HomeMy WebLinkAboutStaff Report 5003
City of Palo Alto (ID # 5003)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 10/7/2014
City of Palo Alto Page 1
Summary Title: Staff Response to Inventory Management Audit
Title: Staff's Second Follow-up Response to the Inventory Management Audit
From: City Manager
Lead Department: Administrative Services
Recommended Motion
The Finance Committee discussed staff’s updated response to the Auditor’s Inventory
Management Audit and refers it to the full Council for adoption upon the Consent calendar.
Recommendation
Staff recommends that the Finance Committee review and discuss this updated response to the
Auditor’s report on Inventory Management. The updated response addresses questions and
concerns raised by the Committee at its February 18, 2014 meeting. As discussed at the
February 18 meeting, should the response adequately address Council members’ concerns,
staff recommends that the Committee refer the response to the full Council for adoption upon
Consent.
Background
On February 18, 2014 the City Auditor presented to the Finance Committee the results of its
Inventory Management Audit. Normally, the Auditor presents annual status updates to the
Council. However, at the February 18 Finance Committee meeting, Council members raised
several questions and concerns and asked staff to return in six months with information to
speak to those concerns. This report is therefore additional to and separate from the Auditor’s
updates to the Council.
The text of motion, along with clarifying text, may be found below. This text is excerpted from
page 18 of the full minutes of the February 18 meeting (Attachment D).
INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER AND SECONDER
1) to have this Item go to Council under the Consent Calendar; 2) to include these Minutes
when the Item goes before Council; 3) to have Staff respond within six months to the
Finance Committee; and 4) to have Staff account for the level of inventory, the culture of
responsibility and accountability, and the tracking and disposition of the materials posted at
the warehouse.
City of Palo Alto Page 2
Discussion
Since February, ASD has facilitated the effort to address the Committee’s concerns, by engaging
through a series of meetings the Public Works, Information Technology, and Utilities
departments, and methodically working through each of the Auditor’s recommendations, along
with the questions raised by Committee member s.
Attachment A is an Implementation Plan showing tasks completed since the February 18
Finance Committee meeting as well as tasks yet to be completed. Staff estimates that the tasks
it has already completed comprise about 80 percent of the total work outlined in the
Implementation Plan.
Attachment B is an updated overall response to the audit from all four departments
(Administrative Services, Information Technology, Public Works, and Utilities). This is the
primary document for tonight’s discussion. Appendix 1 of Attachment B is a report
summarizing the 2014 fiscal-year-end inventory count results for both warehouses. Stores staff
conducts the year-end count in addition to the cycle counts done throughout the year.
Attachment C is the staff response memorandum delivered at the February 18 Finance
Committee meeting. Attachment D is the excerpted minutes from that meeting during which
this agenda item was discussed. Attachment E is an Inventory Policy, Process & Procedures
document which has been reviewed by all relevant departments as well as the City Auditor.
Staff looks forward to the Committee’s discussion and questions.
Attachments:
Attachment A: Inventory Management Implementation Plan (DOCX)
Attachment B: Updated Staff Response to Inventory Audit (DOCX)
Attachment C: Original February 2014 Response to Inventory Audit (DOCX)
Attachment D: February 18, 2014 Finance Committee Minutes (PDF)
Attachment E: Policy, Process & Procedures (PDF)
Attachment A
CITY OF PALO ALTO
INVENTORY MANAGEMENT
IMPLEMENTATION PLAN
PURPOSE
The purposes of this plan are:
To provide guidance and direction to city staff regarding roles and responsibilities for achieving
Inventory Management Control in keeping with Best Practices.
To respond to the concerns raised by the Finance Committee resulting from the Inventory
Management Audit, issued December 2013.
To inform city staff about any changes in practice for addressing concerns identified in the
Inventory Management Audit
IMPLEMENTATION TASKS :
NO: TASK: DUE DATE: STATUS:
1. Define “City Inventory” and create citywide
policies, processes and procedures for
Inventory Management.
10/31/14 Drafts have been
circulated to
Departments (and
included in Attachment E)
2. Ensure Best Practices inventory controls are
implemented in SAP, identify reports available
in SAP, and define reporting requirements
including:
System access
Segregation of duties
Minimum/Maximum
Cycle counting
Turnover
Coding emergency-only materials
DONE
Monitoring and
Implementation are
ONGOING
3. Meet with departments to:
Identify interdepartmental cross
functions.
Clearly define roles and
responsibilities.
Define communication needs.
DONE
Attachment A
NO: TASK: DUE DATE: STATUS:
4. Apply the Inventory Management process
procedures to all items cataloged and
previously assessed to determine:
City inventory or not
If yes, managed in SAP or other
If other, establish criteria
DONE
Monitoring is ONGOING
5. For all inventory managed outside of SAP,
review and approve controls established for
managing that specific material.
DONE
6. Disseminate Final Policy, Process &
Procedures and other materials Citywide
10/31/14
7. Complete any necessary training of City staff
on PPPs
12/31/14
8. Evaluate whether Transformers can be
brought into the main SAP inventory system
12/31/14
9. For all other inventory managed outside of
SAP (“exceptions”), evaluate whether that
type of materials can be incorporated into
main SAP inventory system; re-evaluate
annually; determine approximate dollar value.
DONE
IT Equipment and WQCP
Emergency parts brought
into SAP; Transformers,
Poles left outside of SAP.
Re-evaluation ONGOING
10. Review and assess existing warehouse
capacity with respect to future space needs;
develop one or more options for meeting
future space needs
10/31/14
11. Assess the appropriateness of inventory levels
and establish a procedure for regular updating
of material minimum and maximum inventory
levels
DONE Monitoring ONGOING
12. Assess inventory for low turnover. Surplus or
return obsolete materials. Establish procedure
for regular checking of slow-moving items.
DONE
For all
materials in
Warehouses
Monitoring ONGOING;
Utilities to continue
process for items they
have stored outside
Warehouses.
Attachment A
NO: TASK: DUE DATE: STATUS:
13. Identify and determine the treatment of other
miscellaneous items such as materials and
equipment:
Requiring short-term storage for
other departments.
For recycling or disposal (DONE –
see Surplus Property P&P)
Donated by contractor
Purchased with p-cards
10/31/14 Process has been
initiated
14. Improve Physical Security of City inventory 99%
Complete
MSC and WQCP security
measures are completed.
Fleet access control
system being evaluated.
Card access monitoring
ONGOING.
15. Determine steps and resources (including
staff) needed to implement the updated
Policies, Process and Procedures
11/30/14
16. Research any additional technical tools that
may facilitate the practice of Inventory
management Best Practices, and determine
which might pass the cost-benefit test
12/31/14 Process is ongoing;
December deadline for a
more thorough
assessment of RFID and
other technologies
Attachment B
1
TO: City of Palo Alto Finance Committee Members
FROM: James Keene, City Manager
DATE: October 7, 2014
SUBJECT: Updated Response to Committee Members’ Questions
Regarding Auditor’s December 2013 Report on Inventory
Management
PREPARERS: Lalo Perez, Chief Financial Officer
Val Fong, Director of Utilities
Mike Sartor, Director of Public Works
Jonathan Reichental, Chief Information Officer
Introduction
At the Finance Committee Meeting of February 18, 2014, Committee members raised several
questions and concerns and asked staff to return in August with information responsive to the
issues raised.
Since February, ASD has held 20 interdepartmental meetings with Utilities, Public Works,
Auditor’s and Information Technology staff to address the concerns raised in the Audit. This
memorandum, along with the Policy, Process & Procedures attached, documents the
modifications and improvements that have resulted, as well as staff’s plans for remaining action
items.
The following table summarizes the issues raised by Committee members at the February 18
meeting and where in this document Council members may find staff’s discussion of those
concerns.
Committee Concern or Question Status or Response
Are inventory levels appropriate? See page 6 of this document.
Are items utilized for City projects
once checked out of inventory?
Staff believes that financial system and blind counts show
that what is being taken out of inventory is being put into
City projects. (Counting procedures discussed on page 2.)
Concern over lack of inventory
tracking and control
Counts (both cycle and year-end) indicate that inventory
is well controlled. See Appendix 2.
Concern about large number of
access cards at MSC
Number of persons with card access to the MSC
warehouse has been reduced from 71 to 44; ongoing
access card review process is now in place
Low inventory turnover ratio;
unexplained decrease in inventory
turnover ratio between 2007 and
2013
See pages 6 and 7 of this document.
Attachment B
2
The remaining document is organized into the four main issues identified in the Auditor’s
report, including:
1. Updating and Citywide Distribution of Inventory Policies and Procedures
2. Inventory Outside of SAP System
3. Excess of slow-moving and/or obsolete stock; low inventory turnover ratios
4. Physical security at both warehouses
Please note that the attached Policy, Process & Procedures (Attachments D, E, and F) provide
important details on policy and procedural improvements that staff has developed over the last
six months.
Issue 1: Update and enforce inventory transaction policies and procedures to ensure there is
proper authorization and accountability for all transactions
Policy, Process, and Procedures
The Inventory Policy, Process, and Procedures (PPPs), attached to this report (Attachment E),
clearly defines roles and responsibilities and the lines of interdepartmental communication
necessary to manage inventory efficiently. These have been derived from continuing
conversations between ASD, Utilities, Public Works, and the IT departments. Drafts of this PPP
was circulated to departments, and staff incorporated their input. The PPP will then await final
approval by the City Manager before being incorporated into the City’s online Policies and
Procedures resource and communicated to staff citywide.
Blind and Year End Physical Counts
Blind counts have been implemented and duties segregated as recommended. Cycle counts
and year-end physical counts were already carried out at both locations prior to the Audit (see
Appendix 1 for example) and will be continued (see Attachment E for description of cycle
counting procedures).
At the WQCP, non-valuated stock in locked containers and the “towers” will be recounted
annually and reconciled to SAP records. Equipment and goods stored in these areas are
generally for emergency purposes only.
At the end of Fiscal Year 2014, the year-end count of valuated stock showed an accuracy rate of
98.2% at the MSC Warehouse and an accuracy rate of 97.7% at the WQCP Warehouse. The
value of changes to reconcile the counts was less than 0.5% for each facility.
Accountability for Material Withdrawal: WQCP Warehouse
The WQCP has agreed to close its warehouse to the extent possible given the single FTE
storekeeper. Instead of WQCP staff pulling parts off the shelves and marking on paper what
they have taken so the storekeeper can enter the info into SAP (as done previously), WQCP
staff will now come to the front counter, input their request into SAP, and the storekeeper will
Attachment B
3
obtain the parts they need. The counter has been lengthened to prevent automatic entry into
the warehouse and to promote continued reliance on the storekeeper for retrieving goods.
When goods are needed after hours, authorized supervisors may access the warehouse and use
an “after-hours” Pull Ticket to document what they remove from the shelves. The Storekeeper
updates the system accordingly the following morning (See Attachment E).
Staff expects greater accuracy of records and enhanced protection of City assets via the more
tightly controlled warehouse access.
Accountability for Material Withdrawal: MSC Warehouse
ASD eliminated the generic user account in April 2014. ASD also modified its cycle count
procedures beginning December 30, 2013 to ensure that duties would be segregated according
to the Auditors’ recommendation. Specifically, the warehouse staff person doing the physical
count and the staff person entering the count information into SAP may not be the same
person.
Issue 2: Inventory Categories Ordered or Tracked Outside of SAP System: electric meters,
poles, transformers, some Water Quality Control Plant equipment, IT equipment, MSC North
Dock contents
As noted in the previous (February 18) response (Attachment C), there are two reasons to
implement a centralized inventory management system: 1) to prevent unauthorized use,
physical deterioration, or theft of property, and 2) to manage the inventory in the most cost
effective manner. The majority of materials Utilities manages outside of the warehouse have an
extremely low risk of theft. They are specialized goods that have no functionality or resale
value outside of utility use and for the most part are heavy and bulky and cannot be
transported without a flat-bed truck and crane. In addition, these materials are designed for
exterior use and are not subject to deterioration from the elements or from long-term storage.
ASD met with Utilities staff overseeing transformers, poles, and meters purchasing and tracking
to understand the reasons for and the mechanisms driving the alternate monitoring systems for
these items. It concluded that the transformer tracking system utilized by Utilities is indeed
preferable to SAP for the purposes of tracking the location of each t ransformer. In addition the
transformers are tightly tracked by Utilities and the quantities will be reconciled with
Accounting asset records twice per year. However, Utilities will take a deeper look at ways to
incorporate Transformers into the regular SAP inventory system.
Poles are ordered through Stores, but due to the bulky size of the poles, are received at a
separate location by Utilities staff, and distributed from that location. As a result, quarterly
physical counts will be conducted to keep records reconciled.
