Central Services BillingMIAMI BEACH
BUDGET AND PERFORMANCE IMPROVEMENT
Internal Audit Division INTERNAL AUDIT REPORT
TO:
VIA:
FROM:
Jorge M. Gonzalez, City Manager $
Kathie G. Brooks, Budget and P~rfo.r: .ance Improvement Director ·
James J. Sutter, Internal Auditor ~A~ VI;~
DATE: September 22, 2009
AUDIT: Central Service Billing Audit
PERIOD: October 1, 2007 through March 31, 2009
This report is the result of an operational audit performed on Central Services, one of the City's
internal services divisions, in accordance with our annual audit plan.
INTRODUCTION
The City of Miami Beach's Central Services Division provides City departments with an in-house
print shop, postage of outgoing mail, sorting of incoming mail and interoffice mail, availability of a
vehicle pool for departments required for official city business and messenger services, such as the
delivery of City agenda packages and other City committee packages.
Central Services is an internal service division, funded by the internal service fund, which provides
services to other City departments as well as General Pension, and Fire and Police Pension, which
are consider external departments.
A chargeback system allows the Division to recover the cost of operation by charging departmental
users. The following section describes the processes and operations of their daily activities.
PROCESS DESCRIPTION
Central Services currently maintains three categories of work orders for City departments to
complete with the desire attributes or characteristics for every job that is requested.
The mail work orders are used and filled by the requesting department informing Central Services of
the quantity of mail to be sent, what type of mail (regular, certified, post card, international etc). The
following information is required for Central Services to be able to chargeback departments: date
submitted, contact number, department name as well as budget code. Central Services makes
notations on the work order as to the amount that should be charged at the end of each month.
Printing work orders are used by the department to enable them to be specific in how they would like
the print job to be performed, whether it is multiple pages, two side, type of papers to be used, color
ink, and the desired process (folding, binding whole punching collate etc). In return, Central
Services at the completion of the job writes the actual time taken to process the job, date completed
and total job cost in accordance with specifications.
Courier work orders are used to inform Central Services the type of document or package to be
delivered. This work order should include the recipients name, address, and telephone number.
Once the package is deliver and sign by the recipient with the date and time, Central Services writes
whether the courier was internal or external, the confirmation number, pick up and delivery date, and
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Internal Audit Report
Central Services Billing Audit
September 22, 2009
the cost incurred in order to chargeback the department at the end of the month.
In general, work orders are completed by departments and dropped in a work order in box located in
the Central Service office. Central Services logs in each work order and stamps with the date
received. The work order is assigned, depending on the job type (mail, print, etc.) to an individual to
be completed. The work order remains with the individual assigned until the job is complete. Once
the job is completed, the work order is logged out and a date of completion is recorded.
Consequently, the corresponding department is contacted to make arrangements for pickup or
delivery of the completed work. All costs incurred are then charged back to the requesting
department's budget code. Charge back rates are reflected on the Division's fee sheet. There is no
support as to how the charge rates were determined.
The Division has two vehicles that are available for departments to use for City business when
needed. A carpool log is kept with name, budget code and date and time that car is picked up and
returned. At the end of each month the log is utilized to bill each user department for the vehicle
usage.
OVERALL OPINION
Despite the efforts of the Central Services Division to provide quality printing, copying and mail
services to all City departments and agencies, Internal Audit found a number of deficiencies in
operational processes and controls that could represent a challenge for the Division to achieve its
operational and financial objectives. Billings to departments is not adequately performed on an
accurate or timely basis. Areas identified in need of immediate correction include:
• Current charge back rates may not be sufficient to cover all the Division's incurred costs.
• Completed work orders for Police and Fire Pension and the Miami Beach Employee
Retirement Plan are not being charged back to these agencies.
• Department Charge Backs/Billings are not processed timely.
• Cash advances are used when there are not sufficient funds to process large emergency
mail orders.
• Control logs for the use of the pool of city vehicles are not being completed and/or properly
filled out.
• Work orders forms are not being properly filled.
• Filing procedures for work orders are inadequate.
