Download - City Vehicle Fleet Management - Denver
Dennis J. Gallagher
Auditor
Office of the Auditor
Audit Services Division
City and County of Denver
City Vehicle Fleet Management Performance Audit
January 2011
The Auditor of the City and County of Denver is independently elected by the citizens of Denver. He is
responsible for examining and evaluating the operations of City agencies for the purpose of ensuring the
proper and efficient use of City resources and providing other audit services and information to City
Council, the Mayor and the public to improve all aspects of Denver’s government. He also chairs the
City’s Audit Committee.
The Audit Committee is chaired by the Auditor and consists of seven members. The Audit Committee
assists the Auditor in his oversight responsibilities of the integrity of the City’s finances and operations,
including the integrity of the City’s financial statements. The Audit Committee is structured in a manner
that ensures the independent oversight of City operations, thereby enhancing citizen confidence and
avoiding any appearance of a conflict of interest.
Audit Committee
Dennis Gallagher, Chair Robert Bishop
Maurice Goodgaine Robert Haddock
Jeffrey Hart Bonney Lopez
Timothy O’Brien
Audit Staff
Audrey Donovan, Deputy Director, CIA
Dawn Hume, Internal Audit Supervisor
Emily Gibson, Senior Internal Auditor, M.S.
Anna Hansen, Senior Internal Auditor, CICA
Wayne Leon Sanford, Senior Internal Auditor, CICA
Kevin Vehar, Senior Internal Auditor
You can obtain free copies of this report by contacting us at:
Office of the Auditor
201 West Colfax Avenue, Department 705 Denver CO, 80202
(720) 913-5000 Fax (720) 913-5026
Or download and view an electronic copy by visiting our website at:
www.denvergov.org/auditor
To promote open, accountable, efficient and effective government by performing impartial reviews and other audit
services that provide objective and useful information to improve decision making by management and the people.
We will monitor and report on recommendations and progress towards their implementation.
City and County of Denver 201 West Colfax Avenue, Department 705 Denver, Colorado 80202 720-913-5000
FAX 720-913-5247 www.denvergov.org/auditor
Dennis J. Gallagher
Auditor
January 20, 2011
Honorable Guillermo (Bill) Vidal, Mayor
Office of the Mayor
City and County of Denver
Dear Mayor Vidal:
Attached is the Auditor’s Office Audit Services Division’s report of their audit of the City and
County of Denver’s Fleet Management program for the period July 01, 2009 through June 30,
2010. The purpose of the audit was to assess the effectiveness and efficiency of the Fleet
Management program and determine whether internal controls in place were adequate under
the circumstances. This audit included examining Denver Public Works, Denver Police, Denver
Sheriff, and Denver Fire Department.
Audit work identified several weaknesses surrounding Denver’s Fleet Management operations
that can be improved. These issues include a lack of monitoring and accountability over take-
home vehicles, inadequate controls over fuel access, opportunities to improve inventory
controls, and significant outstanding internal billing transfers. However, the audit identified a best
practice regarding parts inventory control. Public Works has appropriate controls in place to
mitigate the risk of inaccurate inventory on hand and asset misappropriation and monitor
inventory movement from receipt to disbursement. The findings and recommendations
presented in this report have identified areas to improve and strengthen the management of
the City’s Fleet.
If you have any questions, please call Kip Memmott, Director of Audit Services, at 720-913-5029.
Sincerely,
Dennis J. Gallagher
Auditor
DJG/ect
cc: Honorable Members of City Council
Members of Audit Committee
Jack Finlaw Chief of Staff
Mr. Claude Pumilia, Chief Financial Officer
Mr. David Fine, City Attorney
Bill Vidal, Mayor
January 20, 2010
Page Two
To promote open, accountable, efficient and effective government by performing impartial reviews and other audit
services that provide objective and useful information to improve decision making by management and the people.
We will monitor and report on recommendations and progress towards their implementation.
Mr. L. Michael Henry, Staff Director, Board of Ethics
Ms. Lauri Dannemiller, City Council Executive Staff Director
Ms. Beth Machann, Controller
To promote open, accountable, efficient and effective government by performing impartial reviews and other audit
services that provide objective and useful information to improve decision making by management and the people.
We will monitor and report on recommendations and progress towards their implementation.
City and County of Denver 201 West Colfax Avenue, Department 705 Denver, Colorado 80202 720-913-5000
FAX 720-913-5247 www.denvergov.org/auditor
Dennis J. Gallagher
Auditor
AUDITOR’S REPORT
We have completed an audit of the City and County of Denver’s Fleet Management program
for the period July 01, 2009 through June 30, 2010. The purpose of the audit was to examine and
assess whether Public Works maintains proper internal controls over fuel distribution, review and
assess fleet management controls for regularly scheduled vehicle service, determine whether
vehicle preventative maintenance controls and practices are adequate, document whether
City fiscal rules for vehicle use are being fully complied with, and to evaluate the effectiveness
and efficiency of fleet management controls for the City departments examined to identify
possible inefficiencies and opportunities for improvement.
This performance audit is authorized pursuant to the City and County of Denver Charter, Article
V, Part 2, Section 1, General Powers and Duties of Auditor, and was conducted in accordance
with generally accepted government auditing standards. Those standards require that we plan
and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis
for our findings and conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions based on our audit
objectives.
Even though the City operates in a decentralized environment regarding fleet management,
the goals of each department are similar. The objective of effective and efficient fleet
management is to operate by providing the highest quality service at the lowest cost while
ensuring the safety and reliability of each vehicle. The audit revealed several weaknesses
surrounding Denver’s Fleet Management practices that can be strengthened. These control
weaknesses hinder the City’s ability to effectively and efficiently operate the City’s Fleet.
We extend our appreciation to the Department of Public Works, Denver Police Department,
Denver Sheriff Department, Denver Fire Department and City personnel who assisted and
cooperated with us during the audit.
Audit Services Division
Kip Memmott, MA, CGAP, CICA
Director of Audit Services
TABLE OF CONTENTS
EXECUTIVE SUMMARY 1
Finding 1: Lack of Accountability and Monitoring Over Take-Home Vehicles 1
Finding 2: Fuel Access Internal Controls are Inadequate 2
Finding 3: Opportunities Exist to Improve Parts Inventory Controls 2
Finding 4: Significant Outstanding Internal Billing Transfers 3
INTRODUCTION & BACKGROUND 4
SCOPE 11
OBJECTIVE 11
METHODOLOGY 11
FINDING 1 12
Lack of Accountability and Monitoring Over Take-Home Vehicles 12
RECOMMENDATION 17
FINDING 2 19
Fuel Access Internal Controls are Inadequate 19
RECOMMENDATIONS 21
FINDING 3 22
Opportunities Exist to Improve Parts Inventory Controls 22
RECOMMENDATIONS 24
FINDING 4 25
Significant Outstanding Internal Billing Transfers 25
RECOMMENDATION 26
TABLE OF CONTENTS (cont’d)
APPENDICES 27
Appendix A – Fiscal Accountability Rule 10.6 27
Appendix B – Results of Take-Home Vehicle Testing 33
Appendix C – Internal Billing Process Flow Chart 34
Appendix D – Fiscal Accountability Rule 7.7 35
AGENCY RESPONSE 36
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Take-home vehicle usage is
not always reimbursed by
employees
EXECUTIVE SUMMARY
The City and County of Denver maintains a fleet of more than 4,000 vehicles and
equipment, which are essential for providing city services and conducting city business.1
The management of the City’s fleet is decentralized and managed by three separate
Departments; Public Works, Department of Safety, and Department of Aviation. Primary
fleet management responsibilities include vehicle purchase, vehicle utilization, vehicle
maintenance, and vehicle disposal. The fleet is crucial for service provision and city
operations, and as such, it is important for the fleet to be managed efficiently and
effectively. The audit identifies several opportunities for enhancing certain fleet
management practices.
