A critical support function for SFPD field operations is the provision of materials and supplies ranging from weapons and ammunition to routine office supplies. The management audit examined this function in detail in order to evaluate the extent to which SFPD units receive sufficient support in a timely and efficient manner.

INTRODUCTION

The Property Division of the San Francisco Police Department (SFPD) is responsible for the following activities:

• Performing inventory management of supplies, which includes ordering, receiving, storing and distributing SFPD supplies from a central stockroom;

• Maintaining recovered property seized as evidence and holding public auctions.

This section of the report will discuss those activities specifically related to SFPD inventory management and will not address evidence or fleet management issues. The SFPD maintains a centralized Property Room which carries and issues all materials and supplies items on a department-wide basis. These inventory items include office supplies, code books, cassette tapes, infectious disease supplies, and various departmental forms and reports. The SFPD Property Room procures these inventory items for the Department in conjunction with the City"s Purchasing Department. The annual materials and supplies budget for the Police Department is approximately $3.4 million.

City Procurement Methods

The City"s Purchasing Department is responsible for bidding contracts for most of the City"s goods and services. By bidding items and consolidating them into large orders, the Purchaser is most likely to procure goods and services for the City at the lowest prices. Certain other items which are used exclusively in law enforcement activities, such as uniforms, are purchased directly through a single vendor. Therefore, the SFPD can procure items either through a City contract which was bid through the Purchasing Department, or directly through a vendor. These procurement methods are summarized as follows:

After an item is ordered, payments are made through one of these purchasing mechanisms:

SFPD Procurement and Inventory Functions

The Police Department"s inventory procurement activities are centralized through the SFPD"s Property Room. The SFPD"s Property Room is responsible for procuring inventory items based upon the methods described above (City Blanket Purchase Order, Requisitions for Purchasing Orders, or open market purchasing). The Fiscal Division of the SFPD is responsible for making payments through one of the payment authorities, such as through a City BPO Release, a Department BPO Release, through the Revolving Fund or through a direct payment to the vendor.

In addition to these procurement functions, the SFPD Property Room maintains a centralized warehouse for the entire department, and is responsible for performing daily inventory management. The Property Room is also the repository for property that is seized as evidence by police officers.

Inventory Management and Preferred Practices

Significant features of inventory management include ensuring that the proper internal controls are present. Internal control strategies are essential for inventory management at the Police Department primarily to:

Based upon these internal control requirements, the preferred practices of inventory management include:

Inventory management will become increasingly important with the full implementation of Proposition D (full sworn staffing), as the increase in the number of sworn personnel will lead to a more materials and supply requests. There will be a corresponding need to process requests in a timely and efficient manner. In addition to a greater need for efficiency in the face of growing demand, there is potential for cost savings with improved inventory management and procurement practices.

Methodology

In order to evaluate whether the SFPD"s current procurement and inventory distribution system is cost-effective, efficient, and has sufficient management controls over the acquisition and distribution of inventory, we performed the following activities:

• Interviewed the Commanding Officer, Storekeepers, district station personnel, and Property Room and Fiscal Division staff;

• Toured the Property Room facilities and observed operations for requesting and completing orders at the Property Room;

• Reviewed budget documents, supply requisitions and emergency supply requests, and revolving fund vouchers;

• Developed an analysis of staff time involved in completing inventory requests;

• Obtained staffing costs for the SFPD Property Room.

CURRENT PROCUREMENT AND INVENTORY METHODS

As previously noted, the SFPD"s inventory procurement activities are centralized through the Property Room, which is responsible for procurement of equipment and supplies, and for maintaining a central inventory in the Property Room warehouse. In addition, individual units may procure items directly from vendors through the use of the Revolving Fund.

The SFPD is comprised of approximately 130 departmental units. A department unit is either a district station, or a specialized unit, such as vice crimes, support services, crime prevention or the legal division. At the district stations, a sworn officer or civilian acting as a "Station Facilitator" is responsible for completing all supply requisitions. At other units, there typically is one person responsible for supply requests. The process for delivering supplies depends upon the type of item that is ordered.

