The URL can be used to link to this page

Home My WebLink About2006 Audit Report P Cardsf 6� r BREMERTON CITY AUDITOR 34T-61 Street, Bremerton, WA 98337 — (360) 473-5369 MANAGEMENT AUDIT REPORT Purchase Cards April 28, 2006 CITY AUDITOR Gary W. Hystul, CPA 369 gnystul@ci.brennerton.wa.us rel 380-473 Fax 380-473508-508 0 345 8th Street, Suite 800 Bremerton, WA 98337 August 11, 2006 Honorable Cary Bozeman, Mayor The Office of the City Auditor has completed an audit of Purchase Cards and has issued the attached report. Three findings were noted. While the findings generally pertain to the Department of Financial Services, other departments and supervisors need to also take action. The assistance provided by Laura Lyon and the Department of Financial Services is greatly appreciated. Sincerely, L I - Gary W. Nystul cc: City Council Laura Lyon AUDIT REPORT Purchase Cards April 28, 2006 IPurpose The Office of the City Auditor periodically reviews various phases of city operations. This review of Purchase Card activity was not scheduled in the 2005-2006 work plan. It was added as a special project due to a number of concerns reported to the City Auditor. Scope This is a review of purchases made on the city credit cards and reported on the J. P. Morgan Chase statements as occurring during the months of November and December 2005 and February 2006. Statement of Auditing Standards This audit was performed in accordance with government auditing standards. Those standards require that I plan and perform the audit to afford a reasonable basis for my judgments and conclusions regarding the organization, program, activity or function being audited. An audit also includes assessing applicable internal controls and compliance with laws and regulations. I believe that my audit provides a reasonable basis for my conclusions. Summary of the Results Several instances were noted where the documents supplied to support the purchases were not proper. On several occasions the maximum allowance for meals, as established in the Bremerton Municipal Code, was exceeded. Policies and procedures should be clarified and strengthened. Background The City started using purchase cards (credit cards) for general purchases in early 2004. According to the Department of Financial Services, the intent of the program is to streamline the procurement and payment process of all business related purchases. It is not an economical process to prepare a general claim form and write a check for a small dollar transaction. Use of credit cards is also an advantage to the merchant because they receive their money faster and without having to process any accounts receivable transactions. The intent of this project was to review the processes and procedures used for compliance with city rules and regulations. In addition, any recommendations for changes or improvements would be noted. The following are the findings and recommendations. FINDINGS AND RECOMMENDATIONS 1. Several purchase card transactions were not supported by proper documentation. DESCRIPTION OF CONDITION The documents that support any purchase should include an original sales document that clearly includes a description of the items purchased, quantity, and price. The following are examples of purchases where the supporting documentation submitted to Accounts Payable was not proper. • Cleaning supplies in the amount of $1,078.74 were supported by only the credit card slip with the total dollar amount that did not show any detail. • Crack sealant costing $720.37 was supported by a "Picking Ticket" which did not give any cost detail. • Merchandise, reported to be filters, costing $205.00 did not have any supporting detail describing what was purchased, the number of units, or cost. • Installing glass in a door for $264.98 was supported by a document labeled "Estimate." • Traffic equipment costing $10,737.47 was supported by a hand written credit card sales slip with one lump sum entry and no invoice. CAUSE OF CONDITION Employees using purchase cards did not obtain a proper invoice or did not include the detailed sales receipt with the documentation that is sent to the Department of Financial Services for processing and payment. Some vendors may not initially provide sales documentation which meets the requirements to support expenditures. However, card holders did not then request proper supporting documents. Some card users may not understand the basic documentation