Performance audit. Improvements needed in systems for controlling and redistributing surplus state property

Performance Audit

Improvements Needed in Systems For Controlling and Redistributing Surplus State Property
October 2003

Russell W. Hinton, State Auditor Performance Audit Operations Division 254 Washington St., S.W.

Department of Audits and Accounts

Atlanta, GA 30334-8400

Background
The State Surplus Property Program is responsible for the disposal of all surplus state property. Surplus property is defined as items which by their nature are not consumed or expended (such as furniture, office equipment, and vehicles) and are no longer needed by an owning agency. Once a state agency declares property to be surplus, the Program is responsible for controlling the movement of the property and facilitating the redistribution of the property to ensure that the state obtains the maximum benefit. The Program is administered by the Surplus and Supply Section of the Support Services Division within the Department of Administrative Services (DOAS).
The State Surplus Property Program has 38 positions that are primarily based in warehouses in Atlanta (14 - including 3 vacancies), Americus (6), and Swainsboro (5). The Program's central office is also located in Atlanta and has 13 positions (including 3 vacancies) whose duties primarily relate to assisting agencies with on-site disposal and billing. See Appendices A and B for a map of Program locations and pictures of the Program's warehouse facilities. Some of the Program's employees also participate in administering the Federal Surplus Property Program, which involves obtaining federal surplus property with the intention of selling it to eligible organizations through the Program's warehouses; however, the focus of this audit is on surplus state property. An additional six positions (including 3 vacancies) support the Federal Surplus Property Program.

State Surplus Property Disposal Process
Exhibit 1 on the next page outlines the process for disposing of surplus state property. The preferred disposal method is through on-site disposal, whereby the property moves straight from the donor agency to the recipient. However, an agency may choose to bring its property to one of the Program's warehouses for several reasons: the agency does not have room to store the property; the agency is not equipped for security reasons to have potential customers on-site; or the agency wants the Program to handle the transaction. Rather than each agency controlling its own disposals, the Program serves as the centralized, expert resource for controlling disposals of surplus state property. As a central point of information on surplus state property, the Program facilitates its redistribution in order to maximize the benefits to the state. More detailed information on the Program's Control and Redistribution activities are provided in the following paragraphs.

Controlling and Redistributing Surplus State Property

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Agency On-site Disposal

Controlling and Redistributing Surplus State Property

Exhibit 1 Disposal of Surplus State Property

Agency calls Program for a Transaction Number authorizing removal from the agency's inventory.

Transfers
Property may be transferred to another state agency
(Non-funded items - at no cost) (Federally funded items - price negotiated - 95% to donor agency 5% to Program as a handling fee)

Negotiated Sales
Property may be sold to a local government or certain non-profit entities (price is negotiated)

Public Sales
Vendor exchange (trade-in) may be allowed or
property may be directly sold to the highest bidder through:
Telephone Bids (<$5,000) Sealed Bids (>$5,000) Internet Sales

Property without reutilization or resale
value destroyed

Surplus State
Property

State Agencies

Local Governments (cities and counties)

NonProfits (Educational and Healthcare)

Private Individuals

Agency elects to send surplus property to a warehouse or to
handle disposal on-site; however the Program makes
final decisions regarding disposals of property.

Transfers
Another state agency may pick-up property at one of the warehouses
(Non-funded items - at no cost) (Federally funded items - price negotiated - 95% to donor agency 5% to Program as a handling fee)

Property sent to Atlanta, Americus or Swainsboro Warehouse
(Transaction Number authorizing removal from the agency's inventory issued.)

Negotiated Sales
Property may be sold by one of the warehouses to a local government or
certain non-profit entities (price is negotiated)

Public Sales
Property may be sold to the highest bidder through: Telephone Bids (<$5,000) Sealed Bids (>$5,000) Internet Sales
(Each Warehouse may also hold 2 to 3 Public Auctions per year)

Property without reutilization or resale
value destroyed

Source: Program Records

State Agencies

Local Governments (cities and counties)

NonProfits (Educational and Healthcare)