Centralized (Property Room) Procurement Methods

For items procured by the SFPD Property Room and maintained in the central Property Room inventory, the following procedures apply:

• The Station Facilitator or designated individual from each departmental unit completes a supply requisition on a monthly basis and submits this requisition to the Property Room. Written authorization for the requisition must be obtained by a commanding officer.

• During the month, if particular Property Room items are required on an expedited basis, then Station Facilitators must complete an "emergency supply" request that will be filled within a 24-hour period. The Property Room prioritizes emergency requests over monthly requests.

• Upon completion of monthly and the "emergency" request orders, Property Room personnel notify the requesting unit that the request has been completed.

• Requesting units are responsible for picking up the requested items from the Property Room, which is located in the basement of the Hall of Justice. Staff time is incurred traveling to the Property Room and loading and unloading the inventory items.

• As the level of inventories decrease, the Property Room re-orders items to ensure that an adequate stock is available.

• All invoices for materials and supplies procured by the Property Room are sent directly to the Fiscal Division. The Fiscal Division will typically send a copy of the invoice to the Property Room to reconcile the request with the packing slip.

Decentralized Procurement Methods

Items Not Stocked by the Property Room

The following procedures apply for items that are not stocked within the SFPD"s Property Room:

• The requesting unit must first obtain written authorization by the commanding officer responsible for management of the requesting unit.

• The Fiscal Division then reviews and authorizes the item(s).

• The SFPD Fiscal Division submits the purchase order to the Purchasing Department. The Purchasing Department determines whether the item is available under an existing City Blanket Purchase Order, or whether a formal or informal bidding procedure is required.

Procurement of Firearms and Ammunition

Firearms and ammunition are handled separately through the Police Pistol Range. The following procedures apply:

• Units requesting firearms or ammunition must submit a request to the Police Pistol Range.

• The commanding officer at the Police Pistol Range will then check whether the item is available in the inventory. If the item is not available, then a Purchase Order will be sent to the Fiscal Division to reorder additional items.

• The Police Pistol Range also visits the units, and periodically audits the firearms and weapons on hand in individual units to maintain adequate security over weapons.

• The commanding officer at the Police Pistol Range replenishes the inventory, and develops the annual departmental budget request for firearms and ammunition.

Procurement of Uniform Clothing

The following procedures apply for the procurement of uniform clothing:

• Uniforms are not kept in the Property Room"s inventory. In order to complete a request for a uniform item, an officer must first obtain a written authorization from the commanding officer.

• The commanding officer will then submit a uniform request to the Property Room where an assigned clerk will review the request to determine the last time the uniform item was ordered for the officer in question.

• The request voucher will then be sent directly to the appropriate contract uniform vendor.

• Depending upon the item requested, the vendor SFPD would utilize would be either Butler"s Uniforms or Caleb V. Smith. These vendors stock all uniform-related equipment items including boots, coats, jackets, shirts, shoes and trousers, belts, handcuff cases and batons.

• Once the request voucher is sent to the appropriate vendor, the officer has 14 days to go to the vendor to be sized for the item. If the officer does not appear within 14 days, the vendor will notify the officer, and beyond 14 days, the request will have to be re-issued.

The SFPD has indicated that this practice has been initiated rather than stocking the items in the Property Room because 1) there is a risk of over-ordering items that are not appropriate sizes, and 2) purchasing directly from the vendor guarantees that the City receives a better price for the item, as the vendor can maintain a larger inventory.

Procurement of Computer Supplies

The Management Information Systems (MIS) Division of the SFPD is responsible for purchasing all computer equipment, software and supplies for the Department. Requests for such equipment are directed to the MIS division, which orders the appropriate supplies from the vendors regularly used. The MIS Division coordinates procurement of computer equipment and supplies to insure uniformity and compatibility of the Department"s computer equipment and software.

Procurement of Crime Laboratory Supplies

The Crime Laboratory is responsible for procuring specialized supplies used only in the Crime Laboratory, such as chemicals used for laboratory tests. The Crime Laboratory also orders commonly used items (such as office supplies) through the Property Room.

