BCC: Utilities Warehouse Inventories Follow-up – Dated December 13, 2022

Summary

6 findings

1. Finding 1mediumpolicy

   Extended cycle count process not documented in SOPs

   The existing Inventory Cycle Counts Procedures did not document the extended cycle count process performed on items with no usage. Management generated a turnover report near fiscal year-end (around August) to ensure all inventory items were counted, but this process lacked any written documentation. Undocumented procedures undermine consistency, training, and continuity of operations.

   Recommendation: Update the Cycle Count Procedure to include clear guidance for performing extended cycle counts, including the responsible person, frequency of the turnover report, and how extended cycle counts will be documented.
   Management response: Management recognizes the need to document additional control procedures and concurs with the audit recommendation. The Cycle Count SOP will be updated accordingly.
2. Finding 2mediumdata access

   EAM system glitch added phantom inventory items to wrong warehouses

   During the audit at Shady Hills Warehouse, one item (#2083Y) appeared on count sheets without a valid bin location and did not physically exist at that location. A system glitch caused the item, newly added to Embassy Warehouse, to be automatically propagated to Shady Hills (with '*' bin) and Wesley Center (with 'PR' bin), creating inaccurate inventory records and count sheets.

   Recommendation: Consult with the EAM vendor to determine why items are added to warehouses that do not stock them, make necessary corrections, and regularly monitor bin locations to identify items assigned to incorrect locations.
   Management response: Management concurred, contacted the software vendor, and a corrective solution was deployed. No further instances of the issue have been reported. Bin locations will be monitored regularly going forward.
3. Finding 3mediumevidence

   IG identified two of three Embassy Warehouse year-end count discrepancies

   For two items in the IG's test sample at Embassy Warehouse (item #19038 clear plastic safety glasses and item #400057 valve tapping cast iron 6"), the IG's physical count did not agree with the warehouse team's count or the system count. Upon recount with the lead inventory specialist, the IG's counts were confirmed correct, requiring adjustments. This issue was also raised in the prior FYE 2018 audit, though discrepancies had significantly decreased.

   Recommendation: Review training materials for warehouse count teams to improve physical count procedures and ensure blind counts are properly conducted. Require all items to be counted carefully, including those with known problems or errors.
   Management response: Management concurs and will ensure SOPs and training materials accurately depict count procedures. Staff will be appropriately trained, and blind count teams will continue to be utilized.
4. Finding 4highcash handling

   Bin location changes allowed inventory to be moved without management approval

   For two items (#31251 and #2424C) at the Embassy Warehouse, bin locations were changed to 'as needed' prior to year-end, excluding them from inventory count sheets. Decisions to change bin locations were made solely by lead inventory specialists without required management approval, tracking, or monitoring. This created a risk that County assets could be mismanaged or misappropriated without detection.

   Recommendation: Establish a documented policy requiring secondary review, management approval, and monitoring of all bin location changes. Document the request, review, approval/denial, and monitoring of all such changes.
   Management response: Management recognized this opportunity during the preliminary review of audit findings and agreed to formalize a policy requiring management approval for items moving in and out of inventory classifications.
5. Finding 5mediumpolicy$651

   Inventory adjustments lacked formal written request and approval process

   Inventory adjustments made by lead inventory specialists were only verbally approved by management before entry into the EAM system. The IG could not verify that the combined 16 adjustments totaling $651.09 for the audit period were properly reviewed and approved because no supporting documentation existed. The absence of a formal written approval process increased the risk of unauthorized adjustments.

   Recommendation: Establish a documented policy providing clear guidance for requesting, reviewing, approving, and monitoring inventory adjustments, requiring written or email-based approval with date/time stamps retained on record.
   Management response: Management acknowledges the informal verbal approval process and concurs with the recommendation to formalize a written approval process. A documented policy utilizing email submissions will be established and records retained.
6. Finding 6mediumdata access

   Inventory system reflected incorrect bin locations for multiple items

   Of the 103 items tested at Embassy Warehouse, five items (5%) — #22003, #07007M, #82048, #500586, and #230112 — were located in a different area than reflected in the EAM system or could not be identified. Management stated the inventory had been reorganized due to spacing issues, but the system was not updated at the time of the audit, compromising the reliability of inventory records.

   Recommendation: Update the inventory system to reflect correct bin locations and update policies and procedures to require bin location verification and updates whenever cycle counts are conducted or items cannot be identified.
   Management response: Management concurs and will ensure the inventory system is monitored and updated to reflect correct bin locations. The Cycle Count SOP will also be updated to include verifying bin locations.