• An adequate inventory valuation and cost flow assumption is not currently in place.
• Policies and procedures are out dated and do not represent current charge back rates and
processes.
• There is no vendor invoice review process currently in place to ensure that amounts invoiced
for purchases and/or leased equipment utilization overages are accurate.
Additional details about these findings have been included in the "Findings, Recommendations, and
Management Responses" later on this report.
PURPOSE
The purpose of this audit is to determine whether Central Services is operating in accordance to
procedures for a City internal service division whereby their costs are charged back to user
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departments and that billing transactions are accounted for economically and efficiently processed,
accurately and properly recorded, and followed up.
SCOPE
1. Verify accuracy, appropriateness, and timeliness of billings for services within the Division.
2. Verify reliability and accuracy of direct and indirect costs from operations.
3. Determine the extent of deficits incurred by not charging out all services.
4. Verify and evaluate adequacy of controls and review procedures for vendor invoices,
purchases, inventory, and leased equipment.
FINDINGS, RECOMMENDATIONS, AND MANAGEMENT RESPONSES
1. Finding -Current charge back rates are not sufficient to cover all incurred costs.
The current fee structure used to charge back the Division's costs does not take in
consideration all cost factors resulting in the Division not fully recovering all of its costs. In
addition there was not substantiation for the basis used for the rates charged by the Division.
The amounts of revenue inflows generated by the charge backs to the Central Services
Division are not being in line with the total expense outflows generated as a result of
operations. According to an analysis of Central Services' inflows and outflows performed by
the Management Consultant of the Office of Budget and Performance Improvement (OBPI),
the Division experienced a deficit for the following three fiscal years:
.Fi~haiYear,··.•·.····•·····•·••·······.·•·'··•.·•· .......... · .. /·' ·.•.• ·< •• . .ZOOS/06 · 2006/0T 2007/08. Grand .Totals
InfiqW:siReven~es . · · . < > .> i $666,140 $760,819 $845,723 $2,272,682
Qutfh)ws·/Expent;e$ .. ··•····•···· < ,• ..
•• $784,135 $855,399 $904,747 $2,544,281
·· f\!efoperatiilg .Surplus ,/(Deficit)' $(117,995) $(94,580) $(59,024) $(271,599)
Although there are other reasons for the department to show more outflows than inflows,
including the late processing of charge backs, invoices not prepared for outside City
departments, work orders lost prior to being charged back, mentioned in our subsequent
findings in this report, these numbers reassure the insufficiency of current charge back rates
and appropriate cost allocations and accountability.
Currently, a fixed charge in the amount of $130 is charged to all City departments and
divisions for the collection, sorting, and distribution of mail and news papers. However, large
departments like Police, which have multiple divisions and budget codes, are not being
consistently charged for this fee. Initially, all divisions within the department were charged
back for the fee. However, there are occasions in which one of the multiple Police budget
code was billed one month and another budget code billed the second or pro-rated among all
the divisions. Results from inquiries with Central Services suggested that it was done this way
under the assumption that the Police was being charged multiple times.
Factors not considered in the current fee structure include the increases in overhead, direct
and indirect costs, wage increases as a result of cost of living adjustments or merit increases
and excess inventory utilization.
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Time worked per job is not adequately tracked. There are no job time tickets currently created
to effectively account for the time spent by the employees performing the assigned jobs, which
is later charged back to the department responsible for the work order. Not creating time
tickets compromises the accuracy of charge back amounts, as Internal Audit witnessed how
the time spent on a job was questioned and erroneously corrected due to lack of support
documents and/or accurate descriptions.
Furthermore, as a result of conversations with the Division's personnel, Internal Audit learned
that, although not frequently, there have been jobs accepted and completed that were charged
back for less than the incurred costs, as a result of complains from the department requesting
the services with respect to the charge back amounts and comparing them to outside
competitors.
In conjunction with the preparation of the 2009/10 budget, a new rate structure utilizing all
direct and indirect costs has been recently developed with the assistance of OBPI. Rates
were broken out by mail processing and printing jobs. It is anticipated to begin using this new
rate structure in the fourth quarter of this year.