Items Purchased Through the Revolving Fund

As previously noted, Revolving Fund purchases are used for small, non-repetitive purchases, such as urgently needed items and small repairs. For items purchased from the SFPD"s Revolving Fund, the following procedures apply:

• The SFPD Revolving Fund was authorized pursuant to San Francisco Administrative Code Section 10.125, which specifies that the SFPD is authorized up to a maximum amount of $12,000 to make disbursements for petty cash purchases and for disbursements which cannot be conveniently made through purchase orders or warrants drawn by the Controller. These purchases still are subject to the applicable rules and regulations of the Controller and the Purchaser. The Revolving Fund may be used for purchases of goods or services of $200 or less from any one vendor per day for authorized items.

• Units submit invoices to the Fiscal Division for direct payment through the Revolving Fund. These requests are for payment or reimbursement after the items have already been purchased.

• The expenditure submitted for payment or reimbursement must be approved by a unit supervisor, and also approved by the Fiscal Division. Only five individuals are authorized to approve the expenditure on behalf of the Fiscal Division, including the Police Chief, the Assistant Chief, the Deputy Chief, Administration, and the Lieutenant and one Officer in the Fiscal Division.

• One 1650 Accountant in the Fiscal Division is responsible for writing the checks from the Revolving Fund, but the checks must be signed by two of the five individuals noted above. [4]

• After expenditures are made from the Revolving Fund, the Fiscal Division will complete a summary voucher containing several Revolving Fund transactions, and submit the voucher to the Controller.

• The Controller will then review the request and will replenish the Revolving Fund by transferring funds available in the department"s annual materials and supplies budget.

The Controller issued departmental instructions regarding the establishment and administration of departmental Revolving Funds, designed to ensure that a Revolving Fund is used appropriately. [5] These guidelines specify that the following items are not reimbursable through a Revolving Fund:

• Travel expenses;
• Membership fees;
• Equipment purchases or rentals, payments for equipment maintenance and/or payment of purchases for any regularly used commodities and services.

The Controller"s Departmental Instruction No. 1052, updated in August, 1996, also provides regulations regarding the procedures for management and administration of revolving funds, and provides for increased controls over invoices that are accepted for payment.

As noted above, routinely purchased items should be requested through the Property Room or through the City"s Purchasing Department instead of using the Revolving Fund. In the case of items ordered through the Property Room or the Purchasing Department, the Controller encumbers the funds within the materials and supplies budget once an order has been requested. Revolving Fund purchases, by contrast, are reimbursed after the item(s) have already been purchased.

In summary, the SFPD has a centralized inventory system for routinely purchased equipment and supplies. Specialized equipment such as uniform clothing and ammunition are ordered through different methods in order to maximize security and efficiency. In addition, the centralized procurement process can essentially be circumvented by the individual units through the use of the Revolving Fund for procurement of items valued under $200.

EVALUATION OF THE SFPD"s CURRENT PROCUREMENT AND INVENTORY PRACTICES

The current process for maintaining inventories with the SFPD is primarily centralized. However, as noted in the preceding section, separate processes exist for items that are not stocked within the SFPD Property Room (e.g. Purchase Ordered non-recurring items, uniforms and firearms, and Revolving Fund purchases). We have identified significant internal control weaknesses and efficiency issues in several areas.

It should be noted that the Property Room and the Fiscal Division have recently taken steps to address some of the internal control weaknesses identified in this section. We discuss these improved control measures at the end of this sections.

Evaluation of Centralized Property Room Functions

Current Staffing and Costs for Completing Orders through the Property Room

The current cost to the SFPD for ordering, maintaining and distributing supplies consists of the following:

• Property Room staff time associated with ordering and processing inventory requests. Three storekeepers, at an estimated annual cost of $135,000, have primary responsibility for completing the supply requests and maintaining the Property Room inventory. A clerk typist and the commanding officer also spend a portion of their time administering the centralized warehouse functions.

• Staff time required to pick up supplies at the Hall of Justice. Based upon the current number of requests that are issued on an annual basis, it is estimated that approximately $114,000 is incurred annually for picking up and delivering supplies. These costs represent the time spent by sworn and non-sworn personnel traveling to and from the Property Room, which is located in the Hall of Justice. Although most units are located in the Hall of Justice, staff time must be spent by traveling from the district stations, and other units such as the Police Academy, that are located throughout the City.