Finding 1: Lack of Accountability and Monitoring Over Take-Home Vehicles
There are approximately 475 City employees authorized to take a City vehicle home for
the purposes of responding to City emergencies occurring outside of normal business
hours. The ability to commute in a City vehicle to and from work is considered an
additional form of compensation to the employee that must be valued and accounted
for in most cases. Audit work determined that the requirements surrounding take-home
vehicles are not being complied with, monitored for enforcement, or being applied
consistently.
Problems identified included:
Internal Revenue Service (I.R.S.) required employee reimbursements to the City for
commuting in a take-home vehicle do not always occur. In addition, I.R.S. and
City regulation exemptions for public safety vehicles are not applied consistently
to all departments under the Department of Safety.2 As a result, not all
reimbursement funds are being recovered,
which could fund other city activities.
Additionally, inconsistent enforcement of
this requirement raises equity issues
between employees who comply and those
that do not comply with this requirement. This could also result in negative public
relations issues for the City.
Audit work identified 11 instances when City take-home vehicle requirements
were not followed. Specifically, audit work found four instances where Executive
Order requirements and seven instances where Fiscal Rule requirements were
violated.3
There is minimal oversight of take-home vehicles beyond the agency level.
1 Equipment includes items such as trailers, lawnmowers, and smaller motorized and non-motorized equipment.
2 The Department of Safety consists of the Denver Police Department, the Denver Sheriff Department and the Denver Fire
Department. 3 See Appendix B for take-home vehicle testing.
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Lack of controls over parts
inventory creates significant risk
of asset misappropriation
Finding 2: Fuel Access Internal Controls are Inadequate
The Division of Fleet Maintenance under Public Works has the responsibility of managing
fuel usage for City vehicles, except for Denver International Airport vehicles. Audit work
found that a lack of internal controls over the process to obtain and terminate access to
fuel significantly increases the risk that fraudulent fueling could occur. More specifically
audit work determined the following:
30 of 81 (37%) active fuel users tested within the City’s fuel management system
were no longer employed with the City.
Approximately 1,603 gallons of fuel have been obtained using ID numbers of
terminated City employees. Audit work could not determine whether or not the
fuel was obtained fraudulently.
Duplicate fueling IDs were issued to the same person on several occasions,
increasing the risk of inappropriate use of fuel.
Finding 3: Opportunities Exist to Improve Parts Inventory Controls
The Fleet parts inventory, valued at more than $2 million,4 is considered a City asset and
must be managed and accounted for properly
throughout the life of parts from receipt of the
inventory to disbursement for repairs. Audit work
determined that a lack of internal controls over
the parts inventory process at the Denver Police
Department (DPD)5 and Denver Fire Department (DFD) leads to inaccurate on hands
and inventory valuation, part out-of-stocks and overstock, increased levels of obsolete
and slow moving inventory, and creates significant risk of asset misappropriation.
Audit work identified the following inventory issues:
40% of DPD on hand part counts in the system were incorrect.
50% of DFD on hand part counts in the system were incorrect.
DFD’s parts room is operated by a single parts room manager and due to
activities and days off, the part room is occasionally unattended.
Conversely, audit work revealed a best practice with regards to parts inventory control
performed at Public Works. Public Works has appropriate controls in place to mitigate the
risk of inaccurate inventory on hands and asset misappropriation and monitor inventory
from receipt to disbursement. Specifically, the Department has designed reports that fully
utilize the inventory management system, FASTER, to monitor inventory movement and
keep costs to a minimum without compromising customer service.
4 Public Works 2009 Parts Inventory Report valued inventory at $1,567,297.32. DPD and DFD inventory value of $322,894.18
and $160,543.67 respectively was calculated from inventory listed in Task Force/FASTER in August 2010. Inventory values are unaudited. 5 The Denver Police Department also maintains all Denver Sheriff Department vehicles.
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Uncollected revenue directly
affects Public Works’ ability to
operate and effectively budget
for future activities
Finding 4: Significant Outstanding Internal Billing Transfers
Public Works’ Fleet Maintenance Division uses
Internal Billing Transfers (IBTs) as the method for
collecting revenues from various city agencies for
fleet services provided. Audit work identified a
total of 116 or $134,127 outstanding IBTs from 2009
and 2010 that have not been collected by Public
Works from various agencies.
Per Fiscal Rule 7.7, the Department is required to track funds billed and ensure they are
collected. However, Public Works does not have a process in place to follow up with
agencies when an IBT is not received. Since the Department operates in arrears the
failure to collect this revenue directly affects their ability to effectively budget and
forecast future activities.
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INTRODUCTION & BACKGROUND Fleet Management
The City and County of Denver maintains a fleet of more than 4,000 vehicles, which
include a variety of vehicles and equipment, many of which provide specialized services
to citizens and conduct City business.6 Fleet management responsibilities are
decentralized in the City, divided between three departments, the Department of Public
Works (PW), the Department of Safety (Safety) and the Department of Aviation, with PW
having the broadest fleet management responsibilities.7 Fleet Management for the City’s
vehicles and equipment encompasses much more than preventative maintenance and
repairs. Other management responsibilities include:
Managing and billing agencies for the use of the City’s shared motor pool
vehicles. These vehicles are available for short-term rental by any City employee
for the purpose of conducting city business;
Monitoring and tracking fleet utilization;
Management and maintenance of fleet databases;
Purchasing and distributing various types of fuel, supplies and parts; and
Procuring and disposing vehicles and equipment.
City Fleet Management Governance
There are a variety of City, State and Federal rules and regulations that govern the use of
the City’s fleet. These include multiple Executive Orders, Fiscal Rules, State Statutes and
Internal Revenue Service (I.R.S.) Code regulations that apply to fleet functions such as
purchasing, parking, registration, and vehicle disposition. There are three components of
regulations that were particularly relevant to this audit, including the I.R.S. Code of
Federal Regulations, Fiscal Rule 10.6 and Executive Order 25.
I.R.S. Code of Federal Regulations – I.R.S. Code of Federal Regulations, United States
Department of Treasury, Title 26, Ch. 1(A), Part 1, §1.61-21 contains all regulations
pertaining to the valuation of taxable fringe benefits. The use of any city vehicle for
personal purposes, including commuting to and from work, is considered a fringe benefit
under this section of I.R.S. Code. Thus, any City employee authorized to commute in a
city vehicle must account for this vehicle usage and it must be valued as a form of
compensation to the employee. The City mostly utilizes the I.R.S. approved “commuting
6 The City and County of Denver fleet includes approximately 1,900 units managed by Public Works and approximately 1,300
managed by the Department of Safety and 872 units managed by the Department of Aviation. Information gathered from the 2010 Budget Book, Public Works’ fleet management database, and the city website http://www.denvergov.org/RentaCityVehicle/tabid/433539/Default.aspx. 7 The Department of Aviation was excluded from the scope of the audit.
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valuation rule” to value this benefit, which requires the employee to reimburse the City
$1.50 per commuting trip, or $3.00 per day.
Fiscal Rule 10.68 – This fiscal rule reinforces the I.R.S. requirements for valuing commuting
benefits, which are referred to as “take-home vehicles.” The rule provides additional
guidance on tracking commuting usage and reimbursement exemptions, which are
mostly for public safety vehicles. The rule also outlines the City’s qualification
requirements for take-home vehicles.9
Executive Order 25 – This Order essentially mirrors Fiscal Rule 10.6 and has many of the
same guidelines. The Order also requires authorized drivers of “take-home vehicles” to
respond to at least 12 emergencies within a 12-month period.