Private Individuals

Warehouse Disposal

Page 2

Control Activities
Transaction Number Controls - A state agency with property that is no longer needed must obtain a "transaction number" from the Program which authorizes the agency to remove the surplus property from their inventory.1 Transaction numbers are issued to authorize the disposal of items on-site at the agencies and when items are delivered to one of the Program's warehouses. The Program issued 1,342 on-site disposal transaction numbers and 2,014 warehouse receipt transaction numbers in fiscal year 2002.
Warehouse Inventory Controls - The Program's three warehouses are used to temporarily store property while the Program determines if the property is needed by an eligible organization. The Program is responsible for ensuring that property at the warehouses is safe and secure. As of October 2002 the Program had 23,767 items/lots on their warehouse inventory records (3,136 at Americus, 3,762 at Swainsboro, and 16,869 at Atlanta). It should be noted that some items were recorded on inventory records in lots2 (multiple items), and some were recorded by individual piece.
Recipient Eligibility Controls - Only eligible recipients should be able to obtain surplus state property through redistribution (i.e., transfers and negotiated sales either at a warehouse or onsite at an agency) and the Program is responsible for ensuring the eligibility of recipients. Property that is not redistributed is eventually sold to the public for the best possible price. Program eligibility records identified 1,161 recipient organizations that are eligible to receive state surplus property through transfers and negotiated sales (162 state government entities, 791 local government entities, and 208 non-profit organizations). In fiscal year 2002, property was redistributed through the Program to 401 eligible recipients (66 state government entities, 263 local government entities, and 72 non-profit organizations).
Pricing Controls - The Program is responsible for ensuring that prices charged for surplus state property through negotiated sales to eligible organizations are fair and consistent. The Program is also responsible for ensuring that bids are properly handled so the state gets the best price for surplus items that are sold to the public. In fiscal year 2002, the Program sold 13,306 items/"lots" through its warehouses and issued 314 transaction numbers for public bids.
Property Utilization Controls - The Program is responsible for ensuring that state surplus property that is redistributed to local governments and non-profit organizations is not resold within the first year after acquisition. Program staff reported that they made 99 utilization visits in fiscal year 2002 to verify the utilization of state surplus property.
Redistribution Activities
Information Clearinghouse - The Program is responsible for coordinating information on what is needed by eligible recipients and what surplus state property is available in order to facilitate the redistribution of surplus property in a manner that is in the "best interest of the state". "Want lists" are maintained by the Program's warehouses that identified 168 items of surplus property that were needed by eligible recipients. The Program also maintained a "website" that identified 168 items available in its warehouses.

1 Transaction numbers are issued for all surplus property, regardless of value. However, only items with an
acquisition cost of $1,000 or more are required to be listed on an agency's inventory. 2 A "lot" is comprised of numerous items bundled together as one sales transaction unit.

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Priority Setting - The Program is responsible for ensuring that reutilization of state property is maximized. State agencies should be given priority over other eligible recipients (local government entities and non-profit organizations). Property that is not redistributed to eligible recipients is eventually sold to the public.
Exhibit 2 shows property disposed of through the program in fiscal year 2002. The Program does not have data to show how many pieces of property were sold at public auction, because all property is sold in "lots" at auction. There were seven public auctions at the warehouses in fiscal year 2002 (three in Atlanta, two in Americus, and two in Swainsboro).

Exhibit 2

Property Disposed of Through the Program

Fiscal Year 2002

Transfers to State Agencies Negotiated Sales to Eligible Local Governments
and Non-Profit Organizations Total Redistribution

On-Site and Warehouse

Pieces

Lots

8,528

3

8,078

16,606

3

Solicited Sales to the Public Public Auctions Total Public Sales

25,141 ---
25,141

134 2,422 2,556

Grand Total

41,747

2,559

Source: Program records, Auction records
The Program is planning to address weaknesses it has identified in its current operations by procuring a technology solution within the next year to improve its operations. The proposed technology systems will provide new software to handle warehouse operations and to list and sell surplus property on the Internet. The Program expects to contract for the software.

Funding
The Program is self-supporting through the revenue that it generates from the sale and handling of surplus state property. Non-funded state surplus property (property that was not purchased using federal funds or user fees) is transferred to other state agencies at no charge. When nonfunded state surplus property is sold to an eligible organization or the public, the Program receives 100% of the revenue from the sale. When funded state surplus property is sold to an eligible organization, the donor agency receives 95% and the Program receives 5% of the revenue from the sale as a handling fee. In fiscal year 2002, $1.57 million (35.3%) of the Program's sales was kept by the Program to fund its expenses, while $2.88 million (64.7%) was returned to donor agencies. The Program's fiscal year 2002 expenditures were $1.2 million. The Program maintains a reserve account. The reserve account is used to fund continuation of Program operations, such as major program expenses including new technology systems and a new roof for a warehouse. At the end of fiscal year 2002, the state surplus reserve account had a balance of $1.8 million.

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Audit Objectives, Scope, and Methodology
The objectives of this audit were to: Evaluate controls over state surplus property. Examine the redistribution of state surplus property.
The audit was conducted in accordance with generally accepted government auditing standards for performance audits and focused on fiscal year 2002. The audit focused on the State Surplus Property Program activities, and did not include the Federal Surplus Property Program activities. The audit methodology included interviews with Program staff, site visits to the Program's three warehouses, reviews of Program files, a survey of 32 state agencies, and interviews with state surplus property staff in five other states.
The entire report was discussed with appropriate personnel in the Department of Administrative Services (DOAS) and a draft copy was provided for their review. DOAS personnel were invited to provide a written response to the report and to indicate areas in which they planned to take corrective action. Pertinent responses from DOAS are reflected in the report as appropriate.