Recommendation(s)
The Division should begin using the newly charge back rates on a consistent basis.
Furthermore, the fee structure should be updated annually, at a minimum, in order to capture
fluctuations in costs. Once updated, the fees should be consistently applied to all departments
for work orders completed.
Time worked tickets should be created for every job and attached to each work order once the
job is complete in order to document time spent by personnel on that particular job.
Implementing this procedure will better document and minimize questioning about time spent
on a job by any individual(s), as well as improve the reliability of the amounts charged back to
the departments.
Established charge back rates should be consistently applied to all City departments and
Divisions as applicable. In addition, the Division should perform reviews to budget codes
annually, at a minimum, to ensure that charge backs are being applied to the appropriate
corresponding departments and/or divisions. Furthermore, no jobs should be performed for
less than the costs incurred to complete it.
Management's Response
Central Service agrees with the auditor's comments, and the following action will be taken to
improve the situation. Central Service has been working with OBPI develop new charge back
rates. The new charge back rates will be given to all staff members to make sure that the new
rates are charged for all jobs completed for all departments. This will also include a revision of
all departmental budget codes. An annual review of the rates will be done prior to the
beginning of the fiscal year and in time for the new budget. Time worked tickets will be
created and will be attached to each work order to account for employees' time spent
performing assigned job.
2. Finding -Completed work orders for Police and Fire Pension, and the Miami Beach
Employee Retirement Plan are not charged back.
The Central Services Division provides services to the Miami Beach Police and Fire Pension,
and to the Miami Beach Employee Retirement Plan, which are considered independent
departments from the City's regular operations. As a result, these departments do not have a
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budget code assigned for Central Services to charge back the services provided.
Consequently, a City invoice must be created in order to charge back the costs incurred by
Central Services Division while providing such services to these departments.
Invoices to charge back these departments for services rendered were not being prepared
resulting in the division not recovering it share of costs. During our testing, at least seventeen
(17) work orders, mainly mail work orders, were identified that have not been charged back to
the Miami Beach Employee Retirement Plan totaling $2,479.27 including services rendered
during October and November of 2008.
Recommendations
A review of all outstanding balances from the Police and Fire Pension, and the Miami Beach
Employee Retirement Plan should be conducted and an invoice charging the outstanding
amounts to the corresponding departments should be created and sent immediately.
Concurrently, the Division should invoice the outstanding balances for any future services
rendered to these departments immediately after the work is completed.
Management's Response
Balances for Police and Fire Pension, and Miami Beach Employee Retirement Plan have been
forwarded to Finance to invoice said departments. At the same time, we will begin to send
invoices for services immediately after the work is completed.
3. Finding -Department charge backs/billings are not processed timely
Charge backs to City departments, as a result of work completed are not being processed by
Central Services immediately after the job is completed. Consequently, Internal Audit found
that work completed in a given month could be charged back to the corresponding department
in subsequent months. Continuing to operate in this manner represents a problem
considering that City departments could be charged back for work orders budgeted for in
previous fiscal years during a subsequent fiscal year in which those expenses may not have
been budgeted at all. As a result a surplus, or favorable variance, will be reflected on the
fiscal year in which the job was performed, and a deficit, or unfavorable variance, will be
reflected on the subsequent fiscal year for the corresponding department with respect to their
budgeted expenses. The inverse will happen for Central Services with respect to their
budgeted revenue. Lastly, accrual basis of accounting require that revenues are recorded
when earned and expenses when incurred. Not recording the charge backs once the work
has been completed contradicts this requirement.
Work orders are not pre-numbered and are not being consistently logged into an excel control
log sheet used by the Division to maintain accountability of all work orders, as well as work
flow and job status. In addition, information on the excel control log can be edited by anyone
with access to the Division's server drive without any audit trails.