• Staff time required for completing supply requests at the unit level. Currently, approximately 4,750 supply requests are issued annually by the 130 SFPD units, which is on average three supply requests per month. Based upon this level of activity, the SFPD spends approximately $34,000 annually on sworn and non-sworn staff time required to complete supply requisitions. The current excessive number of requests that are issued are discussed below.

Therefore, the total labor cost to order, maintain and distribute supplies is estimated at $283,000 annually.

Benefits of Centralized Purchasing and Warehousing

In general, the benefits of centralizing most purchasing functions include the following:

• By maintaining a central warehouse as the central point of receipt for all stock inventory items, a department is able to reduce the level of effort involved to order and receive City Blanket Purchase Order and Purchase Order items.

• By maintaining a single point of receipt, a department can assemble all the supporting documentation required to process invoices in a timely manner. In addition, the flow of accounts payable supporting documentation is centralized.

• A central warehouse allows for greater security and control over inventory, as all items are received and distributed from one location, minimizing points of potential theft or security breaches.

• A centralized inventory allows for greater management control over inventory usage and re-ordering, which enables more efficient budgetary and fiscal management.

Identification of Internal Control Weaknesses

The following significant internal control weaknesses were identified for those centralized activities that occur within the SFPD"s Property Room:

• The SFPD is unable to determine the current dollar value of its inventory. In addition, the SFPD was unable to identify the last date a physical inventory was completed.

• The SFPD does not track its inventory usage. Without tracking inventory usage, the SFPD cannot determine inappropriate inventory usage, or whether items have been lost, stolen, or issued to authorized personnel. In addition, tracking actual usage is essential for developing budget requests and establishing re-order points.

• The SFPD has no written policies and procedures regarding inventory re-order points. As a result, there is no way to determine whether an appropriate mix of inventory is held, or whether significant levels of inactive stock remain on the shelves. Excessive inventory carrying costs may result from ordering items before it is necessary to do so, and from maintaining stock which is inactive. Also, inefficiencies result when needed items are out of stock.

• SFPD units are not provided with specific procedures regarding appropriate supply levels. Without formal guidance regarding appropriate supply levels or re-ordering guidelines, units often replenish supplies more frequently than necessary. Departmental units issue an average of three requests monthly, which often contain only one or two items. For instance, 50 percent of the 119 requests reviewed from two stations contained three or fewer items.

• There is no comprehensive listing of supply items available from the Property Room. A similar consistent format is not available to departmental units to request items. As a result, there are inconsistencies in the manner that units will request items, which results in an excessive amount of staff time required to review requests.

• Supply requisitions are completed by unauthorized persons. For instance, up to six different persons issued supply requests from the Richmond District Station during 1995. Approval for these requests was received by up to four different personnel, and 12 out of 58 requests (21 percent) did not receive any authorization. Completion of supply requisitions without the required authorization indicates a lack of management controls and accountability, and may result in duplicate or inappropriate procurements and expenditures.

• No formal policy exists for segregation of ordering and receiving functions. No procedure currently exists to formally separate ordering activities from receiving of ordered goods, which is a key feature of inventory control and management. Separating ordering and receiving functions is a safeguard against potential impropriety and theft. In the course of this audit we found instances where the ordering and receiving functions are currently being performed by the same individual(s).

Identification of Inventory Management Weaknesses

Since the SFPD lacks written policies and procedures that describe appropriate supply levels and re-ordering protocols, units often submit unnecessary supply requests. The Property Room estimates that, on an annual basis, a total of 4,750 requisitions are completed, consisting of approximately 700 monthly requests and 4,050 "emergency" requisitions. Emergency requisitions issued often contain routine items. For instance, "emergency" requests include items such as hanging folders, tabs, batteries, magnetic paper clip dispensers, stamp pads, wall calendars and similar items that should be requested during the normal monthly requisition process. Department staff estimates that of the 4,050 "emergency" requests issued, only 22 percent (900 requests annually) are special orders that are required to be completed within one day.

