City watchdog cites lax controls at Water Management Department
BY FRAN SPIELMAN City Hall Reporter email@example.com October 4, 2012 1:30PM
Updated: October 4, 2012 4:47PM
Lax security and internal controls at the Department of Water Management has created a “serious potential for loss or theft” of $18.2 million worth of pipes, valves and other supplies used to repair water and sewer mains, the city’s inspector general has found.
“Taken in its entirety, the audit demonstrated serious potential for loss or theft of city property, as well as inaccuracies in the information reported to the comptroller that were incorporated in the city’s year-end financial statements, which unwittingly rendered them inaccurate,” Inspector General Joe Ferguson wrote.
Most troubling is Ferguson’s finding of “significant gaps in security measures” needed to safeguard inventory at Water Management’s main warehouse at a time when the department is engaged in a $3 billion rebuilding program bankrolled by Mayor Rahm Emanuel’s plan to double water and sewer fees over the next four years.
Water Management is the same department that was at the center of the Hired Truck scandal.
Although metal parts are rising in value, the audit concluded that the primary indoor storage facility for those parts “did not have security cameras, functional swipe card access panels or a security guard.”
In February and March, Ferguson also compared physical inventory at Water Management storage facilities to “inventory balances” recorded by an internal software system. Physical inventory amounts “did not match the records” for 43 percent of the parts sampled.
Water Management personnel were “unable to account for 27 percent of these inaccuracies and offered a range of possible reasons” for the other 16 percent. They included employees moving parts in the warehouse without recording the new location, incorrectly counting the number of parts and adding or removing parts without notifying superiors, Ferguson said.
The problem was exacerbated by the fact that the department had no written policies governing “manual inventory operations” and was unaware of policies implemented by the city comptroller’s office that Water Management is required to follow.
The IG further concluded that the inventory of parts used to repair fire hydrant heads was “over-stated” because parts used for those repairs were not removed from inventory records. And thanks to an error in the design of record-keeping software, the 2011 inventory balance was “under-stated by at least $152,925.”
Ferguson noted that Water Management has responded to the audit by installing additional security cameras, four of them inside an “inventory cage” at 39th and Iron. The comptroller’s citywide inventory policies are also being implemented.
Water Management spokesman Tom LaPorte said the department worked together with Ferguson to perform the audit and was “already implementing some of the improvements
in practice and security” recommended by the IG while “others are in development.”
He added, “It is important to note that no inventory was physically missing from DWM. Discrepancies ranged from human counting error, consolidation of facilities and more than doubling our productivity in the field. We are finalizing new directives and training to ensure best practices and the security of our inventories.”
The parts inventory is stored at five locations. Only two of them — the main warehouse at 39th and Iron and a pipe yard at 31st and Rockwell — order parts from outside vendors.
“This report constitutes the second IGO audit released in the last month that reflects sub-standard inventory controls by a major city department involving the absence of written policies and procedures,” Ferguson wrote.
“That [Water Management] was not even aware of the city comptroller’s baseline inventory policies and procedures is especially troubling. ... We hope this audit highlights clearly-needed remedies,” Ferguson wrote.
Last month, Ferguson concluded that the Chicago Police Department was unable to locate a “significant volume” of evidence and property found or seized by its officers because the 2.2 million items were being inadequately protected, documented and stored.
During a seven-month audit that ended on July 20, the IG found that police employees “could not locate” 2.8 percent of items sampled from inventory records, nor could they find documentation for 3.8 percent of physical inventory sampled.
Error rates of 2.8 and 3.8 percent might not seem like proof of a serious shortcoming. But, the industry standard is zero errors—for good reason.
“The inability to locate inventoried items may result in evidence not being available for criminal trials, civil litigation or administrative hearings, making such prosecutions more difficult or potentially impossible,” the inspector general wrote.
“It could also result in property owners being unable to reclaim items no longer held for evidence with consequent legal exposure to the city in the form of compensatory damages to owners of lost or misplaced property.”