Recommendation(s)
Charge backs to the appropriate departments, as a result of work completed, should be
submitted to the Finance Department immediately following the end of the month in which the
job has been completed. Large jobs that are divided into multiple phases for completion
should be charged back to the corresponding department through progress billings in order to
avoid waiting until the entire job is complete. A detailed report including the jobs and costs
charged out should be submitted to each department on a monthly basis. Implementing these
changes will contribute to improve the accountability resulting from the Division's daily
operations, as well as ensuring that every job performed and completed is appropriately
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charged back.
The Division could consider the implementation and/or acquisition of a system that could help
them track work flows and job status, as well as generating audit trails for information changed
or edited. In addition, all work orders should be sequentially pre-numbered and logged into
the system, or control log, and stamped with the date as soon as they are received. The work
order sequence could start with an identifier number or code for each City department. Then
the status/progress of all work orders can be tracked through the different stages/phases until
the job is complete and the work order is closed. Implementing these procedures should
improve the efficiency and controls of the Division. It should assist in improving the
accountability of work orders and provide better audit trails for any changes. It would also
assist in the chargeback and budgeting process by documenting and accounting for all work
orders by each City department and/or division.
Management's Response
Work orders will be pre-numbered. Also, Central Service will create a log sheet to track the
date a work order have been received, the document name, number of copies, the cost of the
job and date completed. This will be maintained daily until time to process charge backs and
then submitted to the Finance Department.
The turnaround time for work orders will vary depending on the type of requests and the
workload. To ensure that work orders are processed in a timely manner, each work order will
be time-stamped and Mr. Ireland will work with staff to complete print jobs at a maximum of
five (5) business days. If a print job is assumed to take up more time, the department will be
notified.
4. Finding-Cash Advances for Postage
Occasionally, City departments may have emergency mail requests that need to be processed
as a priority. Unfortunately, the available postage reserves on the account may not be
sufficient to process the job at that time, but meanwhile, the mailings can not be delayed until
a check is prepared and submitted by the corresponding department. As a result, a request
for cash advance is submitted to the vendor (Neopost) in order to have sufficient funds to
process the mail order.
Consequently, a vendor fee of thirty ($30.00) dollars per thousand of cash advanced is
incurred by the Central Services Division, plus the charges incurred for mailing a check to
repay the advances later. During our audit period, Internal Audit was able to identify
approximately $2,147 of cash advance related expenses. These expenses have not been
considered in the current fee structure and were not charged back to the departments
requesting the mail orders.
Recommendation(s)
Proper planning of large jobs would eliminate cash advances for postage. Departments
requesting large mailing jobs should give the Division adequate time to replenish postage in
the machine. lffunds are not available for postage, Central Service should request additional
funds through the normal process with the Budget Office or require the department to transfer
in advance the appropriate corresponding funds.
Management's Response
At the time a department requests a large job and postage funds are insufficient, a written
request will be sent to the department, with a copy to Budget, via email requesting addition
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funds to complete the job.
5. Finding -City Vehicle Charge back.
The department has two pooled vehicles which other departments utilized to perform work on
behalf of the city. These are older vehicles which are fully depreciated and do not require
much maintaince costs. Control logs for the use of the pool of city vehicles could only be
located for three months. For these three control logs reviewed we noted that the logs are not
being completed and/or properly filled out making it difficult to process the correct charge back
amounts. We could not determine if these vehicles are fully being utilized.
In addition to this fee, amounts charged for the use of vehicles from the City's vehicle pool
were inconsistently charged. In reviewing the vehicle logs for three months (the only logs
available) for a total of thirty two (32) vehicle rental occasions, one (1) was calculated at a rate
of $4.5 per hour and sixteen (16) had no time of return, but were computed as $5.00 per hour.
Nonetheless, current billing rates, as noted on Division's departmental charges sheet, are
$7.50 per hour, or fifty ($50) per day. Most of these charges were not traceable to the monthly
charge backs.
Recommendation(s)
Vehicle control logs should be maintained and individuals from all departments using City
vehicles from the vehicle pool should fill in the appropriate information, provide a copy of the
driver's license of the individual driving the vehicle, and enter the date and time in which the
vehicle was taken and returned. This information should be verified by the Division to ensure
reliability and accuracy. Further analysis to determine if the pooled vehicles are fully or under
utilized should be performed once completed control logs are maintained.