Station Facilitators report that there are frequent delays in receiving monthly supply requests from the Property Room, and that they often submit "emergency" requests when goods requested through the monthly supply requests are not received on a timely basis.

These internal control weaknesses impact upon the entire process for acquiring and distributing inventories. For instance, because units are not provided with a comprehensive listing of supply items, units often bypass the centralized Property Room warehouse and instead utilize the Revolving Fund inappropriately for materials and supplies purchases.

Evaluation of Revolving Fund Procurement Methods

The SFPD was requested to provide a summary report detailing actual expenditures and types of purchases made from the Revolving Fund on an annual basis. The SFPD does not track total expenditures made from the Revolving Fund, but did provide the management audit staff with access to the Department"s Revolving Fund Vouchers. The management audit staff calculated the total expenditures made from the Fund annually based on a one year sample of vouchers from calendar year 1995. [6]

We estimate that approximately $148,000 in expenditures are made from the Revolving Fund annually, through approximately 1,200 separate purchases with an average cost of approximately $124 per purchase. Revolving Fund Vouchers, that typically contain 20 to 30 separate purchases or reimbursements, are submitted to the Controller for replenishment of the departmental Revolving Fund. Our sample of Revolving Fund Vouchers for calendar 1995 contained 46 separate vouchers with an average value of approximately $3,207 per voucher. As previously noted, the Department has a $12,000 revolving fund, indicating that the fund was replenished 13 times or more during that one year period.

Identification of Internal Control Weaknesses

Based on a random sample of vouchers submitted during the twelve month period from January 1995 through December, 1995 [7] , several significant internal control weaknesses were identified:

• The Revolving Fund was used inappropriately as an expedient purchasing method for any material or supplies purchase of $200 or less, including routine supply items purchased by the Property Room that should be procured through City or Department BPOs.

• Many Revolving Fund purchases were made repeatedly for the same items or from the same vendors, indicating that the Department should develop Department BPOs or other purchasing arrangements with these vendors.

• The $200 per invoice per day limit was frequently circumvented by placing several smaller orders on separate invoices, or ordering more frequently in amounts costing exactly $200 or less.

• Some purchases made through the Revolving Fund exceeded the $200 per invoice limit (exclusive of tax and shipping charges), and these purchases were approved and paid by the Fiscal Division.

• Payment of $100 per month for officers who keep Police dogs was being paid as a reimbursement from the Revolving Fund, when this payment should correctly be treated as premium pay through payroll.

• The Revolving Fund was being used inappropriately to circumvent the centralized supply functions, for the purchase of items that should be procured through the Property Room, or through the MIS Division.

• The Department could not provide a comprehensive list of vendors that the Department has existing DBPOs with, or a list of preferred vendors for emergency purchases made through the Revolving Fund.

Specific examples of such inventory control weaknesses include:

• Approximately 22 percent of purchases made through the Revolving Fund are for routinely purchased items that should be ordered by the Property Room through Citywide or Department Blanket Purchase Orders. Such purchases include office supplies, latex gloves, light bulbs, and cleaning supplies. These purchases totaled over $8,497 of the total sample of approximately $27,659 in purchases, or nearly 31 percent of expenditures. On an annual basis, this corresponds to approximately 256 Revolving Fund purchases (of 1,189 total annual Revolving Fund purchases), at an estimated cost of $45,464.

• Approximately seven percent of purchases made through the Revolving Fund are for supplies routinely used in the Crime Laboratory. Most of these purchases were made from four vendors with whom the Crime Lab places orders on a regular basis.

• Nearly eight percent of purchases, representing 90 purchases on an annual basis, are for computer and typewriter supplies. Some of these purchases are for regularly used parts purchased repeatedly from a several vendors. Many of these purchases are for software, printers or other supplies not purchased or approved by the MIS division, often for software and/or supplies that are not in compliance with Departmental standards or technologies.

Such inappropriate usage of the Revolving Fund indicates an inadequate level of management control and policy guidelines, and may result in higher expenditures for materials and supplies. By utilizing the Revolving Fund in an appropriate manner, the SFPD could be guaranteed that the best price is obtained for purchases by purchasing the item through a City Blanket Purchase Order, under which the City is guaranteed a particular price. Shipping and handling charges could also be avoided by eliminating the use of the Revolving Fund for these purchases.