Attachment B
4
As for meters, the Auditor is pursuing a more in-depth audit of the meters, so ASD and Utilities
will withhold any additional recommendations or action s regarding the meters until those Audit
results are presented.
In recent weeks, Utilities has identified some additional storage areas and is working to bring
these items within the Policy, Process and Procedures outlined in Attachment E.
At the WQCP, an extensive amount of large equipment is located in the Towers and in outside
containers. This equipment had not been counted and documented in several years. This
spring, WQCP staff completed a review and organization of non-stock inventory; completed an
inventory stock request form for each item; and provided the paperwork to ASD for addition to
SAP as non-valuated stock. WQCP non-valuated stock is now being tracked in SAP.
For IT equipment, the following solutions were implemented:
Secured Cages: To address potential theft of desirable equipment
such as computers and monitors, IT, Public Works, and MSC
Warehouse Staff created an area within the warehouse to install a
secured cage with a card access system. The cage extends beyond
the ceiling and can only be accessed by MSC Warehouse staff. This
new cage provides a secondary level of security for IT equipment at
the MSC Warehouse, the first being physical access to the warehouse
limited to warehouse staff only.
Items below $100 in value (such as mice and keyboards) are considered “consumables” and are
distributed to IT staff at City Hall upon receipt. IT staff then stores these items in a caged
storage area in City Hall and tracks their subsequent locations.
IT Inventory Process and Procedures : IT Staff worked with the Warehouse Supervisor to
establish and document IT inventory processes and procedures (See Attachment E, page 6).
The document outlines what IT equipment is to be received at the warehouse, how it is to be
processed, how it is to be requested, and who is permitted to request the equipment. The
document also identifies that the warehouse staff will perform a blind count of IT equipment
every three months to validate that inventory levels are correct.
SAP Inventory: Leveraging already in-use technology, IT Staff worked with the Warehouse
Supervisor to add frequently purchased IT equipment into SAP as non-valuated inventory items.
This improvement allows for an automated process of requesting goods, receiving goods, and
monitoring inventory levels.
Utilities North Dock: At the MSC, Utilities maintains a s torage area to facilitate crew access to
low-value materials needed for jobs. Early in 2014, Utilities secured this area with a card-reader
access door. In the last couple months, Utilities conducted a physical count of the items in the
North Dock and evaluated whether to reduce volumes of certain items, return all the materials
Attachment B
5
to the MSC Warehouse, or leave as is. Utilities decided to leave the area as is, and conduct
quarterly recounts of materials.
Issue 3: Slow-Moving and Obsolete Parts
Prior to the February 2014 Finance Committee meeting, Warehouse staff removed all items
older than 3 years old from MSC and WQCP shelves. Since February, ASD has surveyed its
customer departments regarding any parts older than 1 year, and removed the ones
determined to be obsolete. In addition, ASD has requested that departments indicate which
parts are for emergency repairs ONLY, since this can be coded and those parts eliminated from
future “slow-moving” reports.
In the past, a key reason for slow-moving and obsolete items remaining on the MSC Warehouse
shelves was a communication gap between Utilities and MSC Warehouse and purchasing staff,
as well as an information lag between Utilities Engineering and Utilities Operations staff – for
example, regarding changed specifications on parts. One outcome of the discussions between
ASD and Utilities has been that Utilities has started inviting Purchasing and Stores to monthly
Engineering and Operations meetings to address any material issues or specification changes.
Utilities will also review the quarterly slow moving material report from Stores to address aging
or obsolete inventory.
Another concern of the Committee upon reviewing the Auditor’s report in February was the
overall 64% inventory turnover ratio for City warehouses in 2013. Staff investigated and found
that the 64% turnover was for the period from July 1 2012 to April 29, 2013, and was a blended
rate for the two warehouses. The MSC warehouse turnover rate was 78.0%, and the WQCP
warehouse turnover rate was 24.6% for the same period. (See table excerpted from Auditor’s
calculations below.)
Calculated - Based on MB51 and
ZMMR05
MSC Inventory
Turnover as a
% of MSC Total
Inventory on
4/19/13
WQCP Inventory
Turnover as a % of
WQCP Total
Inventory on
4/19/13
78.0% 24.6%
The reason for the low turnover rate at the WQCP is that they keep a large number of materials
on hand in case of emergency. The cost of delaying a needed repair to the system , including
environmental impacts of spilling waste into the Bay and penalties for the plant’s inability to
process the waste from partner agencies’ systems, would be much higher than the carrying
costs for these replacement parts.
Attachment B
6
Questions were also raised regarding the reported decline in overall turnover ratio from 88% at
Fiscal-year-end 2007 to 64% as of April 2013.
A look at the details of the Auditor’s analysis might help clarify the trend. The year-end (6-30-
13) calculation is added in bold in the table below:
Date
(Fiscal
Year as of)
Inventory
Turnover
(Calculated)
6/30/2013 77.5%
4/19/2013 64.2%
6/30/2012 65.8%
6/30/2011 63.4%
6/30/2010 64.5%
6/30/2009 66.1%
6/30/2008 76.4%
6/30/2007 88.0%
First, the 88% turnover ratio in FY 2007 was relatively high compared to the succeeding six
years. The inventory turn ratio change between 2008 and April 19, 2013 was far less dramatic
than that from 2007 to 2013.
Second, 2013’s year-end turnover ratio was 78% - rather than the 64% figure-based on April
2013 numbers shown in the Auditor’s report. Broken out by location, the MSC turnover rate
was 91.3%; the WQCP’s was 33.0% for FY 2013.
Going forward, staff has already cleaned o ut obsolete materials from both warehouses and
coded emergency-only supplies so that inventory turns can be calculated with and without
them. Finally, as the PPP demonstrates, there is now a system in place to routinely synchronize
information regarding slow-moving, obsolete, and newly specified parts and materials .
Inventory turn levels will be more closely monitored, and likely much higher, than in recent
years, when a high volume of emergency-only stock was included in the calculations.
Issue 4: Physical Security at Both Warehouses
Since February, Public Works has re-keyed the WQCP warehouse, and added a security camera
and a card reader to the main door. The IT storage area at MSC-A has now been caged, with
the cage fencing extended, and is secured with a padlock. Card access was added to this cage in
August. Card access was also added to the storage entrance door at City Hall Level A.
All of the exterior doors of City facilities with the exception MSC-C have been rekeyed with the
new Schlage Primus key system. MSC-C will be complete by the end of the calendar year.
Card access has been installed on at least one exterior door on each of the facilities with the
Attachment B
7
exception of fire stations. There are now over 135 card access doors installed in City facilities,
which greatly reduces the need to issue hard keys. Detailed records are kept for all keys issued
for this new Schlage Primus system.
44 staff members currently possess access cards to the MSC warehouse.
Public Works staff will collaborate with the City's OES Director for recommendations and
guidance working toward a citywide risk assessment.
At the MSC, the Fleet access system has now been removed and all vehicle access cards are
now using the AMAG Technology system, which has the ability to track when vehicles gain
access to the entrance gate.
Conclusions and Next Steps
Staff’s takeaways from the February 18 Finance Committee meeting were concerns about:
The safety and protection of all goods purchased and stored by the City
The ability to track all goods
The efficient use and turnover of inventory
Since that meeting, staff has taken numerous actions to address the Finance Committee’s
issues as well as the Auditor’s findings.
Security for City goods has been enhanced by more strictly limiting access cards to the MSC
warehouse, installing a cage to protect computer equipment, and installing a new card access
system and camera coverage at the WQCP. The WQCP Warehouse has been made additionally
secure by changing the practice of having crews fill out paperwork and then pick up parts off
the warehouse shelves directly and instead have the storekeeper bring out the parts after
paperwork has been completed. The effort to further secure the entire MSC complex is still a
work in progress with Public Works and the Office of Emergency Services taking the lead.
With some closely monitored exceptions, all goods discussed in the Auditors Report are now
tracked in SAP, either as “stock inventory” – parts that are used repeatedly – or “non-valuated
inventory” – parts that are for emergencies only or for other reasons do not qualify as stock
items. The latter’s quantities, but not values, are tracked in SAP’s inventory system.
Staff in both Public Works and Utilities (along with Purchasing and Stores staff) has made
significant strides to count and track goods managed outside the SAP inventory system. Counts
will be performed on a periodic basis to balance the number of goods in storage and those
listed in SAP. Utilities will continue to track transformers in its Access system and will log and
account for all goods located in sheds, containers, and a caged area at the MSC dock. ASD will
continue to evaluate whether goods outside the standard SAP system can be brought into the
main inventory system.
Attachment B
8
All goods in both warehouses have been analyzed for obsolescence and low turnover. Obsolete
items have been either returned to vendors or surplused according to City policy. Goods that
have been identified as emergency items have been specially coded so Inventory Turn ratios
may be calculated excluding these items. Warehouse staff will now send quarterly turnover
and aging reports to departments for the potential culling of unused items.
In staff’s view, expensive solutions to audit issues are not required and most can be solved with
existing personnel levels and systems. For example, the benefits of adding a more robust
inventory module in SAP for approximately $500,000 do not outweigh the costs. This is
especially true given Information Technology’s efforts in progress to evaluate SAP versus other
ERP systems. However, to manage the increased back-and-forth reporting and accountability
between Stores and departments on changing material needs, it might be necessary to restore
the 1 FTE that was cut from Stores.
There remain, however, a number of additional tasks to see the process through. Attachment
A, the Implementation Plan, includes the tasks staff has planned going forward. For example,
Utilities will re-evaluate whether Transformers can be brought into the main SAP inventory
system; Utilities staff is beginning to process some additional materials identified in recent
weeks as falling under the purview of the newly outlined Policy, Process & Procedures; s taff will
assess current and future warehouse space needs and make recommendations; additional
technical solutions and possible additional staffing needs will be evaluated.
In summary, a significant effort in tightening inventory management and controls has been
made. A Policy, Process, and Procedures (PPPs) document has been drafted and shared with
departments so that responsibilities and lines of communication are clear. As long as
departments consistently adhere to the PPPs, the City’s assets will be efficiently and effectively
used.
Attachment B
9
Appendix 1: Year-End Physical Count Results
Final FYE 2014 Inventory facts & figures for MSC & WQCP
General Information
MSC Warehouse houses 1865 active material stock items
WQCP Warehouse houses 2354 active material stock items
The net worth of MSC stock is $3,089,312. WQCP is $837,824.
MSC Warehouse
Material Document 4800060358 shows 20 physical inventory (negatives) errors entered into SAP on
6/23.
Document was generated using MB51 (Parameters - CPA, MSC, Movement Code 702, posting Date)
Report shows a total lost in dollars of $24,501. Of that total, $24,259 is related to the pole counts given
by Utilities.
The true dollar loss of stock tracked & controlled by ASD/Stores was (-$242)
Material Document 4800060358 shows 12 physical inventory (positives) errors entered in SAP on 6/23
Document was generated using MB51 (Parameters - CPA, MSC, Movement Code 701, posting Date)
Report shows a total gain in dollars of $12,659. Of that total, $12,522 is related to the pole counts given
by Utilities.
The true dollar gain of stock tracked & controlled by ASD/Stores was $136
Attachment B
10
Appendix 1
Material Document 4800060358 32 physical inventory errors entered into SAP on 6/23
Document was generated using MB51 (Parameters - CPA, MSC, Movement Code 701/702, posting
Date)
Report shows a total loss in dollars of (-$11,842)
The true dollar gain/loss of stock tracked & controlled by ASD/Stores was (-$105)
MSC Final Inventory numbers
Items counted 1865 Errors 32 Inventory Accuracy Rate 98.2% Value change Less than .5%
Attachment B
11
Appendix 1
WQCP Warehouse
Material Document 4800060359 shows 39 physical inventory (negatives) errors entered into SAP on
6/23.
Document was generated using MB51 (Parameters - CPA, WQCP, Movement Code 702, posting Date)
Report shows a total lost in dollars of $296.
Material Document 4800060359 shows 13 physical inventory (Positives) errors entered into SAP on
6/23.
Document was generated using MB51 (Parameters - CPA, WQCP, Movement Code 701, posting Date)
Report shows a total gain in dollars of $405.
Attachment B
12
Appendix 1
*Continued on next page*
Material Document 4800060359 shows 52 physical inventory errors entered into SAP on 6/23.
Document was generated using MB51 (Parameters - CPA, WQCP, Movement Code 701/702, posting
Date)
Report shows an overall gain in dollars of $109.
