The Authority did not maintain a complete and up-to-date list of its inventory of refrigerators and ranges, conduct an annual inventory of these assets, or ensure that all information on its inventory list regarding these assets was complete and accurate. The lack of a complete and up-to-date inventory list creates an undue risk of undetected loss, theft, or misuse and could result in inaccurate asset values in the Authority’s accounting records.
According to the Authority’s maintenance supervisor, the inventory process begins when the Authority purchases a new refrigerator or range. The item’s intended final location is documented on the purchase order. The vendor delivers the appliance to the Authority’s storage location along with the packing slip and invoice. If the purchase order has a unit address on it, a work order is generated. The item is prepared for installation, tagged with an asset number, and then installed at the unit address. The asset number and serial number are recorded on the work order. The work order is then brought to the administrative office, where the information on the work order is entered in the inventory list. If the purchase order does not have a specific unit address listed, the item is kept in the storage location until it is needed in a unit. The Authority does not generate a work order or apply an asset tag number until the item is ready to be installed in a unit. We inspected the small quantity of appliances in storage at an Authority storage location at Weston Road.
We requested all purchase orders and work orders for the installation of appliances by the Authority during our audit period; however, of the 85 refrigerators and 62 ranges that were purchased during the audit period and had unit numbers on their purchase orders, we could only identify 37 work orders for refrigerator installations and 20 for range installations. The Authority could not show us work orders documenting where the remaining 48 refrigerators and 42 ranges were located. Further, based on our review of the work orders for appliances that had been installed in units, we found the following problems:
- Eighteen work orders for the installation of refrigerators did not have asset tag numbers listed and therefore could not be traced to the inventory list.
- Twelve work orders for the installation of refrigerators had asset tag numbers listed, but the asset numbers did not match the inventory list.
- Only 7 of the 37 work orders for refrigerators had asset tag numbers that matched the inventory list.
- Seventeen work orders for the installation of ranges did not have asset tag numbers listed and therefore could not be traced to the inventory list.
- Two work orders for the installation of ranges had asset tag numbers listed, but the asset numbers did not match the inventory list.
- Only 1 of 20 work orders for ranges had an asset tag number that matched the inventory list.
Additionally, to determine whether the Authority had installed the new refrigerators and ranges in the designated housing units, we selected a judgmental sample of 30 purchase orders (15 for refrigerators and 15 for ranges) that identified a unit as the designated location. For each purchase order, we also reviewed the corresponding invoice and documented the serial number for the specific refrigerator or range. We then went to each identified unit and inspected the refrigerator or range to determine whether the serial number on the appliance matched the one on the invoice. Of the 30, only 2 refrigerators and 2 ranges had serial numbers that matched their invoices.
Finally, as part of our testing of the inventory list of refrigerators and ranges, from the rent rolls as of December 31, 2016, we selected a nonstatistical sample of 40 housing units from a population of 231. From the 40, we selected 20 units and compared the inventory list of ranges and refrigerators to the appliances in each unit; we then compared an inventory of the appliances in the other 20 units to the inventory list to check for accuracy. We identified the following problems:
- Our comparison of the inventory list to housing units found 11 instances where the asset tag number on the list did not match the one on the refrigerator and 11 instances where the asset tag number on the list did not match the one on the range.
- Our comparison of housing units to the inventory list found 10 instances where the asset tag number on the refrigerator did not match the one on the list and 9 instances where the asset tag number on the range did not match the one on the list.
- The inventory list provided by the Authority only accounted for 222 of the 235 units under its management. In addition, 15 units on the list were missing asset tag numbers for refrigerators, ranges, or both.
- The inventory list did not have the costs or the purchase dates of refrigerators and ranges.
- The Authority could not provide information or evidence of when the inventory list was last updated.
Section 8 of the Department of Housing and Community Development (DHCD) Accounting Manual states,
The management of each [Local Housing Authority, or LHA] is responsible for developing and implementing a system of internal control which will:
- Safeguard the assets of the organization. . . .
It is important that each Local Housing Authority observe the following fundamental requirements in establishing an effective system of internal control:
- An organizational plan which provides for definite placement of responsibility and for specific lines of responsibility. . .
- The use of forms, documents, and procedures which facilitate control.
In addition, Section 15(d) of the manual states,
DHCD requires that a formal system for the inventory of furniture and equipment be established by program by all LHAs. The inventory will be composed of two parts, [including] a non capital / control inventory for all items expensed at purchase but costing $1,000 or more (refrigerators and stoves are to be included regardless of price). . . .
- A physical inventory of all Furniture and Non-expendable Equipment must be taken and an inventory list maintained each year.
- Physical inventory results must be compared to equipment record and any differences and discrepancies will be reviewed by the LHA for possible adjustments.
Finally, the Wellesley Housing Authority Inventory and Equipment Policy states, “The Inventory Master List will include the . . . Date Purchased . . . and Cost.”
Reasons for Noncompliance
Officials of the Authority stated that no annual inventory had been conducted; however, based on our audit findings, the Authority has instituted new procedures to ensure that all appliances are properly accounted for.
- The Authority should update its written policies and procedures governing all aspects of its inventory process as well as monitoring controls to ensure that this process is adhered to.
- The Authority should conduct an inventory of all ranges and refrigerators, reconcile it to the current inventory list, and investigate any discrepancies.
The Maintenance Supervisor spent a good deal of time reviewing his procedure for ordering and receiving appliances. A system had been in place that we believe was not followed by two (2) of our former employees. Per the recommendation of your office, an up to date inventory has been performed and recorded. We also produced a listing of those appliances that were removed from units and taken to the recycling facility in Wellesley.
In addition, our Fee Accountant was able to successfully verify all expenditures and tie them to invoices. Finally, I will take up with the Board of Commissioners the codification of our inventory procedure as a formal policy.
The Authority did provide the Office of the State Auditor (OSA) with what it said were updated inventory lists for its boilers / water heaters and appliances with its response to this report. However, since these lists were prepared by the Authority and provided to OSA after we completed our audit fieldwork, we could not verify their accuracy. With its response, the Authority also provided a list of items that it sent to the local recycling center, but the list did not specifically identify the types of item recycled or which Authority unit each item came from.
The Authority does have an inventory policy that recognizes that the inventory should be accounted for annually, but Authority officials told us that annual inventories were not being conducted. Further, in OSA’s opinion, the Authority’s inventory policy is deficient and should be updated to identify the staff member/s who will be responsible for monitoring the inventory process and performing year-end reconciliations of inventory records. This policy should also describe in detail how the use of work orders is integrated into the inventory process when appliances are placed in units as well as the process for disposing of surplus items.
|Date published:||May 30, 2018|