MKC INTERNAL AUDIT SERVICE TECH SERVICES - FUEL ISSUES INTERNAL AUDIT REPORT TECHNICAL SERVICES FUEL ISSUES Lynda Baker – Audit Manager AUDIT REPORT - E272/07 MAY 2006 MKC INTERNAL AUDIT SERVICE SECTION TECH SERVICES - FUEL ISSUES INTERACTIVE INDEX PAGE EXECUTIVE SUMMARY 1 INTRODUCTION 1 2 CONCLUSIONS 2 3 WAY FORWARD 2 FINDINGS SUMMARY 4 GOOD INTERNAL CONTROLS 3 5 RISKS AND CONTROL WEAKNESSES 4 MANAGEMENT ACTION PLAN 6 CONTACTS & CIRCULATION 8 AUDIT REPORT - E272/07 MAY 2006 MKC INTERNAL AUDIT SERVICE TECH SERVICES - FUEL ISSUES Return to Index EXECUTIVE SUMMARY 1. INTRODUCTION 1.1 Background Fuel is stored and dispensed by Technical Services from Bleak Hall depot to vehicle and plant users. Diesel, gas oil, petrol and LPG are stocked, with the issue of fuel being controlled by officers at Bleak Hall using the Merridale fuel system, that requires key operation and keypad entry. In addition to this, depots at Woughton, Wolverton and Newport Pagnell stock gas oil. The costs below represent the amount of fuel issued from the depots during financial year 2005/2006. LPG Unleaded Diesel Gasoil £5,095 £26,445 £155,612 £28,559 This was a planned audit from the 2006/2007 Audit Plan. 1.2 Objectives and Scope The objectives of the audit were to ensure that: • There are adequate procedures to monitor the consumption of fuel (Monitoring Fuel Consumption). • The issue of fuel is for valid purposes only (Valid Fuel Issuing). • Stock is properly controlled and recorded (Stock Control). • Provision of fuel is cost effective (Cost Effectiveness). • Financial losses are not made in relation to fuel income and expenditure (Income and Expenditure). AUDIT REPORT - E272/07 1 MAY 2006 MKC INTERNAL AUDIT SERVICE TECH SERVICES - FUEL ISSUES Return to Index 2. CONCLUSIONS 2.1 The audit findings demonstrate that the system of control is basically sound, although there are minor weaknesses, which may put some of the system objectives at risk. 2.2 Fuel is always available to authorised council staff through the depots, however further improvements to the system could be made. Movement of stock is only reconciled once at year-end which means that any discrepancies occurring early in the year may not be identified until the year-end. Also the Merridale system is not yet used to its full potential in relation to monitoring vehicle mile per gallon trends in order to identify any fuel misappropriation. 2.3 All ‘Good Internal Controls’ identified are recorded (Section 4) and all ‘Risks and Control Weaknesses’ identified that give rise to a recommendation are summarised in a table (Section 5). 3. WAY FORWARD 3.1 All the recommendations identified are included in the Management Action Plan (Page 6). However, the key recommendations are set out below to provide a summary of those areas where management are required to focus their attention: 3.1.1 Income and Expenditure – Fuel Reconciliations Twice yearly reconciliations of fuel stock should be carried out to identify discrepancies so that action can be taken as necessary to ensure significant fuel loss does not occur. AUDIT REPORT - E272/07 2 MAY 2006 MKC INTERNAL AUDIT SERVICE TECH SERVICES - FUEL ISSUES Return to Index FINDINGS SUMMARY 4. GOOD INTERNAL CONTROLS The following areas were tested and confirmed as having good internal controls with no problems to report: - 4.1 Monitoring Fuel Consumption 4.1.1 Fuel purchased from garages is recorded on the Merridale system for an accurate reflection of fuel purchases/consumption. 4.1.2 Fuel is obtained by users as per the assignment set to individual vehicle fuel keys. 4.2 Valid Fuel issuing 4.2.1 There are appropriate records in place to record which fuel keys have been assigned and to which vehicle. 