Public Auctions Sales of Excess and Surplus PropertyH
BUDGET AND PERFORMANCE IMPROVEMENT
Internal Audit Division INTERNAL AUDIT REPORT
TO:
VIA:
FROM:
DATE:
AUDIT:
PERIOD:
Jorge M. Gonzalez, City Manager ~,
Kathie G. Brooks, Budget an~ Performance Improvement Director //
James J. Sutter, Internal Auditor """ ······
7
December10,2010 '
Public Auctions Sale of Excess and Surplus Property Audit
June 26, 2010 public auction and the documentation provided for the previous three
City auctions held within the past year
This report is the result of a regularly scheduled audit to review the process upon which the City's
excess and surplus property is selected, safeguarded and sold at the June 26, 2010 public auction
by Fisher Auction Co, Inc. and their level of compliance with tested sections of the signed personal
property auction listing contract. Additionally, the September 26, 2009, December 12, 2009 and
April 27, 2010 auctions were reviewed to determine the sufficiency of the auctioneer's submitted
documentation and payments as well as the City's processing of the monies received.
INTRODUCTION
The City of Miami Beach holds periodic public auctions at the Convention Center (1901 Convention
Center Drive) or Fleet Management ( 140 MacArthur Causeway) to dispose of excess and surplus
inventory. The auction inventory typically includes vehicles from the Fleet Management Division;
computers and related products from the Information Technology Division; and assorted equipment
from the Public Works Department, Parks & Recreation Department and Property Management
Divisions. Previously, miscellaneous personal property from the Police Department's Property and
Evidence Unit would also be included but these items are now sold via the internet website entitled
PropertyRoom.com.
The City's Procurement Division authorized Fisher Auction Co. Inc., (Fisher), through the
preparation of personal property auction listing contracts to sell the inventory provided by the listed
terms and conditions. In return, Fisher receives a 10% buyer's premium that is added to each final
bid price as earned commission and is paid solely by the bidder. Consequently, this method of
compensation encourages Fisher to attract qualified bidders because their revenues increase as
selling prices increase.
Additionally, advertising and marketing expenses associated with promoting the auction are fully
reimbursable up to a maximum of $2,264.32. Fisher can also deduct any expenses incurred for
security services as well as any sales taxes owed from the collected gross proceeds.
Auctions are usually held when there are sufficient surplus vehicles to warrant their sale. For
example, the June 26, 2010 auction was comprised of 69 vehicles representing 83.13% of the 83
total items available for sale. Internal Audit attended this event unannounced to perform such tasks
as recording selling prices, observing City and Fisher employees' actions, ensuring that all items
were accounted for, etc. All items were sold ranging from a high of $16,000 for a 2000 garbage
truck to $5 for a Robinair coolant exchanger with Fisher remitting net proceeds (adjusted for
advertising and any other deducted expenses) equaling $168,771.96 to the City.
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Internal Audit Report
Public Auctions Sale of Excess and Surplus Property Audit
December 10, 2010
While the primary focus of this audit was the June 26, 2010 City auction, Internal Audit also
reviewed the final settlement documentation provided by Fisher for the following three auctions
staged within the past year:
• The September 26, 2009 public auction was held at the Fleet Management facility where a
total of 114 vehicles were sold fetching $171,529.68 in net proceeds for the City.
• The December 12, 2009 public auction was held at Florida International University located at
11200 SW 81h Street in Miami. This joint auction resulted in the City selling four salvage only
titled vehicles, and a jet ski and trailer in return for $5,088.75 in net proceeds.
• The April 27, 2010 was done by sealed bid with the City selling various chairs, patio tables,
office furniture, computer equipment, etc. for $5,000 in net proceeds.
The City's Fleet Management Department acted as Fisher's liaison and assisted them in the staging
of the 06/26/10 auction. Selected staff members attended the auction and were responsible for
starting the vehicles. Also, Beach Auto Tag & Insurance distributes all vehicles' keys and titles to
their new owners. In addition, the Procurement Division negotiated each personal property auction
listing contract with Fisher and received their final settlement documents accompanied by the City's
payment. Finally, the Finance Department would then prepare a journal entry so that the payment
received was properly distributed among the applicable City departmental revenue accounts.
