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HomeMy WebLinkAboutAudit Reports - Public - Fleet Management Internal Audit Report - 1/24/2023 FINAL REPORT City of Glendale FLEET MANAGEMENT INTERNAL AUDIT REPORT January 24, 2023 Moss Adams LLP 999 Third Avenue, Suite 2800 Seattle, WA 98104 (206) 302-6500 Fleet Management Internal Audit Report for the City of Glendale Table of Contents Executive Summary 1 A. Objectives 1 B. Conclusions 2 Detailed Report 4 A. Introduction 4 B. Background 4 C. Scope and Methodology 4 Findings and Recommendations 6 Process Improvement 17 Appendix: Definitions of Audit Findings Rankings 18 Fleet Management Internal Audit Report for the City of Glendale 1 EXECUTIVE SUMMARY Moss Adams LLP (Moss Adams) was contracted by the City of Glendale (the City) to perform an internal audit of the City’s Fleet Management function within the Field Operations Department. This internal audit assessed the following risk areas: fleet right-sizing, preventive maintenance, billing documentation and cost reporting, cost recovery, long-term procurement strategy and asset management, and vehicle replacement. We performed a variety of procedures to assess alignment with best practices, including performing interviews, conducting a detailed review of select billing documents, assessing the preventive maintenance program, and evaluating existing policies and procedures. This internal audit was performed as part of the Fiscal Year (FY) 2022 Annual Audit Plan developed by the City’s Independent Internal Audit Program. Our internal audit was performed between March 2022 and August 2022. This engagement was performed in accordance with Standards for Consulting Services established by the American Institute of Certified Public Accountants. Accordingly, we provide no opinion, attestation, or other form of assurance with respect to our work or the information upon which our work is based. This engagement was also performed consistent with the guidance issued by the Institute of Internal Auditor’s (IIA’s) International Professional Practices Framework (IPPF). This report was developed based on information gained from our interviews and analysis of sample documentation. The procedures we performed do not constitute an examination in accordance with generally accepted auditing standards or attestation standards. Our objectives for this engagement were to:  Assess current efforts to right-size the fleet or understand vehicle utilization  Evaluate current policies and procedures related to preventive maintenance scheduling and reporting  Assess whether adequate internal controls appeared to be in place over the billing process and whether cost reporting is sufficient for the City’s fleet  Assess whether current strategies for procurement and asset management align with best practices for cost effectiveness  Evaluate current and proposed vehicle replacement policies to determine whether purchase decisions are holistically and accurately informed Fleet Management Internal Audit Report for the City of Glendale 2 The procedures and testing performed identified five areas that warrant improvement. These are highlighted in the following table. Finding 1. Right-Sizing – Medium Risk Finding A fleet utilization study has not been performed, and Geotab software being implemented is not being installed on a significant portion of the fleet. Recommendation Conduct a fleet utilization study using GPS and telematics software to understand the current use and health of the fleet and maximize the use of the software to support informed purchasing decisions based on actual fleet utilization and maintenance data. Finding 2. Preventive Maintenance Communications and Reporting – High Risk Finding Fleet Management does not have an effective system for alerting departments that they have vehicles due or overdue for preventive maintenance or emissions testing services, nor are its reporting tools sufficient for tracking and determining which vehicles are due for service. Recommendation Implement functional tracking and reporting tools to notify departments of upcoming maintenance and develop policies and procedures that encourage cooperation with departments to ensure their vehicles are serviced properly and timely. Document the timeline and procedures for running reports for upcoming emissions testing due dates at proper intervals. Finding 3. Billing Documentation and Cost Reporting – High Risk Finding Fleet Management lacks billing policies and procedures, billing reports utilized are lacking important components, and access levels within the billing system are not well- controlled to prevent unauthorized changes. These issues increase the risk of incorrect billings and the potential for incomplete cost recovery. Recommendation Develop and implement billing policies and procedures, evaluate and update systems access levels within the billing system, and add additional fields to existing reports to allow for improved cost capture and more meaningful data presentation. Finding 4. Vehicle Replacement and Purchasing – High Risk Finding The City Council allocated more funding to the VRF starting in 2023 and it is now projected to be fully funded by 2027. Replacement of existing vehicles, and the purchase of new vehicles, is typically not done in a strategic centralized manner, based on supporting data and a long-term plan, which can result in higher costs over time. Recommendation In cooperation with City leadership, Fleet Management should continue its efforts to refine vehicle replacement data, develop a new lifecycle model by vehicle class, and create a new 10-year vehicle replacement plan. Vehicle purchasing requests should be considered based on need and consideration of the long-term costs. Fleet Management Internal Audit Report for the City of Glendale 3 Although the focus of this internal audit was to identify opportunities for improvement, it is important to note the areas that are operating well. The City should be commended for the following accomplishments:  Commitment to Continuous Improvement: In interviews and throughout review of internal policies and procedures, we consistently saw evidence of Fleet Management’s commitment to implementing recommendations for improvement, including suggestions made during this internal audit.  