HomeMy WebLinkAbout05/26/2009 - Report: 2009 Fuel Audit Report - City Council - Audit Committee
Performance Audit of
The City’s Fleet Fuel Operations
May 2009
City Internal Auditor’s Office
City of College Station
File#: 09.01
Fuel Operations Audit
Table of Contents
Introduction ................................................................................................................. 1
Fuel Operations Background ................................................................................. 1
Audit Objectives .................................................................................................... 5
Scope and Methodology ........................................................................................ 5
Findings and Analysis .................................................................................................... 6
Opportunities to Better Safeguard & Account for Fuel Exist ............................... 6
Fuel Purchases are Effectively Administered .................................................... 6
Fuel Receiving Processes have Improved ......................................................... 8
Former Fleet Practices Led to Miscounting Fuel Inventory .............................. 9
Fuel Dispensing Controls Should Be Strengthened ..........................................12
Fuel Overhead Rates Should Be Examined.......................................................17
The City is Complying with State and Federal Laws ...........................................17
Recommendations ....................................................................................................... 19
Management Response ................................................................................................ 21
Fuel Operations Audit 1
Introduction
The City Internal Auditor conducted this performance audit of the
city’s fleet fuel operations pursuant to Article III Section 30 of the
College Station City Charter, which outlines the City Internal Auditor’s
primary duties.
A performance audit is an objective, systematic examination of
evidence to assess independently the performance of an organization,
program, activity, or function. The purpose of a performance audit is
to provide information to improve public accountability and facilitate
decision-making. Performance audits encompass a wide variety of
objectives, including those related to assessing program effectiveness
and results; economy and efficiency; internal control; compliance with
legal or other requirements; and objectives related to providing
prospective analyses, guidance, or summary information.
The results of a citywide risk assessment conducted in October 2007
identified asset management as a potential audit topic for the fiscal
year 2009 audit plan. On October 23, 2008, the City Council
approved the City Internal Auditor’s audit plan, which included an
audit of fleet asset management.
A preliminary review of fleet management was conducted in February
2009. During the preliminary review, significant discrepancies relating
to accounting of fuel inventory were identified. For example, an
approximate $205,600 adjustment to fuel inventory was made in
fiscal year 2008. As a result, the scope of the fleet asset
management audit was narrowed to focus on the city’s fleet fuel
operations.
Fuel Operations Background
For fleet operations, the majority of dollars spent on fuel was
purchased for vehicle use through the Fleet Services Division of the
Department of Public Works. Authorized city employees obtain fuel
for city equipment and vehicles at one of the two city fueling stations.
Fleet Services then charges the appropriate department for the fuel
dispensed.
Fuel Operations Audit 2
Figure 1 shows the amount the city budgeted and spent on fuel
during the last four complete fiscal years. In fiscal year 2009, the city
has budgeted approximately $1.4 million for the cost of fuel.
Figure 1
Budget to Actual Expenditures for Fuel in Fiscal Years 2004 – 2008
Source: The City’s Financial System (HTE)
From fiscal year 2005 to fiscal year 2008 fuel costs have increased
135 percent. However, fuel usage during this same period has
increased by only three percent. Figure 2 below shows the gallons of
fuel dispensed during the last four fiscal years.
Figure 2
Gallons of Fuel Dispensed in Fiscal Years 2004 – 2008
Source: The City’s Fuel Management System (Phoenix)
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
FY05 FY06 FY07 FY08
Budget
Actual
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
FY05 FY06 FY07 FY08
Diesel
Unleaded
Fuel Operations Audit 3
The average cost per gallon of fuel in fiscal years 2005, 2006, and
2007 was $1.38, $1.87, and $1.79 respectively. In fiscal year 2008,
however, the average cost per gallon was $3.14.
In December 2004, the City of Bryan solicited bids for gasoline and
diesel fuel on behalf of several local agencies including the City of
College Station, City of Hearne, Brazos County, Bryan ISD, College
Station ISD and Texas A&M University. By contracting for a large
volume of fuel with all participating agencies, the City of College
Station was able to obtain better pricing with the selected vendor—
Brenco Marketing Corp. The joint request for proposal stipulated the
terms of the offer were for one year (the original term) with the
option for four renewal periods. Within this period, the city has
processed two amendments to its original fuel contract and exercised
its right to contract renewals; thereby allowing the city to continue to
procure fuel from Brenco through December 2009. The contract
terms allow for the fluctuation of fuel price through the calculation of
fuel cost as described below:
Documented wholesales product cost/gallon1
+ Per gallon markup2
+ Freight charge (pre-agreed upon rates)
+ Required Texas taxes per gallon
Price per gallon charged to the city
Fleet manages its fuel operations from the Public Works facility and
distributes fuel to vehicles and equipment through two fueling sites
located at the Public Works and the College Station Utilities facilities.
