Audit Report On the Department of Education’s Oversight of Computer Hardware Purchased Through The Apple Inc. And Lenovo Inc. Contracts

Executive Summary

This audit of the New York City Department of Education (DOE) focuses on the controls and management DOE has had over two contracts for the purchase of computer hardware for use by students, teachers, and administrative staff. One contract with Apple, Inc. (Apple) was entered into on September 1, 2009,  and one with Lenovo, Inc. (Lenovo) was entered into on July 1, 2011.   As of September 2014, DOE spent approximately $197.1 million, which included $96.8 million on the Apple contract and $100.3 million on the Lenovo contract.

Audit Findings and Conclusion

DOE’s controls and management over its computer hardware have been insufficient to ensure that it properly accounts for its computer hardware.  DOE does not maintain a centralized inventory of computer hardware purchased from Apple and Lenovo.  Further, DOE does not reconcile the individual DOE sites’ inventory records with its Asset Management System (AMS), the database used by DOE to record computer hardware delivered to DOE.  Consequently, information in AMS is unreliable and fails to properly identify where all of the computers paid for by DOE are located.  In an initial reconciliation of two AMS lists of computers supposedly delivered to a single location, 1,044 items were listed in AMS as “Asset Location Unknown.”  An additional 46 items were unaccounted for entirely.   Further, inventory counts at nine other sampled locations (eight schools and the administrative office at 52 Chambers Street) found that an additional 727 pieces of computer hardware were missing entirely from the locations they were supposed to be at as identified in AMS.  Finally, in inspections of the eight schools that auditors chose as sampled locations, we also found that 394 pieces of computer hardware still packed and unused.

Audit Recommendation

• DOE should have a centralized inventory system for computer hardware that includes purchase and delivery information as well as current location.  DOE should explore using its existing AMS system for this purpose.
• DOE should revise its Standard Operating Procedures (SOP) to include the following:
  • Ensure that all computer hardware purchases, including tablets and netbooks, are included in AMS;
  • Require all schools and administrative sites to conduct annual inventory counts and submit the results of their annual inventory counts to a central administrative unit charged with tracking all computer inventory and maintaining a comprehensive and accurate inventory of all DOE computer hardware;
  • Reconcile the results of inventory counts with the information in AMS to ensure information in AMS is accurate and up to date; and
  • Require all schools and administrative sites to include tablets and netbooks in the annual inventory count.
• DOE should routinely monitor recordkeeping procedures for computer hardware at DOE sites to ensure that accurate and complete inventories are maintained.
• DOE should determine the physical locations of the 1,817 computers (1,090  computers from discrepancies identified between AMS lists and the 727 computers) that could not be identified during our physical inventory counts.
• DOE should conduct a system-wide inventory count and reconciliation of DOE data to determine if other computers are not properly accounted for.
• DOE should refer evidence of misconduct in connection with the purchase, receipt and usage of computer equipment to appropriate authorities, including law enforcement in the case of evidence of potential criminal activity.
• DOE should instruct schools to identify unused computer hardware in their inventory records.
• DOE should transfer unused hardware to locations where it is needed.

Agency Response

DOE disagreed with the audit’s findings and with 6 of the 8 recommendations. Furthermore, DOE maintains that “[T]he Comptroller did not investigate DOE’s actual inventory process and as a result the audit provides an incomplete and uneven account of the location of equipment purchased by the DOE.”  DOE also questioned the auditors’ methodology and asserted that “[a]n audit with the stated purpose of seeking all items listed in AMS is incomplete without reviewing the POs to identify the delivery location.  This being said, the auditors audit testing methodology still relied on physically confirming the location of equipment based upon the location of the purchaser, instead of, say, delivery location, a more reasonable starting point.  With this flawed methodology, the audit team faced a number of hurdles that led to incomplete information being included in the Report.”  Additionally, DOE stated that “The DOE does not agree that a single centralized inventory system is cost effective or practical.”

We strongly disagree with DOE’s position. While DOE asserts that it is able to account for equipment purchased without reconciling purchases to individual site-based inventory records, the fact remains that even with months in which to do its research, DOE was unable to identify the locations of many of the computers selected for review in our audit.  In addition, in its response, DOE asserted that it had located computers.  However, in making this claim, it failed to present any corroborating documentation.   Finally, since AMS has the capability of tracking the location of computers, we urge DOE to reconsider the cost effectiveness of DOE’s utilization of AMS for that purpose, particularly in light of the findings of this audit.

These arguments and our rebuttal are discussed in greater detail in this report.