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HomeMy WebLinkAboutIAS-001-22Clarftwn Staff Report If this information is required in an alternate accessible format, please contact the Accessibility Coordinator at 905-623-3379 ext. 2131. Report To: Audit and Accountability Committee Date of Meeting: April 7, 2022 Report Number: IAS-001-22 Submitted By: Catherine Carr, Manager of Internal Audit Reviewed By: Mary -Anne Dempster, CAO Resolution#: File Number: By-law Number: Report Subject: Purchasing Card Internal Audit Recommendations: 1. That Report IAS-001-22 be received; 2. That the Director of Financial Services/Treasurer be directed to review and develop a plan to implement the recommended controls. Municipality of Clarington Report IAS-001-22 Report Overview Page 2 Purchasing cards are a useful tool for managing low -value purchases. With purchases averaging over one million from 2017 to 2020, Internal Audit planned an audit of purchasing card activity. This report covers the findings and recommendations from the internal audit conducted on the 2020 purchasing card activities. 1. Background History of Purchasing Cards 1.1 The Purchasing Card Program was first implemented in 1998 through TD bank. The program proved to be effective at streamlining the purchasing processes, mainly for those purchases under $5,000, by reducing administrative processes. In 2003, TD Bank sold its purchasing card program. The Municipality then switched to US Bank Mastercard Program (COD-035-03). In 2015, the Purchasing Card Program was reviewed, and the Municipality switched to BMO Mastercard through the Ontario Education Collaboration Marketplace (OECM) (COD-005-15). With the new agreement with BMO Mastercard, the Municipality can earn revenue on total purchases. This is paid annually. In 2021, the Municipality received income of $9,236.50 for purchases from June 2020 to May 2021. Purchasing By-law and Purchasing Cards 1.2 As per the purchasing by-law, purchases under $5,000 do not require a purchase order, and Staff can make these low -value purchases using their purchasing card. Purchasing By-law 2021-007, Part 3, Item 16, states: Purchases Up to $5,000 16. Goods and/or Services not exceeding a Cost of $5,000, (excluding computers, software, computer accessories and cell phones) do not require the submission of a Purchase Order (unless one is required by the vendor) and may be purchased by individual Departments as required at the lowest available Cost. However, if a term order or another form of Contract is established, then the Department must purchase from the Contract vendor. Computers, software, computer accessories and cell phones must be ordered in coordination with IT Services, using a Purchase Order. 1.3 Generally, purchases over $5,000 are not processed on purchasing cards and as stipulated in Schedule A of the Purchasing By-law, software and equipment maintenance agreements are exempt. However, there could be a few exemptions for emergency equipment. As the Municipality does not have a US bank account, it is more efficient to process these US charges on a purchasing card. Currently, the Information Municipality of Clarington Report IAS-001-22 Page 3 and Technology Manager (IT Manager) is the only staff member in that division with a purchasing card. 2. Purchasing Card Internal Audit Methodology 2.1 In July 2021, the Internal Audit division began an in-depth audit of expenses made on corporate -issued purchasing cards. This audit included time and resources dedicated to research, planning, data compilation, analysis, and interviews. Internal audit staff were delegated unfettered access to records and any relevant documents necessary to conduct the audit as scoped. 2.2 The objective of this audit was to determine compliance of purchasing card usage with the Municipality's procurement policies and Purchasing By-law, to review internal controls of the purchasing card process and assess risk of fraudulent spending. 2.3 All departments and any staff member with a purchasing card under the current agreement with the Municipality's Bank of Montreal (BMO) program were included as part of this audit. The Clarington Library does not use the same system as the Municipality. The Clarington Museums did use the BMO purchasing card with an MOL with the Municipality. As of January 1, 2020, the Clarington Museums merged with the Clarington Library. During 2020, the Clarington Museums stopped using the BMO purchasing card through the Municipality's program. 2.4 The period chosen for this audit was the calendar year of 2020. The Municipality held 112 cards with the number of cards, limits and approval levels varying between departments. Given the timeframe selected, the old organizational structure was in place and was followed for this audit. The audit samples were taken from the entire transaction list for the year, downloaded from the BMO client services site by the Purchasing Manager. The raw data was then organized by date and then every loth transaction was identified for further analysis as well as any transaction over $5,000. Once those transactions were isolated, the backup for each transaction was reviewed. The backup included the card statement from BMO, the spreadsheet analysis prepared by the department and the receipts for the listed transactions. Each bundle of back up documents was reviewed for a variety of criteria, some of which included; whether the purchasing card was used for personal purchases, were Purchasing Card purchases split to bypass purchasing card limits and/or policy on quotation/tender process, were P- cards used to circumvent policy on quotation/tender process. From there any issues/anomalies/deviations from the standard operating procedure were noted and flagged. Municipality of Clarington Report IAS-001-22 Page 4 2.5 As part of the audit, policies reviewed were 135-Meal Allowance, E7-Conference and Convention and El -Code of Ethics, G10-Purchasing Card Policy and the signed agreement by the cardholder. 