Recent Steps to Improve Management Controls

General Policies

In January, 1996 the SFPD re-issued a Department Bulletin regarding Purchasing and Ordering Procedures. This bulletin described the appropriate methods of ordering goods and services, and warned that those who do not follow the guidelines shall be personally responsible for payment of the goods or services ordered through incorrect methods. The guidelines stated that: a) routine supply items must be ordered through Property Control; b) computer equipment, support or supplies must be requested by memorandum to the Commanding Officer of the Planning Division; c) non-routine supplies or services must be requested by memorandum through the Fiscal Officer; and d) emergency supplies needed after business hours must be authorized through the Operations Center and the Fiscal Officer, and documented by memorandum to the Fiscal Officer within two days.

In September, 1996 the Department issued a revised Department Bulletin that further detailed proper procedures for vehicle-related and communications-related (PIC radios, batteries, ear pieces) requests. In addition, the Bulletin contains a revised policy for procurement of non-routine supplies or services that requires that a written request include a vendor price quotation, a vendor phone number, a shipping address and a contact person.

In addition, the Property Room Manager advises that only five individuals in the Department can authorize supply orders, and that vendors have been notified that a) all orders must be authorized by one of these five individuals; and b) vendors will not be paid for orders filled without the appropriate authorization.

Lastly, the SFPD has recently devised a detailed plan to improve all aspects of materials and supplies procurement and distribution to incorporate many of the recommendations in this report. This new plan is designed to operate on a combined centralized and decentralized basis and will eliminate the practice of uniformed officers traveling to the central supply room at the Hall of Justice to pick up items. Instead, storekeepers will be responsible for delivering items to outlying units and District Stations.

Revolving Fund Procedures

Pursuant to the revised Controller"s Departmental Instruction Nos. 1051 and 1052 in August 1996, the Police Department has tightened controls over revolving fund purchases and reimbursement or payment methods. All checks written on the revolving fund now require two signatures by authorized personnel. In addition, all requests for payment or reimbursement must be accompanied by a memorandum explaining the nature of the expenditure and the reason no other procurement method could be used for the purchase.

In addition, the Police dog subsistence reimbursement is now included in the Police Officers Association Memorandum of Understanding (MOU). Payment of the $50 biweekly premium pay will be awarded to all individuals that take on Police dog responsibilities, and this will be paid through payroll rather than the revolving fund.

The SFPD and the Budget Analyst concur that elimination of inappropriate purchases through the revolving fund will result in savings of approximately $150,000 annually.

Inventory Bar-Code System

The Department reports that it is in the process of procuring an inventory management computer system that will include a bar-code tracking system that can track utilization by department unit, and inventory re-order points. The Department reports that the funds for this project are included in the Department"s budget for 1996-97, and that they are in the process of researching potential vendors of an off-the-shelf inventory control system. The Department reports that it expects to issue a Request for Proposal within the next few months and hopes to install the system by the end of the fiscal year.

Conversion to Online FAMIS and ADPICS

The Department reports that the computer terminals and furniture required for the Department to go on-line for FAMIS and ADPICS (the City"s procurement and ordering system) were installed in July, 1996. Employee training in these systems is commencing at this time, and the Department hopes to be on-line by November or December.

PROPOSED DECENTRALIZATION OF INVENTORY FUNCTIONS

The internal control weaknesses identified above demonstrate that there is no clear benefit to centralized Property Room functions. In addition, as noted above, approximately $283,000 is spent annually on activities related to the centralized Property Room. Allowing units to arrange for direct delivery of items would enable the SFPD to perform these activities in a more cost-efficient manner.

Proposed Procedures for Decentralization

Under a decentralized process, the following procedures should apply:

• The SFPD should formally designate one individual as the Facilitator in each unit who would be responsible for ordering and maintaining inventory at that unit. Although technically this is the current procedure, as noted, unauthorized persons also submit supply requests. The SFPD should specifically designate the Facilitator with sole signatory authority to perform inventory functions. The SFPD should also authorize an alternate Facilitator in each unit to serve as a back up if the designated Facilitator is absent.

