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HomeMy WebLinkAboutStaff Report 2509-5169CITY OF PALO ALTO Policy & Services Committee Special Meeting Wednesday, October 29, 2025 6:30 PM     Agenda Item     2.Office of the City Auditor Presentation of the Community Services Department Equipment and Materials Inventory Management Audit Staff Presentation 8 1 4 3 Policy & Services Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: City Auditor Meeting Date: October 29, 2025 Report #:2509-5169 TITLE Office of the City Auditor Presentation of the Community Services Department Equipment and Materials Inventory Management Audit RECOMMENDATION The Office of the City Auditor recommends the Policy & Services Committee review and recommend that Council accept the results of the Community Services Department Equipment and Materials Inventory Management Audit Report. BACKGROUND Baker Tilly Advisory, in its capacity serving as the Office of the CIty Auditor (OCA), performed a citywide risk assessment that evaluated a wide range of risk areas, including strategic, financial, operational, compliance, technological, and reputational risks. The purpose of the assessment was to identify and prioritize risks to develop the annual audit plan. During the FY24 risk assessment, the OCA identified Community Services Department (CSD) inventory management processes as a potential area of risk and included the topic in the FY25 Audit Plan. ANALYSIS The objective of the CSD Equipment and Materials Inventory Management audit was to determine if the department’s equipment and materials inventory management system is operating effectively and efficiently. CSD plays a critical role in Palo Alto, enhancing residents’ quality of life through a wide array of programs, services and facilities. Established to foster community engagement and well-being, the department oversees urban and neighborhood parks, recreational facilities, and cultural institutions. This audit evaluated CSD equipment and materials inventory management processes against recognized best practices. The audit found that while most tested items were accounted for, 8 1 4 3 management of materials and equipment at CSD facilities needs improvement including formal processes related to receiving and inventorying materials and equipment. FISCAL/RESOURCE IMPACT STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: 1 9 4 7 0 August 21, 2025 City of Palo Alto Office of the City Auditor Community Services Department (CSD) Equipment and Materials Inventory Management Audit Contents Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms. Executive Summary............................................................................................................................1 Introduction.......................................................................................................................................3 Detailed Analysis................................................................................................................................6 Audit Results......................................................................................................................................8 Contents 1 Executive Summary Purpose of the Audit Baker Tilly Advisory Group, LP (Baker Tilly), in its capacity serving as the Office of the City Auditor (OCA) for the City of Palo Alto (the City), conducted an Equipment and Materials Inventory Management Audit based on approved Task Order 4.32 as part of the City’s FY25 Audit Plan. The objective of this audit was to determine if the Community Services Department Equipment and Materials Inventory Management system is operating effectively and efficiently. Report Highlights Finding 1: (Page 7) While most tested items were accounted for, management of materials and equipment at CSD facilities needs improvement. OCA was able to locate almost all items selected for inventory testing. However, CSD lacks a comprehensive, regularly updated inventory list, which may increase the risk of fraud, waste, and abuse, as it becomes harder to confirm purchases and ensure items remain in use. Through the course of testing, OCA also noted that the City’s process for disposing of goods was not followed in some instances. Adhering to disposal procedures ensures accountability, prevents unauthorized removal of City property, addresses security concerns such as properly wiping electronics, and protects against fraud, waste, abuse, and reputational harm. OCA’s testing and staff interviews identified issues that could be addressed through improved inventorying, organization, and inter-facility sharing of materials and equipment. While certain facilities had organized storage systems with labels and locked cabinets, others lacked clear labeling and designated storage spaces. Additionally, materials and equipment are not currently shared between facilities, though staff suggested that a shared-drive inventory could allow borrowing of seldom-used, high-cost items, potentially minimizing unnecessary purchases and generating cost savings. Finally, OCA observed that some items at various locations were not properly stored or secured, creating potential risks of theft, damage, or premature wear. Key Recommendations We recommend management implement a centralized inventory management system to track and update assets regularly and consistently across all facilities. Establishing a standard operating procedure (SOP) for conducting periodic inventory audits, such as quarterly or annually, will ensure that inventory records remain accurate. Designating staff members responsible for inventory tracking and providing them with training on best practices will improve accountability and ensure that City policies related to the procurement and disposal of City materials and equipment are followed. Additionally, adopting a digital system for real-time updates can enhance efficiency and transparency. Finding 2: (Page 10) CSD lacks formal processes for receiving and inventorying materials and equipment which can help prevent fraud, waste, and abuse. 