Attachment B
13
Appendix 1
WQCP Final Inventory numbers
Items counted 2354 Errors 52 Inventory Accuracy Rate 97.7% Value change Less than .5%
Attachment C
1
TO: Houman Boussina, Acting City Auditor
FROM: James Keene, City Manager
DATE: February 18, 2014
SUBJECT: City Manager’s Preliminary Response to the “Inventory Management
Audit”
PREPARERS: Lalo Perez, Chief Financial Officer
Val Fong, Director of Utilities
Mike Sartor, Director of Public Works
Jonathan Reichental, Chief Information Officer
Response
City staff would like to thank the Auditor’s Office for a detailed Inventory Audit with
worthwhile recommendations to investigate and act upon. It is important to note that this audit
was conducted at management’s recommendation. Fundamentally, staff believes there is room
for improvement in areas cited in the Auditor’s conclusion including:
Controls to ensure accuracy and completeness of inventory records
Accountability for inventory movements
Enforcing citywide inventory management standards and continuous improvements
What is being accomplished and what requires attention is discussed in department responses
below. For example, where the Auditor recommends using the City’s SAP inventory system,
which staff will seek to maximize, there are current and new systems that could be used more
cost effectively to achieve cited goals. These systems will be examined.
Because the City’s inventory is geographically dispersed; controlled by different departments;
and covered by older policies and procedures, staff requested the Auditor conduct an analysis of
our goods management and compare it to best practices. Although management’s perspective
and emphasis may be slightly different from that of the Auditor, it has developed an action plan
to improve current practices and address the Auditor’s recommendations.
There are always a number of themes and natural tensions at play between best practices and
operational needs in appropriately managing inventory. These include:
A conflict between operational needs and efficiencies, particularly in regards to
emergencies, time sensitive projects, or running a 24/7 operation versus tight and
accurate inventory control
Attachment C
2
A tradeoff between precise inventory control and accuracy and the costs necessary to
achieve such goals. Over the past decade, 2 positions have been eliminated at the
warehouses as a consequence of balancing budgets
Limited physical space at the Regional Water Quality Control Plant and MSC
warehouses as well as at the MSC yard. Goods will occasionally be stored in available
spaces making centralized versus decentralized storage of goods problematical
The City of Palo Alto is unique as a municipality given ownership of all utilities. This
adds complexity to the receipt, evaluation, storage, and management of goods
The Auditor cites the Municipal Code as assigning to the Administrative Services Department
(ASD) the principal responsibility for inventory management. As a full service City providing
general and utility services, this responsibility is more complicated and diffused than in other
jurisdictions. In addition, to updating policies and procedures to reflect best practices, ASD will
include language that makes responsibility for the transitioning and safeguarding of goods clear.
This may include recommended modifications to the Municipal Code. Once an item is removed
or issued from City warehouses, it becomes the user department’s responsibility to safeguard that
item. ASD staff will work closely with departments to educate and ensure that achievable best
practices are followed.
Finding 1 – ASD and City departments should implement the City’s inventory
management policies and procedures citywide to achieve inventory goals and objectives
Recommendations:
1. ASD and City departments should implement the City’s inventory management
policies and procedures citywide to achieve inventory goals and objectives
2. ASD should review its inventory accounting policies and correct any misstatements
in the City’s accounting records
ASD
An updating of citywide inventory policies and procedures is necessary. ASD is committed to
revising them and to working with departments to implement. Our goals and objectives are and
will continue to be aligned with those of the Government Accountability Office (GAO)
guidelines cited in the Auditor’s Report. In addition, ASD will propose changes to code, policies
and procedures that define department responsibilities for tracking and safeguarding goods that
leave the warehouses. Ongoing meetings among departments involved in inventory management
will be scheduled.
ASD has reviewed the Auditors pre and final findings concerning its accounting policies with the
City’s outside financial auditor firm Macias, Gini and O’Connell (MGO), and concluded that
there were no material misstatements in the City’s FY 2013 accounting records pertaining to
inventory.
Attachment C
3
Utilities
To implement policies and procedures, staff will evaluate existing (e.g., SAP) and potential new
systems to enhance the monitoring and controlling of inventory. City staff agrees that it would
be advantageous to have a single inventory management system for all the materials used by the
City. It is important, however, to evaluate whether there are cost effective solutions providing
sufficient benefit to justify the expense of implementing and operating the systems. From a
business process and/or cost perspective, SAP may not be the optimal system for inventory
management. In addition, the IT department is leading the review and assessment of the SAP
system for ongoing use. For example, detailed tracking of low price items such as bolts and nuts
once they leave the warehouse would require more labor and increase costs. It is likely that these
increased costs would exceed the value of the materials.
The Utilities Department stores over $82,000 in inventory at an unsecured location without
oversight
Utilities
It is not uncommon for Utilities to have a store of low priced and revolving stock items (average
cost of less than $5 each for items such as nuts, bolts, washers, etc. amounting to 17,500 such
items) for general use outside of the materials management system. For operational and cost
reasons, it is impractical to keep an up-to-date manual inventory system.
If it is deemed necessary to inventory these parts, an automated system is required to streamline
the inventory management. The costs and benefits of such a system would be compared to
determine the cost effectiveness of such a system. In the short-term, a locked door at the
“unsecured location” to restrict access to the storage area will be added.
The Utilities Department disposed of at least $31,000 in unused materials that had expired
Utilities
The Utilities use a variety of materials that do have defined shelf lives. There are instances in
which older, unique goods may be kept for repairs. Utilities does acknowledge the disposal of
items that were no longer useful. In the future, Utilities will be sure to observe City procedures
for surplus or obsolete inventory.
The current inventory management system does not track individual items so identifying
materials nearing expiration dates is difficult. A system tracking individual items in inventory
would decrease the amount of goods kept past expiration dates. To implement tracking of
expiration dates on these items in SAP may require hand entry or bar coding. Utilities and ASD
will work jointly to determine if a new field in the SAP inventory system can be added to track
expiration dates from department locations.
ASD
It should be noted that Stores staff does date and color code items on shelves so that the oldest
items are pulled from inventory. Again, this is an important area needing ongoing inter-
department cooperation to manage goods appropriately.
Attachment C
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The Utilities Department has not managed its meters and transformers using an inventory
management system with sufficient controls
Utilities
There are two reasons to implement a centralized inventory management system: 1) to prevent
the unauthorized use, physical deterioration, or theft of property, and 2) to manage the inventory
in the most cost effective manner. The majority of the $2.5 million of materials managed by the
Utilities Department that are not in the warehouse are transformers, poles, switches, and meters.
These materials have an extremely low risk of theft. They are specialized goods that have no
functionality or resale value outside of utility use and for the most part are heavy and bulky and
cannot be transported without a flat-bed truck and crane. In addition, these materials are designed
for exterior use and are not subject to deterioration from the elements and long-term storage. A
significant number of transformers are stored for the sole purpose of emergency repairs.
The Utilities recognize that efficiencies could be gained through better management of its
inventories. It is unclear, however, whether these efficiencies will result in significant savings to
the City. The management of transformers and switches has been delegated to the Utilities
Department historically because these items required ordering from 4 months to 1 year in
advance of delivery. Because of the long-lead time required for ordering, an engineer has been
assigned to manage the transformers and another engineer has been assigned to the switches.
Each engineer manages the specifications, ordering, receipt, testing, and payment for the
equipment, and enforces manufacturer’s warranty claims.
The inventory and management functions not currently handled in SAP could be added, but
implementation of these changes would require extensive and costly modifications to the system.
These changes would entail: inventory ordering, testing, and tracking procedures evaluated by
the engineers and the field crews. Staff recommends that a cost benefit analysis be performed
prior to implementing changes to the system to determine if there are sufficient benefits to justify
the expense of implementing a centralized inventory system.
The discrepancies in the transformer counts cited in the audit report were due to a transition or
change in the inventory management systems taking place at the time of the audit. The
transformers have been managed in an Access Database and Utilities was in the process of
transferring this function to the GIS system. Following the transition to the GIS system, all
transformers were inventoried and accounted for.
It should be noted that transformer inventory is not updated on a daily basis because they are
used for emergency replacements and are removed from inventory during off hours. The
Electric Utility does conduct a monthly physical count in the yard and reconciles any
discrepancies on a regular basis. Management of the transformers in the yard could benefit from
the installation of an RFID system, so staff will evaluate the costs of a purchase and its benefits.
The Utilities Department supports creation of a consistent process for management of meters
similar to those for managing other items stored in the warehouse. The majority of new gas and
water meters are stored in the warehouse and released to the meter shops when requested. Due
to limited space in the meter shops, Utilities will procure some large containers for meters that
Attachment C
5
are being staged for deployment. Utilities will also work with Stores to identify a storage
location for electric meters.
ASD
To assure Council that meters and transformers are accurately recorded in the financial system
and statements, it is important to explain their treatment. Meters and transformers are considered
to be capital assets (as opposed to inventory) and, as such, are capitalized and depreciated over
their useful lives. In total, the City owns over 3,000 transformers and all were recorded as
capital assets at time of purchase. The transformers rotate in and out of service over the course
of their lives, but only the acquisition and disposal activities are recorded in the capital asset
system. This is standard accounting policy for the industry and is appropriate treatment from a
financial accounting perspective.
The Public Works Department has not used the City’s SAP inventory system to manage at
least $773,000 in materials, including emergency replacement parts at the RWQCP
Public Works
Public Works staff will work with ASD to evaluate including non-stock inventory in SAP versus
currently keeping track of it manually. If SAP is upgraded to allow inclusion of non-stock
inventory, Public Works will work with ASD to add these materials into SAP. In the meantime,
the department will maintain and improve its records of non-stock inventory for the following:
Long lead-time repair parts expensed to the Wastewater Treatment Fund
Raw sewage screening presses
Specialty sewage sludge incinerator fire bricks
Industrial combustion air fans for the sewage sludge incinerator
Activated sludge ceramic air diffusers
Air pipes for the activated sludge
Extra pipe fittings
Sludge and sewage pumps
The emergency repair parts listed above are high value and low turnover. They have a very low
risk of theft, and it is unlikely they would be deemed to have any value outside the context of a
wastewater treatment plant. These items are on hand for the life of the equipment (typically 10 -
50 years). It is possible that the repair parts go unutilized for the life of the equipment, but the
repair items are needed immediately if machinery breaks down in in a 24/7 operation that
involves health and safety issues for the City.
The Regional Water Quality Control Plant (RWQCP) Warehouse is small and incapable of
storing a large number of items. Some non-stock equipment is kept at the RWQCP warehouse
for easier organization and access by forklift, but there is limited space there as well for
additional non-stock inventory. As a consequence, large non-stock items (e.g., the incinerator
refractory bricks and sewage incineration fans) are stored in a large area under the fixed film
reactors known as the “towers.” The towers are unlocked facilities, though they are not
accessible to the public.
Attachment C
6
Some areas of the plant are home to containers (i.e., steel storage shipping style container) that
have been used recently to house non-stock inventory. This has allowed staff to better organize
and de-clutter the towers and main water quality warehouse. Moreover, non-stock inventory is
closer to the treatment process where it will eventually be installed. All non -stock items are
stored in a sheltered area for protection against the elements and they sit ready for preventative
maintenance and potential corrective repairs.
The $773,000 in estimated non-stock inventory is expensed to the wastewater treatment fund and
is stored for long periods as emergency and corrective repair parts. PWD will work with ASD
staff to determine the appropriate accounting methodology for non-stock items.
The Information Technology (IT) Department has not used the City’s SAP inventory
system to manage at least $919,000 in materials at the MSC warehouse
Information Technology
Staff agrees that the current manual Equipment Delivery Log system to track the inflow and
outflow of equipment is not optimal. An SAP solution utilizing material reservations is now
being implemented for the release of laptops, monitors, and other frequently purchased IT
equipment. A procedure is also being put in place to ensure that the MSC warehouse will only
receive IT goods for which material reservations are made.
Since the Auditors conducted their review, staff determined on December 10 that of the
$919,000 of IT equipment at the MSC warehouse identified in the audit, an estimated $300,000
worth of monitors, laptops, desktops, and other equipment were being stored at the MSC
warehouse awaiting the opening of the Mitchell Park facilities. Another $17,000 worth of
mobile data equipment for police vehicles was awaiting installation. An estimated $137,000 of
the $919,000 identified from Purchase Orders was for warranties and licenses which are not
physical items stored at the warehouse. All other goods valued at $465,000 have been
withdrawn for operational purposes. The inflow and outflow of IT equipment is fluid as most
equipment is on a standard replacement schedule and the demand for IT equipment is high.
IT has requested and PW will install a cage at the MSC warehouse to separate IT equipment
from other goods and foot traffic. It should be noted that no individual can walk through
warehouse storage areas during regular hours unless accompanied by warehouse personnel. To
improve security in the storage room at City Hall, IT worked with Public Works to establish
badge access to the door entry, a ceiling-height gate to secure the specific IT area, and badge
access to the gate.”