Management's Response
Vehicle logs will be better maintained where the log will be kept by the Central Services
Coordinator and/or Administrative Assistant. We will obtain a copy of the license of the
individual who is requesting the vehicles. Both the times of when the vehicle(s) was taken and
returned will be noted. The charges will correspond to rates on charge sheet, which is
$7.50/hour and fifty ($50)/day.
6. Finding -Work orders are not being properly filled out.
There are work orders that have been corrected or improperly filled out by Division personnel
making it hard to identify the amount of time spent on the job, the type of paper used, the
number of copies or the types of work performed. In addition, contact information and budget
codes for the City departments submitting the work orders are sometimes incomplete. Out of
our reviewed sample of twenty work orders, three (3) or 15% were improperly filled making it
difficult to verify whether the amounts charged back to the department were correct.
Recommendation(s)
All work orders should be properly and consistently filled by the employee assigned to show
the characteristics of the work being performed in order to ensure proper charge back rate
application. In addition, Division personnel should review the information of the City
department submitting the work order to ensure completeness and accuracy.
Management's Response
A centralized filing area will be created to keep all the work orders together. The work orders
will be reviewed, by the Central Services Coordinator and the employee assigned to the job,
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before beginning the job to make sure that all areas are completed to cause no further delay of
a job. The department will be contacted via telephone to discuss the missing information.
7. Finding -Filing procedures for work orders are inadequate.
A central filing system is not currently in place to file all in process and completed work orders
along with their corresponding supporting documents. As a result, Internal Audit witnessed
how work orders were lost before the job was completed. In addition, Internal Audit found
work orders that had already been charged back to the corresponding departments being filed
together with work orders that had not been charged back yet. From a sample of twenty nine
(29) work orders, , only twenty (20) work orders were provided by the Division and nine (9)
were not found and therefore not provided to Internal Audit.
Continuing to operate in this manner contributes to a deteriorating accountability of work
performed, as well as amounts charged back to the City departments. Some of those work
orders that were lost may end up never being charged back to the departments, depending on
when they were lost (before or after the job is completed). If the work order is lost after the
work has been completed, but before it is charged back to the appropriate department, then
that is when a greater risk exists for the work performed to never be charged.
In addition, Internal Audit learned through inquiry that in some cases where a work order was
misplaced before the job was completed, a second work order was created to replace it.
Since the work orders are not pre-numbered, duplicating a work order increases the chances
that a duplicate charge is processed to the corresponding department for the same services
being provided.
Recommendation(s)
A central filing system should be implemented for all work orders in which the work have been
completed and separated from those that are either pending, or in progress. In addition, an
inbox and outbox should be kept at every employee's desk, or in a centralized location for
each employee, in order to place those incoming or assigned work orders and those that have
been completed and ready to be charged back separate from each other and from other
supplies or machinery. This should contribute to reducing the misplacement of work orders.
Management's Response
There will be a centralized area for all work orders, where there will be a box for work order
completed, pending, or progress to keep track the orders and to make sure that they are
added to the list for the end of the month charge back to the correct department. Management
will seek assistance from Budget and/or Finance to work out a system where each employee
will log in the work orders by work order number; this will also help keep files in order and also
keep track of where the work order is and who worked on it.
8. Finding -.Inventory valuation method
No inventory utilization controls are currently in place to account for inventory usage, damaged
inventory, as a result of equipment malfunction, or over-utilization by any other reason. In
addition, inventory purchases are completed based on observed inventory levels, without
accountability of how or on which jobs was the previous inventory used, unless the purchases
are for jobs with particular characteristics requiring specific materials. Also Inventory is easily
accessed and not in a centralized location with restricted access.
In addition, an adequate inventory valuation method is not currently in place. Historically, the
Division has performed inventory physical counts at fiscal year end, in order to determine how
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many units of each inventory item are physically on hand. Once the count is completed, the
different categories of inventory items on hand have been valued and recorded at the last
unit's purchase price. Any variance is then posted to the expense account as an increase in
expense, if inventory decreases, or a decrease to the expense, if the inventory increases.