OVERALL OPINION
Overall, Internal Audit believes that the involved City departments/divisions should exert additional
controls over the auctioneer to ensure that the correct and optimum amount of revenues is received.
Fortunately, Internal Audit's reconciling of the 06/26/1 O's selling prices with the auctioneer's
settlement sheets did not reveal any material differences that could not be subsequently explained.
However, the establishment and implementation of better controls on the auctioneer's work will most
likely result in improved performance if they are cognizant that the City is closely scrutinizing their
work product.
The following items were noted during our analysis and are in need of improvement prior to the next
City held public auction:
• Inventory stored at the Convention Center in the designated store room was not properly
safeguarded or documented.
• The City's Fleet Management Department discounted Johnnys Auto Sales highest bid price
by $500 due to identified transmission problems in contradiction to the terms of the auction
statement signed by the bidder.
• The auctioneer did not initially remit $100 to the City after a bidder's deposit was confiscated
for making the highest bid but refusing to remit the corresponding purchase price.
Additionally, supporting documentation (invoices, cancelled checks, etc.) was not always
present in the final settlement package for such deducted sales expenses as security,
advertising and lunch. Finally, the $219.72 monies deducted for lunch at the 09/26/09 and
06/26/10 auctions were not addressed in the applicable personal property auction listing
contracts.
• The Procurement Division has retained the same auctioneer's services for at least the past
ten years under substantially identical terms pursuant to their State of Florida contract as
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Internal Audit Report
Public Auctions Sale of Excess and Surplus Property Audit
December 10, 2010
competitive bids from other companies were not obtained. Furthermore, the corresponding
reviewed personal property auction listing contracts are basic and incomplete thereby
possibly exposing the City to potential risks and losses.
• Updated policies and procedures do not presently exist that accurately and completely
reflect current operations.
PURPOSE
The purpose of this audit was to determine whether tested City property was properly deemed
excess and surplus in accordance with administrative policy and should have been made available
for sale at auction; whether the property was adequately safeguarded until disposition; whether the
auctioneer's reported selling expenses were proper; whether auctioned items' selling prices were
accurately recorded so that the City received the correct net proceeds payments; whether the
auctioneer complied with selected terms in their signed agreements; and whether all tested
transactions were correctly recorded in the City's Financial System.
OBJECTIVES
1. Confirm that effective and detailed excess and surplus property auction operating policies
and procedures have been developed and are being utilized for the proper control and
accountability of all related transactions.
2. Confirm that proper documentation was received, maintained and reviewed to support the
selling prices listed in the auctioneer's settlement sheets and the net proceeds remitted to
the City.
3. Confirm that auction revenues were timely received and correctly recorded in the appropriate
departmental revenue accounts.
4. Confirm that the auctioneer has complied with all tested terms listed in the personal property
auction listing contracts.
5. Confirm that all inventory sent to the auction is adequately safeguarded and that access is
properly restricted to authorized employees and permitted only in accordance with
management policy.
FINDINGS, RECOMMENDATIONS AND MANAGEMENT RESPONSES
1. Finding: Inadequate Security and Record Keeping of City Property in the Convention Center
Storage Room
The City maintained a locked storage room located in the southwest corner of the Miami
Beach Convention Center that was used by various departments/divisions to store property.
Global Spectrum's Chief Engineer stated that his staff was instructed to allow access to the
storage room only to City employees showing proper identification. Despite recording in a
log the names of personnel accessing the room and their reasons for admittance, they
subsequently left the premises afterwards and no record was maintained of any items
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Internal Audit Report
Public Auctions Sale of Excess and Surplus Property Audit
December 10, 2010
removed from the room. Also, City personnel tended to haphazardly place any property near
the entrance in close proximity to other items where they were more susceptible to damage.
Under the current scenario, any inventory stored in this room can be damaged,
misappropriated or disposed of and there is no or little means to indicate by whom.
Although outside the designated audit period, inquiries discovered that previously an
expensive Central Services printer was inadvertently thrown away, newly purchased ceiling
tiles were accidently sold, an administrative division's conference table and chairs
(temporary stored) were missing and could not be located, etc. These inadvertent errors
occurred because City departments were incorrectly using this room for storage rather than
its designated purpose as a temporary holding facility until the excess and surplus items can
be sold at the next auction. As a result, the Tourism & Development Department Director
directed that only items to be sold at auction are to be placed in this Convention Center
storage room as it is not to be used as a long term storage facility. Finally, Internal Audit
found that this room was void of City property on July 8, 2010 as instead it was being used to
store air wall parts for ongoing renovations at the facility.