4.2.2 Fuel keys reported as out of use are cancelled from the Merridale system, ensuring they cannot be used. 4.3 Cost Effectiveness 4.3.1 Technical Services are informed of the changes to fuel prices on a weekly basis. AUDIT REPORT - E272/07 3 MAY 2006 MKC INTERNAL AUDIT SERVICE TECH SERVICES - FUEL ISSUES Return to Index FINDINGS SUMMARY (continued) 5. RISKS AND CONTROL WEAKNESSES Ref Theme Findings Risks (Implications) Recommendation 1 Income and Expenditure The Finance department has not satisfactorily reconciled the opening balance of fuel stock with the closing balance taking into account movements of stock during the year. Stock may be misappropriated for which no explanation has been sought. Reconciliations should be carried out between fuel purchases and issues on the balance sheet at least twice yearly and compared to a stock take. The Technical Service should investigate any discrepancies. 2 Income and Expenditure There is no system in use for management to monitor income received from fuel users against expenditure on fuel purchases. Financial losses may not be identified. A process should be developed and used for Income received from fuel users to be monitored against the service's expenditure on fuel purchases in order to ensure that no significant financial loss is made. 3 Monitoring Fuel Consumption The performance of vehicles using the Council’s fuel is not monitored in terms of miles per gallon (MPG). Fuel could be misappropriated. MPG trends should be regularly monitored for vehicles that use fuel from the Technical Service. AUDIT REPORT - E272/07 4 MAY 2006 MKC INTERNAL AUDIT SERVICE TECH SERVICES - FUEL ISSUES Ref Theme Findings Risks (Implications) Recommendation 4 Stock Control Re-order levels on “fuel dip” record sheets are constant throughout the year and do not take into account the seasonal variances of fuel usage. Hired Council vehicles may need to purchase more expensive fuel elsewhere if stock levels run low. “Fuel dip” record sheets should clearly show the agreed re-order levels (taking into account seasonal variances) and these levels should consistently be adhered to. NB Any cost implications arising from implementation of the recommendations by HBS must be agreed in advance with the appropriate Client Officer and the Partnership Delivery Manager. AUDIT REPORT - E272/07 5 MAY 2006 MKC INTERNAL AUDIT SERVICE TECH SERVICES - FUEL ISSUES Return to Index MANAGEMENT ACTION PLAN The recommendations are categorised on the following basis: Essential - Implementation is required with immediate effect to address a weakness that fundamentally undermines the control of that system. Important - Implementation is required within a short period of time to address weaknesses that seriously undermine the control of that system. Standard - Management need to take recommended action within a reasonable period to address weaknesses that may undermine system control. Ref 1 Recommendation Income and Reconciliations Expenditure - Fuel Categorisation Management Comments Manager Responsible Target Date Important Agreed Acting Transport Manager 30/11/2006 Standard Agreed Acting Transport Manager 30/11/2006 Reconciliations should be carried out between fuel purchases and issues on the balance sheet at least twice yearly and compared to a stock take. The Technical Service should investigate any discrepancies. 2 Income and Expenditure - Monitoring Fuel Income against Expenditure A process should be developed and used Income received from fuel users to monitored against the service's expenditure fuel purchases in order to ensure that significant financial loss is made. AUDIT REPORT - E272/07 for be on no 6 MAY 2006 MKC INTERNAL AUDIT SERVICE TECH SERVICES - FUEL ISSUES Ref Recommendation Categorisation Management Comments Manager Responsible Target Date 3 Monitoring Fuel Consumption - Mile per gallon of Vehicles Standard Agreed Acting Transport Manager 31/08/2006 Standard Agreed Acting Transport Manager 30/06/2006 MPG trends should be regularly monitored for vehicles that use fuel from the Technical Service. 4 Stock Control - Re-order Levels for Stock “Fuel dip” record sheets should clearly show the agreed re-order levels (taking into account seasonal variances) and these levels should consistently be adhered to. NB Any cost implications arising from implementation of the recommendations by HBS must be agreed in advance with the appropriate Client Officer and the Partnership Delivery Manager. AUDIT REPORT - E272/07 7 MAY 2006