requirements for purchases. EFFECT Expenditures that are not supported by proper documentation are a weakness in the internal accounting control system for city expenditures. RECOMMENDATION Each card holder signs a Memorandum of Understanding. It includes a clause that the user is "responsible to provide appropriate documentation" for credit card transactions. There should be a definition of what are required documents so that there is no misunderstanding of the documents to be provided. The supervisor for each card holder is to review and approve monthly expenditures. The supervisors must understand the documentation needed and require compliance. The final review of proper documentation is with the Department of Financial Services. Those who cannot provide adequate documentation may be required to turn in their cards. DEPARTMENT OF FINANCIAL SERVICES RESPONSE We agree that a definition of "adequate documentation" should be provided in our final procedures to be distributed to the users as well as for accounts payable. All users are verbally instructed as to the proper documentation required when they are trained prior to receiving their card. This should be handled at the department level by the departmental reviewers before being passed on to accounts payable. This review and follow up is not always being done at the department level resulting in inadequate information being passed along to accounts payable. Instances where proper documentation is not received are handled on a case by case basis. The employee is contacted and instructed to obtain proper documentation. Under a subsequently adopted policy, if, after several attempts, satisfactory documentation is not obtained a form has been prepared for use to explain the items purchased and the reason for inadequate documentation. The form is to be signed by both the employee and their department head. 2. Some expenditures for meals were in excess of what is allowed by the BMC. DESCRIPTION OF CONDITION Chapter 2.74 of the Bremerton Municipal Code establishes maximum allowance rates for meals. An employee is allowed up to $42 per day, including tax and tip, if all three meals are purchased. If less than three meals are paid for in one day, the allowance is $9 for breakfast, $12 for lunch and $21 for dinner. The following are examples of exceptions were noted: ■ Dinners were purchased for $39.20 and $27.61 when the single meal rate was applicable. ■ One employee purchased breakfasts for $9.16, $11.27, $12 and $14.46 while properly claiming other meals. He also purchased a dinner for $22.62. 1 ■ In addition to the allowed breakfast and dinner, one employee made additional purchases at Starbucks & Tully's. CAUSE OF CONDITION Some employees are not aware of the individual meal limitations. Some employees may not understand how the limitations are to apply. The BMC and the cardholder instructions are not as precise as they could be. EFFECT These purchases are a violation of City policy as established in the BMC. RECOMMENDATION The limitations of Section 2.74.140 of the BMC should be followed. Additional training may need to be provided to card holders. The instructions may need to be clarified so that supervisors ensure compliance at the review level. As an alternative, the City may wish to consider paying a flat per -diem amount for meals. This would eliminate the need for employees to provide receipts for reimbursement. It also allows the employees to choose the types and prices of meals they eat. DEPARTMENT OF FINANCIAL SERVICES RESPONSE Each employee that checks out a travel card should be given an Employee Expense claim form which includes instructions. Instruction 3 clearly states the daily meal limits and the requirement for receipts to support the expenditures. The ordinance does have an allowance for excess meal costs, and when not received, an authorization to exceed the meal limit for that location is requested from the department head. A much greater problem for Finance staff to manage has been getting adequate documentation as to any meals provided when employees attend conferences. The employee may not be eligible for a full day's meal allowance due to the conference providing meals, but without documentation it is difficult to determine what is ineligible. 