Department of Public Works’ Fleet Maintenance Division
The Department of Public Works’ Fleet Maintenance Division (PW Fleet),
housed under the Department’s Division of Finance and Administration,
oversees the main responsibilities for management of the City’s fleet
except for those vehicles utilized by Safety and the Department of
Aviation. Excluding those departments, PW Fleet is responsible for the
maintenance, repair, specification, and retirement of more than
1,90010 City vehicles and pieces of equipment. PW Fleet consists of four
sections that work to accomplish fleet management responsibilities
including, administration, maintenance operations, materials handling, and equipment
replacement.
In 2009, the 100 Best Fleets Program11 recognized the Department of PWs’ Fleet
Maintenance Division for excellence in operations and fleet management as the second
best public sector fleet in North America. The award recognizes and rewards peak
performing public sector fleet operations. In addition, the
American Public Works Association named the Fleet Director
Professional Manager of the Year.
The PW Fleet Division has also embraced the Mayor’s Greenprint
Denver Initiative through purchasing vehicles that utilize alternative
fuels and sustainable technologies.12 In fact, the Division’s Fleet has
received awards for being one of the top ten “green” fleets in
North America.13
8 See Appendix A for a complete copy of Fiscal Rule 10.6.
9 The requirements are that employee’s job duties must include responding to emergencies or non-scheduled service requests
which necessitate the use of specialized equipment and the city vehicle, a signed authorization form submitted to the Controller’s Office, a valid Colorado driver’s license, the driver must reimburse the City for commuting, and the driver’s home cannot be outside a 25 mile radius of the City and County Building. 10
2010 Budget Book pg.462. 11
The 100 Best Fleets Organization recognizes excellence in government fleet management in overall best fleet and green fleet categories based on a variety of criteria. 12
The Greenprint Denver Initiative was announced in 2006 by Mayor John Hickenlooper in an effort to increase energy efficiency and reduce emissions produced by City activities.
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Financial Structure
The daily operations of PW Fleet are accounted for using a proprietary fund structure
instead of a governmental fund structure. There are two types of propriety funds, internal
service funds, which PW operates as, and enterprise funds. An internal service fund
accounts for operations similar to those accounted for in enterprise funds, but provide
goods and services to other departments within the same government. In 2010, PW Fleet
expects to record approximately $21 million in revenue and $20 million in expenditures,
which is a decrease from 2008 levels, but an increase from 2007 levels.14
Maintenance Operations
Currently, PW Fleet utilizes seven maintenance and seven fueling locations across the
City of Denver for fleet operations. Multiple locations provide an increased level of
operating efficiency and customer service. A listing of each location is shown in Table 1
below.
Table 1-PWs Maintenance Facilities and Fuel Stations
Location Maintenance Fuel
5440 Roslyn Street, Building C X X
5440 Roslyn Street, Building D X X
Fire Station 29, 4800 Himalaya Way X
1390 Decatur Street*
1271 West Bayaud Avenue (Central Platte)* X X
7301 East Jewell Avenue X X
945 South Huron Street X
2013 South Osage X X
2000 West 3rd Avenue X X
*Decatur closed 10/1/10 and W. Bayaud opened 10/4/10
In October, PW Fleet opened a new state-of-
the-art maintenance facility that replaced the
facility at the Decatur location. The new facility,
commonly referred to as Central Platte, was
designed with “green” and energy efficient
concepts in order to reduce the carbon
footprint and the cost of the operations. This
new facility features 39,300 square feet of
service space, seven heavy equipment bays,
nine lube stations and built-in parallelogram lifts
to accommodate large trucks. Pictured is the
new Central Platte Facility, located on West Bayaud Avenue, prior to opening.
13 The 100 Best Fleets Organization recognizes excellence in government fleet management in overall best fleet and green fleet
categories based on a variety of criteria. 14
2009 and 2010 Budget Book. Audit work identified a lag in collecting revenue from agencies that affects the timing of revenue collected as noted in Finding 4.
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The Roslyn and Central Platte facilities are the main maintenance locations that also
function as central warehouses stocking
commonly used parts in addition to handling
special orders for satellite maintenance
locations. The satellite locations complete
lighter maintenance such as tire and oil
changes and maintain parts inventory to
complete those work orders. Inventory is
maintained and controlled in the same manner
at all locations.
PW Fleet is also responsible for negotiating the
purchase prices, making purchases and distributing fuel used by the City’s fleet, except
for Denver International Airport vehicles. In 2009, PW Fleet purchased almost 3 million
gallons of fuel costing $5.7 million dollars.15 In addition, some quasi-governmental
agencies16 have access to the fuel purchased by Fleet, which is regulated by
intergovernmental agreements. Fleet will invoice agencies and other authorized users for
gallons fueled each month.
Department of Safety Fleet Maintenance Division
Safety manages its own fleet of approximately 1,300 vehicles and equipment. Within
Safety, fleet management responsibilities are divided between the Denver Police
Department (DPD) and Denver Fire Department (DFD). Both Departments’ fleet activities
are funded by the general fund and do not operate through proprietary internal service
funds in contrast to the PW Fleet.
Denver Police Department
DPD is responsible for the management and maintenance of approximately 1,100
vehicles and related equipment through their
Research, Training and Technology Division. DPD
provides safety services to the citizens of the City
and County of Denver through six decentralized
districts, encompassing approximately 155
square miles, which means their vehicles are
heavily utilized. In 2010, the budget for fleet
maintenance was approximately $6 million, a
decrease of approximately $600,000 from 2009
levels.17 In addition, DPD has recently downsized
their fleet as a result of the recent economic environment.
DPD has two facilities for fleet maintenance activities, the garage where major repairs
and body work is completed and a service center where preventative maintenance
15 Types of fuel purchased consist of diesel, B100 (bio-diesel), unleaded, unleaded 91, E85, and Propane.
16 Quasi-governmental agencies include but are not limited to Denver Health and Denver Housing Authority.
17 Unaudited budget information provided by DPD.
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activities and minor repairs is completed. The garage is staffed with 18 mechanics, two
parts room employees and the service center that operates with two shifts comprised of
eight service technicians.
In addition, DPD fleet maintenance orders, maintains, repairs and equips marked,
unmarked, and special use vehicles for the Sheriff’s Department, Office of the District
Attorney, Mayors’ Office, County Courts, and four task forces. This adds to DPD’s
responsibility approximately 90 cars, vans, and bus units for the Sheriff’s Department.
Denver Fire Department
DFD maintains a fleet maintenance facility in one central location. In 2010, the budget
for DFD fleet maintenance was approximately $3.2 million, down approximately $1.3
million from 2009 levels.18
Fleet maintenance responsibilities are comprised of maintaining specialized fire
apparatus, approximately 200 vehicles and a parts inventory. In order to properly
maintain their fleet and keep costs to a minimum, DFD mechanics have a fully functional
machine shop used to make and repair parts
and apparatus needed to properly maintain
the fleet. All 16 mechanics must be ready to
respond if needed to the scene of accidents,
fires and any other emergency if immediate
repairs are necessary. Both vehicles and
specialized apparatus must be maintained to
meet standards required by the National Fire
Protection Association. Aerial ladders, breathing apparatus, ground ladders and fire
hoses are some examples of equipment maintained.
Consolidated Activities
Even though the City has a decentralized model for fleet management, there are some
activities outside of maintenance that are consolidated between the PW and Safety
Fleets. These activities include, use of fleet management systems, fuel activities, a vehicle
replacement fund and the City’s annual vehicle auction.
Fleet Management Systems
The City utilizes two information systems for daily fleet management activities that are
shared between PW Fleet and Safety, FASTER and FuelForce. PW utilizes FASTER,
implemented in September 2010, for tracking all vehicle maintenance and repair
activities for both PW Fleet and Safety.
PW Fleet expects that the new FASTER system will improve the efficiency and
effectiveness of operations such as technician performance analysis, warranty
management, and parts control. For example, FASTER will provide more effective
18 Unaudited budget information provided by DFD.
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tracking of warranties on vehicles, parts, and equipment, which PW Fleet estimates will
save $671,561 over the first five years.19
PW Fleet manages and maintains FuelForce, the City’s software system that tracks,
monitors, and administers fuel usage for all city vehicles including several quasi-
governmental agencies such as, Denver Health and the Denver Housing Authority
through special inter-governmental agreements. PW bills agencies monthly for fuel
usage.
