Palo Alto's system for keeping track of city equipment has been hampered by inconsistent oversight and lax security, according to a new audit from Acting City Auditor Houman Boussina.
The audit, which the City Council Finance Committee is scheduled to discuss Tuesday night, found that the city's system for managing its inventory has been used inconsistently, with "varying degrees of oversight for the $4.2 million inventory" that was not managed by the SAP inventory system. This, according to the report, may impair the city's ability to have all the pertinent information about its inventory (including quantity, location, condition and value) and may also keep the city from safeguarding inventory from physical deterioration, theft, loss or mismanagement.
The inventory in question includes at least $82,000 in "unsecured inventory" that the auditor uncovered in the warehouse of the city's Municipal Services Center. Though the audit reported no known instances of theft, it noted that there were 223 materials at the warehouse site that "were not subject to the City's inventory management controls and were subject to potential misuse or theft."
Many of the materials in question are used by the Utilities Department, which according to the audit had about $2.5-million worth of inventory not counted in the SAP inventory used by most other departments. The other two departments singled out for not using the SAP system were Public Works and Information Technology, which had, respectively, $773,000 and $919,000 in inventory that was not included in the system.
The inconsistent management has led to some waste, according to the audit. The Utilities Department, the report states, has recently disposed of at least $30,000 in unused electrical items because they were past their expiration date. The department also had no inventory-management system for 594 electric, gas and water meters.
Boussina found that the city's record of its inventory falls below the accepted standard for accuracy, which is at least 95 percent. In randomly reviewing a sample of inventory at the Municipal Services Center warehouse and at the Regional Water Quality Control Plant warehouse, the auditor came up with an accuracy rate of 89 percent. At the water-quality plant, the rate was 78 percent. One of the report's recommendations is that the Administrative Services Department "update and enforce inventory count policies and procedures to help ensure consistent and accurate inventory records."
Another concern highlighted in the audit is security. The auditor found "a large number of cards" granting access to the Municipal Services Center warehouse, including ones "without adequate identifying information needed to uniquely link activity with an individual." The audit notes that the warehouse is used by the city "as a secured location to safeguard not only inventory, but other sensitive and strategic areas and key assets such as transformers and cable needed to maintain the City's electric infrastructure." But while only six city workers were assigned to work in the warehouse, 71 cards provided access to the facility. Of these, 59 were associated with city employees. The auditor "could not associate 12 of the cards with any City employee," according to the report.
Since the audit came out in December, staff has taken some steps to improve security. The number of people with access to the warehouse as been reduced to 38 employees, all of whom were identified.
A memo from city Chief Financial Officer Lalo Perez, Utilities Director Valerie Fong, Public Works Director Mike Sartor and Chief Information Officer Jonathan Reichental concedes that there is "room for improvement" when it comes to tracking inventory records and notes that management has developed an "action plan" to improve current practices. One consideration is cost. The staff response cites a "tradeoff between precise inventory control and accuracy and the costs necessary to achieve such a goal." The response also notes that two positions have been eliminated from the warehouse because of budget cuts, further complicating inventory management.
The management letter agrees, however, that an update of the city's inventory policies is necessary. Department heads are proposing new policies that better define department responsibilities for tracking and safeguarding goods. The Public Works department is also in the process of replacing the traditional key system with card-readers that require employees and contractors to go through fingerprinting and background checks before they get a card. The staff response also acknowledges that the "flow of communication and coordination among the departments needs to be improved."