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Issued: September 1998

SUMMARY

The purpose of this audit was to assess whether the Water and Wastewater Utility (WWW) has effective systems to manage and safeguard its assets.  The Utility is a capital intensive operation.  According to WWW records, the Utility owns $13 million in fixed assets greater than $1,000. In addition, it owns and uses each year a significant amount of smaller assets, equipment, and supplies less than $1,000.  Field Operations which is a major user of these assets was the focus of much of our work.

The Utility needs to significantly improve the control environment over assets.  While management is aware of needs in this area and has initiated some efforts, more direction and greater priority needs to be given to managing and safeguarding this important investment.

WWW is unable to readily identify all the assets it owns to ensure their appropriate use and disposition.  A complete and accurate fixed assets inventory list is an essential first step in managing resources and in ensuring these resources are used appropriately and for City business.  In addition, it aids in determining if theft or loss of assets has occurred and in establishing accountability. 

The Utility is unable to comprehensively identify and account for all its capital assets.  City policies prescribe a basic control and reporting structure for assets which cost more than $1,000.  In 1997, the Utility conducted an internal assessment that identified problems with its assets tracking system.  While some efforts are underway to improve asset tracking, WWW is still attempting to identify and locate a substantial amount of fixed assets.  We found during the audit that WWW’s asset list for Field Operations still contained $554,000 of assets that were unaccounted for.  A further $404,000 of equipment could not be identified with certainty because of incomplete records.  In addition, approximately $300,000 in fixed assets in Field Operations did not appear on WWW’s capital asset list. 

In addition, WWW does not maintain a rigorous system for tracking and accounting for equipment that falls under the $1,000 threshold yet represents a significant investment by the Utility.

We also found instances of abandoned equipment, originally purchased for a total of $420,000, that has been left to deteriorate through exposure to the elements.  Since formal retirement and disposal procedures for this equipment were not followed, salvage values are not being fully realized.

Controls and accountability over the use of supplies, including small tools, is weak.  Given the nature of the work in Field Operations and the amount of such supplies in use, management is responsible for designing a system that would adequately safeguard these items and ensure their appropriate use. 

We found that controls over the issuance of supplies from the Webberville Store, which issues supplies for WWW workgroups, were weak.  In response to the audit, WWW management raised the level of oversight of the Webberville Store and recently promulgated new procedures to improve controls. 

One area of continued significant weakness relates to the absence of tracking supplies usage once items leave Webberville.  As a result, WWW is unable to undertake efforts to realize greater efficiencies in supplies usage.  Furthermore, without a tracking system for these supplies, WWW is unable to determine whether supplies are being stolen or lost.

Efforts to improve controls over assets and supplies have been inadequate.  While management is aware of the need to improve asset management and safeguarding, efforts have fallen short. 

For example, WWW has purchased software that could support better management and tracking of its assets and supplies.  This software, an infrastructure management system, has not been fully deployed since its acquisition in 1994, despite an initial estimate by a consultant that the system could be implemented within a year.   In February 1998, a Process Improvement Team (PIT) was formed to implement additional capabilities of the Hansen system.  The Hansen PIT team has not adopted a well-defined and systematic process for implementing the software system even though the consultant's report presents standard criteria and plans for identifying and undertaking the steps for implementation.

During the course of this audit, the Utility also established an Asset Control Process Improvement Team to standardize procedures related to assets.  However, much stronger supervision is needed to make further progress.  Among the tasks that need to be accomplished are the identification and implementation of the essential components of a comprehensive asset management control system. 

WWW needs to undertake significant improvements to its asset and supplies control framework.   Our recommendations focus on control objectives and processes that will help establish a framework for managing and controlling the Utility's assets.  To be successful, WWW management must set the direction and make these efforts a higher priority.   An effective asset management system safeguards assets from inappropriate use, works to prevent theft or, if theft or loss occurs, works to establish accountability, and provides data for analysis and improved efficiency.  The inability of management to construct and maintain a sound control framework over assets and supplies could seriously hinder WWW in the accomplishment of its mission to be cost-efficient and to undertake continuous improvement.

A strong control framework includes increased management oversight in the area of asset and supplies usage, better tracking systems for assets and supplies, instituting fundamental requirements for safeguarding assets, such as holding individuals accountable for care and stewardship for assets and supplies, and undertaking adequate planning and follow through when new work methods and systems are devised through the Process Improvement Team (PIT) process.