Audit Report on the Department of Citywide Administrative Services’ Controls over the Transfer, Sale, and Disposal of Surplus Goods

Executive Summary

The Department of Citywide Administrative Services (DCAS) provides support services to City agencies including, among other things, coordinating and disposing of their surplus goods. The DCAS Office of Citywide Procurement Policies and Procedures states that

The Office of Surplus Activities (OSA) is responsible for the timely and proper disposition of surplus City assets relinquished from the various Mayoral and other City agencies (Non-Mayoral). . . . OSA seeks to ensure that the City of New York reuses surplus property whenever and wherever possible by facilitating inter-agency transfers or, when transfer is not a viable option, realizing the highest possible revenue through resale. . . . Except as noted below, all materials must be itemized and processed by the relinquishing agency by creating an . . . Electronic Relinquishment. . . .

At other times, when material having metal content is to be relinquished to OSA the relinquishing agency may indicate that the material has no transfer or resale value and requests to discard the material via [an authorized] Scrap Metal Contract.

Each agency must designate an employee to be its Salvage Officer and that person is responsible for, among other things, submitting electronic requests to dispose of surplus goods (Electronic Relinquishments).

The City contracts with three vendors to dispose of surplus metal goods. The three authorized scrap metal vendors pay the City based on either: (1) an agreed-upon price per lot which is adjusted annually; or (2) the metal weight and an agreed-upon percentage of the applicable American Metal Market (AMM) price on the collection date. The AMM is a subscription based online provider of metal pricing information that includes the United States scrap metal markets.

The DCAS Office of Citywide Procurement Policies and Procedures states that

After material has been transferred or sold, an accounting for the value/revenue must be maintained. This value/revenue is based on either an estimate of the cost avoidance value (in the case of inter-agency transfers), or the actual revenue generated through resale.

During Calendar Year 2018, DCAS reported revenue of $1,793,956 and cost savings of $444,035.

Audit Findings

DCAS did not maintain adequate controls over the disposal of surplus metal goods, in part, because it did not perform quantitative analyses to determine the disposal method that would yield the most revenue for the City. Specifically, DCAS did not estimate and compare potential revenue generated from the bulk disposal of surplus metal goods through online public auctions and through its authorized scrap metal contracts. Based on our analysis of bulk disposals of voting machines, we estimate that DCAS failed to realize revenue totaling $315,134.79 during Calendar Year 2018.

Additionally, DCAS did not maintain adequate controls over the disposal of surplus metal goods because it did not enforce contract terms for weigh scale standards and locations, did not observe weighings, did not independently test the accuracy and precision of weigh scales, and did not ensure that vendors submitted required records and reports documenting weighings. Additionally, DCAS did not ensure that agency personnel witnessed and documented scrap metal weighings as required. Consequently, DCAS cannot be reasonably assured that scrap metal vendors accurately reported scrap metal weights and, ultimately, that the City received all of the scrap metal revenue to which it was entitled.

DCAS also did not maintain adequate controls over billings for both online public auctions and scrap metal disposals. DCAS did not ensure that payments were collected in all instances or appropriately. Specifically, based on the information provided by DCAS, it appears that the agency may have improperly refunded $32,050 to public auction bidders. Further, with regard to its authorized scrap metal vendors, DCAS improperly waived Late Payment Charges of $11,290, did not evaluate the impact of AMM pricing structure changes on scrap metal revenue, and did not bill for Class E and Class G scrap metals using the correct AMM markets. Consequently, the City did not receive all of the revenue to which it was entitled. Additionally, DCAS did not appropriately separate the duties between staff members for billing scrap metal vendors and collecting cash. Consequently, DCAS increased the risk that assets could be misappropriated and go undetected, and that cash would not be deposited timely.

With regard to the interagency transfer of surplus goods, DCAS did not reliably estimate or document reported cost savings of $444,035 for Calendar Year 2018.

Audit Recommendations

Based on our findings, we made 20 recommendations to DCAS, including that DCAS should:

• Estimate and document potential online auction revenue based on prior auctions or other sales records for similar goods (i.e., goods which were of similar type and condition), estimate and document potential scrap metal revenue based on estimated or actual weights and AMM Index pricing, and compare estimated online auction revenue to estimated scrap metal revenue to determine and document the most appropriate disposal method.
• Annually request weigh scale calibration and certification records.
• Periodically conduct unannounced observations of scrap metal weighings to ensure that contractors use certified scales to weigh vehicles loaded with scrap metal taken from agency locations when the vehicle enters the processing facility and after that vehicle is unloaded and to independently test the accuracy and precision of weigh scales.
• Enforce the requirement that agency Salvage Officers or other authorized agency personnel witness scrap metal weighings to ensure that scrap metal vendors use certified scales to weigh loaded and empty containers.
• Ensure that billings are made and collected in all instances where they are feasible or required.

Agency Response

In its response, DCAS stated that it agreed or partially agreed with 13 of the report’s 20 recommendations. DCAS stated that it did not agree with five recommendations and did not specifically address the remaining two recommendations.

However, to the extent that DCAS stated in its response that it disagreed in whole or in part with our recommendations, DCAS’ statements were contrary to the relevant provisions of the New York City Charter, New York City Comptroller’s Directive #21, the City’s contracts with authorized scrap metal vendors, or DCAS’ own policies and procedures. We address each area of disagreement in auditor comments following the recommendations and the applicable DCAS response.