2 EXECUTIVE SUMMARY Best practices recommend that when entities procure goods, the individual who orders the item is not the same individual that approves the purchase of the item. The City has clear guidelines through its Purchasing Card Guidebook that addresses this issue and ensures that items purchased go through a clear approval process. However, it does not appear that the City has formal guidance on how goods should be received and inventoried. Similar to the segregating of activities above, the person ordering an item should not be the same person to receive and inventory the item as it presents an opportunity for fraud to occur. According to the City’s Municipal Code, 2.08.075, care of city-owned property, each department director is responsible for safeguarding their department’s equipment and materials. As each CSD facility is not maintaining a current and/or comprehensive list of materials, there are also no procedures in place to ensure segregation of duties when receiving and inventorying items. While the City has guidance related to purchasing items and the municipal code has provisions for the City to donate obsolete and surplus items to nonprofits, there does not appear to be comprehensive guidance related to the receipt and inventorying of City items. Such policies and procedures (P&P) help ensure that appropriate controls are in place to prevent fraud, waste and abuse and ensure that items are effectively and efficiently stored and managed. Key Recommendations We recommend that the City establish clear guidelines for the receipt and inventory of goods and equipment to ensure accountability, accuracy and efficiency in managing physical assets. Additional Observation: (Page 11) The current practice of using the City’s Capital Improvement Process (CIP) to replace equipment is burdensome. The current process for replacing equipment at CSD is to go through the City’s Capital Improvement Process (CIP). This process can take months. Several staff at CSD noted that each time a substantial piece of equipment fails, they are often without use of that item for an extended period of time due to having to go through the City’s CIP process. Staff stated that it would be helpful if the Department had funds that could be applied for such purchases. Executive Summary 2 EXECUTIVE SUMMARY 3 Introduction 4 INTRODUCTION Introduction Objective The objective of this audit was to determine if the CSD Equipment and Materials Inventory Management system is operating effectively and efficiently. Background The CSD of Palo Alto plays a pivotal role in enhancing the quality of life for residents through a wide array of programs, services, and facilities. Established to foster community engagement and well-being, the department oversees numerous urban and neighborhood parks, recreational facilities, and cultural institutions. Among its notable offerings are the Palo Alto Junior Museum & Zoo, the Palo Alto Art Center, and the Children's Theatre, which collectively serve thousands of community members annually. Historically, the CSD has been instrumental in shaping Palo Alto's community landscape. The department's roots can be traced back to the early development of the City, with significant growth over the decades leading to the establishment of many of the parks and recreational facilities that residents enjoy today. Over the years, the CSD has continually evolved to meet the changing needs of the community, emphasizing sustainability, inclusivity, and innovation in its programs and services. According to the 2024 Palo Alto Community Survey, approximately 95% of residents surveyed have visited a neighborhood park or City Park in the past year, and 50% have used Palo Alto recreation centers or their services. The department's efforts to engage residents of all ages and backgrounds have resulted in high levels of satisfaction, with 91% of survey respondents rating the quality of Open Spaces as excellent or good and 81% rating the quality of recreation centers or facilities as excellent or good. Scope The OCA analyzed any available inventory listings and P-Card purchase records from July 2023 through February 2025 and selected inventory items to verify their existence, confirm they could be located, and assess their condition. Methodology To achieve the audit objectives, the OCA performed the following procedures: • Interviewed the appropriate individuals to gain an understanding of the organizational structure, processes, and controls related to equipment and materials inventory management. • Analyzed P&P to identify the criteria to be used for evaluation of control design and effectiveness. • Judgmentally selected a sample of recent P-Card purchases over $500 within the CSD as well as selecting items on the inventory listings if available in the following locations: Art Center, Junior Museum and Zoo (JMZ), Children’s Theater, Recreation1, and Open Space Parks & Golf2 during the audit period, July 1, 2023 through February 5, 2025, to determine whether inventory exists, can be 5 INTRODUCTION Introduction 5 Government auditing standards require an external peer review at least once every three (3) years. The last peer review of the Palo Alto Office of the City Auditor was conducted in 2017. The Palo Alto City Council approved a contract with Baker Tilly U.S, LLP for internal audit services for October 2020 through June 2022 with an extension through June 2025. City Council appointed Kate Murdock, Audit Manager in Baker Tilly’s Risk Advisory practice, as City Auditor in May 2024. As a result of transitions in the Audit Office and peer review delays due to the COVID pandemic, an external peer review is targeted for 2025. It should be noted that Baker Tilly’s most recent firmwide peer review was completed in November 2024 with a rating of “Pass”. The scope of that peer review includes projects completed under government auditing standards. located, and is in good condition as well as observe inventory systems and storage practices in place. • The OCA selected a minimum of 15 items per location from either recent P-Card purchases or inventory listings and performed onsite inspections at the above-mentioned locations to confirm the item’s existence and condition. • Completed audit report of findings, conclusions, and recommendations based on the supporting evidence gathered. Compliance Statement This audit activity was conducted from January 2025 to August 2025 in accordance with generally accepted government auditing standards, except for the requirement of an external peer review5. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings, observations, and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings, observations, and conclusions based on our audit objectives. Organizational Strengths During this audit activity, we noted the professionalism and responsiveness of CSD management and staff. We appreciate CSD’s participation in interviews, providing tours of City facilities and inventory documentation, as well as responding to follow-up requests. The OCA greatly appreciates the support of CSD in conducting this audit activity. Thank you! 5 INTRODUCTION 6 Detailed Analysis Inventory Management Best Practices This audit evaluated the CSD Equipment and Materials Inventory processes against recognized best practices. Reputable sources such as the Institute of Internal Auditors (IIA), Government Finance Officers Association (GFOA), and Government Accountability Office (GAO) emphasize strong internal controls, accurate record-keeping, and efficient processes for managing public sector inventories. Key best practices include: Comprehensive Policies and Recordkeeping Establish and regularly update written inventory management policies and procedures. Create clear guidelines for purchasing, usage, and disposal of assets to ensure consistency and support employee training. Track all equipment and materials in an official inventory system or register. Require each department maintain and periodically certify the completeness of its asset list. Keep detailed inventory records (e.g., item descriptions, serial numbers, location, purchase date, condition) to ensure transparency and safeguard assets. Regular Physical Counts and Reconciliation Conduct periodic physical inventories to verify recorded balances match actual quantities. Adopt best practice of performing a complete count at least annually by staff independent from daily custody of items. Promptly reconcile discrepancies between physical counts and inventory records. Research and resolve differences to correct records and identify root causes for corrective action. Maintain a cycle of counting and reconciliation to ensure inventory data accuracy and reliability. Segregation of Duties and Security Controls Segregate key inventory tasks so no single person handles ordering, receiving/issuing, and record-keeping. (e.g., one inputs purchase orders, another logs received items, a third conducts physical counts). In smaller organizations, apply mitigating controls such as supervisory review or dual-count teams. Maintain secure storage and access controls for inventory, especially valuable or easily stolen items. Store sensitive items in locked rooms or cabinets with limited key/card access. Require sign-outs or manager approval before removing items. 7 DETAILED ANALYSIS Detailed Analysis Label all equipment with asset tags or identifiers to deter theft and ensure accountability. Clear Accountability and Management Oversight Assign specific responsibility for inventory control within each department. Have departments take ownership of “controlled capital-type items,” with designated individuals accountable for safeguarding and tracking assets. Appoint an inventory custodian in each department to maintain records and coordinate counts. Require custodians to report inventory status periodically to management. Ensure management actively oversees inventory by reviewing audit results, approving significant adjustments/write-offs, and monitoring key metrics. Maintain a clear “paper trail” documenting purchases, transfers, counts, and disposals for management or auditor review. Reinforce inventory as a priority through consistent oversight and tone at the top, holding staff accountable for following procedures. Training Personnel and Continuous Improvement Train all employees involved in inventory tasks on policies, procedures, and inventory systems. Promote regular training to reduce errors and promote consistent practices across the organization. Ensure counters and custodians are knowledgeable about items and counting processes to improve accuracy. Foster a culture of continuous improvement by periodically reviewing and updating inventory control procedures. Analyze discrepancies or theft incidents for lessons learned and corrective actions. Gather employee feedback to identify process pain points and improvement opportunities. Stay informed on industry best practices to adapt and strengthen inventory management over time. 8 AUDIT RESULTS Audit Results Finding 1: While most tested items were accounted for, management of materials and equipment at CSD facilities needs improvement. As mentioned in the previous section of this report, CSD has several facilities that provide a wide array of services to Palo Alto’s population. In turn, various types of equipment, materials and supplies are needed and stored by CSD in the provision of these services. While OCA was able to locate most items selected for testing, we identified several areas of concern. These issues do not apply to each CSD facility but across the department’s facilities we noted the following: a lack of comprehensive and regularly updated inventories, a lack of documentation for disposed items, a general lack of organization, and few areas where equipment is not properly stored and/or secured. CSD does not maintain comprehensive or regularly updated inventory lists. CSD was unable to provide OCA with an up-to-date, comprehensive list of items for each