Recommendation(s):
A Citywide email should be distributed reminding departments/divisions that this room is not
to be used for temporary storage but only for items to be sold at the next auction. Going
forward, the City's Procurement Division should maintain a centralized master list of all
property stored on the premises so that they can conduct periodic reconciliations to help
ensure that all items are accounted for and can be auctioned. Additionally, they should
accompany anyone accessing this room so that they can adjust this master list for the
addition or deletion of inventory.
Management Responses:
Procurement Division: The Procurement Division Director concurs with the
recommendation, but there's a level of concern relative to the amount of time Procurement
designated staff will spend accompanying anyone accessing this room. Administrative
policies and procedures have been prepared to address the overall findings and
recommendations, and are pending approval.
Tourism & Cultural Development Department: Tourism and Cultural Development Director
concurs with the recommendation and believes this is not an activity the Convention Center
Manager should be responsible for. The Convention Center is only required to provide the
space for the City and is not responsible to monitor the City's use of the space.
2. Finding -Inconsistent Enforcement of Auction Terms
Among other provisions, section 2 of the bidder's catalog terms of auction states "All
merchandise to be sold to the highest bidder(s) for cash at the fall of the hammer. All such
sales are final! Each lot will be sold in "AS IS" condition. Inspection as to condition of all
merchandise sold is to be the sole responsibility of the buyer. FISHER AUCTION CO., INC.,
nor the Seller, will not be responsible for the correction description, mileage, genuineness,
authenticity, or defect in any lot, and makes no warranty in connection therewith. No sale
will be set aside or allowance made on account of any imperfection not noted, and there will
be no deductions for damaged articles." The bidder agrees to comply with all listed terms as
he signs this document and remits the $100 refundable cash deposit.
Johnnys Auto Sales of Cairo, GA was selected the highest bidder on nine separate vehicles
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Internal Audit Report
Public Auctions Sale of Excess and Surplus Property Audit
December 1 0, 201 0
at the June 26, 2010 auction whereby they properly paid the bid price for eight of these
vehicles. However, the bidder subsequently determined that lot number 15 consisting of City
vehicle number 2575, a 2003 Silver Ford Taurus, had a transmission problem and would
soon be in need of $1 ,000 in estimated repairs. At the bidder's request, the City's Fleet
Management Department agreed to reduce Johnnys Auto Sales purchase price by $500 or
half the estimated repair price as they frequently procure City vehicles at auctions.
Recommendation(s):
All listed provisions in the signed terms of auction document should be uniformly and
consistently enforced to all bidders with no exceptions.
Management Responses:
Procurement Division: Procurement concurs with the recommendation that no exceptions
should be made and the procedures outlined in the auctioneer's catalog be adhered to. All
surplus stock is to be sold to the highest bidder(s). All sales are final, with each item sold in
"as is" condition.
Fleet Management Department: The decision to adjust the vehicle price in order to affect a
sale of the vehicles was made utilizing sound business logic; however, it was not consistent
with the terms and conditions of the auction and will not reoccur. We agree that these
situations although rare can create an environment which would foster future challenges and
abuse and would not be in the best interest of the city.
3. Finding: Retained Customer Deposits Were Not Paid to the City and Submitted Sales
Expenses Were Not Always Sufficiently Documented in the Final Settlement Package
Fisher collects all monies from bidders during the auction. Afterwards, they prepare a final
settlement package which documents all monies received and any sales expenses incurred.
The difference or net proceeds are to be remitted to the City with the final settlement
package within five business days following the auction.
Internal Audit attended the June 26, 2010 auction unannounced and recorded each items'
selling price so that they could be compared to those listed in Fisher's final settlement
package. All listed items except for lots 15 and 25 were found to be in agreement with the
recorded selling price. The reason for the $500 difference in lot 15 is addressed in finding
number 2.