At these fueling sites, a total capacity of approximately 32,000 gallons
of fuel is stored in three 87 octane unleaded fuel tanks (20,000 gallon
capacity) and two diesel fuel tanks (12,000 gallon capacity). The fuel
contractor makes regular deliveries to these two fuel sites upon
request. Approximately 80 percent of the fuel dispensed in the last
four fiscal years occurred at the Public Work’s fueling site.
1 The wholesale product cost/gallon is based on the OPIS unbraided rack average for Hearne, TX. The Oil Price
Information Service (OPIS) is a widely accepted fuel price benchmark for supply contracts and competitive
positioning. OPIS provides a weekly publication with fuel prices for each distribution location.
2 The markup for unleaded fuel transports less than 7000 gallons is $0.04/gallon and $0.0135/gallon for
transports greater 7000 gallons. The markup for diesel fuel transports less than 6000 gallons is $0.04/gallon
and $0.014/gallon for transports greater than 6000 gallons.
Fuel Operations Audit 4
In 1990, Fleet implemented the Phoenix fuel management system to
track fuel inventoried and dispensed for the city. Phoenix is not
integrated with the city’s other information systems. Therefore, Fleet
personnel must periodically upload fuel transaction data from Phoenix
into the city’s financial system in order for departments to be properly
charged for their fuel consumption.
An eight percent overhead rate is applied to the cost of fuel sold to
departments to cover the direct and indirect cost to manage fuel
operations. The markup rate of eight percent was initiated in 1990
and there has been no analysis conducted since then to determine
the appropriate rates for fuel overhead.
To obtain fuel for city vehicles, users must have a vehicle fuel card
and obtain authorization by inputting a valid user id and the vehicle’s
mileage. Most city equipment is assigned a corresponding fuel card.
However, some smaller equipment such as chain saws, weed eaters,
and push mowers are primarily fueled through the use of
miscellaneous fuel cards. As of March 2009, there were 504 metered
vehicles or equipment and 59 miscellaneous cards assigned to the
various departments throughout the city. See Table 1 below for a
breakdown by department.
Table 1
Vehicles/Equipment & Misc Cards Assigned to Departments
Department Equipment Misc Cards Total
Public Works 123 10 133
Police 76 5 81
Parks & Recreation 60 19 79
Electric 59 4 63
Fire 40 14 54
Wastewater 48 3 51
BVSWMA 33 1 34
Water 26 2 28
Planning & Development 13 0 13
Information Technology 12 0 12
Fiscal Services 11 1 12
Economic Development 2 0 2
Capital Projects 1 0 1
Total 504 59 563
Source: The City’s Financial System (HTE)
Fuel Operations Audit 5
Audit Objectives
This audit addresses fleet fuel operations policies, procedures,
processes and practices. This report answers the following questions:
Is fuel properly safeguarded and accounted for as to fuel
purchased, received, dispensed, and in inventory?
Is the city complying with applicable laws, contracts, and policies?
Scope and Methodology
This audit was conducted in accordance with government auditing
standards, which are promulgated by the Comptroller General of the
United States. Audit fieldwork was conducted from February 2009
through April 2009. For most audit tests, fuel transactions between
January 1, 2005 and December 31, 2008 were examined. These
transactions comprised 101,997 transactions for 1,564,499 gallons of
fuel. For some tests, however, fiscal year 2008 or calendar year 2007
and 2008 data was analyzed. The audit methods included identifying
and analyzing the amount of fuel purchased and dispensed to city
departments for fleet vehicles, and performing specific audit
procedures to answer the audit objectives.
To provide assurances that fuel was properly safeguarded and
accounted for, I interviewed city staff and industry experts; reviewed
contracts and industry practices; observed fuel procurement, delivery,
inventory, and reconciliation processes; examined invoices; and
analyzed fuel transaction data and configuration settings in the city’s
financial and fuel management systems. I also assessed the
adequacy of physical and system controls present at fueling stations.
