April 2012 audit of the University of Hawaii Manoa Facilties Office

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The University of Hawaii internal auditor reviewed the Facilities Management Office at UH Manoa and found problems with inventory control at facilities warehouses.

Transcript of April 2012 audit of the University of Hawaii Manoa Facilties Office

UNIVERSITY OF HAWAII AT MNOA OFFICE OF FACILITIES AND GROUNDS REVIEW (Phase I) April 2012

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University of Hawaii Office of Internal Audit

Office of Internal Audit

April 24, 2012 To the University of Hawaii Board of Regents and University of Hawaii at Mnoa Vice Chancellor for Adminstration, Finance and Operations This report supplements a June 2011 report prepared by the Office of Internal Audit (Internal Audit) assessing the Office of Facilities and Grounds (OFG) implementation of recommendations contained in an Accuity LLP (Accuity) agreed-upon procedures report dated October 12, 2009. Internal Audits June 2011 report concluded that 50% of Accuitys recommendations were implemented. However, pursuant to correspondence dated October 18, 2011 and a presentation at the October 26, 2011 Board of Regents Committee on University Audits (Audit Committee) meeting, OFG personnel stated that all recommendations were implemented. Accordingly, this report evaluates this statement regarding OFGs management and controls with respect to inventory. This report also addresses OFGs management and monitoring of financial operations, in addition to certain human resource matters, such as employee monitoring and work performance evaluation. This report is organized to provide historical information on OFG reports issued in previous years and the status of recommendations noted in those reports, discussion of the timing of Internal Audits current year work, and related findings, observations and conclusions. The significant findings and observations by audit area are summarized below: 1. Inventory a. Improperly valued lacked documentation supporting the valuation for inventory items selected for testing. b. Control deficiency regarding inventory existence unable to provide work orders and invoices supporting the change in inventory quantities between the date of OFGs physical inventory counts (September 30, 2011) and Internal Audits inventory counts (December 9, 2011). c. Potential obsolescence lacked analysis and evidence supporting inventory usage, turnover and optimum quantities. 2. Financial Reporting a. Lack of periodic analysis of OFGs department wide financial information to verify accuracy and completeness evidenced by the five (5) plus months of preparation time to provide Statements of Revenues and Expenses for the years ended June 30, 2011 and 2010 and the reasonableness of OFGs responses resulting from Internal Audits inquiries. b. Monthly expenditure reports not reconciled to annual report evidenced by OFGs inability to reconcile monthly expenditure reports to the Statements of Revenues and Expenses. OFG was also unable to provide documentation supporting their assertion of monthly expenditure report review by OFGs Budget Committee.

University of Hawaii at Mnoa Office of Facilities and Grounds Review (Phase I) April 2012

BackgroundAccuity LLP (Accuity) issued an agreed-upon procedures report dated October 12, 2009 evaluating certain areas of the Office of Facilities and Grounds (OFG) operations. These areas are summarized below: Budget - develop and implement written policies and procedures and distribute budgetto-actual expenditure reports. Project management - develop and implement written procedures that outline the life cycle of each type of project, implement a system to track all projects and identify and monitor project milestones. Procurement process - comply with the University Administrative Procedures Manual (APM) for small purchases and identify operational efficiencies and minimize the number of days it takes to procure goods/services. Inventory - assess internal controls and processes and develop an inventory system to track inventory quantities and values, monitor key inventory ratios, and provide statistics on usage. Human resources - maintain evidence of collection efforts and develop and implement policies to minimize future salary overpayments and report workers compensation claims in compliance with the University APM.

Accuitys report covered the periods July 1, 2005 through June 30, 2006 and July 1, 2007 through June 30, 2008. OFGs Management Response dated September 14, 2009 concurred with all findings and noted that corrective action to address all recommendations had already been or would be implemented by October 2010. During fiscal 2011, the Office of Internal Audit (Internal Audit) performed a follow-up audit to assess if Accuitys recommendations were implemented. Internal Audits report dated June 7, 2011 (OFG fiscal 2011 report) concluded that 50% (budget, procurement of small purchases, salary overpayments and workers compensation) of Accuitys recommendations had been implemented.

