HIGHLANDS COUNTY BOARD OF COUNTY COMMISSIONERS

Transcription

1 HIGHLANDS COUNTY BOARD OF COUNTY COMMISSIONERS FUEL MANAGEMENT & UTILIZATION FOLLOW-UP AUDIT REPORT NO NOVEMBER 15, 2011 Prepared by: Robert W. Germaine Highlands County Clerk of Courts

2 EXECUTIVE SUMMARY FUEL MANAGEMENT & UTILIZATION FOLLOW-UP AUDIT TABLE OF CONTENTS Background...1 Audit Objectives...4 Statement of Standards...5 Scope & Methodology...5 Audit Conclusion...6 STATUS OF PREVIOUS FINDINGS AND RECOMMENDATIONS SAFEGUARDING ASSETS / SITE SECURITY Opportunity for Improvement 1 Installation of surveillance cameras at County fuel sites...7 Finding 1 Internal controls restricting access to County fuel pumps were found to be inadequate...7 Finding 2 Security over underground storage tanks not maintained...8 Finding 3 Fuel trucks not equipped with locking fuel caps (fill point caps) or with locks to secure the fuel dispensers...9 FUEL PURCHASES Opportunity for Improvement 2 Purchase of dyed (un-taxed) diesel for use in on-road and offroad vehicles/equipment...10 FUEL TAX REFUNDS Finding 4 Improper calculation of quarterly fuel tax refund On-road use...11 Finding 5 The County has not taken advantage of the off-road diesel fuel tax refund...12 FUEL DISPERSEMENTS Finding 6 Lack of formal written agreement between the Board and the outside agencies which utilize the County fuel sites...14 Finding 7 Non-compliance with the 1993 Fuel Site Use Agreement Section 4. Cost of Fuel...15 Finding 8 Non-compliance with the 1993 Fuel Site Use Agreement Section 3. Keys...16 i

3 FUEL MANAGEMENT & UTILIZATION FOLLOW-UP AUDIT TABLE OF CONTENTS Opportunity for Improvement 3 Social security numbers are obtained during the issuance of user keys Finding 9 Deactivation of user keys and vehicle/equipment keys the FuelMaster System...17 Finding 10 Assignment of user keys to Board employees driving County fuel trucks...19 Finding 11 Odometer or hour readings are not always recorded in the FuelMaster System...19 FUEL TRACKING / ANNUAL INVENTORY Finding 12 The Clerk s Payables/Receivables Department made unsupported entries into the Inventory System...21 Finding 13 Manual process for tracking fuel dispersements results in numerous input errors and omissions...21 FUEL DEPOT PURCHASE Opportunity for Improvement 4 Expenditure - Interlocal Agreement between the Board, School Board and the City of Sebring for the joint purchase of the Fuel Depot AUDIT REPORT APPROVAL...25 ii

4 BACKGROUND As part of the Highlands County Clerk of Courts (Clerk) s Audit Plan, a Fuel Management and Utilization Audit (No ) was conducted. This audit was a follow-up to the original audit completed and issued on March 25, The follow-up audit was authorized, completed and approved for release under the direction of Clerk of Courts, Robert W. Germaine. The Board of County Commissioners (Board) operate three (3) fuel sites which are utilized by authorized County employees to fuel County vehicles and equipment. In addition to use by County employees, the Board has provided various outside agencies access to the fuel sites. User agencies are billed on a monthly basis, by the Clerk s Payables/Receivables Department, for consumed fuel. The following agencies have been granted access to County fuel sites: Highlands County Sheriff s Office Highlands County School Board Highlands County Health Department Highlands County Property Appraiser Highlands County Supervisor of Elections City of Avon Park Avon Park Housing Authority Town of Lake Placid State Attorney s Office Heartland Library Cooperative The General Services/Purchasing (GS/P) Department is responsible for overseeing fuel site operations; duties include granting access to authorized users, vehicles and equipment, maintaining an adequate fuel supply, ensuring that each site remains operational, input of data into and management of the FuelMaster System, and ensuring compliance with various regulations. The GS/P Department recently completed a major upgrade to the Avon Park fuel site. The upgrade included the removal of two (2) underground storage tanks, installation of four (4) above ground tanks, and installation of new fuel dispensers at all County fuel sites. The upgrade was completed January 25, 2010 at a total cost of $736, Unleaded fuel and dyed (non-taxed) diesel fuel is purchased for each fuel site. Petroleum purchases are exempt from the competitive purchasing process per Section 3 (130 Procurement Procedure Exemption, Exceptions, and Waivers) of the Board approved Purchasing Manual. Despite being exempt, the GS/P Department consistently solicits written quotes from a number of vendors and awards the purchase to either the local bidder meeting the requirements of the Local Vendor Preference policy or to the lowest bidder. Due to price volatility, fuel deliveries are typically received the same day. FuelMaster, an automated fuel management system, is utilized to restrict access to the County s fuel supply and to track fuel usage. To obtain fuel from any of the fuel sites, a user must have his/her assigned user key and the assigned vehicle/equipment key. Executive Summary 1