ASD
To verify that laptops, desktops, monitors and other items are accurately recorded in the financial
system and statements, staff is providing the following explanation. If these items are over
$5,000, they are considered to be capital assets (as opposed to inventory) and, as such, would be
capitalized and depreciated over their useful lives. As stated in the City’s fixed asset policy,
those assets that have a cost below $5,000 on an individual basis are not capitalized, but rather
are expensed at the time of purchase. Since these items were below the $5,000 threshold, they
Attachment C
7
were appropriately recorded as expenditures when they were purchased. As such, there is not a
material misstatement in the City’s accounting records.
Finding 2: ASD should improve controls to ensure the accuracy of inventory at the MSC
and RWQCP
Recommendation:
3. ASD should update and enforce inventory count policies and procedures to help
ensure consistent and accurate inventory records. The update should at minimum
require blind inventory counts, sufficient documentation of counts and adjustments,
and appropriate segregation of duties. ASD should consider implementing controls
included in the GAO publication titles “Executive Guide Best Practices in Achieving
Consistent, Accurate Physical Counts of Inventory and Related Property”
ASD
ASD already has implemented several of the above recommendations’ components. It has, for
example, instituted blind counts. It is important to note that the MSC warehouse has a relatively
small staff half of which are used to deliver mail, goods, packets, and transport library books
throughout each workday. Due to budget reductions in prior years, 1.0 FTE was reduced at the
MSC warehouse and 1.0 FTE reduced at the RWQCP. Segregation of duties is difficult with
limited staff and multiple responsibilities. Nevertheless, ASD will determine what
improvements can be made within existing staff levels and which will require additional FTE.
The Auditor correctly points out a higher error count at RWQCP. Part of th e error found is
attributable to items that have been expensed, are in excess of project needs, and are housed at
the site. Held for future replacement needs, these items were not entered formally into the
inventory system. ASD will work with the departments and the SAP business group to avoid
this issue and to improve counts. Other items, such as a rebuilt Maxon valve, fall into the
uncounted category of stock as well. While staff agrees that such goods should be tallied in
inventory, this example demonstrates an honest effort to maximize use of existing resources and
maintain parts for emergencies.
Public Works
The RWQCP is a 24/7 operation with a high level of liability and risk to health and safety should
processes and equipment not work properly. Staff requires access to parts, supplies, and
equipment at a moment’s notice. The RWQCP non-stock inventory at the RWQCP is
exclusively sewage treatment equipment. These items are specialized industrial equipment.
While they have high value, they have no functionality or resale value outside of the plant. The
risk of loss from theft of this equipment is slight and an important point when evaluating the
level of needed inventory control, storage policies, and up-to-the-minute inventory accuracy.
PWD staff will work with ASD to evaluate options to improve inventory controls and accuracy
at the RWQCP without impacting critical operations. Additional staffing may be required
resulting in increased costs to the City and our partners. PWD will work with ASD to evaluate
the cost and benefits of adding staff.
Finding 3 – Inventory records do not evidence accountability for all inventory transactions.
Attachment C
8
About $1 million in inventory was issued without SAP reservations, which should be used
to document and evidence the need and authorization for inventory transactions.
Utilities
Utilities supports the use of a reservations system designed to meet the needs of field personnel.
Maintenance or capital improvement work that is planned in advance can conform to procedures
stemming from a reservations system. Conversely, emergencies and urgent needs at the job site
(which may be prompted by unanticipated field conditions) require materials on short notice.
If a system can be established that allows quick field entry into a reservations system, the amount
of materials pulled without reservations could be either largely or completely eliminated. An
analysis should be performed to determine if a system to allow quick system reservations can be
implemented cost effectively and in conjunction with the SAP system.
Alternatively, a stand-alone system can be developed as long as the parameters for such a system
and its use are pre-determined and consistent with how the balance of the City’s inventories are
handled. Furthermore, if the City decides to replace SAP with another system, it would make
sense to delay the purchase and implementation of a system compatible with SAP, and instead,
incorporate inventory management requirements in the scope of work for a new replacement
system.
ASD
As Utilities states above, the reservation system is used, but there was a need for what is termed
“un-planned goods” which was a requirement of Utilities when SAP was implemented. If field
crews need items that were not part of the original reservation, they come to the MSC, provide a
job number which is entered into SAP, and withdraw items that are then charged to the work
order. There is no new reservation generated but the items are charged accordingly and can be
tracked in SAP.
Segregation of duties has not been established at either the RWQCP or the MSC
warehouse locations.
ASD
As stated under Finding 2, there is one storekeeper assigned to the RWQCP, a 24/7 operation,
and four FTE at the MSC warehouse. Prior to a series of budget reductions, each operation had
an additional 1.0 FTE. To achieve best practice segregation of duties, as well as other functions,
additional FTE would be required at the RWQCP and potentially at the MSC warehouse as well.
The warehouse Supervisor has implemented segregation of duties to the extent possible at the
MSC where entering and posting duties are now segregated.
Attachment C
9
Public Works
Public Works supports ASD with updating policies and procedures, conducting blind counts, and
any improvements to custody, counting, and inventory adjustments . The department
recommends, however, that the RWQCP warehouse should continue to operate as an open
warehouse with paper based reservations entered retrospectively. Currently, there is one
storekeeper present at the warehouse and this allows a reasonable level of control. Due to budget
reductions several years ago, staffing at this warehouse fell from 2.0 to 1.0 FTE. Changes to
current operations will result in inefficiencies, increased personnel costs, and more
administrative work for supervisors.
Staff estimates that at least an additional 3.0 FTE and other system changes would be needed to
convert RWQCP operational practices to a closed warehouse system. Salary and benefits for the
3.0 FTE is estimated at $371,000 annually and these positions would add incremental allocated
charges to the Wastewater Treatment Fund. New positions and costs would have to be reviewed
and shared with the partners.
With a closed warehouse, operational problems will occur when sewage treatment repair parts
needed while electricians, maintenance mechanics, wastewater treatment plant operators, and
supervisors waited in line to receive a complex set of parts and worked through the difficult
administrative process of identifying repair parts from behind a counter.
For reasons of cost impacts, regulatory compliance, and a work efficiency viewpoint, Public
Works respectfully disagrees with implementation of a closed warehouse reservation system.
Nearly all of the repair work at the Water Quality Control requires the use of unplanned goods to
keep the wastewater treatment plant working. Public Works is supportive of improving checkout
procedures, accurate documentation for unplanned goods, and investigating other methods and
systems that can be used to ensure consistent and accurate inventory records and prevent
potential fraud.
Staff used a generic account in SAP known as “Stores1” that is accessible using a shared
password to issue about $8.5 million in inventory….
A generic account has been utilized at the warehouse. Staff will work with the SAP team to
quickly implement specific accounts and to add a computer to establish better controls.
Finding 4- The City’s warehouses have significant quantities of unused or infrequently
used inventory.
The Utilities Department and ASD did not ensure about $130,000 in cable was used prior
to transitioning to a new cable type, resulting in dead stock and potential waste.
ASD
In the past six months, Stores staff sent out slow moving stock reports to affected departments.
Departments responded as to which items were no longer needed and justified those requiring
continued storage. The warehouses recently have been pulling dead stock from the shelves. The
Attachment C
10
next step will be to return, sell, or recycle inventory. More frequent, periodic reports on aged
goods will be sent to departments.
The Audit cites a low and decreasing turnover rate. The deletion of unused stock will partially
address this issue. In addition, reports on minimum and maximum levels must be more actively
used and analyzed to gauge the necessary level of inventory. To pare dead stock and optimize
turnover or use of goods, consistent communication and coordination among departments will be
necessary.
Utilities
The Utilities agree that more communication and more reports on unused stock are necessary.
To effectively use and manage aging stock, all items must be entered in the SAP system so it can
be identified and ordered through the reservation system. Regular, periodic reports must be
generated to eliminate dead stock and Utilities will work with ASD to develop a timetable for
ongoing reports and responses.
Public Works
Staff is cooperating with the review of potential dead stock by removing slow moving items and
adjusting minimum and maximum inventory quantities to reflect current operational needs. An
initial review process already has been completed with ASD staff on slow moving inventory.
Early implementation of the Auditor’s findings is expected to create a marginal amount of new
space in the RWQCP warehouse. Public Works agrees with the statement that “improved
management of inventory levels may lower dead stock and result in increased space available,”
but there will nonetheless remain an unabated need for the $3.0 million warehouse expansion
project identified in the RWQCP’s Long Range Facilities Plan to address overcrowding issues in
the existing warehouse.
Emergency repair parts are typically needed for the life of the sewage treatment equipment. Even
with the absence of equipment failure for over 10 years, there is a need for specific items on
hand that will prevent critical failures. As a result, there will be lower inventory turnover rates.
Much of the RWQCP plant equipment is specialized sewage treatment equipment that cannot be
obtained from local vendors such as Home Depot. This equipment is needed on a 24/7 basis and
can require a long lead time (e.g., days to months) for delivery. Public Works supports
managing and reviewing the slow moving stock on a more periodic basis to verify that items are
needed.
Finding 5: The City has not properly secured access to the Municipal Services Center
Recommendation 5.9- Perform a Citywide physical access risk assessment in collaboration
with the Utilities Department, Office of Emergency Services, the IT Department, and the
Police Department in order to effectively identify, prioritize, and address access control
weaknesses.
Public Works (PW)
Public Works is in the process of replacing the 40 year old hard key system for most exterior and
critical interior doors with a card reader system eliminating the need to issue hard keys. The
Attachment C
11
cards are person specific and are issued to City staff and City approved contractors for access to
their business areas. All City staff and contractors must pass a fingerprinting/background check
prior to issuance of a card. PW staff will work with OES, IT and Police staff to identify potential
weaknesses and continue to pursue recommendations for improvement such as installation of
surveillance systems at critical entry ways should budget allow.
Recommendation 5.10- Develop policies and procedures to address the management of
citywide physical security. Policies and procedures should address:
a. Designation of roles and responsibilities to ensure physical security controls
appropriately restrict and monitor access.
b. Management (administration) and proper use of the City’s access control
systems.
c. Processing departmental requests to grant or modify employees' physical access.
d. Granting restricted access to non-employees.
e. Ensuring access is timely modified or revoked when roles and responsibilities
change.
Public Works
In conjunction with the Public Works Department’s American Public Works Association
(APWA) accreditation process, staff will review and revise current policies and procedures for
City facility security along with developing new policies and procedures wher e none currently
exist. The procedures will document roles, responsibilities and processes for on-going system
maintenance.
Recommendation 5.11- Configure the fleet access control system to support the City’s
security goals and objectives or determine if the AMAG Technology Inc. Symmetry
Security Management System should replace it.
Public Works
Prior to the audit, PW staff was in the process of converting the Fleet Data system over to the
AMAG access control system primarily because the vendor support for the old fleet system has
been virtually nonexistent. Additionally, it has not been until very recently that the AMAG
technology access control system had the capability to support the vehicle entry system. The
complete transfer of all vehicle access to the AMAG technology control system should be done
by the end of the fiscal year. The AMAG technology access control system will be able to track
vehicles entering the yard and produce required reporting.
Recommendation 5.12- Review and update AMAG Technology Inc. Symmetry Security
Management System access authorization records to ensure access card holders can be
uniquely identified. Access cards (especially generic or group cards) should only be
assigned with a documented and approved business need.
Public Works
Attachment C
12
PWD staff has initiated review of the current authorization records and has updated/removed
some records already. Staff will continue to ensure that card holders can be identified and
generic or group cards are not issued unless there is a unique business need. PWD staff will
update the existing Access Request Form to include a more comprehensive section requiring
hiring managers to explain the business needs of an employee for the requested access and/or
documenting the need for generic or group card issuance.
During the audit, a list of people having access to the MSC warehouse was found to have
multiple inaccuracies. The Warehouse Supervisor met with Public Works to review the list and
all unauthorized personnel were removed from the system. In the future, staff from each
department will meet semiannually to review the list of staff seeing access to the MSC
warehouse. The Warehouse Supervisor will approve the final list.
Recommendation 5.13- Assess the adequacy of records of individuals assigned keys and
take necessary corrective actions to ensure the accuracy and completeness of the records.
The Public Works Department should identify and prioritize replacement or rekeying of
locks for high risk areas if records do not identify who is in possession of the keys or if the
keys issued were of the type that can be duplicated.