In order to access fuel, the employee must enter unique identifying information issued to
them by PW Fleet. FuelForce will automatically recognize if any of the entered
information does not agree with the information stored in the database and deny
access for fuel.
Planned Fleet Replacement and Retirement
New vehicle and equipment purchases for all City departments and agencies are
funded through the Planned Fleet Replacement Special Revenue Fund, except for those
operating with enterprise funds (i.e. Denver International Airport). Revenues for this fund
come from General Fund transfers and interest income. Each department and agency
prepare a list of prioritized fleet replacements, which are then submitted to the Budget
and Management Office for a final decision on which replacements will be purchased
during the budget cycle. In addition, the City has an informal Utilization Committee that
meets periodically to review and identify under-utilized vehicles. Agencies with under-
utilized vehicles are given the opportunity to justify retaining the vehicle. The Utilization
Committee is comprised of the Director of the Budget and Management Office, Director
of PWs Fleet, a representative from the Mayor’s Office, and the Department of Finance.
As a method of budget savings in 2010, a majority of scheduled fleet replacements were
deferred, saving the City approximately S10.4 million.
PW Fleet annually conducts an auction of used fleet vehicles and equipment. Auctioned
items include cars, trucks, vans, heavy machinery, equipment and obsolete parts from all
departments and agencies in the City. The auction serves as the main avenue for retiring
vehicles once utilization criteria have been met. The auction is conducted by a
professional third party auctioneer and is open to the public, including City employees. In
2010, the annual auction sold 169 units generating $977,285.20
Barriers to Further Consolidation
Further consolidation of fleet management responsibilities between PW and Safety is an
issue that is periodically discussed by City officials. In the past, PW and Safety
representatives have never been able to move beyond the initial discussions. For
example, approximately one year ago there were efforts to consolidate parts and
inventory management, but that initiative did not progress as the departments involved
differ upon terms and administrative functions and responsibilities. Some of the obstacles
that would need to be overcome in order to consolidate the operations include:
19 Fleet Management/Maintenance Software Upgrade Proposal, October 21, 2008.
20 Preliminary unaudited auction results provided by Public Works Fleet Maintenance.
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PW operates using an Internal Service Fund, and Safety operates under the
General Fund;
Specialty equipment requirements related to DPD and DFD operations;
The DFD collective bargaining agreement that includes mechanics as classified
service for rank and grade;
Concerns about priority of repairs and criteria and responsibilities for setting the
priority; and
The need for additional support from the Mayor’s Office, PW and Safety in the
form of a strategic plan to move forward with possible consolidation.
Benchmarking Suggests that Consolidation is Common
Audit work determined that consolidation of fleet management among other cities is
common. In our benchmarking survey, the majority of city fleets indicated that police
vehicles were part of the consolidated fleet program. It is less common for fire vehicle
fleet consolidation due to the specialized nature of fire vehicles, equipment and
maintenance standards. Nevertheless, at least 50% of survey respondents indicated that
fire vehicles were part of the consolidated fleet program.21 The Auditor’s Office will
address the feasibility of consolidating fleet operations separately in a Special Advisory
Report (SAR) that is scheduled to be released during the first quarter of 2011.
21 We benchmarked the following municipalities—Washoe County, NV, Thornton, CO, Fairfax County, VA, Peoria County, IL,
Long Beach, CA, Aurora, CO, Oklahoma City, OK, Austin, TX, and Des Moines, IA. Responses were also solicited from Denver PW. Benchmark criteria is from the International City/County Management Association’s (ICMA) Comparative Performance Measurement Report on fleet performance based on demographic/organizational data on different fleet management jurisdictions. Additional criteria consisted of types of vehicles, weather, and services provided.
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SCOPE
The audit assessed the effectiveness and efficiency of the City and County of Denver
Fleet Management program for the period July 01, 2009 through June 30, 2010. City
entities included with the scope included Denver PWs, Denver Police, Denver Sheriff, and
Denver Fire Departments.
Denver International Airport (DIA) was excluded from the audit scope because it
operates as a separate City and County of Denver enterprise fund and is highly
regulated by the Federal Aviation Administration. DIA Fleet Management operations will
be examined in a subsequent Audit Services audit engagement.
OBJECTIVE
The objective of this audit was to evaluate the effectiveness and efficiency of fleet
management operations, and to review and assess internal controls over maintenance
practices and fuel distribution.
METHODOLOGY
We utilized several methodologies to achieve the audit objective. These evidence
gathering techniques included, but were not limited to:
Interviewing key Public Works, Department of Safety, Controller’s Office and
Budget and Management Office personnel;
Reviewing State and Federal regulations regarding fleet utilization reporting;
Reviewing City Fiscal Rules and Executive Orders for compliance requirements;
Reviewing department policies and procedures for fleet maintenance, fuel
distribution, internal billing and fleet vehicle acquisition and disposition;
Reviewing prior internal and external audits regarding fleet management;
Reviewing data regarding controls for take-home vehicles, fuel usage and
vehicle utilization;
Observing auction process;
Touring fleet maintenance facilities for Public Works and the Department of
Safety;
Observing inventory processes and procedures regarding parts management for
Public Works, Denver Police Department22 and Denver Fire Department; and
Surveying other cities regarding fleet management practices and measurements.
22 The Denver Sheriff Department vehicles are maintained by the Denver Police Department.
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FINDING 1
Lack of Accountability and Monitoring Over Take-Home Vehicles
As of June 30, 2010, City agencies reported that there are 475 employees authorized to
take vehicles home, with DPD, DFD and PW being the largest take-home vehicle
entities.23 Take-home vehicles play an important role in the City’s operations to ensure
that critical services to citizens are available 24 hours a day, seven days a week,
everyday of the year. Certain employees are granted the use of a take-home vehicle to
ensure that emergencies are responded to regardless of the day and time of the
emergency. Some examples of emergencies that might require City employee
assistance outside of business hours include snow removal, street flooding, power
outages, unsafe street conditions and various public safety emergencies.
Employees authorized to take a vehicle home generally use the vehicle, a city asset, for
personal use commuting to and from work.24 With a few exceptions, the personal use of
the city vehicle is considered an additional form of compensation to the employee, in
other words, a fringe benefit. As such, specific responsibilities and requirements exist to
ensure that this personal use is accounted for properly and that take-home
authorizations are limited only to those employees who truly need the vehicle to perform
their job responsibilities. The intent of Internal Revenue Service (I.R.S.) Code, Fiscal Rule
10.6 and Executive Order 25 is to ensure that take-home use is properly documented,
accounted for and transparent.
Audit work determined that requirements surrounding take-home vehicles are not being
monitored, complied with, or applied consistently. The numerous problems identified by
audit work regarding take-home vehicles ultimately create the perception that the City
does not view managing take-home vehicle usage as a high priority.
Non-Compliance with I.R.S. Code of Federal Regulations
I.R.S. Code provides regulations pertaining to employers on how to value fringe benefits,
including the use of a company vehicle for commuting.25 It requires that all employees
taking a vehicle home, unless they are exempt as a “Qualified Non-Personal Use
Vehicle,” reimburse the City for the personal commuting use of the vehicle.26 Audit work
found that these required reimbursements do not always occur and in other cases do
not occur within the pay period for which the car was used.27 The Controller’s Office
23 This information was obtained from the last report prepared by the agencies and submitted to the Budget and Management
Office. The exact number of authorized take-home users is unknown, as audit work determined there are several inaccuracies contained in this report. 24
Personal use of a take-home vehicle is limited to commuting to and from work. 25
I.R.S., Code of Federal Regulations, United States Department of Treasury, Title 26, Ch. 1(A), Part 1, §1.61-21. 26
Qualified non-personal use vehicles generally include vehicles such as clearly marked police and fire vehicles and unmarked vehicles used by law enforcement officers if the use is officially authorized. 27
The City utilizes the I.R.S. defined “Commuting Valuation Rule”, which requires reimbursements of $1.50 per one-way trip or $3.00 a day for most employees.