To provide assurances that fuel operations complied with applicable
state and federal laws and city ordinances and policies, I interviewed
city staff. I reviewed the Texas Administrative Code, city ordinances
and policies, applicable contracts, and city supporting documentation
to determine compliance. In addition, I observed fuel leak testing
performed at selected fueling sites, interviewed the third-party vendor
that performed these tests, and reviewed the official results of the
tests performed.
Fuel Operations Audit 6
Findings and Analysis
Opportunities to Better Safeguard & Account for Fuel Exist
Current fuel purchasing and receiving processes are adequate.
However, physical and system controls related to inventorying and
dispensing fuel should be strengthened. Fleet has made several
improvements throughout the course of the audit to address some of
these audit findings.
Fuel Purchases are Effectively Administered
Fleet centrally purchases the majority of the city’s fuel from Brenco
Marketing based on contract prices that were negotiated in December
2004. The unit cost of fuel charged to the city is a product of the
following two components: (1) the wholesale product cost per gallon
and (2) a per gallon markup rate determined by the gallons of fuel
delivered. Table 2 below describes the markup per gallon rate
charged to the city under the four possible transport delivery
scenarios.
Table 2
Fuel Rates Based on Transport Load
Unleaded Full Transport Truck Delivery
Minimum transport load 7,000 gallons
Markup per gallon $0.0135
Unleaded Less than Full Transport Truck Delivery
Minimum transport load 250 gallons
Markup per gallon $0.04
Diesel Transport Truck Delivery
Minimum transport load 6,000 gallons
Markup per gallon $0.014
Diesel Less than Full Transport Truck Delivery
Minimum transport load 250 gallons
Markup per gallon $0.04
Source: The City’s Fuel Contract with Brenco Marketing
Fuel Operations Audit 7
The wholesale product cost per gallon is based on the OPIS unbraided
rack average for Hearne, TX. The Oil Price Information Service
(OPIS) is a widely accepted fuel price benchmark for supply contracts
and competitive positioning. OPIS provides a weekly publication with
fuel prices for each distribution location.
Fuel is purchased at competitive rates. The City of College
Station and several other public organizations within the region
cooperatively contract with Brenco Marketing to supply fuel. By
contracting for a large volume of fuel with participating agencies, the
City of College Station was able to obtain better markup pricing from
Brenco. In addition, the city is assured that the price of fuel is
purchased at competitive rates because the contract with Brenco
stipulates that the wholesale price per gallon for unleaded and diesel
is based on OPIS rates.
Fuel purchased at retail stations is insignificant. Although the
city has a full network of on-site fueling stations, there is some fuel
being purchased at retail stations at a premium cost. Most city
employees use the on-site fueling stations to fuel city equipment and
vehicles with diesel or 87 octane unleaded fuel. However, there are
seven Police Department motorcycles that require premium gasoline.
Because the city does not purchase and inventory premium gasoline,
these police officers fuel their motorcycles at retail stations and use a
city purchasing card to pay for the fuel. In fiscal year 2008, there
was no other significant use of purchasing cards to purchase fuel for
city vehicles or equipment at retail gas stations.
Fuel purchasing processes are acceptable. Fuel is purchased in
accordance with the city’s purchasing policies and procedures, and
fuel deliveries are ordered by authorized Fleet personnel. In addition,
fuel purchasing and receiving processes are segregated within the
Fleet Services Division. When feasible, Fleet personnel order fuel in
larger quantities to obtain better markup pricing by receiving the full
transport truck delivery rate. In fiscal year 2008, there were 120
diesel and 81 unleaded fuel orders, and 11 percent of the diesel and
14 percent of the unleaded orders were made at the less than full
transport truck delivery rate. The city would have realized a cost
savings of $730 if these orders were made in bulk in order to receive
the transport truck delivery rate. However, sometimes it is necessary
to order fuel in smaller quantities, such as completely filling the city’s
fuel tanks to prepare for potential natural disasters.
Fuel Operations Audit 8
Fuel Receiving Processes have Improved
During the course of the audit, improvements to the fuel receipt
process and documentation of this process have been made by Fleet
personnel. Figure 3 below describes the current fuel receipt process.