Improvements Needed in Controls Over Surplus State Property
Recommendation No. 1 The Program needs to ensure that state agencies submit paperwork documenting property disposals related to all the transaction numbers issued to them for on-site disposals. As of four months after the close of fiscal year 2002, the Program had not received paperwork for 429 (32%) of the 1,342 transaction numbers it had issued for on-site disposals in fiscal year 2002.
State agencies can delete items from their inventories based on authorization provided by transaction numbers issued by the Program. Once the transaction is completed, the agency has 15 working days to forward paperwork documenting the disposal of state surplus property to the Program. The Program sends out letters to agencies requesting paperwork that has not been submitted in a timely manner; however, as of November 2002 (four months after the close of fiscal year 2002), the Program had not received paperwork for 429 (32%) of the 1,342 on-site transaction numbers issued in fiscal year 2002. The Program voided the transaction numbers with outstanding paperwork, but did not conduct any additional follow-up with the agencies to determine if the outstanding transaction numbers were used to delete property from their inventory records.
The Program should follow-up on all the transaction numbers they have issued to identify if the numbers have been utilized. To encourage state agency responsiveness to these follow-up activities, agencies that have not responded to inquiries regarding outstanding transaction numbers should not be issued any more transaction numbers until their missing paperwork has been submitted. The Program's new surplus property software should be designed to prohibit the issuance of new transaction numbers to agencies that have any outstanding paperwork related to prior transaction number requests.

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The Program indicated in its response to the audit that it has taken the following steps to ensure that agencies submit required paperwork documenting property disposals. Transaction numbers are now reviewed monthly to identify those with outstanding paperwork, and a letter is sent to all agencies with paperwork that has been outstanding 45 days or more. Agencies not responding within 15 days are notified that the transaction number is invalid and that they are not authorized to remove the property from their inventory records. The Program reported that as of September 2003, only 12% of the fiscal year 2002 transaction numbers still did not have paperwork. The Program expects that a downward trend in open transactions will continue with implementation of its proposed surplus property technology system, and that Program access to the statewide asset management system will allow them to verify deletions from inventories.

Recommendation No. 2 The Program needs to ensure that surplus state property in its warehouses is properly accounted for.
At the Program's warehouses, property is entered into the warehouse inventory records using an item name (e.g., computer monitor, conference table, file cabinet); however, there are no other fields available on the inventory system to enter any additional descriptive information (e.g., make, model, serial number, condition). An exception is that for vehicles there are additional fields for vehicle identification number, make, model, year, body type, and mileage.
While the warehouses reported that they conducted periodic "spot checks" on items in their inventories, there was no evidence of any periodic physical inventory verifications to evaluate the accuracy of inventory records or to identify if any inventory items are missing. The Atlanta warehouse knew that it had been broken in to, but could not identify if any items had been stolen because of known problems with the accuracy of their inventory records.
The audit team physically verified a sample of inventory items at the Program's three warehouses. All discrepancies were discussed with warehouse staff, who were given the opportunity to help locate items or provide updated inventory records. Twenty-eight items that were extremely difficult to count (for example, large piles of items in boxes or stacks) were deleted from the sample. Exhibit 3 shows the results of our inventory checks. While our physical counts matched inventory records at the Americus warehouse, a number of our physical counts did not match inventory records at the Atlanta and Swainsboro warehouses. Of the 24 item types that did not match inventory records, 10 had fewer items than identified on the inventory records and 14 had more items than were identified on the records. Program personnel noted that accountability over vehicles was a top priority and the audit team was able to verify all 34 of the vehicles in the sample. It should be noted that the lack of descriptive information on inventory records items even made the cases where the audit team's physical counts matched the inventory records somewhat questionable. For example, the inventory system may identify that there are 30 monitors in location 142; however, there is no way to determine if any or all of the monitors present in that location are the same 30 monitors reported on the inventory records or if they had been moved from another location.
The Program needs a new computerized inventory system that makes use of the latest technological innovations such as bar coding to facilitate the entry of detailed descriptions on all property (e.g., make, model, serial number, condition, funding source, etc.) into the inventory records. Individual items should be recorded in the inventory system whenever possible; however, small value items (e.g., cables, cords, belts) could be counted or weighed and recorded

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as a group. Warehouse staff should conduct periodic inventory checks to evaluate the accuracy of inventory records and to determine if any items are missing.

Exhibit 3 Physical Count Comparison to Warehouse Inventory Records
As of September/October 2002

60

40

38 Total

20

38

31 Total 5
26

58

Physical Counts

19

Did Not Match

Inventory Records

Physical Counts

39

Matched

Inventory Records

Americus Warehouse

Swainsboro Warehouse

Atlanta Warehouse

Source: Warehouse Inventory Records and Physical Counts By Evaluation Team
The Program indicated in its response to the audit that warehouse staff periodically conduct inventory spot check counts and are now in the process of documenting these counts. Steps have also been taken in the receiving process to improve the identification of items as they enter the inventory system. The Program noted that the audit team did not conduct a physical inventory of all the property in the warehouses to identify if any missing items might have been located in different areas of the warehouses. The Program also questioned whether the benefit of tracking low dollar value items by serial number justified the cost involved in this effort. The Program noted that there is no requirement to track surplus property by serial number when the property has been fully depreciated and has an acquisition cost of less than $1,000. The Program also thought that its proposed surplus property technology system will also enhance inventory controls.