5 Users are prompted to: 1) Insert his/her assigned user key; 2) Insert the assigned vehicle/equipment key; 3) Input the current odometer reading; and 4) Indicate which pump will be used for the fueling transaction. Once all required information is input and validated, the FuelMaster System activates the indicated pump and records transaction details. The County utilizes fuel trucks to transport fuel to vehicles and equipment operating in the field and to a stationary warehouse located at the County Landfill. Fuel dispersed from the fuel trucks and the stationary warehouse are tracked on manual logs and input to the FuelMaster System by the GS/P Department. Dispersements between the fuel trucks and stationary warehouse (transfers) are input directly into the Inventory System by the Clerk s Payables/Receivables Department (this process was transferred to the Clerk s Accounting Department in the fourth quarter of FY 09-10). Annual inventory counts are performed at the end of each fiscal year and the inventory balance per the Inventory System is adjusted to reflect actual inventory. The Clerk s Business Services Department has consistently expressed concern with the required adjustments, especially with the fuel trucks and stationary warehouses. Inventory is not reconciled throughout the year. The County s current fuel storage capacity is 108,000 gallons. Fuel purchases for fiscal year totaled $ 2,991, (all agencies, fuel sites only). During the same period, FuelMaster recorded 38,581 fuel site transactions in which 630,398 gallons of fuel were dispensed. Fuel purchases for fiscal year through the beginning of September totaled $ 2,339, (all agencies, fuel sites only). The amount of fuel dispensed from the beginning of fiscal year through the beginning of September 2011 totaled 610,876 gallons Executive Summary 2

6 The following charts provide a summary of Board vs. outside agency fuel site transactions and fuel consumption as recorded by the FuelMaster System for FY 09-10: Fuel Site Transactions 18,000 16,000 16,287 15,670 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - Board of County Commissioner City of Avon Park 2,277 1, Avon Park Police Health Department Heartland Library Cooperative Town of Lake Placid Lake Placid Police Property Appraiser School Board Sheriff Supervisor of Elections State Attorney Fuel Consumption (in gallons) 500, , , , , , , , , , , , , , , , , , , , Board of County Commissioner City of Avon Park Avon Park Police Health Department Heartland Library Cooperative Town of Lake Placid Lake Placid Police Property Appraiser School Board Sheriff Supervisor of Elections State Attorney Executive Summary 3

7 AUDIT OBJECTIVES The objective of the follow-up audit is to determine the adequacy, effectiveness, and timeliness of actions taken by Board management in response to the four (4) opportunities for improvement and thirteen (13) internal control weaknesses identified in the Internal Audit (released on March 25, 2009). The objectives of the original audit were to: 1. Determine whether fuel purchases are made in accordance with BOCC Purchasing Policies and whether adequate internal controls exist over the receipt, safekeeping and recording of fuel purchases. 2. Determine whether adequate internal controls exist to prevent unauthorized fuel issues (to vehicles, equipment and warehouses) and determine whether issues are properly supported, documented and recorded. 3. Perform a review of the annual fuel inventory process and year-end adjustments. 4. Follow-up on the status of issues identified in the Fuel Usage Monitoring Report. Executive Summary 4

8 STATEMENT OF STANDARDS This follow-up audit was conducted in accordance with applicable standards as published in the International Standards for the Professional Practice of Internal Auditing, issued by the Institute of Internal Auditors. We believe that our audit provides a reasonable basis for our conclusions. SCOPE & METHODOLOGY The scope of this audit included a sample of transactions involving fuel purchases for and dispersements from the three (3) County fuel sites since the original audit. Methodology included identifying and analyzing the amount of fuel purchased for and dispensed from the three (3) County fuel sites, and performing specific audit procedures to provide assurances related to stated objectives. Audit procedures performed included: Observations Interviews Review of relevant contracts and agreements Review and testing of various internal controls Review of manual logs and system data Sampling and testing fuel purchases and dispersements Executive Summary 5

9 AUDIT CONCLUSION Overall, the GS/P Department continues to effectively manage County fuel sites and has implemented additional controls and process improvements in responses to the initial audit. Fuel sites remain operational and adequately supplied, which allows the County and outside agencies to operate uninterrupted. The GS/P Department has established an adequate process to ensure that fuel purchases are made in the best interest of the County and segregation of duties exist. Fuel dispersements from County fuel sites are controlled and recorded by the FuelMaster System, which when functioning properly, provides adequate restrictions over unauthorized dispersements. Management reports are available and being reviewed daily, which should provide the GS/P Department with additional information to monitor unusual fuel site activity. The initial Fuel Management and Utilization Audit identified four (4) Opportunities for Improvement and thirteen (13) internal control weaknesses that were considered significant in nature. Follow-up audit status has concluded that remediation of the four (4) Opportunities for Improvement and seven (7) internal control weaknesses have been fully implemented, three (3) internal controls weaknesses have been partially implemented, and three (3) internal control weaknesses were not remediated as of the release date of this audit. Partial implementations related to a formal written agreement between the Board and the outside agencies, deactivation of user keys following termination, and odometer readings not recorded. Control weaknesses with no remediation related to lack of reimbursement for administrative costs, inaccurate recording of manual logs, and user keys (as noted in the 1993 Fuel Site Use Agreement). Internal Audit encourages management to continue process improvements and implement controls where feasible. Any minor findings, not included in this report, were communicated to Management and/or corrected during the audit process. Follow-up status to each finding has been inserted after the respective finding and recommendation. We would sincerely like to thank the GS/P Department, County Administration, the Clerk s Payable/Receivables Department, the Clerk s Information Technology Department and the Clerk s Accounting Department for their cooperation throughout this audit. Executive Summary 6

