Agenda 02/28/2017 Item #16J 402/28/2017
EXECUTIVE SUMMARY
To provide to the Board of County Commissioners the Clerk of the Circuit Court’s
Internal Audit Report 2017-3, 2015 Facilities Management Division: 2015 Fiscal Year-End
Inventory.
OBJECTIVE: To provide the Board of County Commissioners (Board) the issued Audit Report
2017-3, 2015 Facilities Management Division: Fiscal Year-End Inventory.
The Audit Report was delivered to the Board on Wednesday, February 22, 2017, and is available
electronically on the Clerk of Courts website.
The Clerk’s website for published Internal Audit Reports, once they are no longer confidential:
Report:
<https://www.collierclerk.com/clerk-to-the-board/finance/internal-audit/published-reports/>
Internal Audits do not become public record until delivered to the Board by the Clerk’s Office.
GROWTH MANAGEMENT IMPACT: None
FISCAL IMPACT: None
RECOMMENDATION: That the Clerk’s Audit Report 2017-3, 2015 Facilities Management
Division: Fiscal Year-End Inventory, be entered into the record.
Prepared by: J. Patrick Blaney, Senior Internal Auditor
Office of the Clerk of the Circuit Court
ATTACHMENT(S)
1. Final.FM Inventory (PDF)
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02/28/2017
COLLIER COUNTY
Board of County Commissioners
Item Number: 16.J.4
Doc ID: 2792
Item Summary: To provide to the Board of County Commissioners the Clerk of the Circuit
Court’s Internal Audit Report 2017-3, 2015 Facilities Management Division: 2015 Fiscal Year-End
Inventory.
Meeting Date: 02/28/2017
Prepared by:
Title: Fiscal Technician I – Clerk of the Circuit Court
Name: Jennifer Milum
02/22/2017 4:48 PM
Submitted by:
Title: Fiscal Technician I – Clerk of the Circuit Court
Name: Jennifer Milum
02/22/2017 4:48 PM
Approved By:
Review:
Office of Management and Budget MaryJo Brock Level 3 OMB Gatekeeper Review Skipped 02/22/2017 4:43 PM
County Attorney's Office MaryJo Brock Level 3 County Attorney's Office Review Skipped 02/22/2017 4:43 PM
County Manager's Office Leo E. Ochs Level 4 County Manager Review Completed 02/22/2017 4:52 PM
Board of County Commissioners MaryJo Brock Meeting Pending 02/28/2017 9:00 AM
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Internal Audit Department
Audit Report 2017-3
Facilities Management Division:
2015 Fiscal Year-End Inventory
Dwight E. Brock
Clerk of the Circuit Court
and Comptroller
3299 Tamiami Trail East
Suite #402
Naples, FL 34112-5746
www.collierclerk.com
Issued: February 22, 2017
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Prepared by: Patrick Blaney, Senior Internal Auditor
Report Distribution: Board of County Commissioners
Leo Ochs, Jr., County Manager
Nick Casalanguida, Deputy County Manager
Jeff Klatzkow, County Attorney
Len Price, Administrative Services Department Head
Dennis Linguidi, Facilities Management Division Director
Cc: Dwight E. Brock, Clerk of the Circuit Court
Crystal K. Kinzel, Director of Finance & Accounting
James D. Molenaar, Internal Audit Manager
TABLE OF CONTENTS
SUMMARY ..................................................................................................................................2
OBJECTIVES ...............................................................................................................................2
SCOPE ..........................................................................................................................................2
BACKGROUND ..........................................................................................................................2
OBSERVATIONS ........................................................................................................................3
SUBSEQUENT IMPROVEMENTS ............................................................................................5
CONCLUSION .............................................................................................................................5
EXHIBIT A ...................................................................................................................................6
The files and draft versions of audit reports are confidential and exempt from public records requests during
an active audit under Nicolai v. Baldwin (Aug. 28, 1998 DCA of FL, 5th District) and §119.0713, Florida
Statutes. Workpapers supporting the observations noted within this report become public record and will be
made available upon request once the final audit report has been issued.
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Internal Audit provided a draft of this report to the Administrative Services Department and the Facilities Management
Division for management response on April 27, 2016. County management provided that response on May 18, 2016.
Summary
This review generated the following observations regarding the Facilities Management Division’s 2015 fiscal year-
end inventory:
Facilities Management Should Develop Proper Inventory Controls.