Recommendation No. 3 While 98% of the no-cost transfers approved by the Program were to eligible state entities, the Program needs to take additional steps to ensure that only eligible state agencies receive transferred state surplus property at no cost.
Only state agencies should receive surplus state property through no-cost transfers. The Program has a listing of eligible state entities that should be checked before transfer transaction numbers are issued authorizing on-site surplus property transfers. A review of the 202 transfer transaction numbers issued in fiscal year 2002 identified that 4 (2%) involved transfers to recipients that were not eligible for no-cost property transfers. Examples of transaction numbers issued for ineligible recipients included:

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A transfer number was issued for a state college to transfer six pieces of lab equipment (with an original acquisition cost of $14,000) listed in good condition to Vanderbilt University in Tennessee at no cost. The Program employee that approved the transfer thought that Vanderbilt was a state agency. (Vanderbilt was not on the Program's list of eligible recipients.)
A transfer number was issued for a state agency to transfer 34 pieces of furniture and office equipment listed in good condition to a non-profit organization at no cost. The Program employee that approved the transfer thought that the recipient was a state agency. The recipient was listed on the Program's list of eligible recipients as a nonprofit organization that was only authorized to purchase federal property.
A transfer number was issued for a college to transfer 104 items (i.e., computer equipment and other equipment) listed in good condition to a local high school at no cost. The Program employee that approved the transfer thought that the transfer number was issued by mistake. A negotiated sale number should have been issued, and the local high school should have paid for the property.
A transfer number was issued for the Board of Regents (BOR) to transfer various items of equipment to a county library at no charge. Program personnel indicated that they thought that the items that were transferred were originally purchased through BOR for the library and were being transferred to "clean-up" inventory records to better reflect the ownership of the property. The audit team contacted BOR and identified that the items were not purchased for the library. A negotiated sale number should have been issued, and the county library should have paid for the property.
The Program should always verify that recipients of no-cost transfers of surplus state property are eligible state agencies. Program personnel noted that additional staff training was provided subsequent to our review which stressed requirements for verifying the eligibility of recipients. To facilitate the verification process, the Program's new surplus property software should not permit transaction numbers to be issued for transfers to entities that are not listed in the system as eligible. Justification for any exceptions allowing no-cost transfers of state surplus property to entities that are not state agencies should be clearly documented and approved by supervisory personnel.
The Program indicated in its response to the audit that employees have received additional training to ensure that only eligible organizations receive property and that proper justification is maintained.

Recommendation No. 4 The Program needs to take additional steps to ensure that only eligible organizations can purchase surplus state property before it is made available for public sale.
Non-profit organizations that wish to purchase surplus property at one of the Program's warehouses are issued a pass to view the property that identifies if the customer is eligible to purchase state and federal surplus property or just surplus federal property. This distinction is necessary because the eligibility requirements for recipients of state surplus property are more demanding than the eligibility requirements for recipients of federal surplus property. For example, non-profit organizations providing services to the homeless are eligible to purchase federal surplus property; however, they are not eligible to purchase state surplus property. When purchases are made, warehouse staff should check the eligibility identified on the customer's

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pass to ensure that state surplus property is not sold to ineligible organizations. The Program's current warehouse billing system does not verify a customer's eligibility for state surplus property at the time a sale is processed.
Of the 72 non-profit organizations that were identified as purchasing surplus state property in fiscal year 2002, 12 (17%) were not eligible to purchase surplus state property (they were only eligible to purchase federal surplus property). In addition, one small business association and an American Red Cross operation (which were also only eligible to purchase surplus federal property) also purchased surplus state property in fiscal year 2002.
The Program should always verify the eligibility of non-profit and other organizations purchasing surplus state property at the time of a sale. To facilitate the verification process, the Program's new surplus property software should not permit sales of state surplus property to entities that are not listed in the system as eligible.
The Program indicated in its response to the audit that its personnel have received additional training and will verify the eligibility of customers at the time of sale. The Program also reported that its proposed surplus property technology system will automatically reject sales to ineligible customers at the point of sale.
Recommendation No. 5 The Program needs to expand on its use of pricing guides for pricing items sold at its warehouses. While each of the Program's three warehouses has pricing guides for some item types, the guides are not comprehensive or consistent.
Each of the Program's warehouses had its own pricing guide. A review of the pricing guides used by the Program's warehouses identified the following problems:
The pricing guides are not comprehensive. Only a limited number of item types are listed, and the guides do not include price ranges based on the condition of the property. As shown in Exhibit 4, the Atlanta warehouse price list had 18 item types, the Americus price list had 16 item types, and the Swainsboro price list had 14 item types. Many of the types of items sold at the warehouses are not included on the price guides.
The pricing guides are not consistent across the three warehouses. The Atlanta warehouse's guide lists price ranges for some items, but the other two warehouses' guides have fixed prices for all items listed. For example, the price listed for a copier at the Atlanta warehouse is $25-100; however the price is listed as $25 at the other two warehouses. The warehouses also list different items on their pricing guides and they list different prices for the same item types. For example, the price listed for a computer CPU is $50 at one warehouse and $20 at the other two warehouses, and the price listed for a television is $5 at one warehouse and $20 at the other two warehouses.
Finally, the pricing guides are not followed at the warehouses. A review of 171 pieces of property sold in fiscal year 2002 with the prices listed on the pricing guides identified that 72 pieces (42%) did not fall within the guidelines established by the warehouse where the property was sold. For example, 21 file cabinets were sold at the Atlanta warehouse for prices ranging from $5 to $30 (an average price of $19), although the pricing guide lists $35-$45 for file cabinets.

