23-06 Fuel
Perth and Kinross Council · 25 March 2024
Back to Audit and Risk Committee — 25 March 2024 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
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(Report No. 24/99) Internal Audit Report All Services 23-06 Fuel March 2024 Final Report Legal and Governance Corporate and Democratic Services Perth & Kinross Council Council Offices 2 High Street Perth PH1 5PH
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23 - 06 Fuel Contents by Section 1. Introduction 2. Executive Summary 3. Audit Background Information 4. Scope and Limitations 5. Assessment of the Control Environment 6. Summary of Findings 7. Conclusions 8. Acknowledgement 9. Action Implementation & Follow Up 10. Management Action Plan 11. Authorisation 12. Distribution 13. Assessment Definitions
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1. Introduction 1.1 The audit of Fuel was undertaken as part of the Internal Audit Plan for 2023/24, which was approved by the Audit Committee on 30 October 2023. 1.2 The indicative scope for the audit was to ensure that arrangements are in place for the safe storage and utilisation of Council fuel supplies. 1.3 This audit was included in the annual audit plan following discussion with the Service as the fuel budget is material and assurance was needed over the storage and utilisation of Council fuel supplies. The last Internal Audit review was undertaken in 2016. 2. Executive Summary 2.1 The audit has found that limited assurance can be placed on the controls in relation to custody and utilisation of council fuel supplies. 2.2 Areas of good practice have been highlighted in Section 5 of this report, and there are 10 findings in Section 6. An action plan is included at Section 10 which details 14 actions in connection with the findings. Once these actions are completed, Internal Audit should be able to place substantial assurance on the arrangements in place. 3. Audit Background Information 3.1 This assignment forms part of the Internal Audit plan for 2023/24, approved by the Audit Committee on 30 October 2023. Whilst this audit does not link directly with the Strategic Risk Register, it was included in annual audit plan following discussions with management and concerns had been raised regarding the custody and utilisation of council fuel supplies. 3.2 There are significant risks, which may have a serious impact on the Council and the achievement of its objectives if not managed and concern over custody and utilisation of council fuel supplies was one of the risks. Immediate management action needs to be taken to reduce the level of risk.’ Given this priority, the Chief Internal Auditor has decided to include a review of this this in the Internal Audit work for 2022/23. 3.3 Council uses fuel, mainly diesel, for its fleet i.e. heavy vehicles in waste management and mechanical equipment in ground maintenance. The fuel budget for the year 2022/23 was £1,605,170, with the actual spend being £1,912,640, a variance of £307,470 (19%). 3.4 The following key stakeholders are involved in the purchase, management, and usage of Council fuel. These are: Corporate – Responsible for procurement of fuel in bulk. Finance – Responsible for issuing charges to each service as per their usage of fuel and ensuring that invoices are paid as per corporate guidelines.
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Support Team – Responsible for regularly updating fuel system “FuelTran” with fuel deliveries for each depot, preparing KPIs reports, notifying fleet man- ager of any issues pertaining to fuel system and providing fuel reports from system. Services requesting fuel fob and fuel cards – Responsible for. • Ensuring the fuel fob/card use is appropriate and authorised. • Ensuring that correct mileages are entered for each transaction. • Ensuring the security of the fuel fob/cards at all times. • Requesting the appropriate fuelling method on the vehicle justification form or, should an alternative fuelling method be required after delivery, requesting this directly from the Fleet Manager The Fleet Manager is responsible for- the following aspects of fuel management; • Fuel card contract and its subsequent management. • Management of contract for bulk fuel and ad blue. • Management of contract for provision of electric charging. • The availability of appropriate fuel at all depots. • Appropriate contingency plans in place for fuel shortages. • Arranging the appropriate fuelling method as detailed on the Corporate Justification Form or subsequent requests. • Ensuring the safe delivery of fuel when at depot, ensuring the health & safety of staff, visitors and contractors on site. • Ensuring that all fuel is stored appropriately at depots with only authorised personnel having access when taking deliveries. • Ensuring only authorised staff can request fuel orders for depots and that they follow the procedure. • Undertaking an annual fuel usage audit and report discrepancies to Services to investigate. • Monitor and reduce amount of HGV idling. • Management of fuel software contract. 4. Scope and Limitations 4.1 The review consisted of identifying controls in place to ensure safe custody and appropriate utilisation of council fuel supplies. 4.2 The review identified and compiled a risk register for the management and custody of fuel and tested the adequacy and effectiveness of controls in place to mitigate those risks. 4.3 To arrive at an opinion on the achievement of the control objective, the review included interviews with officers and a review of systems and documents in use. 4.4 The contracting arrangements for the procurement of fuel was excluded from the scope of this review and may be considered for inclusion as part of future Internal Audit activity.