Figure 3
Flowchart of the Current Fuel Receiving Process
Figure 3
Flowchart of the Fuel Receiving Process
Fleet BuyerFleet Customer ServiceBrenco Marketing
Delivers fuel ordered
within 1 - 2 days
Verifies that the unit
cost charged on the
invoice is accurate
Compares amount
recorded delivered
on transaction log
with amount invoiced
Records amount
delivered on
transaction log
Obtains before and
after readings from
the city’s automated
tank gauge system
(Veeder Root)
Records amount
ordered & delivered,
and manual readings
on delivery ticket
Manual reads gallons
of fuel in tank, fills
tank, and then takes
another reading
Verifies that the
gallons billed is the
amount received into
inventory
Delivery Ticket
Verifies that the
Veeder Root
readings correspond
to those recorded on
the delivery ticket
Readings
Reconcile
Takes another
manual reading with
Fleet personnel
present
No
Yes
Brenco Invoice Transaction Log
Accesses the city’s
financial system to
receive fuel on the
purchase order
Mails original
invoice to
Accounting for
payment
processing
Makes a copy of
invoice for Fleet’s
vendor file
Places an order for
fuel with Brenco
Sends invoice to
Fleet office
Fuel Operations Audit 9
The current fuel receiving process is adequate. The fuel
receiving process described in Figure 3, on the previous page, has led
to better safeguarding and accounting of fuel purchased and in
inventory. However, one improvement could be made to the current
fuel receiving process. In addition to the current Fleet Buyer’s fuel
receipt processing duties, the Fleet Buyer should also verify contract
pricing.
Fleet staff should verify contract pricing. Despite Fleet
personnel not verifying contract prices during the receiving process,
there were no instances during fiscal year 2008 where Brenco
overcharged the city for fuel purchases. However, there is a risk that
intentional or unintentional errors could be made in invoicing the
correct unit cost according to the city’s contract with Brenco
Marketing. To mitigate this risk, Fleet personnel should verify that
the invoiced unit cost corresponds with the contract price documented
in the city’s fuel agreement with Brenco.
Former Fleet Practices Led to Miscounting Fuel Inventory
An approximate $205,600 adjustment to fuel inventory was made in
fiscal year 2008. This adjustment was the result of the difference
between fiscal year 2008 book ending inventory (calculated by
Accounting) and actual ending inventory (providing to Accounting by
Fleet). Figure 4 below describes how fuel inventory is calculated.
Figure 4
Fuel Inventory Calculation
Beginning Fuel Inventory Book Ending Inventory
+ Fuel Purchased - Actual Ending Inventory
- Fuel Dispensed Difference
Book Ending Inventory
Former Fleet practices led to this miscounting of fuel inventory.
However, many of these practices have recently been corrected.
Therefore, large adjustments to fuel inventory should be prevented in
the future.
Several thousand fuel system transactions are missing from
the city’s financial system. The Phoenix fuel management system
is not directly interfaced with the city’s financial system (HTE).
Fuel Operations Audit 10
Therefore, Fleet personnel must upload fuel transactional data from
Phoenix to HTE in order for the amount of fuel dispensed to be
properly accounted for and charged to the appropriate departments.
However, many fuel transactions are not uploading into the HTE
system during the data import process.
All fuel transactions between January 1, 2005 and December 31, 2008
were examined. These transactions comprised 101,997 transactions
for 1,564,499 gallons of fuel. During this same period there were
8,934 transactions for 137,105 gallons of fuel recorded in the fuel
management system (Phoenix) that was missing from the city’s
financial system. The area chart below (see Figure 5) provides a
breakdown of these missing transactions per month.
Figure 5
2005 – 08 Fuel Transactions missing from the City’s Financial System
Source: Comparison of Phoenix to HTE System Data
The total amount of fuel transactions per month was fairly consistent.
Between January 1, 2005 and December 31, 2008, fuel transaction
per month averaged 2,125 and deviated by plus or minus 185. In
addition, months with the highest number of transactions did not
correspond to the months with highest number of missing
transactions shown in Figure 5 above.
Former fleet practices led to the missing fuel transactions.
The volatile picture shown in Figure 5 is the result of large number of
missing transactions during one period followed by a sharp decline in
0
200
400
600
800
1000
1200
1400
Ja
n
-05
Ap
r
-05
Ju
l
-05
Oc
t
-05
Ja
n
-06
Ap
r
-06
Ju
l
-06
Oc
t
-06
Ja
n
-07
Ap
r
-07
Ju
l
-07
Oc
t
-07
Ja
n
-08
Ap
r
-08
Ju
l
-08
Oc
t
-08
Fuel Operations Audit 11
missing transactions in the next period. These results are partially
caused by a former fleet practice to import fuel transactions
infrequently. The highest volume of missing transactions occurred
during periods when transactions were not frequently imported from
Phoenix into HTE. As seen in Table 3 below, there were instances
where Fleet personnel would wait up to 28 days before they would
import fuel transactions from Phoenix into HTE. According to Fleet
staff, some of these instances shown in Table 3 were caused by
system equipment malfunctions, or leave or holiday time taken by
fleet personnel.