10 FINDINGS, RECOMMENDATIONS, AND MANAGEMENT RESPONSES SAFEGUARDING ASSETS / SITE SECURITY Opportunity for Improvement 1: Installation of surveillance cameras at County fuel sites. Security over the County s fuel sites is minimal. Internal controls have been established; however, were found to be overridden on several occasions (addressed below in Finding 1 & 2). The remote location of all three (3) fuel sites makes it possible for questionable activity to go undetected. Recommendation - Implemented: Adequate internal controls should exist and function properly to help prevent the misuse, abuse and theft of fuel from County fuel sites. Internal Audit recommends that the Board install permanent surveillance cameras at each of the fuel sites. GS/P Department and County Administration Management Response: Management concurs with the recommendation and the additional internal controls are being implemented. The security/surveillance camera installations are in process. Opportunity for Improvement 1 - Follow-up Status: Compliance and Internal Audit reviewed the FuelMaster FMU Report, accompanied GS/P Department staff to each fuel site and reviewed pump activity by site. All pumps were tested at each site (without using a user key) to ensure fuel could not be obtained and no exceptions were noted. In addition, review of the FuelMaster system transaction data was analyzed and pump activity appeared reasonable. Finding 1: Internal controls restricting access to County fuel pumps were found to be inadequate. During testing of fuel pump restriction, personnel from the GS/P Department and Internal Audit were able to obtain fuel (on two separate occasions) from the County fuel pumps without the use of required user and vehicle/equipment keys. The first instance occurred at the Avon Park fuel site and was the result of an equipment failure. The second instance occurred at the Sebring fuel site and was the result of a manual override of system controls. Further review, of transactions in the FuelMaster System, indicated that internal controls had been manually overridden on three (3) separate occasions since June 1, In each instance, the pump remained in manual override for several weeks. It is unknown how much fuel (if any) was dispensed during the time when the controls were manually overridden. Note: Immediately following discovery, Internal Audit provided details to the County Administration so necessary actions could be taken. Findings, Recommendations and Management Responses 7

11 Recommendation- Implemented: Access to fuel resources should be restricted to authorized users. All fuel transactions should be authorized and recorded by the FuelMaster System. Fuel pumps should only activate after successful input of an authorized user and vehicle/equipment key. The FuelMaster System should never be overridden to allow manual dispersements of fuel; with the exception of emergency situations. All system overrides should be documented and manual fuel transactions supported. FuelMaster daily reports should be reviewed; control exceptions noted, researched and remediated; and periodic and random testing of fuel pumps should be performed to ensure that controls are operating as intended. The GS/P Department should consider updating all locks to ensure only authorized staff has access. Keys should only be provided to essential personnel and safeguarded at all times. Additionally, as stated in Opportunity for Improvement 1, Internal Audit recommends that the Board install permanent surveillance cameras at all County fuel sites. GS/P Department and County Administration Management Response: Management concurs with the recommendation and will implement procedures to insure adequate internal controls. Finding 1 - Follow-up Status: Following the recommendations in the initial audit Board staff took immediate action to restrict access to County fuel pumps. The GS/P Department has implemented a process to review FuelMaster transaction activity daily and monthly site visits to test pump settings. Compliance and Internal Audit reviewed the FuelMaster FMU Report and performed fuel site visits with GS/P Department staff and did not note any exceptions. Finding 2: Security over underground storage tanks not maintained. Underground storage tanks at each of the County fuel sites are equipped with locking caps to restrict access to the County s fuel resources. On two (2) separate occasions, personnel from the GS/P Department and Internal Audit were able to access the underground storage tanks at the Lake Placid fuel site without the use of required keys. In each instance, the lock had been placed on the cap but not secured. Recommendation - Implemented: Underground fuel tanks should remain secure at all times, with the exception of re-fueling and inspections. The GS/P Department should consider updating all locks to ensure that only authorized staff has access. Keys should only be provided to essential personnel and safeguarded at all times. Additionally, as stated in Opportunity for Improvement 1, Internal Audit recommends that the Board install permanent surveillance cameras at all County fuel sites. Findings, Recommendations and Management Responses 8