• The designated unit Facilitator would order supplies directly from vendors for items that can be purchased on a decentralized basis. This would include uniform requests which would be submitted directly to the uniform vendors. A copy of the order would be faxed to the Fiscal Division.

• Special items that are not available in a catalogue would be required through a Purchase Order, and should be submitted directly to the Purchasing Department.

• A person separate from the unit Facilitator should be designated to perform the receiving function, including counting items when received and noting discrepancies on the packing slip. The packing slip should then be faxed to the Fiscal Division for payment. Separation of ordering functions (performed by the Facilitator) and receiving functions (performed by a different staff person) is necessary to provide sufficient safeguards against impropriety or theft.

• Invoices should be received and processed by the Fiscal Division as is currently done.

• The SFPD should develop policies that identify when items should be re-ordered. The designated Facilitator should keep accurate records which track inventory usage, in order to maintain an adequate amount of inventory on-hand so that excessive orders would not be required. An inventory usage report should be faxed to the Fiscal Division twice annually.

• Periodic physical inventory counts should be performed by the SFPD units, and any discrepancies would be reported to the Fiscal Division.

Savings can be achieved through:

• Elimination of staff time used to travel to and from the Property Room warehouse to pick up, load and unload the items. Staff have indicated that the current time required to complete these activities can range from 30 minutes to several hours to complete each request.

• Staff time required to submit and process an excessive number of "emergency" supply requisitions, which are submitted as a result of delays in monthly supply requisitions from the Property Room.

The Fiscal Division should require that vendors consolidate billings for multiple City Blanket Purchase Order orders. Also, the procurement process will likely be less labor intensive with the on-line FAMIS system, which will automate the placement of orders under City Blanket Purchase Order with the City.

Benefits of Decentralization of Inventory Functions

The following benefits would be achieved from decentralizing inventory functions in the department:

• A reduction in the time required to receive items would result. Currently, approximately 40 percent of supply requests are completed within one day. However, this can be attributed to the number of "emergency" or special requests that are submitted to the Property Room on an annual basis. Also, almost 30 percent of requests to the Property Room, or approximately 1,425 requisitions on an annual basis, take eleven working days or longer to complete. The current range of days to complete requisitions was within the same day to within 34 working days (almost seven weeks). By maintaining an adequate stock on-hand and utilizing re-order point procedures, the SFPD could eliminate any delays in processing inventory requests. Also, the number of "emergency" requests are often a result of the delays in receiving the monthly request items, and therefore, this would be eliminated under a decentralized system.

• An elimination of the requirement for staff time spent traveling to the Hall of Justice to pick up items. Over 3,800 of sworn and non-sworn staff hours are spent annually traveling to the Property Room warehouse in the Hall of Justice to pick up, load and unload items. Direct delivery of items to the units would eliminate this inefficient use of staff time which is estimated to cost $114,000 annually.

• The elimination of the use of the Revolving Fund for inappropriate purchases. Since each unit would maintain appropriate levels of supplies purchased through City Blanket Purchase Orders or Purchase Orders, the use of the Revolving Fund should be limited to appropriate expenditures only. The SFPD would also be guaranteed that best prices are received by maximizing City Blanket Purchase Order purchases.

• An elimination of the need for supply requisitions. Rather than completing excessive paperwork approximately three times monthly, the unit facilitator would periodically complete purchase orders to be submitted directly to the vendors.

• A comprehensive listing of supply items would be available from the vendors. Therefore, there would be uniformity in the requests that are submitted by the units, and the units would know which items are available for ordering.

The SFPD should continue to maintain certain inventory items on a centralized basis. For instance, firearms and ammunition are currently controlled centrally by the Police Pistol Range. This is required to maintain adequate security over firearms and ammunition issued. Police Pistol Range staff also periodically audit the firearms and weapons on hand in individual units to identify any discrepancies. In addition, certain forms and related items which must be secure from loss or inappropriate distribution should remain a centralized function.

