed by Luis Lopez, Internal Audit Contractor
F:\obpi\$AUD\INTERNAL AUDIT FILES\DOCOS-09\PC WORK\Fuel Distribution\Report-Fuel Distribution (draft).doc
cc: Robert Middaugh, Assistant City Manager
Andrew Terpak, Director, Fleet Management Division
George Fisher, Fleet Analyst
Patricia D. Walker, Chief Financial Officer
Carlos Noriega, Police Chief
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