12 GS/P Department and County Administration Management Response: Management concurs with the recommendation and corrective procedures have been implemented. Finding 2 - Follow-up Status: Following the recommendations in the initial audit, Board staff took immediate action to restrict access to underground fuel tanks. The General Services/Purchasing (GS/P) Department has implemented a process to secure underground (and above ground as of late FY 09 for Avon Park) storage tanks. Compliance and Internal Audit visited each fuel site with GS/P Department staff and all tanks were observed locked. Finding 3: Fuel trucks not equipped with locking fuel caps (fill point caps) or with locks to secure the fuel dispensers. The County currently utilizes several fuel trucks to transport fuel to vehicles and equipment in the field. During discussions and observations, it was noted that the fuel trucks are not equipped with locking fuel caps or with locks to secure the fueling dispensers. Recommendation - Implemented: Reasonable measures should be taken to ensure that unauthorized access to fuel stored in fuel trucks is restricted, especially during non-operational hours. Internal Audit recommends that all fuel trucks be equipped with locking fuel caps and with locks for the fuel dispensers. Fuel caps should remain locked at all times, except during refueling. Fueling dispensers should be locked during non-operational hours and when the vehicle operator is not present. Keys should only be provided to essential personnel and safeguarded at all times. GS/P Department and County Administration Management Response: Management concurs with the recommendation and the corrective measures will be implemented. Implementation of the corrective measures was temporarily delayed in cooperation with ongoing law enforcement investigations. Finding 3 - Follow-up Status: Following recommendations of the initial audit GS/P and Board staff equipped fuel trucks with locking fuel caps. Compliance and Internal Audit visited each fuel site with GS/P Department staff and observed the locking fuel caps located on the fuel trucks. Findings, Recommendations and Management Responses 9

13 FUEL PURCHASES Opportunity for Improvement 2: Purchase of dyed (un-taxed) diesel for use in on-road and off-road vehicles/equipment. The County currently purchases undyed (tax paid) diesel for use in both on-road and off-road vehicles and equipment. By purchasing undyed diesel, the County pays various fuel taxes at the time of purchase which would otherwise be exempt. On a quarterly basis, the County submits an Application for Fuel Tax Refund (DR-189) to the Department of Revenue requesting a refund of the exempt taxes. The disadvantage of undyed diesel is that the County essentially provides an interest-free loan to the State. The County forgoes the opportunity during the quarter to either expend or invest the funds to its benefit. Recommendation - Implemented: Section (3)(b) of the Florida Statutes and Tax Information Publication 96B5-06 provides local governments with the option of purchasing dyed diesel for use in on-road and off-road vehicles and equipment. Internal Audit recommends that the County explore its options concerning the purchase of dyed diesel. All parties should be involved during these discussions; including the GS/P Department, the Clerk's Payables/Receivables Department and the outside agencies that utilize the County fuel sites. Internal Audit encourages staff to work with the Department of Revenue to ensure that all requirements concerning licensing and reporting are met. It is essential that the County and outside agencies understand their reporting responsibilities regardless of the type of fuel purchased. GS/P Department and County Administration Management Response: Management concurs with the recommendation. Opportunity for Improvement 2 - Follow-up Status: The county obtained an active fuel license on May 20, 2009 and began to purchase dyed diesel fuel for its county vehicles on June 11, 2009 from suppliers and is now utilizing tax exempt fuel. Compliance and Internal Audit performed an analysis of the financial reports, reviewed supplier invoices, observed the county s fuel sites, and discussed dyed diesel purchases with the General Services/Purchasing Department and the Clerk s Payables/Receivables Department. At the present time all County fuel sites are using dyed diesel. Findings, Recommendations and Management Responses 10

14 FUEL TAX REFUNDS Finding 4: Improper calculation of quarterly fuel tax refund On-road use. The County currently purchases tax paid unleaded and diesel fuel for storage at County fuel sites and usage in County vehicles and equipment. The County is eligible to receive two (2) types of fuel tax refunds: 1) a refund of a portion of the taxes paid on unleaded and diesel fuel purchased and used for on-road purposes; and 2) a refund of taxes paid on diesel fuel purchased and used for off-road purposes. No refund is available for unleaded fuel used for off-road purposes. Quarterly, the County submits an Application for Fuel Tax Refund (DR-189) to the Department of Revenue requesting a refund of a portion of the taxes paid on unleaded and diesel fuel consumed for on-road purposes. Internal Audit reviewed the Applications for the three (3) year period of October 1, 2005 thru September 30, 2008 and noted several issues with the reported data. The following issues were identified: Improper reporting of beginning and ending inventory balances. Beginning and ending fuel inventory was incorrectly reported as the sum of the corresponding three (3) months ending inventory balances rather than as the actual inventory balance at the specified point in time. For example, if the following inventory balances were noted for the quarter ending December 31, 200X: October 31 st November 30 th December 31 st 10,050 gallons 11,200 gallons 15,050 gallons Ending inventory was being incorrectly reported as 36,300 gallons (10, , ,050) rather than the actual December 31, 200X balance of 15,050 gallons. Beginning and ending inventory was incorrectly reported during the entire three (3) year period reviewed. Refund improperly included fuel sold to outside agencies. The County incorrectly included the gallons of unleaded and diesel fuel sold to the outside agencies in its request. The Board is only entitled to a refund of fuel taxes paid on gallons consumed by the Board. Outside agencies (operating under a separate Federal Identification Number) consuming fuel from the County fuel sites may apply to the Department of Revenue for a refund of fuel taxes. Since the Board sells fuel to other agencies, the Department of Revenue suggests the Board apply for a Local Government User license (rather than carrying a permit) and complete the required monthly application. Off-road vehicle consumption report contained errors. Fuel consumed for off-road purposes is not entitled to a refund under this Application. To account for these gallons, an Off-Road Fuel Consumption Report was created and used to deduct the gallons consumed for off-road purposes during the quarter. Internal Audit reviewed the report and found that a number of off-road fueling transactions were being duplicated on the report. As a result, the gallons identified as ineligible for refund (off-road use) were overstated while the gallons identified as eligible for refund (on-road use) were understated, ultimately causing the on-road refund to be understated. Due to the above issues, it is estimated that the County has been overpaid $134,181 during the three (3) year Findings, Recommendations and Management Responses 11