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Exhibit 4 Warehouse Pricing Guides
As of October 2002

Type of Item

Item Name

Computer Equipment

Computer CPU

Computer, Laptop

Atlanta Warehouse
$50
$20

Americus Warehouse
$20
$25

Swainsboro Warehouse
$20
not listed

Computer Monitor

$25

$20

$20

Computer Keyboard

$5

$5

$5

Computer Printer

$20-$50

$20

$20

Office Equipment

Typewriter

not listed

$20

$20

Copier

$25-$100

$25

$25

Fax Machine

$15-$25

$20

$20

Chairs Office Rotary Chair

$15

$15

Office Straight Chair

$5 and up- not

$10

$10

Executive Hi-Back Chair

listed

$35

$35

individually

Stacking Chair

$5

$5

Desks

Easy/Lounge Chair Desks

$25-$50

$15 not listed

$15 not listed

Student Desks Other Furniture Sofa

not listed

$10

not listed

$20

not listed $20

Tables

$5 and up

not listed

not listed

File Cabinets

$35-$45

not listed

not listed

Storage Cabinets

$25-$30

not listed

not listed

Bookshelf Miscellaneous Television

$10-$25 $5

not listed $20

not listed $20

Microwaves

$25

not listed

not listed

Metal Shelves

$15

not listed

not listed

Metal Racks

$10

not listed

not listed

Coat Racks

$5

not listed

not listed

Resources Used to Price
Vehicles 1

Official Used Car Market Guide

Official Used Car Market Guide, Kelley Blue Book, NADA Used Car Guide, previous auction prices

Kelley Blue Book, NADA Used Car Guide

1 Subsequent to our review all the warehouses started using the Kelley Blue Book as the basis for pricing motor

vehicles.

Source: Warehouse pricing guides, interviews with warehouse staff

A detailed pricing guide should be developed that is applicable to all three warehouses in order to make pricing more consistent. The guide should include price ranges based on property condition. The guide could start with the most common item types and be continually expanded as new types of items are added. Justification for any pricing outside of the designated ranges should be documented and approved by supervisory personnel. To facilitate use of the pricing

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guide it could be incorporated into the Program's new surplus property software to generate a price when an item is entered in the Program's inventory records.
The Program indicated in its response to the audit that a standardized pricing procedure for all vehicles using the Kelley Blue Book Pricing Guide was implemented at the warehouses in January 2003. All price deviations for vehicles and heavy equipment are also approved and documented by the warehouse managers. A detailed pricing guide for items other than vehicles and heavy equipment was implemented at the warehouses in March 2003. Prices may be adjusted within the range to reflect customer demand at each location. The warehouse manager or supervisory personnel must approve any price deviations. The pricing guide will be reviewed periodically and items will be added as necessary.

Recommendation No. 6 The Program needs to better document its compliance with bidding requirements for solicited telephone sales of state surplus property to the public.
Telephone bids to dispose of surplus state property are conducted by both Program personnel and by on-site agency personnel. The Program's Disposal Guide requires that four bidders must be contacted for solicited telephone sales of surplus property and records must be maintained showing who was contacted and their bid amounts. As shown in Exhibit 5, a review of 27 transaction numbers issued for telephone bids in fiscal year 2002 identified that the Program did not have adequate documentation for 15 (56%) of the bids. No documentation was available for four of the bids (the transaction numbers were voided by Program staff). The documentation available for 11 of the bids did not show the four bidders that were contacted or the amounts bid (only information on the actual purchaser was available for 10 of the bids and only three bidders appeared to have been contacted for one of the bids). The 12 bids with adequate documentation included the required information on four bidders.