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reported that if the employee does not submit a trip log,28 the deduction will not be
processed. Additionally, there is no follow up process for collecting trip logs that are not
submitted.
The funds recovered for commuting reimbursement are a source of revenue to the City
and therefore, if all employees taking vehicles home are not reimbursing properly, the
City is not recovering funds it should otherwise be collecting. Further, there could be
potential penalties assessed by the I.R.S. for unreported income for both the City and
employee receiving the benefit. Additionally, inconsistent enforcement of this
requirement raises equity issues between employees who comply and those that do not
comply with this requirement. This could also result in negative public relations issues for
the City.
Consistent Violations of Fiscal Rule 10.6 & Executive Order 25
Auditors found multiple instances where Fiscal Rule 10.6 and Executive Order 25 take-
home vehicle requirements were not being followed. Overall, there was a lack of
documentation regarding take-home vehicle usage; as a result it was difficult to
determine if some of the employees reviewed truly qualified for a take-home vehicle.
Table 2 below displays the number of violations audit work found with respect to each
requirement.
Table 2 – Summary of Violations29
Requirement Number of Violations in a Sample of 17
Executive Order 25 4
Fiscal Rule 10.6 7
Types of violations that audit work found include:
Half of the employees sampled did not have current, fully executed authorization
forms. Four of the authorizations obtained were signed after the audit request was
made;
The Controller’s Office did not have authorization forms on file for any employees
in our sample and reported they do not receive these for any employee; and
The number of emergency responses the employee is making with the take-home
vehicle is often not tracked, making it impossible to determine if they have met
the requirements for a take-home vehicle.30
28 Trip logs are required by Fiscal Rule 10.6 to be submitted at the end of each pay period to the Controller’s Office. The log
tracks commuting mileage and number of commuting trips, along with emergencies responded to in the City vehicle. 29
Some violations in this table are for the same requirement that is part of both the Fiscal Rule and Executive Order. Reference to all audit work results regarding take-home testing can be reviewed in Appendix B. To perform the testing, a judgmental sample of 17 take-home vehicles was selected. Vehicles tested in the sample included eight from Denver Police Department, two from Denver Sheriff Department, five from the Department Public Works and two from the Department of Parks & Recreation. The number of vehicles chosen from each agency was based on the total number of take-home vehicles for that agency.
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Personnel assigned take-home vehicles are required to submit this documentation. These
violations illustrate that the City does not have a good command over take-home
vehicles, creating the perception that monitoring take-home vehicles is a low priority for
the City.
Issues with the Department of Safety’s Management of Take-Home Vehicles
The Department of Safety, mainly the Denver Police Department and Denver Fire
Department, are some of the largest users of take-home vehicles, which is appropriate
given the nature of their work. Many emergencies responded to by these Departments
require immediate response, along with the use of the specialized equipment located on
or in the vehicle. As such, when there is an after hours emergency, there is not time for
these employees to pick up the vehicle and special equipment prior to responding.
Some examples of emergencies Safety personnel respond to with their take-home
vehicles include: traffic fatalities, hostage situations, homicide investigations, gang
crimes, bomb squad incidents, arson incidents, and hazardous materials incidents.
As noted, I.R.S. Code requires employees to reimburse the City for personal use of an
employer provided vehicle as an additional form of compensation to employees. There
are two exemptions to this requirement for public safety vehicles. The first exemption,
“Qualified Non-Personal Use Vehicle,” is established by the I.R.S. Code. This exemption
generally includes vehicles such as clearly marked police and fire vehicles. Owing to the
design of these vehicles, it is unlikely that employees will use the vehicle more than
minimally for personal use and therefore they are exempt from reimbursement
requirements.31 The City established a second exemption for a “Full Use Public Safety
Vehicle.” This exemption can only be granted by the Manager of Safety and exempts
the user from both reimbursement and emergency tracking requirements. Table three
below outlines the differences in the types of take-home vehicles.
30 In most cases, an employee must have 12 emergency responses within a 12-month period as one requirement to qualify for a
take-home vehicle. 31 Other vehicles that generally qualify include unmarked vehicles used by law enforcement officers if the use is officially authorized, ambulances and hearses, vehicles designed to carry cargo with a loaded gross vehicle weight over 14,000 pounds, school buses, along with other vehicles.
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Reimbursement exemptions are
not consistently applied by the
Department of Safety
Table 3 – Summary of Take-Home Vehicle Types
Types of Take-Home Vehicles
Take-Home Vehicle Qualified Non-Personal Use Vehicle
Full Use Safety Vehicle
Regulation Sources
I.R.S. Code, Fiscal Rule and Executive Order
I.R.S. Code, Fiscal Rule and Executive Order
Fiscal Rule and Executive Order
Who Qualifies Those required to commute in the vehicle for a non-compensatory business reason.
Vehicles generally including clearly marked police and fire vehicles and unmarked vehicles used by law enforcement officers.
Employee's assignment requires immediate response to emergency situations on a 24-hour on-call basis.
Who Authorizes
Agency Head Agency Head Agency Head and Manager of Safety
Special Conditions
Users must respond to 12 emergencies in a 12 month period outside of normal hours, submit trip logs accounting for commuting mileage and reimburse the City for commuting usage.
Users must respond to 12 emergencies in a 12 month period outside of normal hours, but are exempt from tracking/reimbursing for commuting.
Users are exempt from emergency response quotas and tracking/reimbursing for commuting.
Audit work identified several issues with the application of these exemptions within the
Department of Safety. First, all of DPD’s approximately 250 take-home vehicles are full
use safety vehicles; however, no vehicles sampled had the required Manager of Safety
authorization. In addition, on the authorization forms received there was no designation
for the Manager of Safety’s approval signature.
Audit work also found that guidance surrounding
the application of these exemptions is insufficient
and the compliance with such guidance is
inconsistent. For example, since all of DPD’s take-
home vehicles are classified as full use safety
vehicles, personnel using them do not reimburse the City for commuting. Conversely,
both DFD and Sheriff Department (Sheriff) personnel reimburse the City for their
commuting usage, even though they are generally assigned take-home vehicles for the
same reasons as DPD personnel.32 This apparent inconsistency demonstrates that the
exemptions provided by the I.R.S. Code, Fiscal Rule and Executive Order are not being
applied consistently for all departments under the authority of the Manager of Safety for
vehicles being used for very similar purposes.
32 In December 2009, DFD and Sheriff reimbursed the City $3,771 for take-home usage.
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It is questionable whether or not
attending meetings and
employee convenience is
justification for taking a City
vehicle home
Additionally, the justification provided on some DPD take-home vehicle authorization
forms is out of compliance with the City’s Fiscal Rule and Executive Order. For example,
one DPD take-home vehicle authorization form states such a vehicle assignment is
justified when an employee, "is required to attend
numerous meetings, many fall outside normal shift
hours making it impractical for this person to pick
up and drop off a company vehicle.” However,
both the Fiscal Rule and Executive Order state
that full use public safety vehicles can only be
authorized for situations where the employee's
assignment requires immediate response to emergency situations on a 24-hour on-call
basis, requiring the use of specialized safety or emergency equipment. It is questionable
whether or not attending meetings and employee convenience is justification for taking
a vehicle home or for designating City vehicles as a full use public safety vehicle.