facility. Each facility had varying types of lists and degrees of items inventoried. Art Center – The Art Center had various inventories for different spaces and items but several of these were outdated or not dated. For example, the “Equipment Inventory” list was last updated in 2019 and the “Equipment Log” had no date but listed estimated replacement dates for items. While these two documents appeared to have some of the same items, one was in a word document and the other in excel. A “Pedestal Inventory” had not been updated since 2013. Children’s Theatre – The Children’s Theatre had several inventory lists, but they had not been updated since 2014. Cubberley Theatre – The theatre has a “Theatre Technician Equipment” list but it appeared this list had not been updated since 2022 with one item entered that year making it difficult to determine if the list was accurate or complete. Junior Museum & Zoo (JMZ) – The JMZ had an updated list of animals and various undated materials and dry goods lists. They did not appear to have inventory lists for equipment used in their workshop or of veterinary supplies. Parks & Open Space -The Parks & Open Space division appears to have updated inventory listings of vehicles. However, their tool and equipment lists were undated making it difficult to determine if they were accurate or complete. Recreation – It did not appear that the Recreation division has an inventory tracking system for their equipment and materials. OCA used a combination of the documentation listed above, as well as P-card statements from July 2023 through February 2025 to take a sample of inventory items to check for the item’s presence, condition and appropriate use. OCA was able to locate all items selected for testing, except for a few items at one location. Staff provided explanations for these missing items 9 AUDIT RESULTS Audit Results which will be discussed in the next section. The absence of a comprehensive and regularly updated list can present several risks to the organization including fraud, waste, and abuse. Without a comprehensive and regularly updated list of equipment, materials and supplies, it is difficult to determine what has been purchased and if those items are present. This creates conditions where it is much easier for fraud to occur. We noted that the City does not have insurance for inventoried materials or equipment as the City is self-insured.7 Another purpose of having a comprehensive and regularly updated inventory of materials and equipment is in case of theft or damage. Without a comprehensive list of items, it might be difficult to establish and/or identify when items have gone missing or been stolen. Should there be flooding or fire damage, an inventory can also help with replacing items and help to minimize any time that might be lost trying to create a list after an emergency. The City’s process for disposing of goods was not followed in some instances. The City has a Surplus Property Disposal and Destruction Policy and Procedure which provides guidelines for the sale and disposal of items with and without commercial value. For items determined to have no commercial value, the department is “expected to make surplus property available to other departments for City use by posting the item on the City’s Intranet”. If the item generates no interest, is broken or unusable, the department is responsible for completing a Surplus Property Disposal Form. This form is supposed to be signed by the department head and then forwarded to the Administrative Services Department (ASD) Warehouse Supervisor. ASD then notifies the Department if the form has been approved and the resulting action – disposal, donation, or inclusion in the City’s warehouse. OCA sampled a list of materials and equipment for inventory and found a few items were not present at the Art Center. While staff were able to provide an explanation for the absence of these items, they were not able to provide supporting documentation in each case nor was it clear if the City’s process had been followed for some items. For example, there were 15 iPads that staff determined were obsolete and past their useful life. Staff stated that these items were sent to the City’s stores but were not able to provide documentation to support this occurred. In addition, OCA found a kiln and one polishing machine were missing. Staff stated these items were disposed of as they were no longer working properly. It did not appear that staff had filled out the required forms for disposing of these items and could not provide documentation to support the items had been approved for disposal. Following established processes for disposing of aging or obsolete items helps streamline decision-making and provides clear criteria for how and 10 AUDIT RESULTS 10 AUDIT RESULTS Audit Results when to redistribute an item to another department, donate it to a non-profit, or dispose of it and helps ensure items do not go home with City employees which is prohibited by the City’s policy. In addition, any items disposed of should be considered for possible data security issues. For example, when disposing of electronic items, they should be properly wiped of any sensitive information. Following established City P&P not only protect against fraud, waste and abuse but help protect the City’s reputation as well. Items could be better organized to facilitate shared and easier use. Through the course of our testing and interviews with staff OCA found a few issues that may be at resolved by better inventorying and organizing of materials and equipment. In addition, staff stated it would be helpful to have inventories from the different facilities on a shared drive to facilitate the sharing of equipment and materials. One issue we noted was the significant amount of time it took for staff to locate some items and in a couple of instances staff could not locate the item until after our site visit. While some CSD facilities had organizational systems in place such as specific storage spaces for items, locked