Exhibit 5 Documentation For 27 Telephone Bids
Conducted in Fiscal Year 2002

30
27 Total
11
20
4
10
12

Incomplete Documentation
(Does Not Include 4 Bidders and Amounts)
No Documentation

Inadequate Bid Documentation

Complete Documentation
(Including Bidders and Amounts)

Adequate Bid Documentation

Source: Program Telephone Bid Records

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The Program should ensure that it prepares or receives complete paperwork adequately documenting all telephone bids. Program personnel noted that additional staff training was provided subsequent to our review which stressed requirements for documenting telephone bids. To encourage compliance with reporting requirements, any agencies that are not submitting completed paperwork on their bids should not be issued any more transaction numbers. It should be noted that more use of internet sales in the future could also reduce the need to solicit public bids and provide better documentation of adequate disclosure of the availability of state surplus property.
Recommendation No. 7 The Program needs to ensure that it receives utilization verification forms from state agencies and that it conducts utilization visits to local governments and non-profit organizations to verify that state surplus property is not resold by recipients within the first year after receipt of the property.
According to state law, property sold to a local government or non-profit organization shall not be resold ...within one year after the transfer without written consent of the Department of Administrative Services. Surplus property is intended to be used by the eligible recipient and should not be immediately resold by the recipient to generate funds for their operations. The Program's policy is to only conduct utilization reviews for vehicles and pieces of heavy equipment distributed to state agencies, local governments, and non-profit organizations.
The Program checks on the utilization of vehicles/equipment items transferred to state agencies by sending a letter requesting that the agency fill out a form that includes the location of the property and that describes how the property is being used. Program staff stated that they do not actually visit state agencies because "The property has to go through the Program anyway if the agency decides to get rid of it." The Program checks vehicles/equipment items sold to local governments and non-profits by actually visiting the recipient to verify that the vehicle/item is still in their possession.
As shown in Exhibit 6 the audit team reviewed documentation of utilization reviews (forms reviews for state agencies and visits to local government and non-profit organizations) for 223 vehicles and pieces of heavy equipment that had been with an eligible recipient for more than one year. The items selected for verification did not include any items identified as voided, returned or for cannibalization. While utilization reviews had been performed for 130 (58%) of the vehicles and pieces of heavy equipment within the one-year requirement, 93 (42%) had not had utilization reviews. Of the agencies which had been reviewed, only one agency was found to be non-compliant. According to Program staff, they do not uncover a lot of problems with the utilization of state property.
All recipients with items requiring utilization reviews should be contacted and/or visited within the required one year time period. To facilitate scheduling the reviews the Program's new surplus property software could be designed to select items for review and schedule visits to help ensure that they are completed in a timely manner.

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Exhibit 6

Utilization Reviews for Vehicles and

Heavy Equipment Pieces Transferred Between

300

July 2001 and October 2001

223 Total 1
200
100

53 Items - Not Entered Into System to Schedule Reviews
18 Items - Utilization Forms Not returned
22 Items - No Visits

93 Items Utilization Not Verified By The Program

18 Items - Utilization Forms Returned By Agencies
112 Items - Utilization Visits Conducted

130 Items Utilization Verified By The Program

1 209 vehicles and 14 pieces of heavy equipment
Source: Program Utilization Review Records
The Program noted in its response to the audit that utilization reviews for items transferred to state agencies are not required by state law. The Program also noted that it was going to discontinue its policy of checking on utilization by state agencies since state agencies are subject to existing state property laws and policies and cannot dispose of property without going through the Program. The Program also indicated that business requirements for identifying and tracking utilization compliance have also been included in the Program's proposed surplus property technology system.

Recommendation No. 8 The Program needs to better monitor its overall costs and the costs/profitability of each of its warehouses to identify opportunities for additional cost savings.
Expenditures are compiled at the total Program level, but the Program does not monitor the revenues and expenditures at each warehouse to determine if each of these cost centers is profitable. The Program noted that even without detailed information on its warehouse cost centers it has already taken actions that have reduced its total expenditures from $1.8 million in fiscal year 2000 to $1.2 million in fiscal year 2002. A review of expenditure reports indicated that Program expenditure reductions of approximately $816,000 ($288,000 for reductions in filled positions, and $528,000 for the elimination of expenditures for programs paying commercial companies to refurbish computers for schools and for purchasing surplus federal vehicles for resale) were partially offset by increased expenditures of $244,000 for rental costs on new office space and more accurate billing of indirect costs.
While sufficient information was not available to fully analyze Program costs, the audit team did observe a tendency of the Program to transport and store relatively low value property which did not seem to be very cost effective. For example, it is probably not very cost effective to transport desks to a warehouse and store them only to eventually sell them for approximately $.29 each.

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Other examples of items maintained at warehouses that were eventually auctioned to the public at very low prices included: an automobile for $10, 11 copiers for $5, a boat for $5, several (number unknown) refrigerators for $10, 5 bikes for $10, and 6 washers and 8 dryers for $30.
The Program's new surplus property software should be designed to provide sufficient information for detailed cost analysis (down to the warehouse cost center level). Better information on costs should permit more analysis by the Program in order to identify ways costs might be reduced. The expanded use of computerized systems to better publicize the availability of surplus property items should reduce the need to transport and store items in warehouses which should also ultimately lead to decreased costs for the Program.
The Program indicated in its response to the audit that while it may not be cost-effective, often an agency is unable to dispose of property on-site, and property must be brought to one of the Program's warehouses. The Program reported that it utilizes on-site disposal and a scrap equipment contract to avoid the expense of transporting property when possible. The Program noted that expenditures are booked by warehouse and revenues will start to be booked by warehouse later in the year to provide warehouse cost center information. The Program also reported that its proposed surplus property technology system will give agencies the ability to post their property on the internet in the future to facilitate cost-effective on-site disposal and that it will continue to improve on ensuring the most cost-effective means of disposal.