Table 3
Number of Days between Import Dates
(Period Reviewed Jan 1, 2005 to Dec 31, 2008)
Range (in days) Instances Percentage
Sixteen to twenty-eight 5 1.1%
Fourteen to sixteen 5 1.1%
Eleven to thirteen 8 1.8%
Eight to ten 24 5.4%
Five to seven 67 15.1%
Two to four 116 26.1%
One day 220 49.4%
Source: City’s Fuel Management System (Phoenix)
Information system data cleanup is needed. When a new piece
of equipment or a vehicle is purchased, information relating to the
purchase needs to be entered twice—first in the HTE system and
second in the Phoenix system. If some of the essential data is not
entered correctly in both systems, problems in importing fuel
transactions will occur. I reviewed all calendar year 2007 and 2008
fuel transactions and found 23 instances where essential equipment
identifying data did not match. Fleet personnel should do a thorough
evaluation and cleanup of the data in both the fuel management
system and the equipment file in the city’s financial system to ensure
that the data is accurate and corresponds to one another.
Automated fuel tank readings have been inaccurate. On
November 3, 2008, I observed Fleet personnel take manual readings
of the fuel tanks and compared the manual readings to those made
by the automated tank gauge system (Veeder Root). During my
observations, I found that the Veeder Root system produced
Fuel Operations Audit 12
inaccurate readings for one of the fuel tanks. Therefore, I reviewed
in-tank inventory reports and found that Veeder Root readings for this
fuel tank did not change for nearly the entire month of October 2008.
Improvements have been made to fuel inventory practices.
Recently, Fleet has improved the process by which they import fuel
transactions. Currently, Fleet personnel perform daily import of fuel
transactions and reconcile the Phoenix system fuel transactional data
to the data imported into HTE. If the data does not match, Fleet
personnel perform a second import to capture any missing
transactions. The malfunctioning automated tank gauge has been
repaired and processes have been implemented to prevent unnoticed
errors in the tank gauge from occurring in the future. For example,
Fleet personnel periodically manually read the amount dispensed from
individual fuel pumps and compare these readings to in-tank
inventory reports produced by Veeder Root. In addition, the current
fuel purchasing and receiving processes should prevent automated
tank gauge system errors from going unnoticed.
Fuel Dispensing Controls Should Be Strengthened
To obtain fuel for city vehicles or equipment, users must have a
vehicle fuel card and obtain authorization by inputting a valid user id
and the vehicle’s mileage. Most city equipment is assigned a
corresponding fuel card. However, some smaller equipment such as
chain saws, weed eaters, and push mowers are primarily fueled
through the use of miscellaneous fuel cards. As of March 2009, there
were 504 metered vehicles or equipment and 59 miscellaneous cards
assigned to the various departments throughout the city. Based on
the results of several audit tests, opportunities exist to strengthen
controls over how fuel is dispensed in order to better safeguard and
account for fuel transactions.
Nearly half of authorized users should be removed from the
fuel management system. As of March 2, 2009, there were 1141
individuals authorized in the fuel management system to obtain fuel.
Over 200 of these individuals are former employees who should be
removed from the fuel management system. Several other
authorized fuel users should be removed because they use fuel cards
infrequently or not at all. For example, 45 percent of those
authorized to obtain fuel did not make a single fuel transaction
between January 1, 2008 and March 2, 2009.
Fuel Operations Audit 13
Several hundred fuel cards should be removed from the fuel
management system. As of March 2, 2009, there were 812 valid
fuel cards in the fuel management system, but only 545 of these
cards were used to obtain fuel from January 1, 2008 to March 2,
2009. To reduce the risk of fuel theft, non misc fuel cards that are
not assigned to current city equipment or vehicles should be removed
from the fuel management system. The number of miscellaneous fuel
cards should also be reduced.
Odometer reasonability and quantity restrictions should be
implemented. There are three main user restrictions available in
the fuel management system: odometer reasonability, pump, and
quantity restrictions. Fleet has enabled pump restrictions, which limit
a vehicles access to certain fuel types in order to prevent a user from
fueling a vehicle that requires diesel with gasoline or vice versa.