Further, many justifications provided on DPD take-home vehicle authorization forms
conflicted with justifications reported by the Department to the Budget and
Management Office (BMO). BMO’s list of take-home vehicle assignments is the only
comprehensive citywide record of this information. Although, take-home vehicles make
up only a small component of the overall budget for each agency, the take-home
vehicle information reported is used in making budget decisions. BMO evaluates vehicle
utilization on an annual basis and provides this analysis to agencies for management
decision making. As noted, in 2010, the BMO addressed significant City budget issues in
part by deferring fleet purchases. The failure to provide accurate information to BMO
means take-home vehicle assignments cannot be properly assessed and figured into
these types of critical budget decisions and agency management vehicle utilization
decisions. The BMO’s listing is also the only form of take-home vehicle oversight beyond
the agency level.33
In addition to these issues, audit work identified one instance where a DPD take-home
vehicle was not parked at the work location when the employee was on vacation at the
time. According to the current DPD Collective Bargaining Agreement, an employee
cannot be on-call while on vacation. Since one requirement for a full use public safety
vehicle is being on-call on a 24 hour basis, the vehicle should have been parked at the
work location while the assigned officer was on vacation.34
Lack of Monitoring and Enforcement Create Several Negative Effects
Audit work determined that there is little oversight and monitoring over take-home
vehicles, which is the primary cause of the violations and inconsistencies discussed
above. Because of the lack of monitoring, clarity and enforcement of regulations, the
33 As noted in the background, the City has an informal Utilization Committee that periodically reviews vehicle usage. However,
this committee does not review take-home vehicle assignments. 34
When auditors inquired further about the work schedules of the other DPD employees in the testing sample, all the employees were reported to be always on-call. This was despite an interview that was conducted earlier in the audit where DPD reported that on-call schedules rotate and that vehicles are not taken home when they are not on-call to comply with “full use public safety vehicle” requirements.
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There may be missed
opportunities to eliminate some
take home vehicles, which
would reduce City costs
City is out of compliance with the I.R.S Code of Federal Regulations, Fiscal Rule 10.6, and
Executive Order 25 pertaining to take-home vehicles. There are several negative effects
resulting from non-compliance with these regulations, including:
Since proper controls and guidance do not exist over documenting take-home
vehicle usage, processing payroll deductions and applying reimbursement
exemptions, the City is not recovering all funds associated with take-home
vehicles. These unidentified and uncollected commuting reimbursement funds
could be allocated to help fund other City activities.
Without accurate and adequate
documentation of take-home vehicle
assignments and justifications, the City is
prevented from adequately reviewing
and assessing vehicle assignments and
utilization. As a result, there may be missed
opportunities to eliminate some take-home vehicles that are not necessary to city
operations. Reducing the amount of take-home vehicles would result in reduced
costs to the City for vehicle maintenance, fuel and other vehicle related
expenses.
The lack of documentation over take-home vehicles may create a negative
perception that the City is not transparent about personal use of City assets.
Additionally, inconsistent enforcement of reimbursement requirements results in
inequities between personnel assigned take-home vehicles. Additional
documentation would provide more control over take-home vehicles and would
enhance transparency and accountability over take-home vehicles.
RECOMMENDATION
We offer the following recommendation to improve accountability and strengthen
internal controls over take-home vehicles.
1.1 The Controller’s Office should revise Fiscal Rule 10.6 to include:
a. Specific requirements regarding "full-use safety vehicle" and "qualified
non-personal use vehicle" to ensure consistent application for all Safety
departments. This should include language on how these exemptions
apply to other City agencies as well.
b. Specific requirements to ensure reimbursement is remitted to the City by
personnel for take-home vehicle usage. Specifically, requirements should
address full-time and intermittent usage, a method to monitor usage and
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circumstances when the annual lease value method35 would be imposed
after failing to submit required trip logs.
1.2 The Mayor should revise Executive Order 25 to formalize the existing Utilization
Committee and require that:
a. The Committee consists of representatives from the Department of Safety,
PWs, the Mayor’s Office, Budget and Management, and other agencies
at the Mayor’s discretion.
b. The Committee meet annually to consider the most recent take-home
vehicle reports submitted by agencies prior to budget finalization.
c. The Committee review take-home vehicle usage for each agency and
make policy and budget adjustments as necessary.
d. The Committee be given specific authority to approve or deny take-home
usage based on Fiscal Rule and Executive Order requirements.
1.3 The Department of Safety should create policies and procedures to ensure
compliance with take-home vehicle requirements. These procedures should
include:
a. A process to review the appropriateness of take-home vehicles across all
departments under the Department of Safety to ensure that only those
take-home vehicles that meet the requirements of qualified non-personal
use and full use public safety vehicle are authorized and documented.
b. Requirements to ensure that all authorizations are completed properly,
including the Manager of Safety’s signature authorizing “full use public
safety vehicles” and providing adequate justifications for take-home use
that demonstrate the benefit to the City and the need for the vehicle.
35 The annual lease valuation method uses the fair market value of the employer-provided vehicle for the year utilized to
determine the annual lease value, as defined by I.R.S.
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FINDING 2
Fuel Access Internal Controls are Inadequate
The Fleet Management Division within Public Works (PW Fleet) is responsible for
negotiating fuel prices as well as purchasing and distributing fuel. As part of this
responsibility, PW Fleet manages and maintains an information system, FuelForce, which
is used to control fuel access at fueling locations throughout the City.
To obtain access to fuel at a City fueling location, employees must first obtain a fuel
identification (ID) number from PW Fleet. In order to obtain a fuel ID, PW Fleet requires the
employee’s supervisor to email PW Fleet with the person’s name and agency. To obtain
access to fuel, the person must enter their ID number, the required fueling information
and the fuel pump number into a key pad at the fueling site that is linked with FuelForce.
Fuel usage is billed to agencies monthly based on the vehicle number fueled.
Audit work found that a lack of internal controls over the process to obtain and
terminate access to fuel creates a significant risk that unauthorized fueling could occur.
More specifically, inadequate maintenance and management of the FuelForce
database has increased the risk for fraudulent activity.
Significant Weakness in Controls of Fueling Database
Auditors obtained a listing of all active fuel ID numbers for all City agencies from
FuelForce and selected two samples for testing. The first sample of 81 IDs was selected at
random from the list of 8,381 active fuel IDs. Audit work revealed that 37% of the active
fuel IDs sampled belonged to terminated employees with two of the IDs showing fueling
activity after termination. Additionally, as illustrated in Table 3 below, 22% of active fuel
IDs sampled have never been used raising the question of why they are necessary.36
Table 3 – Test 1 Results
Test #1 Results
Fuel IDs
assigned to
terminated
employees
Fuel IDs
used after
termination
Fuel IDs never
used
30 of 81 (37%) 2 18 of 81 (22%)
The second audit sample consisted of duplicate names selected from the active fuel ID
listing. There were at least 750 duplicate names in the fuel ID listing. We reviewed 23 sets
36 Due to the way authorization records are kept by Fleet, it was impossible to determine why IDs were issued and never used.
It could be a combination of factors that include, incorrect ID numbers issued, the ID was not needed, the employee transferring to another job where fuel access was not required.
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Significant opportunities exist
for improving fuel access
controls
of duplicates and identified that multiple fuel IDs were assigned to 13 employees, with
one instance of fueling activity after termination of employment, as shown in Table 4.
Table 4 – Test 2 Results
Test #2 Results
Multiple fuel IDs issued to one person
Multiple fuel IDs showing fueling activity
Fuel IDs active after
employment end
13 of 23 (56%) 1 of 23 137
The results of this testing identified several weaknesses in the integrity of the database. In
both samples, it is apparent that the process to deactivate fuel IDs after an employee
ceases to work for the City is a significant control failure. The termination dates of some of
these employees in the sample date back to 1990. This control failure is especially
important since fuel IDs may have been inappropriately used after employees have left
the City.38 Specifically, audit work found that approximately 1,603 gallons of fuel were
obtained with fuel IDs belonging to terminated City employees. Evidence obtained
during the audit could not prove or disprove that this fuel was obtained fraudulently,
partially due to the lack of video cameras at fueling stations.39 These results are also
particularly alarming, given that the overall sample of fuel IDs tested was approximately
1% of all active IDs in FuelForce. As a result, the risk exists for substantive fraud.
