This report was initiated in response to a request from the Legislature's General Government and Capital Facilities Appropriations Subcommittee. We were specifically asked to determine if state agencies are being charged excessive rates for services rendered and if state agencies are subsidizing local governments. We were also asked to determine how effectively the Division is meeting the needs of state agencies and review the adequacy of the Division's internal controls.
We found that the Division of Surplus Property must institute better management controls to more effectively meet state agency needs. Lack of management controls has caused Surplus Property to excessively charge state agencies at least $304,000 during the past two and one-half fiscal years. Lack of controls has also resulted in a state surplus program that obtains low prices and is slow to reimburse state agencies. In fact, low prices and slow reimbursement have cost state agencies an additional $112,000 during a 22-month period. Finally, lack of management oversight has resulted in an absence of critical cash controls and in inconsistent agency practices. Specifically, at least $1,000 cannot be accounted for and cash controls have been loose enough that the system could be easily defrauded. In addition, some Division practices create inconsistent treatment of agencies.
The Division of Surplus Property operates both a federal and a state surplus property program with both programs functioning separately. The federal program obtains free surplus property from federal sources and then charges qualified buyers a small percentage of the original acquisition price to cover service and handling charges. In contrast, the state program sells state agency surplus items but charges the selling agency a percentage of the sales price to cover service and handling costs.
Surplus Property is required by law to monitor the costs of providing service and to establish fees that are commensurate with those costs. However, Surplus Property has not monitored federal and state program revenues. As a result, Surplus Property management has no idea if their operation is cost effective. In fact, because of this uncertainty, reimbursements to state agencies occasionally have been delayed until Division management was confident they had enough money to cover costs.
The following summaries identify the most significant findings and conclusions of the audit:
Surplus Property Has Charged State Agencies Excessive Rates. Lack of management control over the state surplus program has resulted in a program that overcharges state agencies in two ways. First, state agencies have been excessively charged at least $280,000 during the past two and one-half fiscal years by paying overly high service charges while federal program customers have been paying unrealistically low sales charges. Second, double charges and selling small items have caused state agencies additional excessive charges of at least $24,000 during the past 22 months.
State Program Services Do Not Effectively Meet Agency Needs. Lack of management review has resulted in a state surplus property program that does not effectively meet agency needs. In fact, prices obtained on vehicles has been low. More specifically, state agencies may have received $112,000 less than they could have due to low prices during a 22-month period reviewed. Also, reimbursements to selling agencies are slow after items sell. Slow payments have prevented state agencies from quickly turning sales proceeds back into new equipment purchases. Monitoring prices obtained for surplusing agencies and paying back in a more timely manner will allow Surplus Property to more effectively meet agency needs.
Critical Cash Controls and Consistent Division Practices Are Lacking. Lack of management oversight has resulted in a state program that lacks critical cash controls and in inconsistent Division practices. The careless manner in which cash has been handled puts Surplus Property at risk of being defrauded. At least $1,000 was unaccounted for during two separate reviews. However, during our audit, the Division adopted new cash procedures that appear to implement better controls over cash receipting and depositing. Lack of oversight has also allowed inconsistent treatment of state agencies regarding fees, reimbursements, and purchasing priorities. Written policies and procedures will ensure that rates are consistently applied and that every customer will be treated fairly.