Internal Audit observed a few inventory items (Xerox plastic binders) that are excess/obsolete
inventory, according to Central Services personnel, but have not been categorized as such.
The value of these obsolete items has been estimated to be $4,750.74 out of a total inventory
value of $20,601.35 at September 30, 2008.
Recommendation(s)
Although immaterial to the overall financial condition of the City, The department should
consider valuing the inventory at its historical cost under a First In, First Out (FIFO) cost flow
assumption, rather than at its latest acquisition cost. Historical cost under the FIFO method
better reflects the actual operations and inventory utilization of the Division. In order to
improve inventory controls, the Division should consider the acquisition/implementation of a
software system for inventory management. Inventory utilization, including damaged
inventory, should be recorded and referenced to the corresponding job and/or work order in
which it was used.
Furthermore, obsolete inventory should be identified and categorized as such, and the option
of whether to dispose of it or auction it should be contemplated. Implementing these
procedures should help to improve the accountability of the assets and costs of the Division.
Management's Response
Inventory will be taken to identify supplies that are being used, those that are not, and those
that are outdated. The obsolete items valued at $4,750 were inherited. Management will work
with Procurement to recover that monies for those items through an auction or suggest those
items to be used for a work order.
9. Finding -Out dated Policies and Procedures.
Even though there are policies and procedures currently in place, they are very general and
have not been updated to incorporate all current operation procedures (example: postage
cash advances) and fee rates in use by the Division.
Recommendation(s)
Current policies and procedures should be updated in order to incorporate current Division
processes and charge back rates. Once updated, they should be fully documented and
distributed to the employees to be consistently followed.
Management's Response
Management will have each staff member document the policies and procedures for their
respective processes then combine these documents into one manual that will be available to
all in the department. Corrections to the current policies and procedures will be made as
needed to make certain that it is current all the time from now on. The staff will be notified of
the updates as they are completed.
10. Finding -Invoice review process
There is no vendor invoice review process currently in place by the Division to ensure that
amounts invoiced for purchases and/or leased equipment utilization overages are accurate.
The Division has not been recording the beginning and ending counts from the copy
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machines to verify and ensure accuracy of vendor invoices.
Recommendation(s)
A review process for vendor invoices should be Implemented and documented through
policies and procedures by the Division. The review process should incorporate recording
usage counts for leased equipment, documenting quantities purchased and quantities
received, etcetera, in order to compare them to the information and amounts on the vendor
invoices. When purchases are made, proper documentation for support could include
purchase order/request, vendor packing slips, receipts if provided, etc.
Management's Response
A review process will be implemented as soon as possible and policies and procedures of the
review process will be added to the manual. Management will seek guidance from Finance to
aid the administrative assistant and myself to keep these records in order to avoid further
errors with vendors.
EXIT CONFERENCE
An exit meeting was held on September 17, 2009 to discuss the audit report and to solicit
management responses noted above. Participants included City Clerk Robert Parcher, Central
Services Coordinator Donnovan Ireland, Internal Auditor James Sutter, Assistant Auditor Laura
Franco-Rubines and Auditor Fidel Miranda. Audit findings and recommendations were discussed,
as were management responses, and are included herein. Central Service agrees with the auditor's
comments, and has begun to take action to improve the situation. As a general response, the
department indicated that out of the 10 findings, seven (7) #1, #2, #3, #4, #5, #6, #7, and #1 0 dealt
with invoicing and charge backs. Changes will be made in the beginning of FY09/1 0 which will
provide better controls over invoicing, chargeback and record keeping.
JJS:LR:fm
Audit performed by Laura Franco-Rubines, Assistant Internal Auditor, and Fidel Miranda, Auditor
F:\obpi\$AUD\INTERNAL AUDIT FILES\DOCOB-09\REPORTS-Finai\CENTRAL SERVICES BILLJNG.doc
cc: Hilda Fernandez, Assistant City Manager
Robert Parcher, City Clerk
Patricia Walker, Chief Financial Officer
Donnovan Ireland, Central Services Coordinator
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