However, odometer reasonability and quantity restriction controls are
currently not setup in the fuel management system.
Approximately 25 percent of meter readings are inaccurate.
Odometer reasonability checks the difference between two user-
entered odometer readings, and determines if the difference is within
a range the city specified for that card. However, the fuel
management system’s odometer reasonability control is deactivated
for all fuel cards. I reviewed all metered transactions from January 1,
2005 through December 31, 2008 and found that approximately 25
percent of the readings during this period were entered incorrectly.
Table 4 below summarizes the results of this review.
Table 4
Percentage of Inaccurate Meter Readings from 2005 – 2008
Year Bad Readings Total Fuel Trans Percentage
2005 5,897 25,737 23%
2006 5,727 25,942 22%
2007 6,203 24,851 25%
2008 6,838 25,467 27%
Total
32,515
131,638
25%
Source: City’s Fuel Management System (Phoenix)
Odometer entries can be used to calculate miles per gallon or cost per
mile, which can be used by Fleet to track driver and vehicle efficiency.
In addition, odometer readings and efficiency data is used to schedule
Fuel Operations Audit 14
preventative maintenance and plan for vehicle or equipment
replacement. Unreliable odometer readings greatly impact the ability
of Fleet personnel to effectively manage the city’s 504 metered
vehicles and equipment. Consequently, Fleet should implement the
fuel management system’s odometer reasonability controls to prevent
high percentage of inaccurately entered meter readings.
There appears to be fuel dispensed exceeding vehicle tank
capacity. I reviewed fuel transactions between January 1, 2005 and
December 31, 2008 and found 5,809 transactions where the amount
fueled exceeded the vehicles tank capacity (as recorded in the
financial system’s equipment inventory file). These fuel transactions
accounted for 30,450 gallons of fuel that exceeded fuel tank
capacities. On average, the amount of fuel dispensed that exceeded
vehicles tank capacity for these 5,809 fuel transactions was 5.24
gallons per transaction. Table 5 below describes the fuel dispensed
that exceeded vehicles tank capacity (during the period reviewed)
broken down by vehicle type.
Table 5
Fuel Dispensed Exceeding Vehicles Tank Capacity from 2005 – 2008
Vehicle
Description
Trans. Over
Tank Capacity
Gallons Over
Tank Capacity
Avg. Gal. Over
Tank Capacity
Motorcycles 2,539 8,366 3.29
Heavy Equipment 1,304 10,026 7.69
Pickup Trucks 1,126 7,550 6.71
Sedans 632 3,340 5.28
Light Equipment 142 1,054 7.42
Vans 44 56 1.27
Patrols Cars 22 58 2.64
Total 5,809
30,450 5.24
Source: City’s Fuel Management System (Phoenix) & HTE's Equipment Inventory File
The fuel management system’s quantity restriction controls are used
to specify how much product (fuel or diesel) a particular fuel card can
access. Quantity restriction is often set to match a vehicle's tank size.
According to city staff, users fueling a vehicle with the vehicle’s fuel
card and then continuing to use the card to fuel gas cans for
unmetered equipment (e.g. mowers, weed eaters, etc.) is a common
practice—despite the availability of miscellaneous fuel cards. Another
reported practice, is the loaning of authorized user id numbers to
Fuel Operations Audit 15
employees who are not authorized in the system to obtain fuel. Lack
of personal accountability caused by these practices make it difficult
to accurately determine what fuel dispensed (if any) that exceeded
vehicle tank capacity is because of theft.
In addition, fuel tank capacity data recorded in the equipment
inventory file may not be completely accurate. I performed a
preliminary review of the equipment inventory file to assess
reasonableness of the fuel tank capacity data, and I found that this
data appeared to be reasonable. However, physically inspecting
every metered vehicle and equipment to verify the accuracy of the
tank capacity data in the equipment inventory file was not within the
scope of this audit. Therefore, Fleet should review the equipment
inventory file and make any needed corrections to tank capacity data.
One way vehicle tank capacities could be verified is during the
physical inventory of city assets conducted by Accounting during the
summer of 2009.
Miscellaneous fuel card transactions have a higher risk of
abuse. Because miscellaneous fuel cards are not assigned to any
particular individual, vehicle, or equipment; it is difficult to identify
inappropriate or wasteful use of miscellaneous fuel card transactions.