cabinets and labels showing where certain items should be stored, other facilities lacked clear labels and storage spaces. We also noted two instances where sampled equipment items were still in original packaging and had not been used. In both instances these items had been purchased more than six months earlier. While of relatively low dollar amount, it was unclear why this equipment was not in use and if it might be the result of ordering an item and then realizing there was already useable equipment on site. OCA also noted that it does not appear materials and equipment are shared between facilities, which could be beneficial. Staff stated that if each facility had an inventory list on a shared drive where staff could search for a needed item to see if it could be borrowed from a neighboring facility would be helpful. While sharing equipment and materials may not make sense in many cases due to heavy/regular use at the primary facility, for larger and more expensive equipment that is only needed sporadically or one-time, having a shared inventory could provide greater flexibility and may result in cost savings. Some items were not properly stored or secured. OCA noted that some items at various locations were not properly stored or secured. For example, at the Children’s Theatre wooden sets are stored in an open, outdoor shed in the alley behind the building. OCA noted that this area was not secure and there was nothing to prevent theft or damage of the sets. However, the cost of securing these items may be more than they are worth and it may not make sense for the City to invest in a security system for these items. At the JMZ, OCA noted that an electronic scale used for weighing animals is kept outside. While it is covered with a tarp, keeping this item indoors may prolong its life. At the Baylands Ranger 11 AUDIT RESULTS Audit Results Station, OCA noted that there was lawn equipment with rust present as it was unprotected from the elements. Recommendation We recommend management consider: Implementing a centralized inventory management system to track and update assets regularly and consistently across all facilities. A centralized system could be as simple as a shared excel file with product and location information as well as sign in and sign out capabilities for items shared across facilities. More sophisticated digital systems can provide real-time updates and map items to specific a location but the cost of such a system may be prohibitive and unnecessary. Establishing a standard operating procedure (SOP) for conducting periodic inventory audits, such as quarterly or annually, which will ensure that inventory records remain accurate. Designating specific staff members responsible for inventory monitoring and providing them with training on best practices will improve accountability and ensure that City policies related to the procurement and disposal of City materials and equipment are followed. Management Response Responsible Department(s): CSD Concurrence: Agree Target Date: 3rd Quarter FY 2026 Corrective Action Plan: CSD will consult with City departments existing systems for inventories and either collaborate to integrate with an existing system or adapt them to implement a departmental inventory management system and related standard operating procedure for conducting periodic inventory audits. The policy will include established criteria on the types of equipment and materials that should be included in the inventory management system. This could be based on items of a certain value or type (e.g., electronics and tools) aligning with other policies that determine asset values and surplus and disposition authorities to ensure citywide consistency. Staff will consider if a system with real time updates is needed and cost efficient. Finding 2: CSD lacks formal processes for receiving and Best practices recommend that when entities procure goods, the individual who orders the item is not the same individual that approves purchase of the item. The City has clear guidelines through its Purchasing Card Guidebook that addresses this issue and ensures that items purchased go through a clear approval process. However, it does not appear that the City has formal 12 AUDIT RESULTS Audit Results inventorying materials and equipment which can help prevent fraud, waste and abuse. guidance on how goods should be received and inventoried. Similar to the segregating of activities above, the person ordering an item should not be the same person to receive and inventory the item as it presents an opportunity for fraud to occur. The City’s Municipal Code, 2.08.0759, care of city-owned property, states: 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. Items included in the definition of property, per the code, include equipment, tools, supply, and furniture. The code does not provide any additional guidance on how city property should be received or stored. As each CSD facility is not maintaining a current and/or comprehensive list of materials, there are also no procedures in place to ensure segregation of duties when receiving items. While the City has guidance related to purchasing items and, as mentioned in Finding 1, the municipal code has provisions for the City to donate obsolete and surplus items to nonprofits, there does not appear to be comprehensive guidance related to the receipt and inventorying of City items. With multiple facilities and a wide array of materials and equipment in use at each facility, segregating the responsibilities for ordering, receiving, and inventorying materials and goods may prove overly burdensome. Many organizations establish a threshold for when items need to be inventoried and/or categories of goods that should be inventoried versus those that don’t. For example, CSD may determine that office supplies do not need to be inventoried as the cost of undertaking such an effort could exceed the value of the items in question. However, we noted in our observations that CSD appropriately tracks and inventories