15 period of October 1, 2005 thru September 30, Recommendation- Implemented: The Clerk's Payables/Receivables Department should review the Application for Fuel Tax Refund to ensure that staff has a general understanding of the information requested and the calculations being performed. Internal Audit recommends that the Board, GS/P Department, and Clerk's Payables/Receivables Department work together with the Department of Revenue to resolve various issues involving the fuel tax refund process. As suggested by the Department of Revenue, the County should consider applying for a Local Government User license rather than carrying a permit. Outside users of the County fuel sites will need to be informed of their licensing and reporting responsibilities. The County will also need to consider the effects of its involvement with the Fuel Depot which is managed by the School Board. The Internal Audit Division worked directly with the Information Technology Department to correct the issue with the Off- Road Fuel Consumption Report. Clerk s Payables/Receivables Management Response: Management concurs with the finding. The Department of Revenue has been contacted and the Payables/Receivables Department has received information on how various issues (Findings 4 and 5) should be resolved. As allowed by the statute of limitations, we are reviewing the past three years and will be submitting amended Fuel Tax Refund applications (DR-189). The actual inventory balance is now being used for the beginning and closing inventory lines on the DR-189. These balances are received from GS/P personnel who obtain the number of gallons from Fuel Master. Also, purchases made by outside entities are no longer included in the total amount requested for reimbursement from the Department of Revenue. Finding 4 - Follow-up Status: Following the recommendations in the initial audit, the Clerk s Payables/Receivables Department took immediate action and contacted the Department of Revenue (DOR). At present, all necessary forms have been remitted and a refund of $18, received. The refund represents the amount of off-road diesel tax less the corrected amount owed for on-road diesel and unleaded fuel usage. In addition, the Clerk s Payables/Receivables has implemented a process to ensure all required documentation is remitted to DOR on a monthly basis. Finding 5: The County has not taken advantage of the off-road diesel fuel tax refund. The County currently purchases tax paid unleaded and diesel fuel for storage at the County fuel sites and usage in County vehicles and equipment. As indicated under Finding 4, the County is eligible to receive a refund of taxes paid on diesel fuel purchased and used for off-road purposes. Although the County has consistently submitted for the eligible refund available on fuel consumed for on-road purposes (Finding 4) it has not taken advantage of the refund available on diesel used off-road. Off-road equipment includes tractors, backhoes, bulldozers, mowers, etc. Over the past three (3) years it is estimated that the County consumed 489,443 gallons of diesel fuel for off-road purposes. The corresponding refund is estimated at Findings, Recommendations and Management Responses 12

16 $138,688. Recommendation- Implemented: The County should seek to maximize revenues by taking advantage of all applicable fuel tax refunds and take steps to notify the Department of Revenue regarding its intent to apply for a refund of taxes paid on diesel fuel used for off-road purposes. During this process, the County should consult with the Department of Revenue to ensure that the application is appropriately submitted and determine if the County is eligible for a refund of passed taxes paid. It is strongly recommended that the Clerk's Payables/Receivables Department be involved during this process to ensure that all parties are aware of the reporting requirements. Clerk s Payables/Receivables Management Response: Management concurs with the finding. We are in the process of gathering the information needed to apply for the off-road diesel fuel tax refund. As dictated by the statute of limitations, we will be requesting a refund for off-road diesel fuel taxes paid over the past three years. In addition, refunds for all future offroad diesel fuel taxes paid will be requested. Finding 5 - Follow-up Status: A review of the Department of Revenue s online records indicates the BOCC currently is licensed as a local government user of diesel fuel (as of 5/20/2009). In doing so, this enables the county to receive the maximum refund for taxes and only pay the Federal Lust and Spill Tax and the Florida Pollutant tax when purchasing dyed diesel. A review of fuel purchases indicates the appropriate taxes are being applied to dyed diesel and refunds are statutorily applicable. Findings, Recommendations and Management Responses 13