Meanwhile, lot 25's $750 difference $3,000 -$2,250) was due to the fact that the highest
bidder misunderstood the auction process and supposedly did not realize that he had to pay
$3,000 to purchase the vehicle. Once told, he balked and refused to pay so the 2003 White
Ford Crown Victoria was re-bid to those still present where a winning bid of $2,250 was
garnered. Inquiries found that this scenario occurs rarely but there have been other
instances. As a result, the initial winning bidder's $100 deposit was retained but was not
submitted to the City. Upon notification from Internal Audit, Fisher issued check number
15018 on July 9, 2010 payable to the City for $100.
Although it was found that the four sampled auctions' final settlement packages and net
proceeds' payments were remitted timely, the following documentation shortcomings were
noted that went unquestioned by Procurement Division personnel:
a. Fisher deducted $160 in security expenses from the September 26, 2009 auction in
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Public Auctions Sale of Excess and Surplus Property Audit
December 10, 2010
accordance with section VII of the applicable personal property auction listing
contract but no supporting documentation was included in the final settlement
package.
b. Review of the September 26, 2009 and June 26, 2010 final settlement packages
found that they correctly included copies of English and Spanish advertisements for
the City's upcoming auctions. However, Fisher did not provide invoices and
cancelled checks showing that the maximum deduction for advertising expenses
($2,264.32) was warranted for each auction in accordance with section IV of the
signed personal property auction listing contracts.
c. Monies totaling $219.72 were deducted from the total gross proceeds to purchase
lunch for both City and Fisher employees working at the September 26, 2009 and
June 26, 2010 auctions despite not being addressed in the corresponding personal
property auction listing contracts reviewed. Furthermore, no invoice was present in
the September 26, 2009 final settlement package to substantiate the corresponding
$96 deduction.
Recommendation( s):
The City should consider increasing the amount of the bidder's refundable deposit from
$100 to help reduce the possibility and minimize the City's loss when the highest bidder
refuses to finalize the purchase. The final settlement package should contain vendor
invoices and cancelled checks to verify that any sales expenses deducted were actually paid
by Fisher. Internal Audit opines that lunch should not be purchased with City monies going
forward as it was not addressed in the reviewed personal property auction listing contracts.
In addition, Procurement Division personnel should closer review the received final
settlement package for accuracy and completeness with any found shortcomings
questioned.
Management Responses:
Procurement Division: The deduction of $160 was for police officers that had worked the
September 26, 2009 auction. Fisher Auction obtained a signed receipt from Sgt. Zeifman
which was not included in the final settlement package.
The maximum deduction for advertising expenses was not only for the print ads in the
Spanish paper and the Miami Herald, but also for the auction postcard, postage, and other
related expenses. A copy of the budget has been provided.
On the issue of lunch being purchased for City employees, please note that employees are
working non-stop from as early as 8 a.m. to as late as 4 p.m. The purchase of meals for
employees (i.e., police officers, fleet automotive mechanics, and other city support staff)
working at the auction is consistent with purchasing card (p-card) procedures whereby
employees are allowed to purchase meals under certain parameters.
Increasing the bidder's refundable deposit may result in a decrease in participation by
prospective bidders. This is an issue that will be explored via a Request for Proposals
(RFP) processed if approved for issuance by the Mayor and City Commission.
The final settlement should include all invoices, receipts and/or cancelled checks relative to
any sales expenses deducted. Said review will be accomplished by Procurement and Fleet
Management.
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Internal Audit Report
Public Auctions Sale of Excess and Surplus Property Audit
December 10, 2010
4. Finding: Auctioneer Contract's Listed Terms Are Incomplete
Fisher has provided auction services to the City for more than ten years as the City
piggybacked of the auctioneer's contract with the State of Florida. Inquiries found that the
Procurement Division has not issued a Request For Proposal or solicited bids from other
companies during this period.
A basic 1 Yz page personal property auction listing contract documenting the terms of the
auctioneer's employment was prepared and signed for each auction reviewed. Testing
found that the total amount received by Fisher for staging each auction during the audit
period was below the current $25,000 threshold requiring City Commission approval.