Public Works
PWD staff will review physical key records and update them to reflect the current issuance of
keys. Prior to the audit staff began replacing the City’s 40 -year-old key system with a new
Schlage Primus key system, adding card access readers to key locations, and adding cameras in
specific locations improving security throughout the City. In conjunction with review of City
security with Office of Emergency Services (OES), IT and Police personnel, PWD staff will
identify high risk areas, evaluate the number of access keys issued and reissue new keys if it is
recommended.
Recommendation 5.14: Improve physical security at the City Hall storage area.
Appropriate actions include, but are not limited to, enforcing appropriate key or card
access controls and securing areas that have inadequate fencing.
Public Works
Since the audit, Public Works staff added card access control to the storage area door, added card
access control to the IT cage inside this room, and extended the IT cage fence to the ceiling.
Conclusions
Overall, City staff believes it has made conscientious efforts to preserve and safeguard the goods
it purchases for operating and capital needs. Staff at the warehouses take their work seriously
and are open to improvements which is one of the reasons the City Auditor was asked to help
review current practices. Line departments have a primary responsibility to maintain services for
the health and safety of the public, but acknowledge as well that efforts to improve inventory
control are necessary. The flow of communication and coordination among the departments
needs improvement.
Attachment C
13
Staff acknowledges lapses in keeping up with best practices, but believes this is primarily due to
subpar staffing, the press of business/project needs, and the tendency to defer to those needs.
Moreover, in its efforts to be cost conscious (rehabilitating equipment and saving excess, unique
material), some best practices (e.g. high turnover of inventory, precise counts) have been
somewhat overlooked.
Staff will explore further use and improvement of SAP and other existing and new systems to
close risks cited in the report. We will measure SAP capabilities and the costs to implement
them against other systems. New systems such as Radio Frequency Identification (RFID) or bar
coding will be evaluated with IT assistance to better track inventory, especially those items such
as utility poles which are not located in or near one of the warehouses.
Improvements to inventory control cited by the Auditor will cost money, either through the
addition of personnel or to modify or purchase management systems. These costs will be
assessed and brought to Council’s attention as it works to prioritize and allocate limited City
resources to other needs.
Finally, staff appreciates the Auditor’s work on this report. The findings are useful to improve
the tracking, optimal use, and safeguarding of City assets.
FINANCE COMMITTEE
FINAL MINUTES
Regular Meeting
Tuesday, February 18, 2014
Chairperson Berman called the meeting to order at 7:14 P.M. in the Council
Conference Room, 250 Hamilton Avenue, Palo Alto, California.
Present: Berman (Chair), Burt, Holman, Kniss
Absent:
Oral Communications
None
Agenda Items
1. Review of Long Range Financial Forecast for Fiscal Years 2015 to 2024.
Walter Rossmann, Office of Management and Budget Director, reported that
the Long Range Financial Forecast (LRFF) was the first step in planning the
Fiscal Year (FY) 2015 Budget. It allowed Staff and Council Members to
understand the long-term results of past decisions and to look forward to the
next ten fiscal years. The LRFF was not a prediction or a commitment of
resources; rather it was a reasonable snapshot of a moment in time based
on available data. The General Fund Operating Margin was the surpluses
and deficits resulting each fiscal year. The General Fund Net Operating
Margin was a year-over-year comparison of the surpluses and deficits. For
FY 2015, Staff projected a surplus of $1.3 million. The cumulative surplus
over ten years was $38.1 million, assuming the Council funded the Budget
Stabilization Reserve (BSR) at the target level of 18.5 percent. Given the
needs of the organization, he assumed the City would spend its resources
every fiscal year, which was the Net Operating Margin. In FY 2016, the FY
2015 surplus would not be available if the Council chose to spend those
funds. Therefore, the surplus of $4.4 million in FY 2016 was reduced
immediately by $1.3 million. As surpluses were spent, the year-over-year
change would decrease. The City would alternate between slight surpluses
and slight deficits. It was important to consider the long-term outlook. In
the outer years, the City seemed to gain some surpluses; however, the
Page 1 of 19
FINAL MINUTES
majority of the cumulative surplus of $7.6 million was actually $5 million in
the final three years of the LRFF. Staff began building the FY 2015 forecast
by assuming the same service levels as in FY 2014. The FY 2015 LRFF did
not include ongoing labor negotiations. Any agreement beyond the 2
percent salary increase contained within the LRFF would impact the surplus.
Funding the healthcare long-term liability could impact the LRFF. Assuming
control of the Palo Alto Airport could have an impact on the General Fund,
because the Airport Fund could not sustain expenditures with revenues in
the first few years. The LRFF also did not contain information regarding
third tier pensions. As more and more employees moved to the third tier,
the change would have a positive impact long-term on the LRFF. Staff did
not know if the City would be exposed to the Healthcare Federal ExciseT.
The California Public Employees' Retirement System (CalPERS) indicated it
would set plans in such a way that employers would not bear the tax. In
addition, the LRFF did not include additional Transient Occupancy Tax (TOT)
revenues from new hotels. The Golf Course Reconfiguration Project was not
fully included in the LRFF. The City's acquisition of the Post Office and the
potential provision of fire services to Stanford University could impact the
General Fund and LRFF. Any economic downturn could also affect revenues.
The local economy in Palo Alto had improved substantially. An improved
economy created problems related to parking and provision of services.
Based on trends, underlying data, and revenues received through December
2013, Staff projected any revenue expected in FY 2014 as well as built the
projections for FY 2015. Once FY 2015 began, Staff primarily reviewed the
compound and/or growth rate and made reasonable adjustments based on
underlying data. Property tax revenue showed a steady increase. Some of
the recent spike in sales tax was due to one company, and Staff attempted
to adjust for that. That adjustment was the reason for the projected
downturn in FY 2015. The Utility User Tax (UUT) grew very slowly because
it depended on consumption and costs of consumption. The TOT increased
when new hotels opened, then tapered off to a regular growth rate. Staff
believed the amount of Documentary Transfer Tax received was above the
norm; therefore, Staff projected a slight decrease in FY 2016. In projecting
major expenditures, Staff reviewed one-time adjustments and salary
increases. Beyond FY 2015, Staff assumed a 2 percent annual growth in
salaries; CalPERS projections; an 8 percent annual growth rate for
healthcare costs; and a 2.5 percent Consumer Price Index (CPI) increase.
The CalPERS contribution rate for Public Safety Employees was projected to
be 40 percent in FY 2015 and 59 percent in FY 2023. The contribution rate
for Miscellaneous Employees increased by 56 percent in the same time
period. The rates did not include any assumptions regarding third tier
pensions. The alternative model included funding for a Public Safety
Building. Issuing Certificates of Participation (COP) in FY 2016 to fund
approximately $34 million for a Public Safety Building would translate to
Page 2 of 19
Finance Committee Regular Meeting
Final Minutes 2/18/2014
FINAL MINUTES
approximately $2.5 million in debt service. The projected surplus of $4.4
million would decrease to $1.9 million. If TOT revenues were utilized to fund
a Public Safety Building, then the net operating margin for the alternative
model varied between slight surpluses and slight deficits. Staff projected an
additional surplus for FY 2014 of $5.9 million, primarily driven by higher
than anticipated revenues. The LRFF assumed technical adjustments for
rent charge increases, Stanford fire service decreases, and such items. Not
included in the projection was any recommendation from the City Manager
regarding adjustments to the FY 2014 Budget.
Chair Berman introduced the members of the Finance Committee
(Committee).
Vice Mayor Kniss noted economic downturns were unpredictable, and the
City experienced two incredible downturns in the prior 15 years.
Lalo Perez, Administrative Services Director and Chief Finance Officer,
explained that recessions historically occurred approximately every nine
years. The Committee directed Staff to review compound annual growth for
the prior 10 and 20 years to account for possible recessions. The range for
the Budget Stabilization Reserve (BSR) was 15 percent to 20 percent with a
goal of 18.5 percent. The City Manager had the discretion to recommend to
the Council to transfer funds above 18.5 percent to infrastructure.
Council Member Holman suggested Staff include information regarding
assumptions and their bases in the Staff Report.
Mr. Perez could make the information prominent and include the table of
compound annual growth.
James Keene, City Manager, suggested Staff include a sensitivity analysis
chart that could demonstrate the impact of a recession and the multiplier
effect.
Mr. Perez felt including a sensitivity analysis chart for the top five revenue
sources would be appropriate.
Council Member Holman noted property taxes increased steeply while
Documentary Transfer Taxes remained flat. She inquired whether the two
taxes should be relational.
Mr. Perez explained that Staff noticed a high percentage of properties
assessed at $600,000. As those properties sold, they most likely would be
reassessed at market value. However, homeowners were not selling their
property; instead, they were renting their property.
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Joe Saccio, Assistant Director of Administrative Services, indicated Staff
increased revenues to approximately $7.4 million in FY 2014. After FY 2016,
Staff did not increase the Documentary Transfer Tax by the historical
compound annual growth rate. In FY 2016, Staff believed revenues would
revert to the mean and decrease to $6.6 million. Staff attempted to reset
the base amount in order to have a realistic projection.
Tarun Narayan, Management Specialist, added that the Documentary
Transfer Tax was one-time revenue unlike property tax.
Council Member Holman inquired whether TOT was based on the current
rate.
Mr. Saccio reported the TOT projection was based on the current rate of 12
percent.
Council Member Holman requested Staff comment on the reliability of the
UUT projections.
Mr. Saccio indicated Staff assumed small or no increases in water, gas and
electric rates in preparing the LRFF. Depending on usage, revenue would
remain relatively flat. With respect to the telephone component of UUT,
Staff did not have good data regarding potential increases. The general
view was that the UUT would remain flat with perhaps some modest
increases.
Council Member Holman asked if Staff had an update regarding phone usage
and related taxes.
Mr. Saccio responded no.
Council Member Burt stated residents had reduced water and electricity
consumption on a per capita basis. He asked about gross consumption as a
City with a population increase.
Mr. Saccio utilized the Utility Department's five-year forecast in compiling
the LRFF. The Utility Department's forecast included consumption factors.
Mr. Perez added that the Utility Department would provide an update
regarding rates at the Finance Committee's (Committee) April 15, 2014
meeting.
Council Member Burt remarked that the rate of increase for UUT was higher
than he would have assumed based on commodity assumptions.
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Mr. Saccio would review the matter. Anticipated rate increases would need
to be factored into increases.
Council Member Burt recalled that drought conditions were a driver toward
permanent efficiency with respect to water consumption. He suspected that
water consumption would be lower in 2024 than the projection.
Mr. Keene believed the City's method for pricing water was not appropriate
as fixed costs for delivering water were built into the rate. Large increases
in water rates were planned for the next five-year period. He presumed the
increases were included in the projection.
Council Member Burt commented that water rates would level off in the next
few years with completion of the Hetch Hetchy rebuild. Remaining increases
could account for much of the projected increase.
Mr. Perez reported the Committee previously directed Staff to provide
benchmarking in comparison to cities similar to Palo Alto. Utilities Staff
would report on that at the April 15, 2014 meeting.
Mr. Saccio noted after 2015-2016 electric increases ranged from 3.6-6
percent, water increases from 3.8-7 percent, and gas increases around 1-2
percent.
Council Member Burt asked if that was per annum.
Mr. Saccio indicated the increases ranged over that period. He did not have
a per annum percentage of increase.
Council Member Burt inquired about the number of years in the time period.
Mr. Saccio answered through 2023.
Council Member Burt calculated a rate increase of slightly more than 0.5
percent per year over eight years.
Chair Berman asked if that increase applied to water rates as well.
Mr. Saccio reported the high range was 7 percent from 2016-2017 to 2017-
2018 for water rates with a lower percentage increase of approximately 3.8
percent.
Council Member Burt inquired whether TOT revenues from three new hotels
were assumed in the LRFF and whether those funds were dedicated to a
Public Safety Building.
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Mr. Narayan noted TOT revenue from a total of five hotels was included in
the LRFF.
Council Member Burt commented that dedication of TOT revenue to a Public
Safety Building was considered in the alternative model.
Mr. Saccio added that Staff provided the Infrastructure Committee with a
lower number for new hotel revenue to support infrastructure than what was
contained in the LRFF.
Council Member Burt inquired about the amount Staff utilized for debt
service.
Mr. Saccio explained that beginning in FY 2017 Staff expected to receive
almost $700,000 more than identified funds for debt service support.
Council Member Burt asked if Staff anticipated 30 percent more income from
new hotels than the amount budgeted for debt service.
Mr. Perez reported the market changed as a result of municipal bankruptcy
cases; therefore, interest rates may not be the same as anticipated. The
City's rating could be different, and Staff wished to be cautious.
Council Member Burt noted the LRFF utilized CalPERS' official position of a
7.5 percent rate of return. The Committee may want to discuss relying
solely on CalPERS projections; calculating and utilizing a more conservative
projection; or not paying down unfunded liabilities.