In addition, auditors observed that sometimes
nicknames and middle names are given to obtain
fuel access, which made tracking down
employment history difficult. In some instances, no
first name was given to obtain fuel access. There was
also one case where an active fuel ID with a fueling history as recent as September 2010
was from an ID of a person that has no record of employment with the City, when
compared to PeopleSoft and CSA Records.40
Several Factors Contribute to Poor Controls Over Fuel Access
The process to obtain and terminate fuel access is very informal, which has led to many
of the problems described above. First, requesting access to fuel through an email does
not provide PW Fleet with a way to track who is granting access to fuel and the
information gathered about the driver is often inconsistent and incomplete. Further, steps
37 This employee was laid off in 2004 and the ID number remained active at the time of testing. This ID was used as recently as
September 2010 to obtain fuel. Auditors could not determine if this fuel was obtained fraudulently. 38
Auditors did not obtain any strong evidence to support the terminated employees were the ones using the fuel IDs after the end date of employment. 39
At the time of the audit, only two fueling sites had video cameras and footage was only kept for the ten previous days. 40
It is possible that this person did not give a correct or full name to Fleet at the time the ID was created or that the person is employed with a quasi-governmental agency and the department associated with this ID was improperly entered.
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are not taken to verify if the person requesting access is indeed the employee’s
supervisor. In addition, if an error is found in a fuel ID, a new one is issued rather than
correcting the error, which is partially the reason why there are so many duplicate names
in the active fuel IDs.
For terminating fuel access, PW Fleet currently relies upon the agencies to notify them
about employee separation from the City, which often does not happen. Fleet will send
an annual reminder memo to agencies reminding them to report any terminations.
However, no additional steps are taken by PW Fleet to ensure only current employees
have active fuel IDs.
RECOMMENDATIONS
We offer the following recommendation to strengthen internal controls regarding the
management of the Fuel Force system.
2.1 The Fleet Management Division should create a formal process to grant and
terminate access to fuel which includes:
a. Developing policies and procedures for the process including a
standardized form that requires agency information, employee full name
and ID number and supervisor signature.
b. Using employee ID as the fuel ID to eliminate duplicates and create an
audit trail.
c. Requiring edits to a fuel ID if an error is found rather than creating a new
ID.
d. Performing regular reconciliations between PeopleSoft records and the
active fuel ID list to remove terminated employees. At a minimum, these
reconciliations should be performed every six months.
e. Requiring annual positive confirmations from all entities with fuel access
regarding validity and necessity of fuel users. This confirmation should
include language stating the fuel user will protect the fuel ID and notify
Fleet in the event their fuel ID is compromised.
2.2 When the Fleet Management Division invoices agencies for fuel usage, the
invoice detail should include the name associated with the fueling ID used to fuel
each vehicle so the agencies can review for appropriateness.
2.3 The Fleet Management Division should install video cameras at all fueling sites
and consider obtaining additional data storage to allow for a minimum of 60
days of footage available for review.
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FINDING 3
Opportunities Exist to Improve Parts Inventory Controls
An essential component of fleet management is effective control and management of
parts inventory. Inventory is considered an asset and must be adequately maintained,
meaning that inventory should be monitored throughout the life of the part from receipt
of the inventory to disbursement for repairs or returns to the vendor for credit.
Best Practice Identified for Parts Inventory Control
Last year PWs Fleet Management commissioned Laird Consulting to perform a Lean
Process Review of their parts operation.41 The review focused on inventory control,
storerooms, staffing, processes and procedures, and customer service. The results of the
study strengthened controls regarding the management of parts inventory. This study
and the new FASTER system has allowed PWs to improve their inventory operating
procedures to better monitor parts inventory while keeping costs to a minimum without
compromising customer service.42
One basic inventory control used by PW Fleet is securing the parts room behind a locked
door allowing only authorized personnel to enter. All parts activity, whether it is shipping
or receiving, cycle count audit adjustments, or work order requests is tracked in the
FASTER system. Each part is assigned a unique number and a corresponding barcode
that is used to monitor the movement of the part throughout the part’s life cycle. For
example, when a part is required for repairs and maintenance, it is scanned and relieved
from inventory before it leaves the parts room. This action ensures the custody of the part
is monitored at all times.
Cycle counts are completed during each quarter in addition to a yearly physical
inventory count to ensure that inventory on hand is accurate and stocking issues can be
resolved timely.43 Handheld units are used to complete both the cycle counts and the
annual inventory. The 2009 annual physical inventory resulted in an adjustment of
$1,151.40 or 0.07% of total inventory value.44
Tracking all parts activity in FASTER and incorporating the recommendations of the Lean
Process Review has allowed the PW parts manager to improve the efficiency and
effectiveness of the parts operations. Because of this, we consider PWs inventory
operating procedures to be an internal best practice that Denver Police and Denver Fire
Departments could leverage within their parts operations.
41 A Lean Process Review is design to reduce waste, improve processes and incorporate best practices common within the
industry. 42
Public Works Fleet Maintenance operates all satellite facilities with the same policies and procedures. 43
A cycle count is an inventory management technique designed to maintain the accuracy of inventory on hand with the amount recorded in the system. 44
2009 Parts Department Year End Inventory Report provided by Public Works Fleet Parts Manager.
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Weakness in Department of Safety Parts Inventory Controls
Audit work determined that a lack of internal controls over the parts inventory processes
at the DPD and DFD leads to inaccurate on-hands and inventory valuation, inventory
out-of-stocks and overstock, increased levels of obsolete and slow moving inventory, and
creates significant risk of asset misappropriation.45
The stockroom supervisor is responsible for the organization, shipping and receiving,
purchasing, part management, and inventory procedures for the parts room. The FASTER
fleet management system is used by both DPD and DFD to manage inventory. All parts
are assigned a unique number and barcode that is used to monitor part activity in the
system for the life of the part, but the DPD and DFD have not fully implemented the
barcode option of the system in contrast to PW. DPD has assigned barcodes to each
part number but has not started using the handheld units and DFD has yet to assign
barcodes to each part. Officials from both Departments identified resources constraints
as the rational for not fully integrating the barcode method to monitor and track
inventory. Both departments operate their parts room with limited resources; the DPD
parts room consists of two employees, a supervisor and an assistant, and DFD only has
one full-time parts manager.
Audit work included a test of DPD and DFD parts inventory for accuracy by choosing 10
parts randomly from the shelf and verifying the on-hand parts in the system and choosing
another 10 parts from the system and verifying the on-hand shelved parts.46 Both types of
tests were combined to get the total amount of accurate on-hand parts. Results for DPD
indicated that 8 (40%) of the on-hand parts tested were not accurate and 10 (50%) of
the on-hand parts tested for DFD were not accurate. The majority of these differences
resulted from parts not charged to a work order and parts not returned to stock when
they were pulled but subsequently not used for a work order.47
Several Factors Contribute to the Weak Inventory Controls
The failure to utilize the inventory system as designed is the main factor hindering the
ability of DPD and DFD to effectively monitor and track inventory. For example, parts
issued to DPD mechanics are not removed from the system when issued; but instead are
tracked on a manual log. Mechanics and the Parts Department personnel reconcile the
parts used in work orders to the hand written log when repairs are complete rather than
within the automated system.