GPS and Telematics Software: Fleet Management recently contracted with Geotab, a provider of GPS and telematics software. This is a significant step toward understanding how City drivers use the fleet and has the potential to reveal important insights about how vehicles are driven and areas for cost savings. We would like to thank City staff and management for their time and efforts in assisting with this internal audit. Fleet Management Internal Audit Report for the City of Glendale 4 DETAILED REPORT Moss Adams was contracted by the City to perform an internal audit of its Fleet Management function within the Field Operations Department. This audit assessed the following risk areas: fleet right- sizing, preventive maintenance, billing documentation and cost reporting, cost recovery, long-term procurement strategy and asset management, and vehicle replacement. This internal audit was performed as part of the Fiscal Year (FY) 2022 Annual Audit Plan developed by the City’s Independent Internal Audit Program. Our internal audit was performed between March 2022 and August 2022. The Field Operations Department includes six primary functions: Solid Waste Collection, Solid Waste Disposal, Solid Waste Education, Customer Service, Facilities Management, and Fleet Management. This internal audit focused on the Fleet Management function, which runs the maintenance and repair of approximately 1,300 City vehicles and other associated equipment, fuel management and procurement, and the purchase of new vehicles per the vehicle replacement schedule, as funded. Fleet Management has begun making many process improvements for managing the fleet, including installing new GPS and telematics software, updating their cost recovery model, and setting a new framework for the vehicle replacement cycle. Our objectives for this internal audit were related to the City’s Fleet Management function. Specifically, the internal audit focused on the following objectives:  Assessing current efforts to right-size the fleet or understand vehicle utilization  Evaluating current policies and procedures related to preventive maintenance scheduling and reporting  Assessing whether adequate internal controls appeared to be in place over the billing process and whether cost reporting is sufficient for the City’s fleet  Assessing whether current strategies for procurement align with best practices for cost effectiveness  Evaluating current and proposed vehicle replacement policies to determine whether purchase decisions are holistically and accurately informed In order to obtain an understanding of the specific process and controls, and overall fleet management functions, we conducted interviews with personnel of Fleet Management. These employees have designated responsibilities related to the fleet management function. We reviewed the City’s policies, procedures, and the overall service provision of the Fleet Management function. Fleet Management Internal Audit Report for the City of Glendale 5 We performed the following additional procedures:  Preventive Maintenance Program: We obtained an understanding of how Fleet Management is currently tracking preventive maintenance schedules and researched industry best practices for replacement planning. Additionally, we: ○ Determined current progress towards establishing a 10-year vehicle replacement plan. ○ Evaluated procedures for scheduling preventive maintenance ○ Compared vehicle maintenance records and maintenance schedules to determine the proportion of Glendale’s fleet with on-time preventive maintenance recorded  Policies and Procedures: Throughout our testing, we documented policy and procedure recommendations based on our experience and research with best practices. We assessed the following areas: ○ Preventive Maintenance ○ Fleet Billing Process ○ Vehicle Procurement and Replacement ○ Vehicle Auction  Billing: Through interviews and document reviews, we obtained an understanding of the current processes related to billing management. We assessed the City’s current rate mode in regard to labor, fuel, and maintenance forecasting. Additionally, we conducted detailed evaluations of select billing documents and cost reports to assess for completeness and sufficiency of information.  Right-Sizing and Utilization: We evaluated the City’s new suite of telematics services provided by Geotab and compared to industry best practices to assess for controls associated with safety and cost risk. Additionally, through interviews we determined how the City is currently using Geotab and how the City plans to use telematics.  