3. The policies and procedures for use of purchase cards could be improved. DESCRIPTION OF CONDITION The use of purchase cards is governed by BMC Section 2.74 Travel Authorization and Expense Reimbursement, BMC Section 2.76 Procurement and Disposal Code, and a Memorandum of Understanding form which is signed by each user. The following situations were noted that did not follow established procedures. I• Employees did not follow the meal allowance maximums and there was no supervisory correction. 4 • Supporting documentation did not contain adequate descriptions of what was purchased including cost and quantity but was approved for payment. • Card holders split purchases to circumvent the single transaction limit. • Departure and return times are not required on travel forms so the appropriateness of meals and travel expenses is not able to be verified. • When more than one department is responsible for costs reported on a single general claim, there was no indication of the amount each department was approving. CAUSE OF CONDITION The policy on meal allowances is not well written and causes some confusion. The city does not have a written policy specifying what is a proper document to support purchases. There is not a written policy that prohibits splitting purchases. Travel claim forms do not require departure and return times so it is not possible to review the appropriateness of meals during travel days. EFFECT Good business practices are not being followed due to lack of rules or lack of understanding. The added time and effort by the Department of Financial Services, required to correct the documentation or transaction problems, is an added cost to the City. RECOMMENDATION The Department of Financial Services should update the policies and procedures to address the problems noted. DEPARTMENT OF FINANCIAL SERVICES RESPONSE We agree that procedures need to be written. Much information as to the types of information above and beyond what is contained in the ordinance has been gathered to assist in addressing the persistent areas of abuse and confusion. An ordinance change may be in order in regard to travel, so it may be necessary to have that lead the I instructions if there is to be significant change. r CITY AUDITOR Gary W. Nystul, CPA gnystu1@c1.bremerton.wa.us MEMORANDUM Date: May 17, 2006 To: Al Duke, Fire Chief From: Gary W. Nystul, City Auditor Subject: Purchase Card Transactions TW 30473-53.69 a rD 473 5a8v 45.01h Stm.K $uibs Wo a 1 BI�IM9ffOq VifA 9&37' 1 •� I reviewed all of the February JP Morgan Chase purchase card activity for the city. The intent of the review was to examine compliance with city policies and to review supporting documentation. I noted one fire department purchases that needs better documentation. Attached is a copy of the documentation in the A/P file supporting a purchase by the card assigned to B Shift. The sales document shows the total purchase of $946.00 but does not show any detail of what was purchased, nor was an itemized sales slip included. Good accounting and internal control procedures require that expenditure documents contain sufficient information to identify what was purchased. The increased use of purchase cards has presented some new challenges to working with accounts payable documentation. Your assistance in ensuring that card users and those reviewing purchases understand the documents needed is appreciated. Please let me now if I can be of any assistance. ZUU6 Uz/14 TUE 13:21 FAX 360 457 7566 OLYMPIC SUPPLY PT ANGELE 9rc4wl(o-, 6, s4;q- �I� X1001/001 WIFY AUDITOR Gary W. Nystul, CPA gnystul@cl.bremerton.wa.us MEMORANDUM Date: May 17, 2006 To: Director of Public Works & Utilities Phil Williams From: City Auditor Gary W. Nystul Subject: Purchase Card Transactions Vx'Fgx 300-423.x. f 345 ft Sf�9ef; 5ulte BiFO 0MM'YFWA, WA 98337 I reviewed all of the February JP Morgan Chase purchase card activity for the city. The intent of the review was to examine compliance with city policies and to review supporting documentation. I noted one Public Works purchase that needed better documentation and one that appeared to split a purchase into three transactions. Attached is a copy of a handwritten credit card sales slip for traffic equipment costing $10,737.47. This purchase by Greg Cryder was not supported by an invoice from the vendor listing what was purchased. Good internal control procedures require sufficient information to identify items purchased. Also attached is the documentation for a purchase by James Dean. The total purchase was.