Redistribution of State Surplus Property
Recommendation No. 9 The Program needs to improve on its use of "want lists" to identify the needs of eligible recipients in order to facilitate the redistribution of surplus state property.
While want lists are maintained at each of the Program's three warehouses, the lists have not been very effective at facilitating the redistribution of surplus state property. Problems with the Program's existing want lists are discussed in the following paragraphs.
The want lists only address needs for vehicles/heavy equipment items.
The want lists maintained at the Program's three warehouses are not coordinated. Each warehouse has its own want list and the Program advises customers to call each warehouse to sign up on all three lists.
The Program's staff does not consult the want lists when they are informed of surplus state property that is available on-site at state agencies.
None of the want lists are linked to the warehouse's inventory system. Warehouse staff must manually check to see if any want list items are in the warehouse. A review of the want lists and inventories for each warehouse found that each warehouse had items on its want list that also appeared to already be in the warehouse's inventory. The review also found that each warehouse had items on its want list that appeared to be on inventory lists at another warehouse (See Exhibit 7). It should be noted that the lack of detailed descriptive information on inventory and want list records made it impossible to determine if the items on inventories were exact matches to the items on the want lists. For example, a want list entry may request a car without specifying if a Crown Victoria

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or a Taurus would be acceptable or an agency may request a 12 passenger van, but the inventory records did not include this level of descriptive information.

Exhibit 7

Items Listed on Want List and Inventory

(October 2002)

Items on Want List

Items on Want List

Number of Items Found on That

Found in Another

Warehouse on Want List Warehouse's Inventory Warehouse's Inventory

Americus

69

73

272

Swainsboro

98

37

296

Atlanta

1

34

41

Totals

168

144

609

Note: Due to poor inventory and want list records, it is not possible to determine if the items in inventory are exact matches to the items on the want lists.

Source: Warehouse want list records and inventory records

Finally, the want lists are not being utilized by state agencies. Only eight state agencies were listed on any of the want lists as of October 2002. Of the 32 agencies that responded to a survey by the audit team, eight (25%) indicated they were not aware of the availability of want lists, and only six (19%) had used the want lists in the past. Personnel at one state agency complained that it often takes six to eight months of follow-up contacts to get a want list request fulfilled. These personnel also complained that several times they had requested specific items to later find them available in the warehouse even though they had received no notification.

The Program's new surplus property software should include a centralized want list system that interfaces with surplus property inventory listings (for property available both at the Program's warehouses and on-site at state agencies). The want list system should automatically match available property with want list requests and notify the requesting agencies of property that appears to match their needs.

The Program indicated in its response to the audit that they have revised their records to identify agencies that have declined available property and they have consolidated the want lists for the three warehouses. In addition, the Program's proposed surplus property technology system will scan the inventory daily for want list matches.

Recommendation No. 10 The Program needs to improve on its use of a website to publicize state surplus property that is available through the Program.
The Program maintains a website that lists some of the property available in its three warehouses. However, as shown in Exhibit 8, very little state property at the warehouses was identified on the website and none of the property available at on-site locations was identified on the website. Program personnel noted that their current warehouse software can only handle 90 line items on each warehouse's website (including state and federal items). In comparison, four of the five states surveyed by the audit team reported that they listed all available property (both warehouse and on-site) on their internet websites and they also included pictures of the property.

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This extended use of the internet to make shopping for items more convenient is referred to as a "virtual warehouse". In today's technologically sophisticated environment, a virtual warehouse maximizes communication between a surplus property program and its customers to better facilitate redistribution of surplus state property.

Exhibit 8

State Surplus Property Items Listed on the Program's Website
(As of October 2002)

Americus Warehouse 1 Swainsboro Warehouse Atlanta Warehouse Total Warehouse

Number of Items Posted on the
Internet Website 8
123 36
168

Total Number of Items in the Inventory 3,136 3,762 16,869 23,767

Percent of Total Inventory Posted on
Website 0.25% 3.30% 0.21% 0.71%

On-site Disposal

0

Not available

1 Warehouse reported that it was repopulating its listing on the web after a program malfunction.

Source: Warehouse inventory records, Program's website

0.00%

The Program should expand on its use of a website to better publicize available state surplus property items. The Program's new surplus property software should result in better warehouse inventory records that could be directly posted on the Program's website. The Program should also post information on property available on-site at state agencies and arrange for photographs of items to be posted on its website whenever possible.
The Program indicated in its response to the audit that its proposed surplus property technology system will expand the use of the internet for property posting and include surplus property available on-site at the agencies. The Program also reported that it has modified its website to include on-site disposal listings.