Vehicle Replacement Fund (VRF): Through interviews and review of the “City of Glendale Fleet Management Division's Fleet Replacement Planning: VRF Funding” presentation, we evaluated the current state of the Vehicle Replacement Fund and assessed whether the projected obligation was based on an optimal and cost-effective fleet. Fleet Management Internal Audit Report for the City of Glendale 6 FINDINGS AND RECOMMENDATIONS 1. Finding A fleet utilization study has not been performed, and Geotab software being implemented is not being installed on a significant portion of the fleet. Recommendation Conduct a fleet utilization study using GPS and telematics software to understand the current use and health of the fleet and maximize the use of the software to support informed purchasing decisions based on actual fleet utilization and maintenance data. Condition: Fleet Management does not currently have a good understanding of fleet utilization, including driver behavior, fuel efficiency, and maintenance status. Fleet Management has begun to implement the use of Geotab software to track GPS and telematics data. Proper use of this software could significantly aid in efforts to right-size and increase the cost-efficiency of the fleet. Based on discussions with Fleet Management, if the City can reduce its fleet by just two vehicles, the related cost savings would cover a year of the costs associated with the Geotab software. Fleet Management is still working on full implementation of the Geotab software. Geotab provides real-time data on vehicle utilization, among many other useful metrics, in tailor-made reports, including accident investigation, seatbelt use and driver safety, fuel efficiency, and immediate maintenance needs. As Fleet management gathers more utilization data over the next year, they will have better information with which to make right-sizing decisions. However, Police Department patrol vehicles, a significant portion of the fleet, will not have this technology installed because of concerns over officer safety. Criteria: Industry best practices suggest identifying and implementing optimization initiatives that have the potential to offer significant cost savings. In order to do this, Fleet Management needs to understand how the City’s vehicles are utilized by conducting a field utilization study. Cause: In the past, the City did not have a strategy for understanding the health and utilization of its fleet. Geotab provides software sophisticated enough to track utilization and vehicle health information, but Fleet Management is in the early stages of collecting and analyzing GPS and telematics data for these purposes. The Police Department patrol vehicles are not included in this initiative due to concerns raised over potential risks to officer safety. In addition, Fleet Management has yet to conduct a fleet utilization study. Effect: Fleet Management may not have an optimized, cost-efficient fleet. Without understanding actual vehicle utilization, the City may have too many vehicles, not enough vehicles, or could be using their current fleet in ways that produce cost inefficiencies. Fleet Management may make vehicle replacement and purchasing decisions without adequate information, including utilization or maintenance data, to support these decisions. This could result in overspending or allowing unsafe vehicles to remain in the fleet. Fleet Management Internal Audit Report for the City of Glendale 7 In addition, if the newly implemented technology is not installed on Police Department patrol vehicles, the City may not know the current utilization and current maintenance needs of this significant portion of the City’s fleet. This could increase safety risks to police officers and other drivers. Recommendation: Fleet Management should conduct a fleet utilization study using GPS and telematics software to understand the current use and health of the fleet. The goals of a fleet utilization study are to capture and present vehicle use metrics in a way that provides a clear understanding of how vehicles are used, and to make changes needed for maintaining the right quantities and types of vehicles at the right locations when drivers need them. The results of a fleet utilization study can guide the City in their efforts to right-size their fleets, which is the first step toward optimizing cost efficiency. City Leadership should consider assessing whether Police Department patrol vehicles can be included in their implementation of the Geotab software and whether any mitigation strategies are available to address the potential risks to officer safety. Understanding the utilization of patrol vehicles could provide another opportunity to investigate potential cost savings strategies for the City. MANAGEMENT RESPONSE Management Agreement Concur Owner Fleet Management Target Completion Date Initial utilization project complete Action Plan Fleet Management was provided a supplemental budget of $84K for the current year to deploy GPS into various vehicles throughout the city fleet to better understand fleet utilization. The implementation is underway, and we are currently evaluating several fleet asset data points, including utilization, vehicle maintenance, fuel usage, and vehicle driver safety. The GPS data provides an objective approach to determining the correct number of fleet assets needed to accomplish the organizational mission. Fleet Management fully supports further deployment of GPS units into all vehicles, including all emergency response vehicles. Ongoing data will identify opportunities for right-sizing fleet asset count and provide alternatives for vehicle motor pool sharing options. Fleet Management completed the initial fleet utilization project and will be discussing adding an additional 370 GPS units to be deployed throughout the city fleet, including emergency response vehicles. The study confirmed underutilization in several areas, and the return on investment of GPS technology would be captured by eliminating less than four city vehicles. Fleet Management Internal Audit Report for the City of Glendale 8 2. Finding Fleet Management does not have an effective system for alerting departments that they have vehicles due or overdue for preventive maintenance or emissions testing services, nor are its reporting tools sufficient for tracking and determining which vehicles are due for service. Recommendation