Mr. Perez reported Staff was discussing those topics with the Chief Actuary
Officer at CalPERS and requested CalPERS provide options for agencies. If
CalPERS provided options, then Staff could present those options to the
Council. CalPERS was listening to Staff and others.
Council Member Burt believed long-term infrastructure liabilities had
revenues that offset expenses. If the City purchased the Post Office,
avoiding high lease rates would offset the expense of the capital cost and
renovations. If the City could eliminate the cost of the covenant not to
develop at Cubberley, then it could set aside $2 million a year toward capital
expenditures.
Mr. Perez agreed that avoiding the cost of leases could pay for the debt
service for acquisition of the Post Office. Renovating the Post Office would
require a couple of years; therefore, the City would have two years of debt
service with no income. Staff was reviewing options for purchasing the Post
Office, including a cash purchase.
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Chair Berman asked if cash would be withdrawn from the BSR for the Post
Office purchase.
Mr. Perez did not want to utilize BSR cash as a first option, but would
suggest the use of Stanford funds and Infrastructure Reserve funds.
Utilizing those funds would then place limitations on other projects.
Mr. Keene suggested Staff could include in the LRFF some strategic
scenarios on a number of issues to contrast the status quo with alternatives.
That could be helpful for the Council in speaking to the community about
priorities or choices. He asked if the LRFF included increased maintenance
for Cubberley.
Mr. Perez indicated the LRFF did not include Cubberley maintenance on the
operating side.
Mr. Keene reported many drivers were not included in the LRFF, because the
City did not have a plan to make the ongoing investments. Staff estimated
the ongoing deficit for unfunded maintenance at Cubberley to be $16-$17
million, and that amount would continue to grow. He inquired whether Staff
had a forecast for the Airport.
Mr. Rossmann answered no.
Mr. Keene stated the Airport was another example of shortfalls the City
would have to consider.
Mr. Rossmann explained the Airport was not included in the forecast because
it was a different fund. The Airport could have an impact on the General
Fund.
Mr. Keene noted the City had many commitments with volatility and
obligations. Demonstrating some of those in the LRFF would be helpful.
Mr. Perez added that some of the areas would become known within the
next few months, and Staff could begin placing them in the LRFF.
Council Member Burt felt the $2 million a year from the covenant not to
develop at Cubberley could be utilized to reduce deferred maintenance costs.
He requested a graphic representation of the accelerated maintenance of
streets so the public could see the accomplishments. The amount of funds
allotted for maintaining streets after the goal was accomplished would be
more than the amount needed. Hypothetically, those capital improvement
dollars could be reallocated to other needs while maintaining excellent
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streets from 2020 onward. He did not believe that projection was included
in the LRFF.
Mr. Perez concurred and would provide a projection as part of the Proposed
Budget document.
Council Member Burt recalled the City's deliberate actions that resulted in
the current financial circumstance. He inquired about the amount of a deficit
had the City not made changes.
Mr. Rossmann reported the City would be paying approximately $750,000
more today in pension benefits alone.
Council Member Burt felt the Council, community and Staff should see those
numbers. He asked if Staff thought a deficit could be more than $10 million.
Mr. Saccio agreed that the City positioned itself through reductions and
retirement plans to save a great deal of money.
Council Member Burt requested a rough calculation of the amount of a
deficit.
Mr. Perez could provide a point in time number from a few years ago.
Council Member Burt remarked that the Council was proceeding with much
of the infrastructure backlog. The City was moving in the direction of
exceptional services and strong infrastructure.
Chair Berman inquired about hiring a consultant regarding property tax and
Proposition 13.
Mr. Perez indicated Staff was considering other data, because people were
holding their homes. The GIS map contained permits obtained for particular
property, and Staff wanted to add the assessed valuation. Staff was
attempting to obtain additional information to have more data for
projections.
Mr. Narayan explained that Staff could utilize data such as the number of
residential properties valued at less than $600,000 and a five-year history of
residential property sales to refine projections for Documentary Transfer Tax
and property tax.
Council Member Holman noted that assessed value was different for remodel
and demolition of residential properties. She was not confident that the
Building Department was aware of situations where homes were technically
demolished rather than remodeled.
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Mr. Perez discussed that with Planning Staff. Having that information on the
GIS would hopefully assist the Building Department.
MOTION: Chair Berman moved, seconded by Vice Mayor Kniss to forward
the Long Range Financial Forecast to the Council as an Action Item.
Council Member Holman suggested the Motion incorporate the points
Committee members made during the discussion.
Mr. Perez added that Staff would outline information they could not include
in the LRFF and would provide that information in the Budget or further
reports.
Vice Mayor Kniss commented that Proposition 13 changed everything.
MOTION PASSED: 4-0
Mr. Keene noted in 2009 27 percent of Palo Alto single-family residential
properties were assessed at under $200,000.
Vice Mayor Kniss felt that information needed to be woven into budget
information.
Council Member Holman added that commercial properties were more
extreme.
Chair Berman announced Agenda Item Numbers 2 and 3 would be heard
together.
2. Inventory Management Audit
3. Staff Response to Inventory Management Audit
Houman Boussina, Acting City Auditor, reported that management requested
the City Auditor consider the audit. The audit was conducted in accordance
with the annual Work Plan. The objective of the inventory management
audit was to determine if the City had adequate controls to ensure accuracy
and completeness of inventory records, accountability for inventory
transactions, and safeguarding of inventory. The City included inventory
primarily at the Municipal Services Center (MSC) and the Regional Water
Quality Control Plant. It was important to consider the areas outside the
scope of the audit. Those areas included disposition and use of materials
after leaving the City's warehouses; management of surplus or obsolete
materials; staffing; inventory carrying costs; the appropriateness of stocking
levels and reorder points; organization and condition of inventory; and a 2
percent surcharge policy. The audit risk assessment process identified the
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other areas of risk. Although the areas were excluded from the audit, they
could be addressed in future special advisory memoranda and/or audit
reports.
Mimi Nguyen, Senior Performance Auditor, indicated Finding 1 found that at
least $4.2 million in inventory, more than half of total inventory, was not
subject to consistent or adequate inventory management controls. The lack
of reliable and complete inventory data could impair the City's ability to
know the quantity, location, condition and value of inventory. Finding 2
found that inventory records were inaccurate for 20 of 182 materials in the
sample, indicating an 89 percent accuracy rate overall for the $3.6 million in
recorded inventory. Inaccurate inventory records could result in financial
misstatements and operational inefficiencies. Finding 3 found from January
1, 2007 through April 19, 2013 about $1 million in inventory was issued
without reservations evidencing the need and authorization. Also about $8.5
million in inventory, about 58 percent of total inventory issued, was
processed using a generic user account accessed with a shared password.
In addition, Staff performed incompatible duties in managing and processing
inventory. Controls ensuring accountability and transparency of inventory
transactions reduced the risk of fraud and abuse and helped ensure
materials were appropriately and timely procured and made available.
Finding 4 found that more than 50 percent of the City's 4,383 stock
materials, $2.5 million in inventory, had not turned over in a one-year
period. Inventory turnover decreased from 87 percent in FY 2007 to 64
percent in FY 2013. Inventory that did not move could indicate a waste of
resources. Finding 5 found that there were a large number of cards granting
access to the MSC and the MSC warehouse, including cards without
adequate identifying information. Other security concerns were noted.
Physical security controls were required to safeguard and protect the City's
inventory and sensitive and strategic sites. As a result of the audit, the City
Auditor made 14 recommendations addressed to the Administrative Services
Department (ASD), Utility Department, Public Works Department, and
Information Technology (IT) Department.
James Keene, City Manager, believed Staff's response could answer Finance
Committee (Committee) questions.
Joe Saccio, Assistant Director of Administrative Services, acknowledged that
management requested the audit and requested the Auditor review controls,
policies and procedures. Staff could not find any material misstatements in
financial statements. Staff implemented locked doors and gates and
security cards to protect Utility, IT and Public Works goods. New containers
and new storage units were provided at the Regional Water Quality Control
Plant for storage of items outside the warehouse. Warehouse management
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and department users were in the process of clearing aged and unused
inventory for return or surplus sales.
Vice Mayor Kniss asked Mr. Saccio to include in his responses the systems
Staff utilized.
Mr. Saccio reported that Staff did not utilize SAP for all items of inventory.
Staff would utilize SAP for IT equipment stored at the warehouse. Other
databases and systems were used to track transformers and meters. Staff
would review SAP's current uses and review the costs and benefits of
continuing use of SAP, enhancing SAP or using other software. The City had
a decentralizing system for tracking and managing goods. He inquired
whether he provided the information Vice Mayor Kniss sought.
Vice Mayor Kniss responded no.
Mr. Saccio reported that Staff accounted for the $919,000 of IT equipment.
At the time of the audit, the goods were not being tracked in SAP. That was
an omission; however, goods were manually tracked. One solution was to
incorporate identification of IT goods in SAP. The Auditor recommended
blind counts, and that was implemented. Public Works would institute a card
reader system and replace a hard key system. Staff purged users originally
identified for entry into the warehouse to active users and only people who
needed access to the warehouse. Staff needed to review all procedures and
policies and to document all roles and responsibilities of everyone in the
departments. Staff needed enhanced communication and procedures among
all departments. Staff needed system modifications and enhancements,
whether in SAP or other systems, to address issues raised in the audit. Staff
would generate periodic reports for users of inventory, so they could have
accurate information regarding inventory. The Public Works Department
would implement physical security measures and coordinate with the
Emergency Response Department. Staff worked to safeguard City assets
within existing budgetary and organizational constraints. Staff
acknowledged that improvements could and would be made. The Auditor
noted that $4.2 million in inventory was not recorded in SAP. That did not
mean that the City lost $4.2 million in inventory. More than $900,000 in IT
goods were stored at the warehouse, but were not recorded in the inventory
system. Remaining items were accounted for in a different system.
Lalo Perez, Director of Administrative Services Department and Chief
Finance Officer, explained that the City's practice for many years was to
expense out some inventory items. When items were expensed out, they
were not tracked in inventory. Staff wanted to track inventory in SAP if
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possible; however, SAP might not be the most practical method for some
areas of the City.
Mr. Keene noted that SAP was implemented in 2003 to integrate many
different systems. The City underfunded the investment in SAP and training,
such that former, parallel practices remained in use. Some problems would
be simple to remedy. He suggested the various departments explain their
reasons for doing things in certain ways and whether the additional cost to
implement every level of control was worthwhile.
Council Member Holman did not find a Staff response to the disposition and
use of materials after leaving warehouses. She inquired whether the levels
of inventory were appropriate, given the dollar amount of inventory.
Mr. Perez requested the Auditor clarify disposition and use of materials.
Council Member Holman clarified that she wanted to know whether an item
was utilized for a City project once it was checked out of inventory.
Vice Mayor Kniss asked if Council Member Holman wanted to know if Staff
implemented a system to track each item.
Council Member Holman replied yes.
Mr. Boussina recognized this as an important element of safeguarding and
appropriately using inventory. The audit stopped at inventory management.
This was one reason Staff needed solid controls over the movement of
inventory. Once transactions were recorded, Staff should know inventory
was going out for an approved and authorized purpose and cause.
Mr. Perez reported some items could be found in a tracking system. For
transformers, the Utility Department was required by regulatory mandate to
track them. One of the challenges of using SAP was the checking in and out
of inventory during repairs to equipment. Some items were not tracked and
Staff did not know where those items would eventually be used.
Council Member Holman expressed concern over the lack of inventory
tracking and control. She asked if levels of inventory were appropriate and
if there was a definition of surplus.
Mr. Perez indicated there was a policy and procedure regarding surplus
inventory. Surplus was an item no longer needed for City operations. Staff
had to determine whether an item had a value or not. Based on thresholds
for value, the determination of whether an item was surplus was made by
the warehouse supervisor or Mr. Perez. In terms of inventory, Staff worked
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with departments to identify inventory. As a result of the audit process,
Staff was receiving better cooperation.
Mr. Boussina identified what appeared to be inventory, essentially materials
that were stored but not placed into operation, along the side of the
building. The inventory was open to the MSC yard and accessible. He
understood the items were expensed and were accessible to trucks for
reloading and restocking. The items were not subject to inventory
management control. The audit team physically counted and valued the
items. It was not practical to audit them in the same way as the areas in
Findings 2-5.
James Allen, Water Quality Control Plant Manager, reported stock items in
SAP were assigned to a specific work order when taken from stock. Staff
could track the specific stock item to a specific corrective repair. Certain
stock items, such as latex gloves and housekeeping supplies, were not
tracked.
Council Member Holman agreed consumables were a different category.
