HomeMy WebLinkAboutFCS-17-013 - 2018 Internal Audit & Service Review Work Plan
REPORT TO: Audit Committee
DATE OF MEETING: December 11, 2017
SUBMITTED BY: Corina Tasker, Internal Auditor, 519-741-2200 ext. 7361
PREPARED BY: Corina Tasker, Internal Auditor, 519-741-2200 ext. 7361
WARD(S) INVOLVED: All
DATE OF REPORT: November 30, 2017
REPORT NO.: FCS-17-011
SUBJECT:4th Quarter Audit Status Report
___________________________________________________________________________
RECOMMENDATION:
No recommendation required. The following information is being provided as an
update and assurance on internal audit matters, in accordance with the Audit
Committee Terms of Reference.
BACKGROUND:
The following report provides a summary of the Internal Audit activities completed
during the period of October 2017 to November 2017. The chart below shows the
audits contained in this report.
Division / Topic Scope
Physical Inventory Inventory Count
The following items are currently in progress and will be brought forward at a future
audit committee meeting:
By-law Enforcement – Property Standards, process / capacity review
Fire Administration, process / capacity review
Winter Maintenance, comprehensive audit
SAP user access – separation of duties
*** This information is available in accessible formats upon request. ***
Please call 519-741-2345 or TTY 1-866-969-9994 for assistance.
3 - 1
REPORT:
1. Physical Inventory
Status: Complete, October 28, 2017
Audit Process and Findings
Internal Audit participated in the annual physical inventory counts at the Kitchener
Operations Facility (KOF) location. Standard floor-to-sheet and sheet-to-floor audits
were done to confirm the physical quantity of parts on hand compared to what staff had
counted. The audit covered 19% of the total value of inventory. The sheet-to-floor
audits covered the top 30 unit values and top 30total values. The floor-to-sheet audits
consisted of 30 random shelf locations. Ten variances, which equates to 11% of the
sample, were found through this verification process which resulted in an $11,699 write-
down.
Total Adjustments
In 2017 the total adjustments for the year to date (up to Nov.29) were $297,306 write-
down which represents 3.2% of the total inventory purchases for the year to date of $9.3
million. Industry standards indicate that up to 2.5% is an acceptable shrinkage rate.
However, this year there were two large adjustments totalling $77K made in non-
controllable stock which normally would not happen. They were the result of
miscommunication between staff and vendors and are anomalies. If those two
anomalies are removed from the total, the shrinkage rate is reduced to 2.3% which is
within acceptable limits. The ending inventory balance was $2,080,589.
The 2017 total adjustment is higher than 2016. However, if the two anomalies are
removed, the 2017 total is comparable to 2016.
Year 2016 2017 year to date - 2017 year to date –
up to Nov.29 excluding anomalies
Total write-down $219,438 $297,306 $219,543
Controllable Stock Adjustments
Of the 2017 adjustments, only $12,555 write-down was from controllable stock (i.e.
stock which the Stores staff have direct control over with regards to purchases and
usage). The magnitude of these adjustments is comparable to 2016, although is a
write-down this year instead of a write-up. Many of the adjustments relate to unit of
measure errors (for example cases vs. individual units within a case). Work will be
undertaken by Stores to identify and clarify all parts which have a unit of measure other
than individual units in order to avoid adjustments in the future.
Year 2016 2017 (up to Nov.29)
Controllable stock write-down (write-up) ($9,525) 12,555
3 - 2
Uncontrollable Stock Adjustments
The remaining $284,751 of write-downs is related to stock which is located in unsecured
outside locations within the KOF yard which are not under direct supervision by the
Supply Services division. The write-downs are caused by City staff having unrestricted
access to take the inventory for use in their jobs without notifying Stores staff to relieve
inventory in the system. Many of the variances are related to aggregates and road
building supplies.
Supply Services delayed changes to the utilization of the scale and layout of the
inventory located outside until the completion of the Aggregates review in mid-
2017. Operations and Supply Services are working together to implement the
recommendations of the aggregate audit in alignment with the work Supply Services
had underway to improve controls around non-controllable stock. This project includes
integration of the scale with the City’s financial system (SAP). This collaborative
approach will ensure that the yard layout and utilization of the scale will provide
increased controls for the aggregates and other non-controllable stock and will continue
into 2018.
The adjustments for uncontrollable stock included the following:
(Note that positive numbers represent write-downs and negative numbers represent
write-ups.)
Material Group 2016 2017 (up to Nov.29)
Manholes & catch basins $4,726 $30,923
Road building materials $44,331 $39,193
Road maintenance supplies (includes salt) $180,278 $174,101
Seed, sod, fertilizer ($1,422) $31,420
Sign shop – raw materials $6,565 $10,366
Steel, aluminum, plate $0($20,828)
All other categories ($6,938) $19,572
Total write-downs (non-controllable stock) $228,964 $284,751
Overall, the physical inventory process is in control. Adjustments to controllable stock
are considered negligible. Adjustments to uncontrollable stock are to be expected given
a lack of process to effectively relieve inventory, and are considered very small
regardless.
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
This report supports the achievement of the city’s strategic vision through the delivery of
core service.
FINANCIAL IMPLICATIONS:
There are no financial implications related to this report.
3 - 3
COMMUNITY ENGAGEMENT:
INFORM – This report has been posted to the City’s website with the agenda in
advance of the council / committee meeting.
ACKNOWLEDGED BY: Lesley MacDonald, Acting Deputy CAO, Finance and
Corporate Services
3 - 4
STATUS
AUDIT
QUARTER
011
17
FCS 4THREPORT
3 - 5
review
audit
Standards,
capacity
/
comprehensive
ΑtƩƚƦĻƩƷǤ
process
duties
review
of
Summary
capacity
Inventory
/
Maintenance,
Enforcement
ΑƭĻƦğƩğƷźƚƓ
Administration,
law
progress:
PhysicalBy
processFireWinterSAP
Complete:In
3 - 6
INVENTORY
Verification
Count PHYSICAL
3 - 7
by
captured
Process
value
and
counts
staff
audits:
audits:
values
values
inventory
locations
counts
floor
verify
sheet
totalunit
total
Objective
to
3030
to
random
of
TopTop30
–––
verification
SheetFloor19%
Objective:•••
3 - 8
write
Adjusted
Nov.29)
$219,543
rate
of
$11.7K
(as
audit:
(Nov.29)2017
down
shrinkage
2017$297,306
2.5%
during
write
anomalies
is
Results
for
date
purchases
found
2016
to
standard
total
adjusted
of
year
down$219,438
variances
2.3%
Write
–
10downTotal3.2%Industry
Year Total
••••
3 - 9
Amount$31.4K
down
plate($20.8K)
down
materials$39.2K
small
write
write
sod,fertilizer
very
$284.8K
and
Adjustments
=
$12.6K
=
of
AmountMaterial$19.6K
stock
expected
stock
control
supplies$174.1KSeed,
in
basins$30.9KRoadbuilding
Detail
materials$10.4KSteel,aluminum,
catch
&
raw
categories
maintenance
ControllableUncontrollable
ProcessAdjustments
Shop
other
••••
Material ManholesRoadSignAll
3 - 10
and
measure
layout
of
from
unit
yard
with
units
scale
Improvements
regarding
parts
weigh
flag
audit
recommendations
individual
of
and
Planned
than
IdentifyotherImplementAggregatesutilization
••
3 - 11