$4,101.76. This was paid for by three credit card transactions of $2,000, $2,000 and $101.76. The Memorandum Of Understanding, signed by each card holder, sets out the conditions for use of a card. One condition is the maximum limit for a transaction. This transaction circumvents that limit by splitting the purchase into three amounts. The Accounts Payable section does not have a record of a request to increase the transaction limit for this purchase. The increased use of purchase cards has presented some new challenges to working with accounts payable documentation. Your assistance in ensuring that card users and those reviewing purchases understand the documents needed is appreciated. Your assistance in ensuring that purchases do not exceed the single transaction limit would also be appreciated. Please let me now if I can be of any assistance. 03/26/2006 MON 13:44 FAX 760727r-164 ----------- SbS5191 reme 9 Z3,12-- `v .I !Gft"�31 Z2-ScS,-;3 PURCHASER SIGN HERE ySIGN jm�� 6 d&-, Cwdhofdw amount of owfaw, gy-v;;— a hilr r;;;7.s e� In the L'o 0� the X,10 1001/001 IMPORTANT. RETAIN THIS Copy FOR YOUR RECORDS AtjVOUNT NUMBER 4715 6321 8121 6605 CITY OF BREMERTON JAMES W DEAN 100 OYSTER BAY RD BREMERTON, WA 98312 .LING DATE DUE DATE 03/01/06 03/27/06 JPMOrganChase NEW BALANCE ENTER PAYMENT A6 0.00 DO NOT PAY Please make check payable to: COMMERCIAL CARD SOLUTIONS P.O. Box 4471 Carol Stream, IL 60197-4471 n Please detach here and send top portion with payment. ACCOUNT: 47156321 8121 6605 BILLING DATE: 03/01/2006 DUE DATE: 03/27/2006 CREDIT LIMIT 10,000.00 AVAILABLE CREDIT 10,000.00 --- .._----.,._..�«....r - '•y - e sai..'+to4.i�'� is Eye' `�1F�.,i_ r - o rs Balance (4 Payments Cterlfis (+) Charges, Cash Debits 0.00 IM FlrtanceCharges (HRtes (� NewBalarlee 0.00 payrt Due 0.00 4,101.76 0.00 CURRENT CHARGES 0.00 + PAST DUE AMOUNT 0.00 - OUTSTANDING DISPUTES 0.00 = TOTAL 0.0000 DO NOT PAY POST TRAN TRANSACTION DETAIL 02/27 02/24 ECONOLITE CONTROL PROD 714-6303700 CA REF NO: 24472686057952398227719 AUTH NO: 008932 CUSTOMER ID LOCAL TAX INCL NAT'L TAX INCL OTHER TAX 331.76 1 0.00 0 0.00 MERCHANT VAT/GST ID CUSTOMER VAT/GST ID MERCH ORDER# SUMM COMM CD G 02/27 I DISCOUNT FREIGHT DUTY VAT REG# ORDER DATE 0.00 0.00 0.00 ESTINATION CNTRY SHIP FROM 02124 1 ECONOLITE CONTROL PROD 714-6303700 CA REF NO: 24472686057952398227727 AUTH NO: 009931 CUSTOMER ID LOCAL TAX INCL NAT'L TAX INCL OTHER TAX 0.00 2 0.00 0 0.00 MERCHANT VAT/GST 1D CUSTOMER VAT/GST ID MERCH ORDER# SUMM COMM CD DISCOUNT FREIGHT DUTY VAT REG# ORDER DATE 0.00 0.00 0.00 ESTINATION CNTRY SHIP FROM 02/24 I ECONOLITE CONTROL PROD 714-6303700 CA REF NO: 24472686057952398227743 AUTH NO. 097377 This Is NOT a bill. Your Company will submit payment for your account. ymanis or credits received afte r billin g date above will appearon the next month's statements. CHARGES I CREDITS 2,000.00 101.76 2,000.00 f NOTES R INOUIRIESABOUT YOUR ACCOUNT, PLEASE CALL 1-800-270-7760 OR WRITE US: COMMERCIAL CARD SOLUTIONS, PO BOX 57510. SALT LAKE CITY, UTAH 57-0510. not deduct any amount that is showing in dispute on your statement, this amount has already been deducted from the amount due. ase see reverside for important information regarding certain types of charges or dispute charges. Pagel of2 POST TRAN TRANSACTION DETAIL CUSTOMER ID LOCAL TAX INCL NAT'L TAX INCL OTHER TAX CHARGES CREDITS NOTES 0.00 2 0.00 0 0.00 MERCHANT VAT/GST ID CUSTOMER VAT/GST ID MERCH ORDER# SUMM COMM CD DISCOUNT FREIGHT DUTY VAT REG# ORDER DATE 0.00 0.00 0.00 DESTINATION CNTRY SHIP FROM 4,101. THE ABOVE LISTED TRANSACTIONS HAVE TRANSFERRED TO THIS ACCOUNT'S ASSOCIATED CENTRAL BILL ACCOUNT. THE NET BALANCE WAS 4,101.76 PLEASE NOTE THAT ANY FOREIGN PURCHASES AND/OR FOREIGN CASH DISBURSEMENT TRANSACTIONS MAY INCLUDE A 1% INTERNATIONAL TRANSACTION FEE. Page of VATE: March 8, 2006 VENDOR #19853 JP Morgan Chase Commercial Card Solutions P.O. Box 29063 Phoenix AZ 85038-9063 CITY OF BREMERTON GENERAL CLAIM FUND/DEPARTMENT PWO Street/Electronics Division nL'rnnmmrr %r CK # BASUB - ELE — OBJ - PRoTpr-r _____ ;RTIFICATION: he undersigned, do hereby certify under penalty of perjury, that the materials have been furnished, the services rendered or the labor formed as described herein, and that a claim is just, due and an unpaid obligation against the City of Bremerton, and that I am authorized iuthe and certify to said laim < Bob Tulp ORDER RECEIVED BY Jovice Brown 3/8/2006 C:\User\]oyce\Word\Forms\JP MorganChase.doc