Implement functional tracking and reporting tools to notify departments of upcoming maintenance and develop policies and procedures that encourage cooperation with departments to ensure their vehicles are serviced properly and timely. Document the timeline and procedures for running reports for upcoming emissions testing due dates at proper intervals. Condition: Fleet Management has not developed written standard policies and procedures for tracking and scheduling preventive maintenance and emissions testing for City vehicles. In addition, Fleet Management’s current preventive maintenance reporting is not sophisticated enough to track and determine which vehicles are overdue or soon due for maintenance. Fleet Management also does not have procedures in place to notify departments of upcoming preventive maintenance, prior to the maintenance being overdue. Fleet Management does not have sufficient reporting to ensure fleet emissions testing is performed timely. Data collected to track emissions testing appears to be sufficient, but only if reports are consistently run on a bi-weekly basis. It is unclear how often reports are currently being run and documented procedures or other guidelines for running reports and communicating due or overdue emissions testing to departments do not exist. With the way the system is currently set up, services are already overdue by the time a City department is notified that vehicles are due for maintenance or emissions testing. Fleet Management reported that they are currently working with their software provider to update the system to allow for departments to receive a notification when their vehicles are within the final 10% of the time span before their emissions testing and/or preventive maintenance must be performed. Based on review of a sample preventive maintenance reports provided by Fleet Management, we were not able to determine the actual proportion of the City’s fleet that may be due or overdue for service. Fleet Management uses RTA, a fleet management software, for tracking maintenance and billing, which is a robust tool when used effectively. However, based on discussions with Fleet Management, there are currently major data credibility issues within the system that they are trying to resolve in cooperation with RTA, but progress has been slow. In addition, the RTA training manuals are detailed; however, employees primarily reply on receiving on-the-job training for the system as opposed to more official training during onboarding or periodic refresher trainings. Criteria: According to best practices for fleet preventive maintenance set by the American Public Works Association, vehicles should be scheduled for service based on criteria set in three different service schedules, which Fleet Management seems to follow. Best practices also indicate that fleets should use a fleet maintenance manual system or software tracking system that alerts equipment operators and fleet management to upcoming service due dates. Fleets should also run reports to track performance of preventive maintenance services, such as oil changes and emissions tests, and notifications to departments on services due should be supported by written policies and operating Fleet Management Internal Audit Report for the City of Glendale 9 procedures. Management reported that less than 1% of all fleet vehicles fail emissions tests, so timeliness is the more important factor for emissions testing in this case. If vehicles are not tested within the State law timeline requirements, the City risks noncompliance. Cause: The current software systems available to Fleet Management, including RTA and Geotab, offer potential solutions for timely communication of due or overdue maintenance to departments, but it seems they are not utilized effectively for this purpose or, in the case of Geotab, have not been fully implemented yet. Fleet Management is aware of best practices for prioritizing vehicle maintenance, but a lack of effective preventive maintenance reporting may interfere with Fleet Management’s ability to follow these practices. Effect: Preventive maintenance may be performed late or not at all, which increases risks for driver safety and could shorten the lifespan of vehicles, leading to early replacement. Maintenance needs may be improperly prioritized across the fleet, with labor being performed on vehicles with less critical needs, leading to general departmental inefficiency. Emissions testing may not be done on time according to state law, which may expose departments to safety risks and higher costs. Recommendation: Fleet Management should implement functional tracking and reporting tools to notify departments of upcoming maintenance and develop policies and procedures that encourage cooperation with departments to ensure their vehicles are serviced properly and timely. As Fleet Management continues work on implementation of Geotab software, they should consider utilizing the software to help them streamline preventive maintenance scheduling and notification. Fleet Management should also create internal training for day-to-day use of RTA, including troubleshooting and best practice guidance. Fleet Management should document the timeline and procedures for running reports for upcoming emissions testing due dates at proper intervals. These procedures should define Fleet Management’s and departments’ responsibilities for ensuring timely emissions testing. MANAGEMENT RESPONSE Management Agreement Concur Owner Fleet Management Target Completion Date 3/30/23 Action Plan Fleet Management is working with RTA regarding upgrades to the Fleet Management Information System (FMIS) to provide accurate customer Preventative Maintenance (PM) reporting for improved PM compliance and customer