art supplies used in classes and sold to the public. Items that are often inventoried due to higher risk of theft include electronics and power tools. Once CSD determines which categories or items should be inventoried and/or a dollar threshold for items to inventory, certain responsibilities should be segregated. For example, segregating the responsibilities of ordering, receiving, and inventorying materials and goods helps ensure that appropriate controls are in place to prevent fraud, waste and abuse. Developing formal P&Ps related to these processes can also help to ensure items are effectively and efficiently stored and managed. Recommendation We recommend that CSD establish clear guidelines for the receipt and inventory of goods and equipment to ensure accountability, accuracy and efficiency in managing physical assets. Such guidelines should delineate either the types of goods and equipment that should be inventoried or establish a threshold for when items should be monitored and inventoried. This policy should have clear instructions related to the following areas: 13 AUDIT RESULTS 13 AUDIT RESULTS Audit Results Receiving Goods – delivery should be verified against purchase order, packing slip or contract Inventory Entry and Documentation – items should be logged with the date, a description, quantity and location with relevant warranty information if applicable Storage and Security – defined procedures for how items should be stored and secured Discrepancy Procedures – steps for reporting and resolving issues such as missing or damaged items Periodic Reconciliation – regular inventory audit or counts to resolve discrepancies Management Response Responsible Department(s): CSD Concurrence: Agree Target Date: March 31, 2026 Corrective Action Plan: Similar to other internal control policies, staff agree a policy for receiving and storing certain equipment and materials of certain value will be drafted. The policy will establish criteria on the types of equipment and materials that should be included in the inventory management system. This could be based on items of certain value or type (e.g., electronics and tools). Additional Observation: The current practice of using the Capital Improvement Process (CIP) to replace equipment is burdensome. The current process for replacing equipment at CSD is to go through the City’s Capital Improvement Process (CIP). This process can take months. Several staff at CSD noted that each time a substantial piece of equipment fails, they are often without use of that item for an extended period of time due to having to go through the City’s CIP process. Staff stated that it would be helpful if the Department had funds that could be applied for such purchases. Based on discussions with management, with implementation of a comprehensive equipment inventory that includes estimated replacement timelines and costs, funding for replacement of equipment could be planned during the annual budget development process. During this process, the department can appropriate funding for routine equipment replacement and a reasonable amount of unanticipated replacement costs, as the City monetary/fund balance permits. Planning, foresight, and funding may contribute to more efficient replacement and fewer extended periods of downtime with no equipment. 13 AUDIT RESULTS 14 Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms. City of Palo AltoOffice of the City Auditor (OCA) Policy & Services Committee Meeting Community Services Department (CSD) Equipment and Materials Inventory Management Audit, August 21, 2025 Presenter: Kate Murdock, City Auditor, Baker Tilly October 29, 2025 2 Audit Objective •Determine if the Community Services Department equipment and materials inventory management system is operating effectively and efficiently 3 Background Costumes Audio & lighting equipment Kilns & pottery wheels Power tools Landscaping equipment iPads and computer equipment Cameras Microphone •CSD enhances quality of life for residents through a wide array of programs, services and facilities. Junior Museum & Zoo, Palo Alto Art Center, Children’s Theater, Parks and Recreational Facilities •Equipment and Materials maintained by CSD include: 4 Finding 1: Inventory Management Finding While most tested items were accounted for, management of materials and equipment at CSD facilities needs improvement Inventory lists are not comprehensive or regularly updated City’s process for disposing of goods was not followed in some instances Items could be better organized to facilitate shared and easier use Some items were not properly stored or secured 5 Finding 1: Inventory Management Recommendations We recommend CSD: Implement a centralized inventory management system to tack and update assets across facilities Establish a standard operating procedure for conducting periodic inventory audits Designate specific staff members responsible inventory monitoring and provide training on appropriate procurement and disposal procedures 6 Finding 2: Receiving & Inventorying Goods Finding & Recommendation CSD lacks formal processes for receiving and inventorying materials and equipment which can help prevent fraud, waste and abuse. We recommend CSD: Establish clear guidelines for the receipt and inventory of goods and equipment to ensure accountability, accuracy, and efficiency in managing physical assets 7 Additional Observation: Equipment Replacement Funding Additional Observation The current practice of using the City’s Capital Improvement Process to replace equipment is burdensome. Implementation of a comprehensive equipment inventory that includes estimated replacement timelines and costs Incorporation of funding for replacement of equipment in the annual budget development process Questions? Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms. The name Baker Tilly and its associated logo is used under license from Baker Tilly International limited. The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. © 2024 Baker Tilly Advisory Group, LP