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Department of Water Management Inventory Process Audit

October 4, 2012

Summary

The City of Chicago Office of Inspector General has completed an audit of inventory processes at the Department of Water Management’s Bureau of Operations and Distribution parts storage facilities where the City maintains an inventory of parts such as pipes, valves, clamps, and couplings used by DWM employees to repair water and sewer mains.

Executive Summary

The total 2011 year-end value of inventory reported by DWM to the City of Chicago Comptroller’s Office was $18,211,031, of which $16,172,703 was parts while the remainder was tools and consumable supplies such as paper products. Based upon the results of our audit, we concluded that DWM’s internal controls were inadequate to ensure that assets were properly accounted for and safeguarded.

More specifically, the IGO audit compared physical inventory at DWM storage locations to inventory balances recorded in the inventory software system. Our tests found that physical inventory amounts did not match the records for 43% of the parts sampled. DWM was unable to account for 27% of these inaccuracies, and offered a range of possible reasons for the others including employees moving parts in the warehouse without recording the change in location, incorrectly counting the number of parts in inventory, and adding or removing parts without notifying supervisors. We found that DWM did not have written policies and procedures to guide these manual inventory operations, and was not aware of the Comptroller’s inventory policies and procedures, which it is required to follow.

We also found that the inventory balance of parts used to repair fire hydrant heads was overstated because parts were not removed from inventory records as they were used, and the 2011 year-end inventory balance was understated by at least $152,925 due to an error in the design of the recordkeeping software. As a result of these over/understatements, the year-end amounts reported to the Comptroller’s Office are incorrect and therefore incorrectly stated in the annual financial statements.

Finally, there were significant gaps in security measures needed to safeguard inventory at the main warehouse. The primary indoor parts storage location did not have security cameras, functional swipe card access panels, or a security guard.

Department of Water Management Inventory Process Audit - publication cover