scheduling. RTA released an upgrade in July that allows our staff to set PM parameters to specify coming due for service, due for service, and overdue for service. Fleet Management will continue to monitor FMIS performance and has partnered with the vendor to ensure system stability. In doing so, Fleet Management has updated all PM schedules and consolidated the PM categories to five service intervals. Additionally, Fleet Management is now exporting PM compliance data into an Excel report, and customers are now being emailed customized PM status reports weekly. As such, PM compliance has increased by approximately 25%. Fleet Management continues to work with the Fleet Advisory Team to create fleet policies and help facilitate improved PM compliance. Fleet Management Internal Audit Report for the City of Glendale 10 3. Finding Fleet Management lacks billing policies and procedures, billing reports utilized are lacking important components, and access levels within the billing system are not well-controlled to prevent unauthorized changes. These issues increase the risk of incorrect billings and the potential for incomplete cost recovery. Recommendation Develop and implement billing policies and procedures, evaluate and update systems access levels within the billing system, and add additional fields to existing reports to allow for improved cost capture and more meaningful data presentation. Condition: Documentation for Fleet Management’s billing process is sparse and lacks information on billing best practices or system troubleshooting. Based on interviews with Management, written policies are not in place for the billing function and procedures do not exist to address how technicians should log and properly charge their labor and how these hours should be approved. Additionally, the billing system itself is challenging to use and to customize for specific City needs. We reviewed several types of billing documents and reports and found the following:  Direct Labor: Costs for technicians’ direct labor do not appear to be properly captured. The Direct Labor Report we received on technicians’ direct hours, by cost code, showed that all scheduled and billed hours equaled zero, indicating the report may not be utilized or correct.  Indirect Labor: The Indirect Labor Report capturing indirect hours billed by each technician is more complete than the Direct Labor Report but may not properly calculate the actual total cost according to employees’ fully burdened labor rate.  Fuel Summary: The Fuel Summary Report provides useful information regarding fuel, oil and other vehicle fluid billings, and efficiency data such as miles per gallon, but does not include unit costs for fuel.  Fuel Tax: The Fuel Tax Report does not include any fuel cost information nor actual tax amounts, which would be required to make judgments on the impact of fuel tax costs to the City. The report does not appear to contain enough relevant information to be useful for billing purposes on its own.  Other Documents: Other billing documents, such as the Outside Vendors Report and the Detailed Billing Report, are functionally sufficient. Additionally, Fleet Management reported that RTA does not currently have appropriate system controls in place to prevent certain billing activities by staff who should not have access. For example, technicians should have access to work orders so they can log their labor hours, but they should not be able to change the line items on services performed, as this can lead to incorrect billing. This administrative control does not currently exist. In addition, the system is not setup to require supervisory approval of technicians’ labor hours. Fleet Management Internal Audit Report for the City of Glendale 11 To address concerns with the billing process, Fleet Management has developed a new cost recovery model. The proposed model is in alignment with general best practices for cost recovery and shows improvement from the prior model. The model is still in development, and it could benefit from more sophistication in some areas. In our review of the proposed cost recovery model, cost forecasts appeared to be inconsistent and were being increased by the same proportions across the board, rather than allowing variable inputs for certain costs. Additionally, the cost recovery model did not reference source data, so the source data was not easily identifiable. Fleet Management plans to use the proposed cost recovery model in parallel with the current model for one year to evaluate and continue to improve upon the model. Criteria: Billing documentation and cost reporting should be clear, complete, and timely and should be used to make informed decisions about spending, including vehicle acquisition. According to Fleet Management, staff should not have access to change line items on services performed, and best practices recommend that access be granted only to those functions within the system that individuals need to perform their current job responsibilities, and access restrictions help to prevent inappropriate or unauthorized changes in billing data. Cause: Billing for departments seems to rely on institutional knowledge rather than formalized training and documentation of billing policies and procedures. It seems the current reports have been in use for many years without re-evaluation for accuracy and usefulness. Additionally, the entire billing process lacks adequate controls required for reliable and accurate billing and systems access has not been fully evaluated to ensure that access is restricted to those individuals that require access to perform their current job responsibilities and appropriately segregate duties. Effect: Fleet Management may not properly bill departments and may