17 FUEL DISPERSEMENTS Finding 6: Lack of formal written agreement between the Board and the outside agencies which utilize the County fuel sites. The Board has granted various outside agencies access to County fuel sites and bills the agencies on a monthly basis for the cost of fuel obtained. With the exception of the Highlands County School Board (School Board), the County does not have written agreements for usage with any of the outside agencies. Additionally, all costs and potential risks associated with the operation and maintenance of the fuel sites are the responsibility of the Board. Costs include; the purchase of user and vehicle/equipment keys, costs associated with the monthly billing process, general and annual maintenance, required inspections, necessary fuel sites upgrades and repairs, and potential environmental clean-up costs. This is significant since fiscal year Board activity only accounted for 38.76% of fuel site transactions and 56.45% of fuel consumption. Recommendation Partially Implemented: A written agreement should exist between the Board and each of the outside agencies that utilize the County fuel sites. The written agreement should document the terms of usage and each party s responsibilities. Additionally, all costs associated with the operation and maintenance of the fuel sites should be shared among its users. A written agreement should be implemented and approved by the Board and each of the user agencies. At a minimum, the agreement should address terms of use, billing and payment expectations, cost sharing responsibilities, and liability. This recommendation is consistent with the Interlocal Agreement between the Board, School Board and the City of Sebring concerning the purchase and use of the Fuel Depot operated by the School Board. GS/P Department and County Administration Management Response: Management concurs with the recommendation. Interlocal Agreements and Memorandums of Understanding will be pursued to document liability, operations and maintenance cost sharing, as well as billing cycles and payments responsibilities with the municipalities and agencies utilizing the Highlands County BCC Fuel sites. Finding 6 - Follow-up Status: Communication with Board management indicates a draft agreement is in process and a final agreement is pending Administrative review and BOCC approval. Follow-up GS/P Department and County Administration Management Response: Management anticipates Interlocal Agreements and/or Memorandums of Understanding being presented to the Board in January [GLS ] Findings, Recommendations and Management Responses 14

18 Finding 7: Non-compliance with the 1993 Fuel Site Use Agreement - Section 4. Cost of Fuel. The terms of the 1993 Fuel Site Use Agreement have not been met. The County has not billed, nor has the School Board reimbursed the County for administrative costs as provided in the Agreement. During the period of August 1, 1995 through November 5, 2008 it is estimated that the School Board purchased $1,112, in fuel from the Board. Had the ten percent (10%) administrative fee been billed to the School Board in accordance with the Agreement, the County would have received an estimated $111, Recommendation Not Implemented: As stated in Section 4 of the 1993 Fuel Site Use Agreement, the "School Board agrees to pay the actual cost of the fuel withdrawn by School Board personnel for school purposes and to pay an administrative fee equal to ten percent (10%) of each month's fuel cost as compensation for processing of billing and other cost incurred by the County in construction and maintenance of the facility. All terms of formal agreements should be met. An updated written agreement should be implemented and approved by the Board and the School Board. At a minimum, the agreement should address terms of use, billing and payment expectations, cost sharing responsibilities, and liability. This recommendation is consistent with the Interlocal Agreement between the Board, School Board and the City of Sebring concerning the purchase and use of the Fuel Depot operated by the School Board. Additionally, the Board should consider whether it has the authority to back bill the School Board for the administrative fees provided in the 1993 Fuel Site Usage Agreement. GS/P Department and County Administration Management Response: Management concurs with the recommendation. Board staff will pursue an updated Interlocal Agreement with the Highlands County School Board and work with the Clerk of Courts Business Services Division for proper invoicing. Clerk s Payables/Receivables Management Response: Management concurs with the recommendation. An invoice to the School Board for the 10% administration fee is being prepared for fuel consumption from October 1, 2008 through January 31, Research is also underway to determine if the 10% administrative fee should be requested for prior fiscal years. In addition, all future fuel invoices to organizations with Interlocal Agreements will include the administration fee. Finding 7 - Follow-up Status: Since the initial audit, there has been very limited use of the fuel site by the School Board. A review of financial system data indicated the County has not billed administrative costs and the School Board has not reimbursed administrative costs. Findings, Recommendations and Management Responses 15

19 Follow-up GS/P Department and County Administration Management Response Management anticipates Interlocal Agreements and/or Memorandums of Understanding being presented to the Board in January [GLS ] Finding 8: Non-compliance with the 1993 Fuel Site Use Agreement - Section 3. Keys. The terms of the 1993 Fuel Site Use Agreement have not been met. The County has not billed, nor has the School Board reimbursed the County for the cost of the fuel system keys required to utilize the County fuel sites. The cost of keys associated with School Board employees and vehicles is estimated at $1, Recommendation Not Implemented: As stated in Section 3 of the 1993 Fuel Site Usage Agreement, the "School Board shall pay the cost of obtaining any and all fuel system keys required for School Board vehicles and personnel to access the system, including both the initial cost of the keys and any replacement thereof." All terms of formal agreements should be met. An updated written agreement should be implemented and approved by the Board and the School Board. At a minimum, the agreement should address terms of use, billing and payment expectations, cost sharing responsibilities, and liability. This recommendation is consistent with the Interlocal Agreement between the Board, School Board and the City of Sebring concerning the purchase and use of the Fuel Depot operated by the School Board. Additionally, the Board should consider whether it has the authority to back bill the School Board for the cost of keys as provided in the 1993 Fuel Site Usage Agreement. GS/P Department and County Administration Management Response: Management concurs with the recommendation. Board staff will pursue an updated Interlocal Agreement with the Highlands County School Board and work with the Clerk of Courts Business Services Division for proper invoicing. Finding 8 - Follow-up Status: Since the initial audit, there has been very limited use of the fuel site by the School Board. A review of financial system data indicated the cost of keys associated with School Board employees have not been billed or reimbursed. Follow-up GS/P Department and County Administration Management Response: Management anticipates Interlocal Agreements and/or Memorandums of Understanding being presented to the Board in January [GLS ] Findings, Recommendations and Management Responses 16

