HOUSTON - The Audit Division of the Office of the City Controller of the City of Houston performed an audit of the process to sell/transfer vehicle repair parts to NAPA (Genuine Parts Company). The audit found significant adjustments totaling $1.2M (or 30 percent of the original book value), which include write-offs, scrap, errors, and shrinkage, due to "recognizing errors previously undetected or not remediated." The audit also found that the City's current inventory count and valuation process was reasonably accurate, and the City received fair value for inventory items from NAPA.
The City approved a fleet consolidation plan in Oct. 2010, which created a new Fleet Management Department (FMD). The City entered into a contract with NAPA in January 2011 for inventory previously held and managed by the Houston Fire Department, Solid Waste Management Department, and the Houston Police Department. NAPA had already been providing these services to Public Works and Engineering, and Parks and Recreation under separate agreements, according to the audit report.
The book value of the repair parts inventory as of September 2010 was $3.9M. Inventory adjustments and net inventory activity totaled $1.6M, and final book value of inventory transferred to NAPA was $2.3M. Of this, $828K represents slow-moving parts that will be owned by the City but managed by NAPA and distributed first at no cost to city employees. Total payments received by the City from NAPA was nearly $1.5M.
The audit recommended the FMD monitor the slow-moving parts owned by the City and maintained by NAPA and verify that parts substitution was not occurring. FMD's response detailed how it would monitor these parts.
The audit also recommended the FMD should ensure proper documentation of obsolete or no longer usable parts. FMD agreed with the recommendation.
"As a result of the overall process, we commend the Fleet Management Department for taking an assertive leadership role effectively managing the physical count and transfer, along with developing and implementing stronger oversight controls," the audit stated.
For the full audit report, click here.