not have accurate cost information. Over-reliance on institutional knowledge without proper documented policies and procedures and standardized training can result in increased risk in the event of turnover and potentially inaccurate billing or incomplete cost recovery. Recommendation: Fleet Management should consider the following recommendations:  Develop and implement billing policies and procedures that address, at a minimum: ○ Standards and supporting procedures for staff to bill their time and log all of their working hours in a consistent and accurate manner. ○ Required levels of review and approval including supervisory approval of hours billed by staff. ○ The requirements and related processes for billing customers including timing, various steps, approvals, and other key components of the billing process. For this area, consider developing a supporting desk manual that includes screenshots of the steps within the system and a section for troubleshooting common issues or errors that may arise.  Evaluate current access levels within the billing system and update access for all employees to only allow for access to those system functions that are required to perform their current job responsibilities. Specifically, technicians on the shop floor should be able to bill for their labor hours; however, they should not have access to change/adjust job line items.  Evaluate the functionality of the current billing system to determine if it meets the needs of Fleet Management, including allowing for adequate systems access controls to ensure the reliability and accuracy of billing information and data. If the current billing system cannot provide the needed functionality, Fleet Management should evaluate whether an alternative billing system is warranted. Fleet Management Internal Audit Report for the City of Glendale 12  To improve billing reporting and ensure that complete and accurate data is tracked for reporting purposes, consider updating billing reports as specified below. ○ Direct Labor Report: Research the issues identified above and ensure that mechanic direct hours, by cost code, are captured. ○ Indirect Labor Report: Add a column to present each employee’s fully burdened labor rate multiplied out by their total indirect hours to properly quantify indirect labor costs, which are an important component of overhead for fleet upkeep. ○ Fuel Summary Report: Add a column for fuel unit cost. This can be extrapolated from current data and will be useful to have separated out, particularly with current uncertainty surrounding fuel prices. ○ Fuel Tax Report: Add columns for fuel unit cost, total fuel cost, and the tax amount on those line items that are marked as “taxable.”  Adjust the proposed cost recovery model to allow for variable pricing on certain costs, such as fuel prices, vehicle parts, vehicle insurance, and employee salaries. The model should also reference the data source for all input data so that it is easily identifiable and can be traced back to the source documentation and reporting. Additionally, Fleet Management should evaluate the cost recovery model monthly for the first two years the new model is in place. These adjustments will allow management to make more informed and supported purchasing decisions. MANAGEMENT RESPONSE Management Agreement Concur Owner Fleet Management Target Completion Date 6/30/23 Action Plan Fleet Management is working with Budget and Finance to create a more transparent billing model that captures and allocates costs based on the consumption of resources. The cost allocation model will also allow for enhanced reporting for improved budget forecasting. Fleet Management presented the recommended activity-based cost allocation model to executive management and per their request, created a customized reporting tool that runs in parallel with our current monthly billing. Fleet Management will present results of the shop rate comparison model to management for their consideration. Additionally, Fleet Management will implement best practices and policies to ensure technician time billed has oversight and controls in place to ensure accurate billable hours. Fleet Management Internal Audit Report for the City of Glendale 13 4. Finding The City Council allocated more funding to the VRF starting in Fiscal Year 2023 and it is now projected to be fully funded by 2027. Replacement of existing vehicles, and the purchase of new vehicles, is typically not done in a strategic centralized manner, based on supporting data and a long-term plan, which can result in higher costs over time. Recommendation In cooperation with City leadership, Fleet Management should continue its efforts to refine vehicle replacement data, develop a new lifecycle model by vehicle class, and create a new 10-year vehicle replacement plan. Vehicle purchasing requests should be considered based on need and consideration of the long-term costs. Condition: Fleet Management oversees the replacement process for all vehicle purchases under the Vehicle Replacement Fund (VRF). Analysis done by Fleet Management suggested the VRF, the main funding source used for replacing existing fleet vehicles, was underfunded by approximately $1 million per year, without accounting for inflation. However, as of the current fiscal year, City Council agreed to allocate more funding to the VRF, which is now projected to reach fully funded status in 2027. The projected funding allocation for the VRF through 2039, including deferred replacement, is more than $101 million, a significant increase from the prior projected funding of $34 million. Until now, Fleet Management has deferred necessary vehicle replacement due to the lack of available funding in the VRF. Below is a table presenting the annual forecasted