Reported Line Item Unit Costs Could Not Be Completely Validated.
Facilities Management Should Maintain Perpetual Inventory of Consumables.
Objectives
The objectives of the review were to validate the count of inventory items reported, and to confirm the associated
costs assigned to those items.
Scope
The audit engagement consisted of, but was not limited to, the following tasks:
Researching Facilities Management’s fiscal year-end Accounting Memoranda for 2010 through 2015;
Reviewing the division’s Inventory and Costing Process Narrative and inventory training documents;
Observing Facilities Management staff’s physical inventories of consumable supplies at various locations;
Reviewing the detail and summary records generated from those physical inventories, including copies of
actual inventory count sheets;
Inquiring of management as to the inventory and record-keeping processes;
Reviewing CMA 5809, MANAGING PERSONAL PROPERTY AND CONSUMABLE SUPPLIES; and
Testing the inventoried quantities and extended values reported.
Background
CMA 5809, MANAGING PERSONAL PROPERTY AND CONSUMABLE SUPPLIES, states that property
custodians shall designate persons to maintain an ongoing, up to date perpetual inventory of consumable items.
The Clerk’s Finance Department issued an Accounting Memorandum to County Divisions as part of its routine year-
end procedures. Among other inquiries, the Accounting Memorandum asked if the entities had any inventories at
fiscal year-end. Although it had not previously reported any inventory to Finance, at 2015 year-end the Facilities
Management Division estimated its inventory to be approximately $1.85 million.
On September 18, 2015, the Internal Controls Manager invited the Clerk’s Finance Department to attend Facilities’
physical inventory counts. The Finance Director dispatched Internal Audit to observe those inventory counts, and
then to test the resulting reported amounts. Facilities personnel conducted a physical inventory of consumable supplies
at 2015 fiscal year-end. Facilities reported the values derived from the inventory to the Finance Department for
inclusion in Collier County’s financial statements.
Facilities Management crafted an “Inventory and Costing Process Narrative” that described ordering, tracking,
safeguarding, pricing, and year-end reporting of inventories. The narrative, dated 9/30/2015, addressed review and
evaluation to minimize obsolete parts in inventory. Once identified, obsolete parts are to be disposed in accordance
with the Purchasing Policy. Internal Audit observed obsolete items being segregated from usable inventory during
Facilities’ count. Facilities staff stated that those items would be disposed in accordance with approved procedures.
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Observations
1) Facilities Management Should Develop Proper Inventory Controls.
The Facilities Management Division had not reported the existence of its physical inventory. This is borne out in the
Division’s annual responses to the Finance Director’s fiscal year-end Accounting Memoranda (Exhibit A). When the
Division realized in 2015 that it carried inventory, its incomplete re cords and basic physical count yielded results that
were fraught with errors.
CMA 5809, MANAGING PERSONAL PROPERTY AND CONSUMABLE SUPPLIES, defines consumable
supplies, or consumables, as tangible personal property with a useful life of less than one year or an acquisition value
of less than $1,000. Per Section 5809-4 B, the property custodian is to designate the person(s) responsible for
inventorying consumables. This section requires the maintenance of an ongoing, up to date perpetual inventory of
consumables. Facilities Management’s responses to the fiscal year-end Accounting Memoranda are not in compliance
with this CMA. Inattention to detail, insufficient training, or an attitude of “going through the motions” when
completing the annual Accounting Memoranda may have contributed to the ensuing inaccurate inventory reporting
over the years.
The effects of not recognizing year-end inventories include the potential loss of assets due to inadequate tracking, the
waste of overstocking certain items, and inaccurate entries to the county fi nancial statements.
Recommendation:
Facilities Management should strengthen its physical inventory procedures in order to reduce the risks of loss,
waste, and inaccurate financial reporting, and to comply with the intent of prudent asset safeguarding
expressed in CMA 5809.
County Management Response:
“Facilities Management had certain controls in place for the inventory stored in buildings. These controls are
comprised of secured access, cataloging and barcode organization, a system to track inventory items, a process for
receiving and distributing parts, and routine internal spot check audits for random samples.
The Facilities Management Division will continue to work diligently to meet inventory management requirements.”
2) Reported Line Item Unit Costs Could Not Be Completely Validated.