20 Opportunity for Improvement 3: Social security numbers are obtained during the issuance of user keys. To obtain a user key, users are required to complete and submit a User Form to the GS/P Department. One of the items requested on the "User Form" is the user s social security number. A number of users have provided their social security number, as requested. This information is entered into the FuelMaster System and prints on various system reports. Instances were also noted where social security numbers were used to identify users (user id) in the FuelMaster System. Recommendation - Implemented: Only necessary information should be obtained during the issuance of user keys. Acceptable information includes the user's name, position, assigned department/agency, work location, cost center, etc. The user s social security number is not necessary to effectively issue and track the user key and corresponding usage activity. The "User Form" should be updated to no longer request social security numbers. All social security numbers should be redacted from FuelMaster reports and deleted from the FuelMaster System, where possible. User ids corresponding to the user s social security number should be changed. GS/P Department and County Administration Management Response: Management concurs with the recommendation. Opportunity for Improvement 3 - Follow-up Status: Following discussion with the General Services/Purchasing Department and a review of the report that previously contained social security numbers, it was determined the FuelMaster system reports no longer contain social security numbers and social security numbers are no longer requested from new users. In addition, a sample from the FuelMaster system of user keys that were issued after the initial audit was performed did not note any exceptions. Finding 9: Deactivation of user keys and vehicle/equipment keys in the FuelMaster System. The following conditions were identified: User keys associated with terminated employees (Board employees) have not been deactivated within the FuelMaster System and in some cases, have been and continue to be used to obtain fuel subsequent to the employees termination. User keys are active, but have not been used for a significant period of time (Board and outside agencies). For outside agencies, Internal Audit was unable to determine whether the inactivity was due to termination of employment. Findings, Recommendations and Management Responses 17

21 Vehicle/equipment keys associated with assets no longer owned by the Board have not been deactivated within the FuelMaster System and in a few instances, were used to obtain fuel subsequent to disposition of the asset. Instances exits where multiple keys are associated to a single vehicle/equipment. Numerous vehicle/equipment keys are active, but have not been used for a significant period of time (Board and outside agencies). For outside agencies, Internal Audit was unable to determine whether the inactivity was due to retirement/disposal of the vehicle/equipment. Recommendation Partially Implemented: Immediately upon termination of employment or disposal of vehicles and equipment, assigned keys should be obtained and the GS/P Department notified so the keys can be deactivated within the FuelMaster System. A "termination of employment checklist" should be developed and used whenever a Board employee is terminated. The checklist should include the retrieval of keys and return to the GS/P Department for deactivation and re-use. Outside agencies need to be reminded that it is their responsibility to ensure that user keys are obtained and returned to the GS/P Department following the termination of an employee or disposal of vehicles or equipment. A periodic review of key activity, within the FuelMaster System, would help identify keys which have not been properly deactivated or which may no longer be needed. This process helps ensure that internal controls are in place and working as intended to prevent the misuse, abuse and theft of fuel from the County fuel sites. GS/P Department and County Administration Management Response: Management concurs with the recommendation. Board staff will work with all entities to re-acquire any non-active FuelMaster keys. The FuelMaster system deactivates the other vehicle or user keys when replacement vehicle or user keys are issued. Finding 9 - Follow-up Status: A review of terminated employees noted in the initial audit identified only 10 user keys were deactivated. An additional review of terminated (between 1/23/2009 and 6/30/2010) BOCC employees since the initial audit noted 24 terminated employees who had active FuelMaster user keys while employed by the BOCC. Of the 24 employees, there were 9 previous employees with active user keys. Seven (7) of the active keys had usage associated after the date of termination and two (2) keys had usage after the date of termination. Testing results indicate while some of the user keys are being deactivated, others remain active. The remediation taken may not be operating as intended and controls related to the deactivation of user keys and vehicle/equipment keys appear weak. This has the potential to increase the risk of misuse and potential theft of fuel from the County fuel sites. Findings, Recommendations and Management Responses 18