2.6 Further review was done to confirm processes for canceling purchasing cards (when necessary), review the signed agreements for each of the cardholders identified in this audit, review from departments on their procedures for processing monthly statements, interviews, surveys, etc anonymous questionnaire were performed. 2.7 Some statistical data is shown in the attachments. This would include total amount of purchasing card transactions, total number of cards issued, average transaction value. Note that these statistics are grouped by the previous department structure. Findings From Internal Audit 2.8 There was no indication of fraudulent purchases. 2.9 There were no incidents of invoice splitting found to circumvent the Purchasing By-law. 2.10 Several policies relate to employee expenses but the Municipality does not have a comprehensive policy that clearly covers reasonable business expenses. There were inconsistencies between departments with respect to some expenses. Some departments bought gift cards for Staff and paid for meals and others did not. In many cases, it was unclear who attended the meal or its purpose. This would be more pertinent to meals within Clarington and Durham Region. It was probable that some of the meals outside the area were related to conferences and training at outside locations; however, individual meal purchases were not investigated. 2.11 There was a personal purchase made on a purchasing card. It was noted that this was repaid once it was noticed by the staff member at time of statement review. The employee and supervisor were questioned on this purchase and it appears to be an unintended error. This has happened on occasion by several Staff as the purchasing card can look very similar to a personal credit card. It is advisable for Staff to choose a different PIN for the purchasing card as an additional measure to prevent the error using the wrong card. There was no consistent personal use of the Purchasing card to indicate abuse. 2.12 There was a long lag between the statement date and managerial approval and submission to the Financial Services staff. As per the G10-Purhasing Card Policy, Staff are to reconcile their account within ten days of the statement date (the 271h day of each month). It is important to note that the appropriate receipt must be included with the statement reconciliation. For example, this must include a detailed restaurant receipt, not the point -of -sale Mastercard receipt. Municipality of Clarington Report IAS-001-22 Page 5 2.13 There were purchases made with the purchasing card at businesses that the Purchasing Division has negotiated a term order, such as Staples. There is a corporate discount with Staples. Orders can be made online through the appropriate department staff person, and orders generally arrive the next day via courier. This would also apply to coffee supplies and phone cases for corporate phones. 2.14 There was a significant number of purchases made for fleet parts. With one particular vendor there was over $85,000 in parts purchases with over four hundred transactions. There should be an agreement negotiated with the vendor and the Municipality at this volume and frequency. As well, it was not always clear from the descriptions if the parts were for a specific vehicle or restocking of inventory. 2.15 There was an incident of a supervisor having a staff person purchase a phone case for the supervisor, and then the supervisor approved the purchasing card expenditures. There should be clear rules on approvals. The approver should not directly benefit from the purchase. This would apply to meals as well. For example, a supervisor should not have a staff person pay for a meal that includes the supervisor and then approve that expense. This was not found in the meal receipts reviewed; however, it is one of the reasons it is important to show details of meal expenses, such as who attended. 2.16 There was a purchase of software that exceeded the $5,000 threshold that the IT division did not make. The IT Steering Committee structure in 2020 did not clearly show any documentation of IT discussion or approval of the software. The IT manager was not advised in advance of the software purchases. 2.17 Processing of monthly reconciliations varied from department to department. In some cases, each cardholder was responsible for the reconciliation and in other, a clerical or administrative staff person reconciled the accounts. This was a departmental decision on how to process the monthly reconciliation. If the cardholder does not provide the appropriate documentation to the clerk, then there is additional work for the clerk to follow up with the cardholder. Ultimately, the cardholder is responsible for having the appropriate receipts for their transactions. 2.18 From the Financial Services Department staff, it was noted that some statement reconciliation remittances were often late and some did not include the required receipt necessary for HST reporting. The purchaser, in this case the cardholder, is responsible for ensuring they have the proper receipt complete with the HST number. An order form or email confirmation of an order is not a proper receipt. 