Purpose of ReportDuring the presentation and discussion of the OFG fiscal 2011 report at the October 26, 2011 Board of Regents Committee on University Audits (Audit Committee) meeting, the Assistant Vice Chancellor of OFG (AVC) stated that he disagreed with Internal Audits and Accuitys conclusions. The October 26, 2011 meeting minutes document the following representations made by the AVC with respect to OFG inventory in response to the OFG fiscal 2011 report and pursuant to inquiries by Regents and the Vice President of Budget and Finance: The AiM Work Order System records labor units and a count of material used by each work order. OFG does control all projects and can provide reports on performance and actual expenditures, which is currently and were available in 2008 (during Accuitys review).

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University of Hawaii at Mnoa Office of Facilities and Grounds Review (Phase I) April 2012 Shops reconcile shop stock by work orders and quarterly inventory reports. Work orders are reconciled during the closing process. Usage of inventory is noted in work orders, such that inventory is tracked from the Central Warehouse to the field.

With no correspondence to Internal Audit, the AVC also submitted a letter dated October 18, 2011 directly to the Board of Regents (BOR) Office indicating that all of Accuitys recommendations were implemented. Representations noted in the letter with respect to inventory are as follows: OFG maintains extensive records of material, operating supplies and non-capitalized equipment. There is adequate monitoring of all of our University assets.

As a result of OFGs representations differing from the findings documented in Internal Audits OFG fiscal 2011 report, the Audit Committee requested that Internal Audit work with OFG in resolving and reporting on these differences. Regents also requested Internal Audit report on the following: OFGs management and monitoring of financial results Number of employees and job performance evaluation of those employees

Accordingly, this report addresses OFGs inventory, financial results and certain human resource processes (hiring/termination, performance evaluations, monitoring of work performed by employees). Internal Audit will address the project management and procurement process efficiencies in the Phase II report.

Timing of WorkOn September 22, 2011, Internal Audit met with the University of Hawaii at Mnoa Vice Chancellor for Adminstration, Finance and Operations (UHMVCAFO) to discuss the OFG fiscal 2011 report and to inform her that a document requesting information from OFG would be forwarded the following day requesting information addressing certain unresolved Accuity findings and questions from the Regents. The UHMVCAFO did not request any revisions to the OFG 2011 report and stated that the AVC of OFG would attend the October 26, 2011 Audit Committee meeting to respond to questions. On October 31, 2011, Internal Audit distributed a Supplemental Request Listing to OFG requesting additional information to support assertions and representations made by OFG personnel at the October 26, 2011 Audit Committee meeting. The requested due date for the September 2011 and October 2011 requests were November 14, 2011 and November 30, 2011, respectively. Significant delays were encountered in the receipt of substantially all requested information except for information requested in connection with Internal Audits physical inventory

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University of Hawaii at Mnoa Office of Facilities and Grounds Review (Phase I) April 2012 observation of the Central Warehouse. The Director of Facilities and Grounds and Central Warehouse supervisor were responsive to Internal Audits requests. As a result of repeated requests to OFG regarding the status and expected receipt dates of the requested information, Internal Audit requested the UHMVCAFO to assist in expediting the receipt of the requested information. On January 18, 2012, the UHMVCAFO issued a letter proposing the deferral of Internal Audits inventory procedures due to the anticipated implementation of a new inventory software package, the anticipated submission dates of outstanding information requests and reasons for OFGs unresponsiveness. Internal Audit informed the UHMVCAFO that OFG should understand their current inventory processes prior to implementing a new process and software package. Internal Audit received a majority of the pending information by the committed submission dates noted in the UHMVCAFOs letter. However, a substantial portion of the provided information was incomplete and did not contain Internal Audits requested content. As of April 20, 2012, certain requested information remains pending.

Report FormatThe following pages are segregated by topic: inventory, financial reports and human resources. The work performed by Internal Audit, findings, observations and conclusions are noted in each section. Excerpts of documentation (correspondence, e-mails, etc.) provided by OFG that are included in this report are identified. Areas or matters of emphasis are presented in boldface.

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