During our audit period, BAMSI did not properly administer its inventory of furniture and equipment purchases of non-capital fixed assets for client use at residential homes, state day habilitation programs, and other programs. On February 6, 2017, BAMSI stopped maintaining its inventory of 1,154 non-capital fixed assets (the purchase prices of which totaled $526,326) intended for client use at its residential homes, day habilitation programs, and other programs. BAMSI also did not conduct a periodic physical inventory of these fixed assets, and its inventory records lacked key information on each asset, including purchase amounts for 242 items, serial numbers for 401 items, purchase dates for 66 items, model numbers for 52 items, and information regarding any disposals that occurred. Because of inventory irregularities, we believe that some items with no recorded disposal dates had been disposed of. For example, based on its most recent inventory and its purchases during the audit period, BAMSI owns a five-bedroom house with four washing machines; another five-bedroom house with eight dishwashers, six washing machines, and five dryers; and a third five-bedroom house with three ovens. These are homes with only limited hookups for dishwashers, washing machines, dryers, and ovens, which indicates that purchases have not been taken off the inventory when disposed of.
As a result of these issues, fixed assets are at a higher risk of theft and misuse.
The “Inventory Records” section of OSD’s General Audit and Compliance Requirements states that an inventory “shall contain the sources of funding, description and location of each item.”
In addition, the “Fixed Assets—Acquisition Policy” issued jointly by the Office of the Comptroller of the Commonwealth and OSD states,
Non–[generally accepted accounting principles] Fixed Assets must be recorded in a Department’s inventory and reconciled at least annually. This inventory can be either electronic or on paper, as long as it records the date of purchase, amount, description, location and disposition of an item.
This includes the type of assets discussed in this finding, such as appliances. Although it is not required for BAMSI, this policy represents a best practice that BAMSI should follow for non-capital assets.
The “Business Ethics and Fraud, Waste and Abuse Prevention” section of BAMSI’s contract with Department of Developmental Services states,
The Contractor certifies that performance under this contract, in addition to meeting the terms of the contract, will be made using ethical business standards and good stewardship of taxpayer and other public funding and resources to prevent fraud, waste and abuse.
Reasons for Noncompliance
BAMSI officials stated that the agency’s policy was to maintain and conduct an inventory for items that cost $5,000 or more and that they were not required to inventory items that cost less. Therefore, for assets that cost less, they did not have a policy or procedures for recording purchases, conducting a physical inventory, or disposing of assets.
- BAMSI should establish policies and procedures to accurately record purchases, maintain inventory, and record disposals of non-capital fixed assets that have been charged to state programs.
- BAMSI should perform an annual physical inventory of these assets to reconcile assets on hand to what is recorded in the inventory.
BAMSI has instituted policies and procedures that strengthen internal controls regarding the purchasing and tracking of non-capital fixed assets charged to state programs. BAMSI has instituted an electronic Accounts Payable system increasing the levels of review and approval for all non-capital purchases. BAMSI is also instituting a more robust system of inventory tracking for non-capital purchases. Starting in FY 21, BAMSI will begin performing physical inventories of all capital and non-capital items. Performing this inventory in FY 20 was not practical due to COVID restrictions.
Based on its response, BAMSI is taking measures to address our concerns in this area.
|Date published:||June 1, 2021|