Audit Report on the Internal Controls Of the Human Resources Administration Over Its Warehouse Inventory

AUDIT REPORT IN BRIEF

This audit determined whether the Human Resources Administration (HRA) has adequate internal controls over inventory at its central warehouse. HRA administers a broad range of programs and services to help individuals and families. The HRA Office of General Support Services provides assistance to HRA programs, including repair and maintenance. The Office of Facilities and Management Services (OFMS) stores materials for the Construction and Maintenance divisions.

Our review of the internal controls of HRA over its inventory operations disclosed significant weaknesses in the recording, security, and maintenance of inventory. These weaknesses resulted from HRA management’s failure to institute the controls necessary to ensure that the warehouse inventory is properly safeguarded and accounted for.

HRA does not have written procedures for maintaining inventory. Inaccurate inventory records and inadequate security measures were evidenced by the following: our count of sampled items revealed a gross discrepancy of 21 percent between the amounts on hand and the amounts reported in the records; HRA personnel do not generally investigate discrepancies between amounts on hand and amounts recorded; and 53 (25%) of the 219 transactions we reviewed were inventory adjustments inadequately supported by HRA’s records. Also, surveillance tools were not properly used, and the person in charge of security had not taken a day off in more than two years.

In such an environment, there is a high potential that goods may be lost or stolen and not detected.

We made two recommendations, HRA should:

• Create an inventory project team that reports to the Commissioner or a Deputy Commissioner, whose function would be to overhaul and redesign the agency’s inventory system. In re-engineering the system, this team should incorporate the inventory standards encompassed in the Department of Investigations’s "Standards for Inventory Control and Management" and in Comptroller’s Directive #1.
• As an alternative, if HRA does not think that it has the in-house skills necessary for an inventory re-engineering project, we recommend that HRA seek funding to hire an outside consultant to address the problems and use the future savings from its inventory operations to pay for the consultant.

The matters covered in this report were discussed with HRA officials during and at the conclusion of this audit. A preliminary draft was sent to HRA officials and was discussed at an exit conference on April 8, 2003. On April 29, 2003, we submitted a draft report to HRA officials with a request for comments. We received a written response from HRA on May 14, 2003. In its response, HRA generally agreed with the audit’s recommendations. However, HRA disagreed with the finding related to computerized inventory system malfunctions. The full text of the HRA comments is included as an addendum to this report.