22 Follow-up GS/P Department and County Administration Management Response: A process by has been implemented to notify multiple staff that are involved in the issuance of user keys and vehicle/equipment keys in the FuelMaster System. Staff will acquire and deactivate user keys and vehicle/equipment keys from any employee that has left employment with the Board or any other Public entity. [GLS ] Finding 10: Assignment of user keys to Board employees driving County fuel trucks. The County utilizes fuel trucks to transport fuel to vehicles and equipment in the field. During our review, it was noted that the correct user key was not being recorded by the FuelMaster System for fuel site transactions involving County fuel trucks. Discussion with staff from the GS/P Department revealed that fuel truck drivers were not assigned user keys. As a result, the FuelMaster System registered the user id corresponding to the previous transaction or an invalid user key. Recommendation - Implemented: In order to enhance internal controls, improve accountability and provide accurate reporting, every user should be assigned a unique user key. Both the user key and the vehicle/equipment key should be required to obtain access to the fuel pumps. Data respective to the user and vehicle/equipment should be accurately recorded by the FuelMaster System. GS/P Department and County Administration Management Response: Management concurs with the recommendation and separate user keys for drivers of any vehicle that has a fuel storage warehouse have already been issued. Finding 10 - Follow-up Status: The FuelMaster system now has a unique key assigned to each user and vehicle/equipment. A review of FuelMaster system transactions/data, since the original audit, validated that each fuel truck driver has an assigned user key and each truck has a unique key. Internal controls are now in place and each transaction is now associated to the appropriate user and vehicle/equipment. Finding 11: Odometer or hour readings are not always recorded in the FuelMaster System. Instances were noted where odometer or hour readings are not being recorded by the FuelMaster System. Fuel dispersed from fuel truck 36 had no corresponding receiving vehicle/equipments odometer or hours reading. As a result, odometer or hour information is not available to be manually input into the FuelMaster System. A lack of odometer or hour readings limits management s ability to monitor fuel usage (mpg calculations) Findings, Recommendations and Management Responses 19

23 Recommendation Partially Implemented: The importance of accurate odometer or hour readings should be stressed to all users. Users should be instructed to always input the vehicles current odometer reading or equipment hours when available. Fuel truck drivers should, whenever possible, obtain odometer or hour readings during the fueling transaction. Internal Audit recognizes that there are instances where fueling transactions occur during hours when vehicles and equipment are not in operation and as a result, access to the odometer or hour reading may be restricted. However, when possible, odometer or hour reading should be obtained and entered into the FuelMaster System. GS/P Department and County Administration Management Response: Management concurs with the recommendation. Finding 11 - Follow-up Status: A review of activity in the FuelMaster System indicates odometer readings are not recorded for fuel trucks and warehouses that are not fueling from a fuel site. It should be noted implementing a cost effective odometer recording method would require manual entry into the FuelMaster system. Follow-up GS/P Department and County Administration Management Response: Staff is notifying Departments on any transactions that occur with a zero odometer or hour reading and are tracking these occurrences to establish benchmarks that include a total number and where they occur to minimize their occurrences. [GLS ] Findings, Recommendations and Management Responses 20

24 FUEL TRACKING / ANNUAL INVENTORY Finding 12: The Clerk s Payables/Receivables Department made unsupported entries into the Inventory System. While attempting to reconcile fuel inventory per the Inventory System to information recorded in the FuelMaster System and on manual logs documentation fuel dispersements, it was noted that the Payables/Receivables Department made unsupported entries into the Inventory System in order to allow fuel dispersements to post. Recommendation - Implemented: All entries made in the Inventory System should be supported by a corresponding transaction in the FuelMaster System or on manual logs used to document fuel dispersements from portable and stationary warehouses. Fuel inventory should be reconciled to the Inventory System on a quarterly basis, at a minimum. Discrepancies should be reviewed, in an effort to identify potential equipment malfunctions or other causes for discrepancies. Clerk s Payables/Receivables Management Response: Management concurs with the findings. All entries now made into the Inventory System are supported by corresponding transactions. Any discrepancies are researched and reviewed with management. Finding 12 - Follow-up Status: At the completion of the original audit, management discussed with staff the importance of back-up documentation for all entries made into the Inventory System and ended the process of unsupported entries. Discussions with staff and a sample of transactions, since the original audit, input into the Inventory system did not note any unsupported entries into the Inventory System. Finding 13: Manual process for tracking fuel dispersements results in numerous input errors and omission. The County utilizes several fuel trucks to transport fuel to vehicles and equipment in the field and to stationary warehouses located at the landfill. Fuel dispersed from the fuel trucks and stationary warehouses are tracked on manual (handwritten) logs. The logs are submitted to the GS/P Department where information is input into the FuelMaster System. Fuel transfers between fuel trucks and stationary warehouses cannot be input into the FuelMaster System and are sent to the Payables/Receivables Department for input directly into the Inventory System. As with all manual processes, unintentional errors and omissions occurred which have contributed to the discrepancies in actual and reported inventory balances, as noted during the annual inventory process. Findings, Recommendations and Management Responses 21

25 AUDIT REPORT APPROVAL Highlands County Board of County Commissioners Follow-up Audit Report No I Issuance Date: November 15,2011 Approved for Issuance By: 'R;~m~e ~Highlands County Clerk of Courts and Auditor to the Board ~/6;,20~ II Date