Mr. Allen added that consumables were taken from City stock.
Council Member Holman reiterated her question regarding the level of
inventory.
Mr. Allen stated that much of the wastewater treatment equipment was kept
on hand in case of a corrective repair. That equipment may not be needed
for 10-30 years. Recently dead stock valued at approximately $21,000 was
identified because of obsolete equipment. He did not believe that amount
was excessive in terms of the entire Wastewater Treatment Fund. He
believed the amount of inventory was appropriate.
Tom Marshall, Assistant Director for Utilities Engineering, noted the largest
and most expensive item the department was holding was transformers.
Transformers were needed to replace failures in the field and for new
customer connections. A typical lead time to obtain a transformer was six to
nine months, resulting in the need for a large inventory.
Council Member Holman was not sure that transformers and items for
emergency repairs approached the amount of inventory in terms of dollar
investment. An incorrect amount of inventory was a systemic issue. She
was shocked by the number of access cards issued and the use of a generic
account accessible by a shared password to issue $8.5 million in inventory.
She requested more information regarding warehouse expansion at the
Regional Water Quality Control Plant prior to any money being spent. Her
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overarching concern was the culture of the system; that Staff did not raise
concerns before the audit was performed.
Mr. Saccio did not deny that the list of people with access was too great.
During business hours, no one accessed the warehouse unless accompanied
by a warehouse person responsible for inventory. Only a bona fide
supervisor in charge of a specific project could enter the warehouse at night
during an emergency. Some protections were in place to safeguard
inventory. Staff did not believe many goods were being removed through
theft.
Mr. Keene suggested department heads address practices that evolved
within departments and became ingrained. The Chief Financial Officer (CFO)
was frustrated by the pace of the integration effort and requested an audit.
The audit was transparency on a management issue. There was not a
systematic way to verify risks with the use of old systems.
Vice Mayor Kniss felt Staff provided more of a problem than an answer. If
SAP was not sufficient or not operating correctly, it was the City Manager's
problem. Clearly there were many problems and few, if any, answers. She
was attempting to understand who was responsible for the outcome. Within
six months, the Committee should hear Staff's detailed responses and
solutions.
Council Member Burt heard a number of responses, but no answers. In
2007 the City had an annual inventory turnover of 87 percent, which
dropped to 64 percent in 2013. Staff's responses did not explain what
changed between 2007 and 2013. He inquired about changes in the
respective departments that would account for a lower turnover rate.
Dean Batchelor, Assistant Director for Utilities Operations, reiterated that
$82,000 in inventory was unsecure and unaccounted for. The items were
mostly truck stock pieces, nuts, bolts, washers, connectors. The highest
limit item in there was $165.
Council Member Burt noted approximately $8 million in total inventory
between Utilities and General Fund. He inquired about the amount of
inventory carried by Utilities.
Mr. Batchelor answered approximately $5-$6 million. He reported $2.1
million of inventory was transformers. Transformers were tracked on a
monthly basis through Access programs, because of the testing aspects of it.
Council Member Burt asked if those were in place in 2007.
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Mr. Batchelor indicated Utilities did not have as much stock and did not
perform as many rebuilds in 2007.
Council Member Burt remarked that a lower turnover of inventory resulted in
more stock. If there were sound operational reasons for deliberately higher
stock, he would have put that in the report. He did not hear any reasons for
needing more stock.
Mr. Marshall did not have an explanation for having more stock and less
turnover in the warehouse. Utilities Staff could request ASD assistance to
determine what was in the warehouse and why it was there. Typically
Utilities Staff told ASD Staff which materials to stock and the number of
items to be stocked.
Council Member Burt asked when Staff received the audit report.
Mr. Marshall responded December 2013.
Council Member Burt inquired about progress in understanding the reasons
for a lower rate of turnover.
Mr. Marshall reported Staff was reviewing inventory in the warehouse to
determine the items that needed to be stocked.
Mr. Allen noted the Water Quality Control Plant identified $21,000 in dead
stock. Those items were needed to repair the wastewater treatment plant
and might be kept for 50 years or the life of the equipment.
Council Member Burt remarked that Staff was turning over inventory at a
significantly slower rate and carrying more inventory today. Either some
fundamental change in operational needs occurred or the City was carrying
too much inventory because Staff was sloppy.
Mr. Allen reported Staff performed a complete review of all stock items and
evaluated the number of items needed for each stock item.
Council Member Burt agreed that possibly the Water Quality Control Plant
did not have a decrease in turnover. He inquired whether its turnover rate
decreased.
Mr. Allen did not know. Some of the equipment did have a use, even if the
resale value was low, and should not be discarded. That could contribute to
the decreased turnover rate. If Staff included non-stock inventory, items
that were expensed out, then the Water Quality Control Plant would have an
even lower turnover rate. Turnover may not be a good method to
benchmark the efficiency of the warehouse.
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Council Member Burt inquired whether the methodology for determining
turnover rate remained the same from 2007 to 2013. He did not find any
information indicating changes in the methodology between 2007 and 2013.
Mr. Perez needed to provide better analytics. Staff could present that
information when they returned to the Committee.
Council Member Burt inquired whether Staff analyzed inventory turnover by
department.
Mr. Boussina indicated that inventory turnover was reported at a higher level
in the report; however, he could break it out by department.
Council Member Burt believed that was a necessary first step in order to
figure out where to focus.
Mr. Perez would identify the big ticket items versus general inventory
ordered by all departments. Staff could provide specific details and factual
numbers.
Mr. Keene commented that updating and reporting regarding the audit would
continue. Staff was not in a position to work out all issues before presenting
the audit. Working through recommendations, responses and solutions
would take focus, time and effort. Staff's responses at the current time
would not satisfy the Committee. Staff wanted the themes of Committee
questions in order to respond to them at a later time.
Council Member Burt related his experience with inventory management
issues in other organizations.
Mr. Keene noted a number of different solutions would be needed.
Council Member Burt felt metrics could be beneficial. One department could
require a lower rate of turnover of materials by the nature of its work.
Compiling a department-by-department baseline was one important
measurement to establish the goal. He did not hear a Staff response
regarding the use of technology beyond using or not using SAP. In industrial
operations, technology had improved greatly. Once set up, new technology
was easier to use than old methods.
MOTION: Vice Mayor Kniss moved, seconded by Chair Berman to
recommend that Staff return to the Finance Committee within six months
with the answers on how to correct the audit findings, incorporating
measurements, detailing in an easy to understand way how the audit
findings will be fixed.
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Vice Mayor Kniss believed Staff's responses and solutions should return to
the Committee. Clearly Staff had an idea of what they could do, but no clear
idea of what they would do.
Mr. Saccio noted Staff provided an action plan to the auditor on each
recommendation and timeline. Staff viewed responses to the audit as a
work in progress.
Vice Mayor Kniss stated at some point solutions were needed.
Chair Berman inquired about a timeframe for providing the audit to the
Council.
Mr. Perez recalled that in past actions the Committee accepted the report
but conditioned it upon Staff returning with an update. The report would go
to the Council and Staff would return within six months to provide a status
update.
Chair Berman asked Vice Mayor Kniss if that action coincided with her
intentions in the Motion.
Vice Mayor Kniss agreed with the plan. The audit may not be resolved in six
months. Council Member Burt discussed the report aptly. Staff ought to be
able to utilize technology for tracking inventory.
MOTION RESTATED: Vice Mayor Kniss moved, seconded by Chair Berman
to direct Staff to return to the Finance Committee within six months with an
indication of how the audit findings will be tracked or systematized so Staff
will know what is in inventory; 2) to accept the Audit; and 3) forward the
Audit to the full Council.
Mr. Keene asked if the audit would be forwarded to the Council.
Mr. Perez answered yes. It would be placed on the Consent Calendar.
Mr. Keene inquired about the Council's action with respect to the audit.
Mr. Perez reported the Council could accept the audit.
Mr. Keene did not wish to have a Council discussion if the Committee had a
good direction for Staff.
Vice Mayor Kniss indicated the goal was for Staff to return to the Committee.
Mr. Keene reiterated that Staff knew the problem, but not the detailed steps
to resolve it.
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Chair Berman remarked that the City purchased SAP in order to integrate all
departments. All departments should utilize the same solution. Obviously
Staff did not know what inventory was on the shelves.
INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE
MAKER AND SECONDER 1) to have this Item go to Council under the
Consent Calendar; 2) to include these Minutes when the Item goes before
Council; 3) to have Staff respond within six months to the Finance
Committee; and 4) to have Staff account for the level of inventory, the
culture of responsibility and accountability, and the tracking and disposition
of the materials posted at the warehouse.
Mr. Keene reported that technology could be utilized to implement the
redesign of systems. The City could have some software capacity that was
not being used. Staff was assessing the future of SAP and methods to
support change efforts.
MOTION AS AMENDED PASSED: 4-0
Future Meetings and Agendas
Lalo Perez, Director of Administrative Services Department and Chief
Finance Officer, announced the next meeting was scheduled for March 4,
2014. Staff would present the Emergency Medical Services First Responder
fee proposal; and the Utilities Advisory Commission recommendation to
adopt a Resolution establishing the Palo Alto Green Gas Program. The
Agenda for March 18, 2014 would include the Mid-Year Budget; the Utilities
Department organizational assessment; the local solar plan initiative; and
disposition of cumulative Palo Alto Green revenue. He requested the
meeting time for the March 18, 2014 meeting be moved up to accommodate
the lengthy Agenda.
Council Member Holman was not available at an earlier time.
Chair Berman also was not available at an earlier time.
Vice Mayor Kniss would be available at the same or an earlier time.
Mr. Perez reported the meeting time would be 6:30 P.M. on March 18, 2014.
On April 15, 2014, Agenda Items were proposed financial plans for electric,
gas, and wastewater; Community Development Block Grants (CDBG);
Human Service Resource Allocation Process (HSRAP); and a storm drain fee
increase. Budget hearings would be held in May 2014.
Chair Berman inquired about the process for scheduling Budget hearings.
Page 18 of 19
Finance Committee Regular Meeting
Final Minutes 2/18/2014
FINAL MINUTES
Mr. Perez explained that the Finance Committee (Committee) could change
meeting nights if a Committee Member was not available. If that was not
possible, then Staff would ensure the wrap-up meeting was scheduled at a
time when all Committee members could participate.
Chair Berman asked how the schedule was determined.
Mr. Perez would send Committee members a proposed schedule and they
would notify him of conflicts.
Adjournment This meeting was adjourned at 9:50 P.M.
Page 19 of 19
Finance Committee Regular Meeting
Final Minutes 2/18/2014
Attachment E
City of Palo Alto Policy, Process, and Procedures Page 1 of 14
INVENTORY MANAGEMENT
CITY OF PALO ALTO
POLICY, PROCESS, AND PROCEDURES
FOR INVENTORY MANAGEMENT
EFFECTIVE DATE: September 5, 2014 APPLICABILITY: Inventory Management
P URPOSE
The purpose of this document is to provide guidance to city staff by policy, process and procedures for the
treatment of City inventory. They are the rules and methods of conducting business. The processes incorporate
internal controls that help ensure the responsible use of public funds and efficiency of operations, including the
safeguarding of assets, the reliability and completeness of information reporting, and compliance with laws and
regulations.
WHY IS INVENTORY MAN AGEMENT IMPORTANT TO THE CITY?
Responsible use of public funds.
Are we purchasing what we need?
Are we using what we purchase?
Are we purchasing at the best price?
Operational efficiency.
Do we have the materials we need to serve our customers?
Do we know what we have?
Are we managing what we have?
Accurate costing and accounting.
Are the financial statements capturing the assets and costs correctly?
Are the costs being charged correctly?
LAWS AND REGULATIONS
Charter of the City of Palo Alto, Section 6 Duties of City Manager:
“It shall be the duty of the City Manager to have general supervision over all city property and
equipment and its use for the public or by city employees.”
Municipal Code of the City of Palo Alto, 2.08.075 Care of city-owned property.
“Each department head and council-appointed officer shall be responsible for care and safekeeping of
all city-owned property used by or in the custody of the department and shall take steps as necessary to
ensure that the use or condition of said property does not incur legal liability or loss for the city or its
officers and employees. The term "property" as used herein includes land, buildings, structures,
vehicles, equipment, tools, furniture, supplies, money, securities, and components of the utilities
system.”
Municipal Code of the City of Palo Alto, 2.08.150 Department of Administrative Services.
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The Department of Administrative Services shall be under the control of a Director of Administrative
Services who shall be accountable to the City Manager. The duties of the Director of Administrative
Services shall be as follows:
“To operate and maintain the warehouse and storage facilities of the city and such control
records as are necessary for the proper inventory of stocks and supplies.”