Inquiries were made with the Procurement Division Director to learn the proper format and
needed authorizations for these professional service agreements. Subsequent analysis of
the September 26, 2009 and June 26, 2010 personal property auction listing contracts found
the following deficiencies thereby possibly increasing the City's risk exposure:
a. Verbiage on such legal issues as indemnification, termination and venue were not
addressed.
b. The reviewed contracts were also silent on enforcement techniques or penalty
provisions in the event that Fisher misplaces items or does not make full restitution
timely.
c. Neither contract reviewed was signed indicating approval by the City Clerk, City
Manager or Legal Department.
Recommendation(s):
The Procurement Division should issue a Request For Proposals soliciting bids from
companies desiring to provide auction services for a three year period. The selected
auctioneer and its negotiated contract terms should then be approved by the City
Commission before being implemented. Additionally, the agreed upon personal property
auction listing contract should contain at least the following provisions and signatures:
a. The City's Legal Department should review the contract for form approval to help
ensure that it contains the needed wording to best protect the City's interests.
b. Verbiage providing the City recourse against the auctioneer (penalties, performance
bond, collateral, default proceedings, etc.) if they fail to adhere to the listed terms.
c. The required signatures of the City Clerk, City Manager and auctioneer should be
present.
Management Responses:
Procurement Division: Although the property listing contract is only 2 pages, it does contain
the basic elements associated with the auction. Since the Auctioneer's services were
acquired via their state of Florida contract, all the terms and conditions of said state contract
would be enforced should the need arise.
Procurement will prepare an agenda item requesting the approval to issue a Request for
Proposals (RFP). Should the City Manager and City Commission approve the issuance of
said RFP, then all City legal terms and conditions will be incorporated.
Fleet Management Department: Fleet management has experimented with several internal
auction companies. Each time the vehicles brought significantly less revenue than an actual
physical auction, require more work for the staff and an increased amount of paperwork
while continuing to store vehicles after they have been sold.
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Internal Audit Report
Public Auctions Sale of Excess and Surplus Property Audit
December 10, 2010
We have tried to piggybacking on another government auction with less than satisfactory
results. Again the revenue was significantly less than in house auctions and there was no
provision to ensure vehicles were officially transferred into the new owner's name.
Fleet Management has through lessons learned; how imperative it is to immediately have a
mechanism in place to transfer ownership at the time of sale in order to relieve the city of
any future burden of liability for the vehicle. Fleet Management has engaged the local tag
agency to attend our vehicle auctions and process transfers on site at no cost to the city.
5. Finding -Policies and Procedures Need Updating as they do not Fully Reflect Current
Practices
The excess and surplus property auction's operating policies and procedures were last
updated in October 2002 and some changes have occurred in the interim so that they no
longer fully reflect current practices. The primary differences noted include the usage of
PropertyRoom.com to sell property confiscated by the Police Department's Property &
Evidence Unit and the lesser involvement of Procurement Division personnel in exchange
for a more active role by the Fleet Management Department.
Recommendation(s):
The excess and surplus property auction's operating policies and procedures should be
updated to more descriptively outline current operations. Policies and procedures serve
both as a benchmark to measure individuals' performance and as an instruction manual in
the event employees' change. Once completed, they should be distributed to all applicable
personnel so that they can be read, understood and followed.
Management Responses:
Procurement Division: Administrative policies and procedures have been prepared, and
upon review and approval by the City Manager, will be distributed to all applicable personnel.
EXIT CONFERENCE
An exit conference was held on October 22, 2010 in OBPI's Conference Room. Participants
included Fleet Management Department Director Drew Terpak, Fleet Analyst George Fisher, Fleet
Operations Supervisor Jose Tellez, Procurement Division Director Gus Lopez, Internal Auditor
James Sutter and Senior Auditor Mark Coolidge. Audit findings and recommendations were
discussed, as were management responses, which are included herein. All were in agreement with
the contents of this audit report.
JJS:MC:mc
F:\obpi\$AUD\INTERNAL AUDIT FILES\DOC09-1 0\REPORTS-FINAL\PUBLIC AUCTION.doc
(Audit performed by Mark Coolidge)
cc: Hilda Fernandez, Assistant City Manager
Patricia Walker, Chief Financial Officer
Drew Terpak, Fleet Management Department Director
Gus Lopez, Procurement Division Director
Max Sklar, Tourism & Cultural Development Department Director
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