BCC: Utilities Warehouse Inventories – Dated December 20, 2021

Summary

6 findings

1. Finding 1lowpolicy

   Extended Cycle Count Process Lacks Written Documentation

   The existing Cycle Count Procedures did not document all key steps performed throughout the year. Management performed extended cycle counts using a turnover report generated around August for items with no usage, but this process was not captured in any written procedure. Undocumented procedures undermine consistency, compliance, and training capability.

   Recommendation: Update the Cycle Count Procedure to include clear guidance for performing extended cycle counts, specifying the person responsible for generating the turnover report, the frequency, and how counts will be documented.
   Management response: Management concurs. The Cycle Count SOP will be updated to include clear guidance for performing extended cycle counts, including responsibility, frequency, and documentation requirements. Target implementation date: January 2022.
2. Finding 2mediumother

   EAM System Glitch Added Non-Existent Items to Inventory

   During the audit at Shady Hills Warehouse, one item (#2083Y) appeared on count sheets with no specific bin location and did not physically exist. A system glitch caused the item — recently added to Embassy Warehouse — to be automatically added to Shady Hills (with '*' bin location) and Wesley Center (with 'PR' bin location), generating inaccurate count sheets. This undermined the reliability of inventory records.

   Recommendation: Consult with the EAM vendor to determine and fix why items are added to warehouses that do not stock them. Make necessary corrections in the EAM system and monitor bin locations regularly to identify and correct errors in a timely manner.
   Management response: Management concurs. The vendor was contacted and deployed a corrective solution; no recurrence has been reported. Management will continue monitoring bin locations on a regular basis. Target implementation date: January 2022.
3. Finding 3mediumother

   IG Identified Two of Three Embassy Warehouse Year-End Adjustments

   For two items at the Embassy Warehouse (item #19038 and #400057), the IG's physical count differed from both the warehouse team's count and the system count. Upon recount with the lead inventory specialist, the IG's count was determined to be correct and adjustments were required. This indicates blind count procedures were not fully effective. The issue was also noted in the prior FYE 2018 audit, though the number of discrepancies has significantly decreased.

   Recommendation: Review training materials and instructions for warehouse count teams to improve the physical count process, ensure blind counts are conducted, and require all items to be counted carefully including those with known problems or errors.
   Management response: Management concurs and is proud of significant improvement since the last audit. SOPs and training materials will be reviewed to ensure count procedures are adequately detailed, and training will be conducted for count teams to maintain accuracy and accountability. Target implementation date: January 2022.
4. Finding 4mediumpolicy

   Bin Location Changes Allow Undetected Inventory Misappropriation Risk

   For two items (#31251 and #2424C) at Embassy Warehouse, bin locations were changed to 'as needed' prior to year-end, excluding them from inventory count sheets. Lead inventory specialists made these decisions without required management approval, and changes were not tracked or monitored. This creates a risk that County assets could be mismanaged or misappropriated without detection.

   Recommendation: Establish a detailed documented policy and procedure requiring secondary review, management approval, and monitoring of all bin location changes. Document all requests, reviews, approvals/denials, and monitoring of changes.
   Management response: Management recognized this opportunity for improvement during preliminary audit review and agreed to formalize a policy detailing requirements for moving items in and out of inventory classifications with stricter controls. An SOP will be established. Target implementation date: January 2022.
5. Finding 5mediumpolicy$651

   Inventory Adjustments Lack Formal Written Approval Process

   Inventory adjustments made by lead inventory specialists were only verbally approved by management before entry into the system. The IG could not verify that the combined 16 adjustments totaling $651.09 during the audit period were properly reviewed and approved, as no supporting documentation existed. This lack of documentation increases the risk of unauthorized adjustments.

   Recommendation: Establish a documented policy and procedure providing clear guidance for requesting, reviewing, approving, and monitoring inventory adjustments. Require requests, reviews, and approvals/denials to be documented in writing, such as via email.
   Management response: Management concurs and recognizes the need to formalize a written approval process. A documented policy will be established utilizing email as the submission method to ensure date/time stamps and written approval are maintained on record. Target implementation date: January 2022.
6. Finding 6lowother

   Inventory System Reflects Incorrect Bin Locations for Several 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 inventory system or could not be identified at all. Management stated the inventory had been reorganized due to spacing issues but the system was not updated at the time of the audit.

   Recommendation: Update the inventory system to reflect correct bin locations. Update policies and procedures to require bin location verification and updating during cycle counts or when items cannot be identified.
   Management response: Management concurs and recognizes the importance of accurate bin locations for effective operations. The inventory system will be monitored and updated to reflect correct locations, and the Cycle Count SOP will be updated to include bin location verification. Target implementation date: January 2022.