In addition, odometer reasonability controls and quantity restrictions
related to tank capacity can’t be implemented for miscellaneous fuel
cards.
I also found that a disproportionate amount of the largest
transactions are made on miscellaneous fuel cards. For example,
there were 27 fuel transactions of 100 gallons or more between
January 1, 2005 and December 31, 2008, and all of these transactions
were made with miscellaneous fuel cards. Table 6, on the next page,
categorizes miscellaneous fuel card transactions by specified fuel
quantity ranges between January 1, 2005 and December 31, 2008.
Fuel Operations Audit 16
Table 6
Miscellaneous Card Transactions from 2005 – 2008
Fuel Quantity
Range (gal)
Misc Card
Transactions
% of Total
Misc Cards
Total Fuel
Qty (gal)
>300.00 1 0.02% 320
200.00 – 300.00 3 0.07% 660
100.00 – 199.99 24 0.59% 3,120
75.00 – 99.99 65 1.61% 5,550
50.00 – 74.99 180 4.46% 10,660
25.00 – 49.99 252 6.25% 8,670
0.01 – 24.99 3,510 86.99% 29,330
4,035 100%
58,310
Source: City’s Fuel Management System (Phoenix)
If the city continues to use miscellaneous fuel cards, Fleet should
monitor miscellaneous fuel card usage by employee and supply user’s
supervisors with miscellaneous fuel card usage reports. By doing this,
employee’s supervisors should be capable of identifying instances of
inappropriate fuel use. Fleet should also conduct an analysis of
miscellaneous card use, which should consider the following:
1. Assigning cards to equipment. Fleet should identify potential
unmetered equipment that can be assigned to each miscellaneous
fuel card.
2. Setting justifiable monthly limits. Fleet should identify reasonable
monthly limits that can be placed on each miscellaneous card
based on the historical use of unmetered equipment appropriate
to be fueled with the card.
3. Assessing user appropriateness. Fleet should identify who uses
miscellaneous cards and determine if these users are appropriate
for the card’s intended use.
Employee instruction is needed. Employees, authorized to fuel
vehicles and equipment, have not been given consistent instruction
on the appropriate fueling procedures. Fleet should draft fueling
procedures to be distributed to current authorized users, and provide
these instructions to every new user.
Fueling site physical controls are adequate. Each of the fueling
sites contains some level of physical security controls. For
example, the College station Utilities site fuel pumps are located
within the facility surrounded by a 10-foot fence with the entrance
Fuel Operations Audit 17
and exit gates remaining closed—only authorized city employees
have access to open the gate. At this time, access is not limited
by a fence or gates to the parking area at the Public Works fuel
site. However the Public Works site fuel pumps are located behind
the police station. In addition, fuel tanks at the Public Works site
are secured by locks.
Fuel Overhead Rates Should Be Examined
An eight percent overhead rate is applied to the cost of fuel sold to
departments to cover the direct and indirect cost to manage fuel
operations. The markup rate of eight percent was initiated in 1990
and there has been no analysis conducted since then to determine
the appropriate rates for fuel overhead. In addition, the markup rate
is not consistently applied for all fuel transactions. Between January
1, 2005 and December 31, 2008, I identified 3,284 transactions that
did not have a markup rate of 8 percent—most of which had a 0%
markup rate. Fleet should conduct an analysis to determine the
overhead cost of administering fuel and develop a markup rate that
reflects those costs. In addition, the equipment inventory file should
be examined to ensure that all vehicles and equipment are assessed
the same markup rate.
The City is Complying with State and Federal Laws
The Energy Policy Act of 2005 requires states to make certain
underground storage tanks (UST) information available to the public.
Therefore, Texas State law requires owners of underground storage
tanks (USTs) to do the following:
Register each UST with the Texas Commission on
Environmental Quality (TCEQ) — even if it is empty or unused.
Each year, renew the delivery certificate for your facility at
least 30 days before the current certificate expires.
Include proof of financial assurance with all self-certification
forms.
Make sure that each UST tank fill pipe is clearly labeled
according to State rules.
Notify TCEQ at least 30 days before beginning construction
work on the UST facility or if any changes in ownership at the
UST facility.
Fuel Operations Audit 18
Have a certified UST contractor registered with TCEQ perform
fuel leak detector tests once per year per state regulations.
For tanks with mechanical leak detectors, fuel line tests must
also be conducted.