Recommendation No. 11 The Program needs to establish formal procedures and controls to ensure that state agencies are given priority over other customers.
Program staff indicated that state agencies are supposed to have priority over local governments, non-profit organizations, and the public for acquiring surplus property. However, the Program's priority setting activities are not formalized or documented as discussed in the following paragraphs.
For property on-site at state agencies When they are informed of the availability of surplus property at state agencies, Program staff call various potential customers (not just state agencies), based on their personal knowledge of the customers' needs. Although staff claim that they first consider state agencies for all property, this is reportedly done only using a mental checklist of perceived wants. Since records of calls soliciting bids are not maintained, it is not possible to determine how much property may have been disposed of before state agencies were given an opportunity to claim it.

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For Property at the Program's Warehouses Staff at two of the Program's three warehouses stated that state agencies are given priority. However, there were no formal procedures to ensure that state agencies are given priority. While the Program's Disposal Guide requires that vehicles be reserved for state agencies for ten days before being sold to local governments and non-profit organizations, a sample review of 37 of the 355 vehicles sold to local governments and non-profit organizations during fiscal year 2002 identified that 21 (57%) were sold in 10 days or less.
In comparison, the federal government operates a virtual warehouse system for their surplus property that assigns priority based on agency type and other factors. For the first 21 days that property is listed, any entity can view the property but only federal agencies can acquire it. Property then becomes available to state agencies, local governments, and some non-profit organizations. After 42 days in the system, any remaining property is then available for sales to the public. Connecticut also has a virtual warehouse that uses restricted access to guarantee priority. Only state agencies can acquire property for the first 14 days that the property is available. If no state agency claims it, the property can be acquired by municipalities for the next seven days then the property is offered to the general public.
The Program should develop formal procedures and controls to ensure that state agencies have priority for obtaining surplus state property. The Program's new surplus property software should be designed to restrict access to surplus property to only state agencies for some period of time before the property is made available to local governments and non-profit organizations. After the property has been available for redistribution for a suitable period of time, it could then be made available for public sale.
The Program indicated in its response to the audit that it is their policy for state agencies to have priority over all other customers and that complaints of not being able to get items before other customers were rare. The Program also noted that it thought that the vehicles that went to local governments and non-profit organizations were not desirable to state agencies. The Program thought that a priority system similar to the federal priority system could be adapted to shorten the time property must be held in its inventory.

Recommendation No. 12 The Program should consider partnering with other state entities to develop refurbishment programs for surplus state property.
Currently, all surplus property is transferred or sold "as is". Most state agencies and other eligible recipients do not have the expertise to refurbish used items such as computer equipment or vehicles in order to maximize their useful life. Many potential users of surplus state property might be hesitant to obtain or purchase used property since they cannot be sure of the condition or value of what they are getting.
Several other states were identified that have refurbishing programs for surplus property. Texas and Utah both send all computer equipment directly to their prison systems to be refurbished for use in their public schools. Iowa also sends some equipment to their prison system for refurbishment. Nevada's surplus computers are refurbished by an educational foundation that sends them to schools. The audit team also identified that Georgia's Department of Technical and Adult Education (DTAE) operates programs in which students refurbish vehicles and computers donated by private companies for training purposes; however this program does not currently refurbish surplus state property.

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The Program should consult with other state agencies such as the Department of Corrections/Correctional Industries and the Department of Technical and Adult Education to identify if any mutually beneficial refurbishment programs are feasible. Refurbishment programs could potentially be beneficial to the state in two ways. Technical schools or prison training programs might benefit by gaining additional hands-on experience, and state agencies might be able to acquire surplus property items of better quality at minimal or no cost.
The Program indicated that subsequent to the audit they contacted the Department of Corrections/Correctional Industries and the Department of Technical and Adult Education to discuss a refurbishment program. The Program reported that both agencies seemed to be interested in such programs if their agencies could sell the property once it was refurbished. The Program noted that currently state law only provides for the sale of refurbished property by other state agencies when the sale is supervised by the Surplus Property Program. The Program should consider seeking changes to the law to provide for refurbishment programs or develop procedures for selling refurbished items through the Surplus Property Program and reimbursing the agencies performing the refurbishments for their efforts.

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Appendix A DOAS Surplus Property Warehouse Locations

Atlanta Warehouse
Swainsboro Warehouse Americus Warehouse

Source: Program records
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Warehouse Facilities

Controlling and Redistributing Surplus State Property

Appendix B Photographs of the Three Surplus Warehouse Facilities

Atlanta Warehouse

Swainsboro Warehouse

Americus Warehouse

Vehicles at Warehouses

Source: Photographs by Audit Team

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Computers at Warehouses

Controlling and Redistributing Surplus State Property

Appendix B (continued) Photographs of the Three Surplus Warehouse Facilities

Atlanta Warehouse

Swainsboro Warehouse

Americus Warehouse

Chairs at Warehouses

Source: Photographs by Audit Team

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For additional information, please contact Paul E. Bernard, Director, Performance Audit Operations Division, at (404) 657-5220.
Or see our website: www.audits.state.ga.us/internet/pao/index.html.

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