Facilities Management estimated its inventory to be approximately $1,850,000 in its Accounting Memorandum
response. Facilities staff used historical costs to value approximately 70% of the inventory. Facilities valued the other
30% by estimating fair market value and discounting it 24% “based on the average percentage of the Grainger contract
(current parts supplier).”
To test the values assigned to line items, Internal Audit selected the highest cost per unit items from the greatest total
dollar location as a sample. The greatest total dollar location was “Building W – 2nd Floor/System” and the majority
of its consumables were valued at historical cost. There were 25 line items reported with unit costs of $1,000 or more.
Facilities’ Internal Controls Manager supplied supporting documentation for costs of 24 sample items.
For the remaining sampled item, a Leviton porcelain extension mogul valued at $3,554.69, Facilities reported an
“Error in Entry.” No valuation support was provided. However, Internal Audit found Leviton porcelain extension
moguls on the Grainger website priced at $7.20 and $6.36 each.
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Facilities provided documentation of comparable costs that were less than the costs reported to Finance for eight
(32%) test items. Comparable costs that are less than reported costs indicate that inventory valuation may be
overstated.
Facilities provided comparable costs that matched reported costs for ten (40%) test items, and comparable costs that
exceeded costs reported to Finance for six (24%) more test items. Therefore, although Facilities Management failed
to maintain all records of acquisition costs, staff was able to provide support for the costs of 16 of 25 (64%) sample
items.
Facilities Management’s 9/30/2015 “Inventory and Costing Process Narrative” detailed procedures to record prices
at the time of purchase. The Narrative further included a contingent method for costing inventory should the
acquisition price not be recorded initially. These procedures may improve future inventory valuation.
Assets recorded in financial statements need to reflect reasonably accurate costs. If historical cost is not recorded at
the time of acquisition, then the opportunity to capture costs accurately may be lost.
Recommendations:
Since CMA 5809 mandates that management maintain perpetual inventory records, acquisition costs should
be properly recorded as consumable supplies are received.
Management should document inventory acquisition costs for audit purposes.
County Management Response:
“The Facilities Management Division will continue to work diligently to meet inventory management requirements.”
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3) Facilities Management Should Maintain Perpetual Inventory of Consumables.
In its response to the 2015 fiscal year-end Accounting Memorandum, Facilities Management asserted the existence
of inventory in 30 trucks. Facilities had not previously recognized the inventory carried in these trucks. This loss of
control of an up-to-date perpetual inventory of consumables refutes the concept behind CMA 5809, MANAGING
PERSONAL PROPERTY AND CONSUMABLE SUPPLIES, which embraces the prudent utilization and
safeguarding of consumable supplies. The potential effects of this lack of control include purchasing parts already in
stock, overstocking certain items, carrying obsolete parts, and accounting inaccurately for assets.
Recommendation:
Facilities Management should comply with CMA 5809’s perpetual inventory of consumables requirement in
order to control and report inventory properly.
County Management Response:
“The Facilities Management Division will continue to work diligently to meet inventory management requirements.”
Subsequent Improvements
In 2016, the Facilities Management Division updated its “Inventory and Costing Process Narrative.” The narrative
now includes materials as well as parts. It states that the Division may internally conduct or outsource its annual year-
end inventory count. If outside vendors perform the count, Facilities personnel will observe the process, and may test-
count random items to ensure validity.
Facilities Management has also drafted new guidelines for inventory control and procedures “to minimize stale or
obsolete parts in its stock inventory.”
Conclusion
CMA 5809-4 B (2) mandates that a designated person maintains an ongoing, up to date perpetual inventory of
consumables “at whatever level deemed appropriate by the custodian.” Management should determine what that
appropriate level is, and strive to maintain its inventory records accordingly.
Audits do not relieve management of its responsibilities. It is the responsibility of County management to understand
and implement the proper procedural controls to limit the risk of fraud, error, and misappropriatio n of County assets
or revenues. Internal Audit may recommend improvements, but ultimately it is the duty and decision of County
management to formulate processes and controls that ensure compliance with applicable rules and regulations.
Internal Audit acknowledges the cooperation of Facilities Management personnel for their assistance in this review.
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Exhibit A
Pertinent excerpts from the fiscal year-end Accounting Memoranda submitted by Facilities Management:
Fiscal Year-End 2010:
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Fiscal Year-End 2011:
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Fiscal Year-End 2012:
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Fiscal Year-End 2013:
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Fiscal Year-End 2014:
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Fiscal Year-End 2015:
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