VFR allocation compared to the forecasted VRF obligation. Vehicle Replacement Fund Replacement Forecast Approved Funding and Forecasted Obligation Source: City of Glendale Fleet Management $4,081,467 $10,277,828 $0 $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 VRF Allocation VRF Forecasted Need Fleet Management Internal Audit Report for the City of Glendale 14 Vehicle Replacement Planning: City policies state that vehicles should be recommended, and tentatively scheduled, for replacement based on vehicle age, mileage, condition, appearance, and repair history, as well as available lifecycle cost data. While this criteria generally defines vehicle replacement guidelines, it does not specifically state when a vehicle’s overall condition passes a certain threshold for replacement, and it is not specific to vehicle class. RTA has a vehicle scoring system, but Fleet Management is not currently using it. Instead, Fleet Management is referencing best practices for to develop replacement criteria. Fleet Management has started efforts to refine available vehicle replacement data and develop a new lifecycle model by vehicle class, and they are working on a 10-year vehicle replacement plan, looking 5 years into the past and 5 years into the future. New Vehicle Purchasing: The VRF can only be used for purchasing replacements for existing vehicles, not adding new vehicles to the fleet. These requests must be made during the annual budget process. Based on interviews with Fleet Management, it is standard practice that new vehicle requests be approved. UN-Vehicles and Retirements: Departments can maintain "UN-Vehicles" in certain circumstances. These are vehicles that have been replaced, but departments have been given permission to continue using knowing they are responsible for covering the associated expenses. City policy does not specify the exact circumstances in which maintaining UN-Vehicles would be justified. Upon retiring a vehicle, Fleet Management determines if the vehicle is in appropriate condition for auction. The written procedures detail what is required before and after auction, including that the information for the sold vehicle must be maintained for proper records retention. Criteria: Maintaining a cost-efficient fleet requires long-term strategy and planning to ensure the City can optimize the useful lifespan of its vehicles. Vehicle replacements are to be prioritized based on the needs of the City, with public safety in mind, and to fit within allocated replacement funds. Best practices recommend developing replacement schedules based on vehicle class, because different vehicle classes have different lifespans. These replacement schedules should be included in a documented fleet replacement strategy. AgileFleet Fleet Management Solutions and NAFA Fleet Management Association, which provide fleet management industry best practices, recommend exploring cost-saving alternatives like a motor pool, assessing reimbursement for employee personal vehicle mileage, and using car rentals. Cause: Until recently, Fleet Management and City leadership did not have a formal strategy or plan for optimizing the fleet to meet the City’s long-term needs. Decisions on vehicle replacement or acquisition were not driven by accurate data. Through interviews with Fleet Management, vehicle replacement and purchasing decisions have historically been based on requests from departments, and not driven by data. Effect: Fleet Management may not be aware of all vehicles in the City’s fleet, may not be replacing vehicles at optimal times based on accurate data, and may be absorbing a disproportionate amount of the costs to operate and maintain the fleet. The City may also approve requests for new vehicles only based on a compelling departmental business case without full knowledge of how acquisitions affect long-term costs to the City. Fleet Management Internal Audit Report for the City of Glendale 15 Fleet Management may not be replacing vehicles at optimal times based on accurate data, which could unnecessarily absorb limited VRF funding. Fleet Management has also deferred necessary vehicle replacement due to limited VRF funding, which could lead to increased maintenance costs and potential safety risks. Additionally, without understanding current vehicle utilization, as discussed in Finding #1 above, the projection of funding needs for the VRF may not be based on an optimal and cost-effective fleet. A right-sized fleet could produce cost savings that allow vehicle replacement dollars to stretch further than is currently forecasted. Still, the VRF needs adequate long-term funding, or the City will continue to be forced to defer necessary maintenance and vehicle replacement, further contributing to safety risks and higher replacement costs. Recommendation: We understand Fleet Management is already considering these options and recommend exploring them more after a fleet utilization study is conducted, as recommended in Finding #1 above.  Fleet Management should continue working toward refining its vehicle replacement data and develop more detailed criteria to guide decisions regarding vehicle replacement.  Fleet Management should consider working with City leadership to provide appropriate context to City Council in its budget decisions for approval of new vehicle acquisitions and whether those acquisitions will be cost-effective in the long term.  Now that City Council has approved a higher funding allocation to the VRF, Fleet Management should continue to evaluate the adequacy of forecasted funding needs over the next year.  In cooperation with City leadership, Fleet Management should develop a new lifecycle model, by vehicle class, and create a new 10-year vehicle replacement plan.  