MANAGEMENT CONTROLS

Under a decentralized inventory system, departmental units would also be responsible for implementing adequate management controls over the procurement and storage of inventories. As a first step to increasing decentralization, a department-wide inventory assessment would have to be performed to identify a baseline of inventory items that are currently on-hand.

Significant features of an internal control system that should be present at the departmental units include the following:

• Proper management oversight and review of personnel and inventory;

• Adequate security to protect inventory against theft and natural threats. As noted, units typically have secured areas for inventories, but the department would want to assess the adequacy of these facilities;

• Adequate controls and accounting records available for all inventory transactions, including inventory available in the warehouse and actual expenditures by inventory type;

• Separation of ordering and receiving functions, as well as quality assurance checks on inventory to assess whether inventory transactions are accurate;

• Documentation detailing re-order points, life cycle cost analysis, periodic inventory counts, and inactive inventory;

• Random audits conducted by the management control division which identify any discrepancies in stock on-hand versus accounting records showing stock available.

CONCLUSION

The SFPD currently operates a centralized warehouse within the SFPD Property Room which orders, maintains and distributes supplies to the SFPD units. By decentralizing the inventory function, and allowing units to arrange for direct delivery of items would enable the SFPD to perform in a more cost-efficient manner.

The benefits of increasing decentralized procurement and inventory functions and appropriate improvements to centralized functions include increased security and inventory control, reduced usage of the revolving fund, a reduction in the amount of staff time required for traveling because supplies would be directly delivered to the units by either vendors or storekeeper staff, and an elimination of paperwork required to submit supply requisitions at the units.

Significant management controls would have to be improved at the district stations which would allow for proper management oversight, ensuring that the inventory is secure and to minimize costs associated with carrying excess inventory. Under a combined decentralized and centralized inventory management system, the SFPD could eliminate other inefficient processes, thereby reducing the amount of time required to receive supplies, and utilize staff resources more efficiently, saving at least $114,000 in staff time annually.

RECOMMENDATIONS

6.1 Modify existing inventory procedures to allow for units to directly order and receive materials from vendors holding City or Department Blanket Purchase Orders.

6.2 Implement appropriate internal control policies at the Departmental and unit levels which would provide for sufficient management oversight (such as periodic inventory reviews, and separation of ordering and receiving functions).

6.3 Designate one unit facilitator at each departmental unit who would be responsible for processing inventory orders and maintaining inventories.

6.4 Identify methods to streamline procurement processes between departmental units and the fiscal division, such as consolidation of vendor billings for multiple City or Department Blanket Purchase Order orders.

6.5 Perform a department-wide inventory at all departmental units to establish a baseline of inventory items on-hand.

6.6 The Fiscal Division should conduct periodic reviews of supply utilization by vendor, product type and unit. Appropriate controls or vendor relationships should be developed based on the findings of these periodic reviews.

COSTS/BENEFITS

Implementation of the above-listed recommendations would result in an estimated cost reduction of $150,000 annually through elimination of inappropriate purchases through the revolving fund. Inefficient processes for staff travel time representing $114,000 annually would also be eliminated. The proposed decentralized inventory functions could be absorbed by existing staff. Total benefits would therefore amount to $264,000 annually.

Footnotes

1. For departments that are on-line with ADPICS, the Department submits the Release electronically, and the order form is generated at the Department and then sent to the vendor. For off-line departments, the manual form is sent to the Purchaser, who prints the order form and sends it to the vendor.

2. For departments that are on-line with ADPICS, the Department submits the Release electronically, and the order form is generated at the Department and then sent to the vendor. For off-line departments, the manual form is sent to the Purchaser, who prints the order form and sends it to the vendor.

3. This Departmental Instruction, issued August 28, 1996, supersedes the Controller"s Departmental Instruction, No. 983, issued May 20, 1985.

4. Prior to 9/10/96, only one signature was required on Revolving Fund checks.

5. Controller"s Departmental Instruction, No. 1052, August 28, 1996.

6. Revolving Fund Summary Vouchers, January, 1995 to December, 1995 were sampled.

7. A random sample of nine of the 46 vouchers were examined, including a total of 223 purchases at a total cost of $27,569, or 19 percent of total revolving fund purchases for 1995.