Public Works Department underground storage tanks holds one (1)
8,000 gallons tank for unleaded fuel and one (1) 8,000 gallons tank
for diesel. The Utility Service Center underground storage tanks holds
two (2) 6,000 gallons tanks for unleaded and one (1) 4,000 gallons
tank for diesel. Sufficient documentary, physical, and testimonial
evidence was obtained during the course of the audit to conclude that
tank installation, inspection, maintenance and removal meet state and
federal regulations.
Fuel Operations Audit 19
Recommendations
In addition to the changes that Fleet has already implemented, the
city’s fuel operations need a few slight improvements, encompassed
in the following audit recommendations. Implementing these
recommendations will strengthen internal controls to further prevent
any inappropriate fuel use and help better manage city vehicles and
equipment.
1. The Director of Public Works should instruct the Fleet Buyer to
verify that the invoiced unit cost corresponds with the contract
price documented in the city’s fuel agreement with Brenco. There
are four steps to verifying the contract price. (1) Obtain the Oil
Price Information Service (OPIS) publication for Hearne, TX. (2)
Verify that the date on the OPIS publication matches the order
date documented on the invoice and the transaction log. (3)
Identify the UBD rack average rates for unleaded (UNL) and diesel
(ULS) on the OPIS publication, and add the appropriate markup
rate based on the gallons delivered. (4) Compare the unit costs
identified in step three to the unit costs on the invoice.
2. The Director of Public Works should direct Fleet personnel to do a
thorough evaluation and cleanup of the data in both the fuel
management system (Phoenix) and the equipment file in the city’s
financial system to ensure that the data is accurate and
corresponds to one another. Former employees and current
employees, who no longer have a need to fuel city vehicles or
equipment, should have their fuel pump authorization deactivated
from the Phoenix system. In addition, non misc fuel cards that
are not assigned to current city equipment or vehicles should be
deactivated in the Phoenix system.
3. The Director of Public Works should direct Fleet staff to activate
the fuel management system’s odometer reasonability control for
all fuel cards. Prior to this control being implemented, Fleet
should develop a communications plan to instruct all fuel users
about the importance of entering correct odometer readings and
to communicate the proper fueling procedures. Once odometer
reasonability controls are implemented, Fleet should consider
using odometer entries to calculate miles per gallon or cost per
mile in order to track driver and vehicle efficiency.
Fuel Operations Audit 20
4. The Director of Public Works should direct Fleet personnel to
activate the fuel management system’s quantity restriction
controls for all fuel cards. Quantity restriction should be set to
match a vehicle's tank size. Therefore, Fleet staff should verify
that tank capacity data recorded in the city’s financial system’s
equipment inventory file is complete and accurate prior to
implementing quantity restriction controls. The Phoenix system
also has the ability to set daily and monthly fuel quantity limits for
fuel cards. Daily and monthly limits should be set in accordance
with cardholder needs in order to prevent users from
circumventing quantity controls by fueling multiple times within
the same day or more than reasonable within a month.
Therefore, Fleet staff should work with department fuel users and
conduct a fuel usage analysis to identify appropriate daily and
monthly fueling limits to be placed on fuel cards.
5. The Director of Public Works should direct Fleet staff to monitor
miscellaneous fuel card usage by employee and supply users’
supervisors with miscellaneous fuel card usage reports.
Department supervisors should be instructed by Fleet to use these
reports to help them identify possible instances of inappropriate
fuel use. Fleet staff should also conduct an analysis of
miscellaneous card use. This analysis should identify the
following: (1) potential unmetered equipment that can be
assigned to each miscellaneous fuel card, (2) reasonable monthly
limits that can be placed on each miscellaneous card based on the
historical use of unmetered equipment appropriate to be fueled
with the card, (3) who uses miscellaneous cards and determine if
these users are appropriate for the card’s intended use, and (4)
the miscellaneous cards that should be deactivated from the
system.
6. The Director of Public Works should direct Fleet staff to draft
fueling procedures to be distributed to current authorized users,
and provide these instructions to every new user.
7. The Director of Public Works should direct Fleet staff to conduct
an analysis to determine the overhead cost of administering fuel
and develop an overhead rate that reflects those costs. In
addition, the equipment inventory file should be examined to
ensure that all vehicles and equipment are assessed the same
overhead rate.
Fuel Operations Audit 21
Management Response
Fuel Operations Audit 22
Fuel Operations Audit 23