Fleet Management should maximize its use of GPS and telematics software to make informed purchasing decisions based on actual fleet utilization and maintenance data.  Depending on the results of the fleet utilization study recommended in Finding #1, Fleet Management should consider whether some cost-saving tactics may be appropriate, such as: ○ Expanding the City’s use of a motor pool, which effectively increases the ratio of drivers to vehicles while reducing the size of the fleet overall. ○ Analyzing reimbursement for use of personal vehicles will help Fleet Management ensure it knows the annual allocation for reimbursement and the impact on fleet size. Increased use of a motor pool can help reduce mileage reimbursement costs. ○ Identifying options to fulfill peak demand for vehicles, which could include establishing agreements with outside rental agencies. MANAGEMENT RESPONSE Management Agreement Concur Owner Fleet Management Target Completion Date 6/30/23 Fleet Management Internal Audit Report for the City of Glendale 16 MANAGEMENT RESPONSE Action Plan Fleet Management did an extensive VRF funding study in 2021. The current plan approved by the city council should correct the VRF funding deficit by 2027. Fleet Management is working with executive leadership to draft vehicle replacement policies to ensure the city-wide fleet is appropriately sized and resourced. Fleet Management has created 10-year fleet replacement models for each department and has incorporated GPS data analysis in the fleet procurement policy to ensure fleet utilization is analyzed before increasing the fleet asset count. Administrative motor pools exist, and potential expansion may be explored depending on the outcome of the complete GPS utilization study. Vehicle rental agreements are already in place for short-term needs. Unfunded vehicles will also be evaluated and identified to safeguard against abundant fleet asset growth. Fleet Management Internal Audit Report for the City of Glendale 17 PROCESS IMPROVEMENT Moss Adams LLP identified one opportunity for process improvement as a result of this internal audit. The following table summarizes the recommendation. CATEGORY PROCESS IMPROVEMENT RECOMMENDATIONS 1 Fleet Management Costs Allocations The City currently has a process in place to allocate certain fleet costs back to user departments across the City. There are three related funds that have a set budget authority each year. As Fleet Management performs services and costs are accumulated, those costs are charged directly back to user departments through regular billing. Historically, one or more of these funds go over budget, and when this occurs, a 13-month true-up is performed to allocate the budget overage to the various user departments, based on each department’s percentage of expenses during the year. Based on discussions with Management, the current approach does not accurately reflect the true cost by vehicle and does not promote active ongoing management of funds. This internal audit did not include performing a detailed assessment of cost allocation or the use of internal service funds (ISFs); however, as presented in this report, capturing and understanding all fleet-related costs and actively managing those costs is a vital part of fleet management. The City should consider performing a separate assessment related to the use of ISFs for Fleet Management, and potentially other City departments/functions, to aide in achieving cost allocation methodologies that are the most beneficial to the City. In some cases, utilizing ISFs, with a set working capital base that accumulates costs and then applying an activity-based cost method for allocating those costs can add significant value. Under an activity-based cost method, specific cost drivers, such as labor, fuel, etc., are identified, and related overhead is captured and allocated according to identified allocation bases. This type of allocation method can: ● Allow for more transparency by reflecting an allocation methodology that more closely aligns with actual usage. ● Provide a more accurate cost, by vehicle. ● Promote more active management of costs. ● Provide meaningful cost data for decision making purposes. A focused assessment in this area could help the City to evaluate the options for allocating certain costs and the costs versus benefit to making a change in methodologies applied. Fleet Management Internal Audit Report for the City of Glendale 18 APPENDIX: DEFINITIONS OF AUDIT FINDINGS RANKINGS We utilized the City’s Independent Internal Audit Program’s risk rankings, presented below, and assigned rankings based on our professional judgment. A qualitative assessment of high, medium, or low helps to prioritize implementation of corrective action as shown below. HIGH Critical control deficiencies that expose the City to a high degree of combined risks. Recommendations from high-risk findings should be implemented immediately (preferably within three months) to address areas with the most significant impact related to the City’s Fleet Management and fleet of vehicles. MEDIUM Represents less than critical deficiencies that expose the City to a moderate degree of combined risks. Recommendations arising from medium-risk findings should be implemented in a timely manner (preferably within six months), to address moderate risks and strengthen or enhance efficiency in internal controls on areas with moderate impact and likelihood of exposure. LOW Represents low risk or control deficiencies that are not likely to expose the City and its assets to significant losses. However, low-risk findings should be addressed in order to improve efficiency and effectiveness of operations. Recommendations arising from low-risk findings should be implemented within 12 months.