Similarly, the one full-time DFD parts manager cannot be in the parts room at all times
and the door is not secure allowing for unauthorized access to the parts room. The
individual retrieving a part is “on their honor” to write down the item in a notebook or on
a form that the DFD parts manager uses to update the system. If a part taken from the
parts room is not recorded on the notebook or form, the inventory is not updated. In
addition to the lack of security over the parts room, the lack of resources for both
Departments has impacted cycle counts, which are not being completed regularly. On
45 The Denver Police Department also repairs all Denver Sheriff Department vehicles.
46 The sample from the system was judgmentally selected choosing parts that had an on-hand recorded.
47 A work order is used to document and initiate maintenance and repairs required for City vehicles.
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occasion, a DFD cadet or light duty employee is called to assist with cycle counts and
the annual inventory in an effort to maintain inventory integrity. However, this assistance
has not been frequent enough to maintain accuracy.
Proper inventory controls will help ensure sufficient equipment is available to meet daily
operational requirements, prevent equipment loss, ensure accuracy of the inventory
valuations, and improve budgeting and forecasting of inventory.
RECOMMENDATIONS
We offer the following recommendations to assist the Denver Police Department and the
Denver Fire Department to improve parts inventory controls.
3.1 DPD and DFD should establish inventory operating procedures similar to Public
Works to record parts inventory activity within FASTER as it occurs. Procedures
should address:
a. Parts charged to work orders at time of disbursement.
b. Parts returned to stock and to vendors.
c. Secure access to the parts room by assigning an alternate parts room
custodian.
d. Incorporate the use of the barcodes for tracking purposes.
3.2 DPD and DFD should perform cycle counts regularly to ensure on-hand accuracy
of inventory.
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FINDING 4
Significant Outstanding Internal Billing Transfers
An Internal Billing Transfer (IBT) is an invoice used by city agencies and departments to bill
each other for internal services. For PWs Fleet Maintenance Division, the IBT is the main
revenue source used to fund its operations.
When the Fleet Division performs a service for an agency, PWs Finance and
Administration Division staff creates and sends an IBT to the agency for services rendered.
The agency should review the billing and ensure its accuracy. After verifying accuracy,
an authorized person within the agency should sign the IBT and send it back to Fleet
Maintenance via PWs Finance, who sends the completed IBT to the Controllers Office
where it is uploaded and posted within PeopleSoft.48
Audit work identified a breakdown in the IBT collection process. The breakdown occurs in
two different ways during the IBT retrieval process from agencies. First, city agencies do
not consistently return the IBTs to PWs as required. Instead, agencies generally send the
IBT directly to the Controllers Office thus bypassing a step in the process. Bypassing this
step does not allow PWs personnel to easily track IBT status and in doing so to identify
unprocessed and unpaid IBTs. A second, related control breakdown can occur when
city agencies never return an IBT to PWs or the Controllers Office thus causing an
outstanding billing transfer.
Fiscal Accountability Rules mandate PW Fleet to ensure payments are for services
rendered to city agencies are received. PWs Fleet is not in compliance with this rule
regarding the internal billing transfer procedure. Specifically, the City’s internal billing
transfer procedure noted in Fiscal Accountability Rule 7.7 states, “The billing agency shall
track all bills including the receipt of payment.”49 Although PW Fleet does track all the
billing transfers, it does not have a follow-up procedure or an individual designated to
follow-up with agencies about missing or outstanding internal billings.
As a result of these control deficiencies, audit work identified 116 outstanding IBTs
equating to approximately $134,000. The 116 outstanding IBT represents approximately
8% of total IBTs created and sent to city agencies during our audit period. Since PW Fleet
is funded by these internal billings, it is important that all IBTs are paid to cover the
operating costs for services already rendered.50 The failure to collect these outstanding
funds could create undue hardship on PW Fleet management for budgeting and
forecasting activities. Outstanding IBTs are summarized in Table 5.
48 See Appendix C for a flow chart of the Internal Billing Process.
49 See Appendix D for Fiscal Accountability Rule 7.7.
50 It is possible that PW Fleet has hundreds of thousands dollars of outstanding IBTs in previous years.
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Table 5 – Summary of Outstanding IBTs
OUTSTANDING IBTs 7/1/09-6/30/10
Year Dollar Amount # of IBT
2009 $35,275.16 56
2010 $98,851.96 60
Total Outstanding $134,127.12 116
RECOMMENDATION
We offer the following recommendation to assist the Public Works Finance and
Administration Division monitor and collect timely all internal billing transfers.
4.1 Public Works should ensure compliance with the City's Fiscal Accountability Rules by
creating robust policies and procedures outlining the recovery of outstanding internal
billing transfers. Specifically, the policies and procedures should:
a. Identify staff responsible for recovery of the outstanding balances, if deemed cost
beneficial, and recover the IBTs identified in the audit period and include prior
years if applicable.
b. Create, with assistance from the Controller’s Office, an internal direct billing
procedure to ensure revenue is received timely.
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APPENDICES
Appendix A – Fiscal Accountability Rule 10.6
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Appendix B – Results of Take-Home Vehicle Testing
Fleet Management Audit
Take-Home Vehicle Testing - Summary of Findings
7/1/2009 - 6/30/2010
Requirement Results of Test Work
The driver is required to reimburse the City for
commuting, unless they drive a "qualified non-
personal use vehicle" (Fiscal Rule 10.6, XO25, IRS
Regulations)
2 instances of no reimbursement were identified
Trip Logs must be submitted no later than five
business days after the end of each bi-weekly
work period. (Fiscal Rule 10.6)
Several instances were identified where
reimbursements were processed in large chunks due to
untimely submission of trip logs.
The agency head has approved and executed
an authorization form (Fiscal Rule 10.6, XO25)
7 of 14 did not have current, fully executed
authorizations. Four of the authorizations were signed
after the audit request was made.
The agency head has submitted an authorization
form to the Office of the Controller (Fiscal Rule
10.6)
0 of 14 had authorization forms submitted to the
Controller.
The department or agency head shall submit to
the Controller's Office a Taxable Vehicle Use
Agreement (Fiscal Rule 10.6)
No valid agreements were produced. The only
agreement that was provided was executed after the
audit request was made.
Department or agency heads must annually
review all authorizations for take-home use on or
before June 30th of each year and shall state
the findings in a report to the Controller. (Fiscal
Rule 10.6)
The Controller's Office does not receive this report.
Department or agency heads shall also submit a
status report on or before June 30th of each year
to the Director of Budget and Management of
all vehicle assignments (Fiscal Rule 10.6, XO25)
BMO does receive this report. However, it is not
adequately updated by the agencies and audit work
found incorrect vehicle assignments and vehicles no
longer owned by the City on the most recent report.51
At a minimum, it must be demonstrated that
take-home drivers are required to respond to
City emergencies or immediate service requests
on a periodic basis, at least 12 occasions within a
12-month period. (XO25)
Audit work found that tracking of emergency
responses is haphazard at the agencies. In one
instance, auditors were given a list of snow
emergencies to demonstrate meeting this requirement;
however, this person was on vacation for one of the
dates listed.
51 It should be noted that it is not a requirement in the Fiscal Rule or Executive Order that the report to BMO be accurate.
However, in order for the information to be useful, it must be accurate, which is why it is included in this list.
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Appendix C – Internal Billing Process Flow Chart
Internal Billing Transfer (IBT) Process
Public Works Finance and Administration
PWFA senior
accountant retrieves
billing reports from
shared folder with PW
Fleet
Fund, org & amount
entered into Access
database
Reconcile dollar
amount entered with
report supporting
documentation
Legend
PWFA – Public Works Finance and Administration
CO – Controller’s Office
Each department,
agency, and office
are billed separately
Is there a
billing
discrepancy?
CO verifies agency
approval & correct
fund/org codes
IBT transaction entered
into PeopleSoft by CO
PW Fleet & PWFA work
with agency to resolve
billing discrepancy
No
Yes
IBT returned to PWFA
and sent to the CO
IBT created in
Access
database
PWFA sends IBT and
supporting
documentation to
dept/agency for
approval signature
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Appendix D – Fiscal Accountability Rule 7.7
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AGENCY RESPONSE
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