“To coordinate the warehousing of city-owned materials and disposition of city-owned surplus
materials.”
BEST PRACTICE S
The City of Palo Alto’s inventory policy guidelines and procedures are guided by the federal Governmental
Accountability Office’s (GAO) Best Practices, which specify that an organization should:
Know the quantity, location, condition, and value of assets it owns.
Safeguard its assets from physical deterioration, theft, loss, or mismanagement.
Prevent unnecessary storage and maintenance costs or purchase of assets already on hand.
POLICY
All city assets held in inventory, defined as a material or equipment replacement part (material) waiting to be
placed into operation, must be:
Identified, catalogued, and tracked.
Managed using the City’s adopted inventory management system or a comparable inventory
management system approved by the Administrative Services Department.
Recorded accurately in the City’s accounting system.
Safeguarded from physical deterioration, theft, loss, or mismanagement.
DEFINITIONS
Inventory: A list of material or equipment replacement parts that are stored and waiting to be placed into
operation. These goods consist of those that are “valued” and treated as an asset on the balance sheet and
those that are “non-valued” and treated as an expense. Each type is expected to be used on a future basis,
either one time or periodically.
IT Goods: Equipment that IT is responsible for such as: laptops, desktops, monitors, and printers.
IT Consumables: Equipment that IT is responsible for and is valued at less than $100 such as: mice, keyboards,
laptop bags, and DVD drives.
Material Master: A record in SAP that describes a material or supply item. It is the central repository of
information on materials in SAP.
Material Reservation: A requisition created for the withdrawal of stock item(s) from the Warehouse.
Non-valuated Stock: Non-valuated stock is tracked by quantities, not by cost or value. Non-valuated stock is
entered as an expense in accounting immediately as it is received and is entered into SAP. . An example is
computer equipment under $5,000. By accounting policy, this equipment is expensed upon and is stored at the
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INVENTORY MANAGEMENT
City’s warehouse until requested by IT. All computer goods in this category will be listed in SAP for tracking and
stored for future use in the MSC Warehouse.
Purchase Requisition: Request made for Purchasing to procure a certain quantity of a material.
Point of Contact: Pre-identified individual for each Department responsible for the care and safekeeping of city
inventory. For example, currently the Supervisor of Operations, in each Utility, who serves as that Utility’s
liaison between Stores, their Utility’s Engineering, and Operations regarding product information and
specifications.
Stock Inventory (or Stock): Inventory that is ordered regularly and tracked in SAP
Valuated Stock: Goods that have a value and are placed into inventory to be charged or expensed to
departments, or capitalized as they are placed into operation or used for a capital project. Valuated Stock is
treated as an asset on the balance sheet.
PROCESS GUIDELI NES
1. One must first determine whether the material is city inventory, by considering the following:
a. Will the material be purchased or used again in the future?
b. Will the material be stored, rather than placed immediately into operation?
c. Is it important to know where it is and how much is available?
d. Will a customer or department be charged for the Material?
If answer to any of the above is “yes,” then material should be treated as city inventory.
2. Identify if the Material can be managed using the City’s adopted inventory management system.
a. All of the following materials are managed using the City’s adopted inventory management system:
Current stock items in the Municipal Services Center (MSC) and Water Quality Control Plant
(WQCP) Warehouses
WQCP Emergency Parts
IT Computers and Miscellaneous Equipment
Any materials that are not deemed “exceptions” (See page 5 of this document) that may be
managed outside the SAP inventory management system.
b. See EXCEPTIONS section below for a list of materials categories that are not considered exceptions
and may be managed outside the SAP inventory management system.
c. To qualify a material for management outside of the SAP inventory management system, the
Department must identify why it cannot be managed in SAP and establish a comparable set of
inventory controls for review and approval by the Administrative Services Department.
3. The Administrative Services Department will be responsible for City inventory managed within the City’s
adopted inventory management system. All Departments will be responsible for City inventory, within their
respective area, managed outside of the City’s adopted inventory management system. Purchasing and
Stores staff are responsible for tracking all parts and materials until issued to departments. Once parts and
materials are issued to departments, it is the responsibility of the receiving department to safeguard and
appropriately place those parts and materials.
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4. Overall process flow of material categories is summarized in Appendix 6.
HIGH -LEVEL WORKFLOW DIAGR AM
PROCEDURES
The following procedures are to be followed for all goods at City Warehouses.
1. General
a. Stores and Purchasing will work with one identified “Point of Contact” per Utility and one for the
WQCP.
2. Card Key Access
a. Departments requesting card access to city warehouses will fill out a Security Card Request for Access
Form found on U:Drive
b. Forms are forwarded to the Public Works Facilities Maintenance Operations Manager (Facilities Ops
Mgr) for review and approval.
c. Facilities Ops Mgr will contact the Warehouse Manager for approval. Warehouse Manager will accept
or deny the request based on the reason for requesting access.
d. Facilities Ops Mgr will then enter into the system to activate card.
e. Facilities Ops Mgr and Stores Manager will review and potentially revise the list of all card holders
annually.
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3. Materials Reservations
a. All materials and supplies must be reserved in advance or at the counter on a walk-in basis. The
Storekeeper will enter the relevant information into SAP and pull the requested parts from the
warehouse shelves.
To submit a reservation, use MG21.
Stores staff executes ZQMM_MB25 for daily reservation pick list.
Stores staff pulls goods from pick list.
Stores staff performs Goods Issue via transaction code: MIGO
o Enter: reservation number
o Update quantity
o Post reservation
o System updates quantities
b. When there is an after-hours emergency, authorized personnel may use his/her card to enter the
warehouse, create an After-Hours Pull Sheet (See Appendix 1) listing the parts to be taken from the
warehouse, and then pull the needed parts. The following morning, the Storekeeper will verify that the
Pull sheet is accurate, and post in SAP.
c. For IT materials valued less than $100, Stores staff will receive equipment in SAP using transaction:
MIGO.
IT consumables will be delivered within 2 business days to IT at the Civic Center A-Level.
Authorized IT personnel will sign delivery sheet upon receiving equipment and store in a
secured, caged area.
4. Parts Specification Changes (see Summary Flow Chart on page 6)
a. Stores will provide semi-annual lists of slow-moving goods, as well as inventory turnover data, to Points
of Contact.
b. Points of Contact will report back to Stores and Purchasing staff within ten (10) working days regarding
goods that are no longer needed, goods that are needed in different quantities, and/or newly specified
or needed parts.
c. In the case of newly requested parts, parts to be discontinued, and special-order (one-time) parts,
specific forms will be used (see Appendices 2, 3, and 4). These forms may be completed and signed
online; for Utilities, they require approval by both Operations and Engineering Divisions.
d. Specific instructions for locating and tracking parts in SAP may be found in Appendix 5.
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5. “Non-Valuated” Stock and Use of Outside Containers
a. IT equipment
IT goods that are valued at more than $100 and are purchased in quantities of 10 or more are to be
stored at the Stores as a non-valuated stock item.
All IT goods received at the Stores Warehouse must be stored securely in the cage designated for IT
equipment only. No other goods are to be stored in that area.
Only authorized IT personnel are to request IT goods from the Stores Warehouse
Only Stores Warehouse personnel are to have access to the IT cage.
b. WQCP
Parts ordered for emergency repairs or unplanned maintenance are designated “non-valuated stock”
and stored in the Towers, outside storage containers, and/or WQCP warehouse.
WQCP staff will physically count non-valuated stock once per year and provide updated counts to
Stores.
To pull parts from the towers and outside containers or to move parts between the towers and outside
containers, use a “Non-Valuated Stock Pull Ticket” to document the request (see WQCP P&P Appendix
3) and return to Storekeeper for entry into SAP.
c. Returned items from jobs
These items will be treated as non-valuated stock and stored, listed, and tracked in SAP.
6. Cycle Counts
a. Warehouse Supervisor creates Cycle Counts for both MSC and WQCP using T-codes ZMICN
b. MI21 is used to print the count sheets
c. Staff does blind count of stock items on list
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d. Lead or Supervisor will enter counts into SAP using T-code MI04.
e. Lead or Supervisor then runs report (T-code MI20) which shows any discrepancies in the count vs what
is in SAP. The Supervisor or Lead then physically re-checks stock on-hand to ensure the correct counts
are entered in SAP.
f. After recounting stock in question the Supervisor or Lead can then make adjustments as needed before
posting counts into SAP.
EXCEPTIONS
List of Exceptions
1. The following equipment is ordered by Department staff and not through Stores or Purchasing staff:
a. Electric Meters (pending results of report by City Auditor, expected September 2014)
b. Transformers
c. Certain specialized materials required for CIP projects (Stock items needed for CIP projects are ordered
through Stores.)
d. IT consumables (valued at less than $100) that are delivered to the Stores Warehouse must be
delivered to IT at the Civic Center A-Level storage within 2 business days
e. Low-volume IT items, including servers, switches, and wireless access points. These are delivered
directly to IT at City Hall.
2. The following equipment is ordered by Stores, but received and tracked by Utilities:
a. Electric Poles
b. North Dock Stock (low-value and high revolving parts commonly needed for jobs)
Reconciliation with SAP
3. Reconciliation with SAP for exceptions 1. b., c., d., and e. above is as follows:
a. Transformers are counted by Utilities staff once per month and results reconciled in their Access
database. Total counts are reconciled with ASD Accounting staff annually.
b. Specialized and non-stock materials purchased for CIP projects are immediately charged to the
relevant jobs, and do not pass through the inventory system.
c. IT consumables are expensed and delivered within 2 days to City Hall. These goods are not tracked in
inventory system, but are counted and reconciled against the Purchase Order (PO).
d. IT servers, switches and WAPs above $5,000 in cost are capitalized and any remainder is expensed.
These goods are reconciled to PO and are not tracked in inventory system.
4. Reconciliation with SAP for items 2.a. and b. above is as follows:
a. Electric poles are physically counted by Utilities staff once per quarter and results reconciled with SAP.
b. For North Dock Stock, Utilities operates an open storage location for its crews. The location is kept
locked between uses, and Utilities will submit to Stores quarterly physical inventories.
RELATED REFERENCE MANUALS AND PROCEDURES
Purchasing Manual CityConnect/Departments/Administrative Services/Purchasing
Manual
SAP Training Manual CityConnect/Departments/Administrative
Services/Purchasing/SAP Training Manual
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Inventory Management PPP
Appendix 1
Print Name
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Inventory Management PPP
Appendix 2
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Inventory Management PPP
Appendix 3
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Inventory Management PPP
Appendix 4
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Inventory Management PPP
Appendix 5
Inventory “How-To’s” for User Departments
General Information
This is a brief informational sheet (helpful tips, approvals and updates) about managing parts in the warehouses’ inventory.
Helpful Tips
Before placing a part in inventory please consider that storing the spare part may not be economical or beneficial. Please
ask yourself the following when considering adding a part to inventory.
Not Beneficial:
» Parts might not be used, or may be used maybe once or twice a year
» If a part is stored; the storing of the part may lead to defects
» Maintaining inventory has costs associated with storing the part
» Part is readily available when needed from a supplier
Beneficial:
» Long lead time for parts
» Part is needed in an urgent manner; no waiting for parts can be considered
» Part is not readily available
» Storing of the part will not cause any defects; long shelf life
Approval Process
All inventory requests are routed through Point of Contacts (POC), depending on the service group. When the Point of
Contact (POC) receives the inventory request, this individual will approve or route accordingly to the appropriate approver
within the department. Generally, the POC is the Operations Supervisor for that Utility. For the Water Quality Control Plant
(WQCP), the Plant Manager is the POC.
Inventory Updates
When a standard parts review or maintenance procedural update occurs, if parts are replaced by other parts, parts deleted,
or parts added, min/max updates, etc.; thi s information and inventory paperwork needs to be submitted to the Inventory
Manager. It is the responsibility of the Departments to inform Stores of what to have in inventory. The inventory listing is
posted online via the City of Palo Alto’s website by the Inventory Manager.
SAP Report
If you choose to pull the report yourself, follow these steps.
From SAP, enter transaction code: ZMMR05
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INVENTORY MANAGEMENT
Enter in the Material Number range you’re selecting. The below is an example pulling Water parts. The inventory
department groups the Material Numbers depending on the type of part / inventory.
020000 – 029999 = Water
030000 – 039999 = Electric
040000 – 049999 = Gas
050000 – 059999 = Office Supplies
060000 – 069999 = Waste Water
090000 – 099999 = Safety / Public Works
Storage Location: MSC or WQCP
Once you’ve updated your report to show all the columns available, you will be able to use this information to assess your
stored parts and materials.
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Inventory Management PPP
Appendix 6