2.19 The Purchasing Manager sends out a transaction summary report to Department Heads twice a year. This report shows all the transactions on purchasing cards issued to their department. This can be used to look at trends and review purchasing card uses by their Staff. Municipality of Clarington Report IAS-001-22 3. Recommendations Page 6 3.1 That a comprehensive employee business expense policy be written to include guidelines on all appropriate expenses. This would include the rules on meals, alcohol, gift cards, phone accessories, mileage, and other expenses. It is important to note that not all expenses are paid through the purchasing card program. Mileage expenses are remitted through an employee expense form and paid through the payroll process, and other expenses are paid through the Accounts Payable system. This will assist in providing all staff clear direction on appropriate expenses. There should also be clear rules outlined on meal expenses and required information on the expense (reason for meal and who is in attendance). 3.2 It is recommended that a staff recognition policy be developed. The current policy D4 Employee Recognition Program pertains to the annual employee recognition function which historically has included an organized dinner and awards. Rewarding Staff for extra efforts throughout the year is important in maintaining morale and staff engagement. It should be noted that under CRA rules, gift cards are considered a taxable benefit. As well, the Municipality has a High Five program that Staff can acknowledge the exceptional work and efforts of their coworkers. A policy with clear guidelines would provide a consistent practice across all departments. It is recommended that pre -approval be required before incurring the expense. For example, as part of a team building exercise, supervisors could provide lunch. 3.3 Provide a memo to purchasing cardholders with reminders about rules on purchases. This could include existing vendors with purchase agreements, rules on phone accessories and other reminders. Additionally, it should be recommended that Staff use a different PIN for their purchasing card rather than using the same PIN they use for their personal cards. 3.4 Provide training to refresh Staff on monthly reconciliation process including timelines, HST information and required receipts. Consider creating a form to be completed by cardholder for a missing or improper receipt to be included in monthly reconciliation process. If the process is reviewed and changed by Financial Services staff, ensure that all Staff are aware of the changes to the process. 3.5 Public Works and Purchasing Division should investigate setting up a purchase agreement on fleet parts. Following a competitive procurement process ensures the highest value for the Municipality. If there is a specific supplier due matching equipment, then a negotiated agreement should be made with clear terms and conditions. 3.6 A reminder that purchasing card limits, including transaction limits, should be reviewed periodically by departments factoring in the Purchasing By-law and the staff responsibilities. Changes to limits are documented through emails to the Purchasing Municipality of Clarington Page 7 Report IAS-001-22 Manager and require Department Head approval. If there is an exception to the $5,000 limit of a purchase without a purchase order such as specialized equipment, the Purchasing Manager can make a temporary change to the limits with clear documentation and Department Head approval. 3.7 There are changes being made to the IT Steering Committee which will improve IT decision making (software and hardware). There should be Terms of Reference for the IT Steering Committee. 3.8 Cyclical audits of purchasing card should be conducted on a regular basis. This will be incorporated into future internal audit workplans. 4. Concurrence Not Applicable. 5. Conclusion The purchasing card program is a valuable tool for Staff as an efficient method of procuring low -value goods and services. It is important to maintain controls to reduce the risk of abuse and ensure that Municipal by-laws and policies are followed. While there are strong controls in place, there is some room for improvement. It is respectfully recommended that report IAS-001-22 be received and that Management be directed to review and develop an implementation plan for the recommendations. Staff Contact: Catherine Carr, Internal Audit Manager, 905-623-3379 ext 2606 or ccarr@clarington.net Attachments: Attachment 1 — Purchasing Card Statistics Interested Parties: There are no interested parties to be notified of Council's decision. TOTAL PURCHASING CARDS PER YEAR AND DEPARTMENT . _�2017MNWaM1 CAC) Office 6 6 7 6 Clerks 7 5 5 6 Community Services 32 30 31 29 Corporate Services 8 8 7 7 Emergency & Fire Services 24 18 19 14 Engineering 11 12 10 11 Finance 2 3 4 3 Legal 2 2 2 2 Mayor's Office 4 4 4 2 Operations 24 27 26 25 Planning 4 3 5 5 Totals 124 118 120 110 TRANSACTION TOTAL PER YEAR AND DEPARTMENT CAC) Office $ 43,286 $ 78,508 $ 51,360 $ 49,362 Clerks 28,166 44,624 23,753 28,060 Community Services 154,995 207,461 181,257 89,765 Corporate Services 56,768 227,112 150,335 157,117 Emergency & Fire Services 216,235 80,917 88,672 56,153 Engineering 37,940 34,295 34,145 18,512 Finance 26,179 43,719 27,176 13,472 Legal 2,114 10,187 7,039 5,515 Mayors Office 22,318 19,449 25,162 11,928 Operations 443,282 467,476 467,198 390,817 Planning 18,097 22,196 21,792 13,990 Totals $ 1,049,383 $ 1,235,943 $ 1,077,891 $ 834,692 AVERAGE TRANSACTION VALUE PER YEAR AND DEPARTMENT 1,200 1,000 800 600 Average Transaction Value ($) O 4 rn a m 400 00 m �Nm� m mm ��N Nl0 N N NN a) Ol Ol ry)I� Nci m m N 00Ln M'r N NNN`1 Ol0 O N Nam^ N Lnoo"tN N00 N� Ol N lON^lD 200 IIII 1�1 I I o GPI C. -,A�ec ta`e�ec, F�ce�et, �����e �\o� a"\O O p�eta� Q\ao etao ■ 2017 ■ 2018 ■ 2019 ■ 2020