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5. Assessment of the Control Environment 5.1 The table below contains a summary of the findings against each control objective and Internal Audit’s assessment of the adequacy and effectiveness of the controls in place to meet each of the objectives agreed for this audit. Further details, including any improvement actions, are set out in the Management Action Plan. No. Control Objective Action Rating Control Objective Assessment 5 4 3 2 1 1 To ensure that arrangements are in place for the safe storage and utilisation of Council fuel supplies 4 6 4 Limited Assurance 5.2 The auditor has assessed that limited assurance can be placed on the controls in relation to custody and utilisation of council fuel supplies. Significant gaps, weaknesses or non-compliance were identified. Improvement is required to the system of governance, risk management and control to effectively manage risks to the achievement of objectives in the area audited. 5.3 A summary of the key findings and actions are provided in section 5. In addition, the following areas of good practice which have been highlighted during the audit: • There are policies and procedures for fuel management. • Fuel Fobs and Fuel Cards are used to obtain fuel from the pumps. • Disbursed fuel is captured in FuelTran system along with details such as fuel fobs, dates, litres, and date & time. • Access to Depots and fuel pumps is controlled and is subject to CCTV surveillance. • Services are recharged on monthly basis by the Finance team for fuel used. 6. Summary of Findings 6.1 Below is a summary of key findings and actions, which are reflected in the Management Action Plan, detailed in section 9. 6.2 Monthly Fuel Audit: The Fuel Policy requires a monthly audit to be carried out by Fleet Management with a comparison being made between actual fuel /held in tanks and that expected within the FuelTran system. Fleet Management informed us that this exercise has not been completed since the COVID pandemic, but an annual exercise has been undertaken. The Service recognises that this is a key control in identifying discrepancies, which will be re-established. Action Point 1
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6.3 Override of fuel readings in the FuelTran system: The Council uses the FuelTran system for managing its fuel. This system captures the disbursement of fuel from pumps but it is not linked to the tanks at the depots, to capture the actual fuel in those tanks. When a delivery is received into the tank, the Depot Supervisor enters the quantity of each delivery received as per the delivery note into the FuelTran system. Depot Supervisors can adjust the quantity of fuel recorded in the FuelTran system by entering manual adjustments. The Depot Supervisor and Fleet Assistant Manager stated that these adjustments are done when there are discrepancies between fuel quantity as per the system and fuel in tank measured using dipstick. The usual reasons for discrepancies were a time lag between the manual process of the fuel being delivered and the details of the delivery being recorded on Fueltran. During this lapse in time fuel may be withdrawn by multiple vehicles on a daily basis creating a discrepancy. Other reasons for smaller scale discrepancies might include the manufacturers stated margin of loss which is deemed to be between 0.5% and 1%, presence of condensation and the fuel settling down after delivery causing the gauge needle to jump around. There is no oversight of the manual adjustments made in the system as they are as they are not reported to Fleet Management nor investigated. Action Point 2 6.4 Monitoring fuel budget: The audit revealed that there were variances between the budget and actual expenditure on fuel. It is a Services responsibility to monitor their own budgets for the draw down of fuel. To enable this, summary information is provided to Services by the Finance team, once it has been reviewed by the Assistant Fleet Manager. There is scope to improve the provided to Services in order to ensure that they are able to fully monitor the usage by their vehicles and plant. Action Point 3 6.5 Fuel disbursements: Fuel is issued for vehicles and plant via fuel fobs or fuel cards, based on the completion of a justification sheet, and the appropriate assessment and approval from Services and Fleet Management. From a sample of 19 fuel fobs/cards for the period April 2022 to March 2023, with total usage of £505,630, justification sheets were not available for 13 fobs/cards, which represented 68% of spend. A further sample of 16 fuel fobs/cards for the period from April 2023 to October 2023 with total usage of £215,353 was reviewed and the justification sheets could not be located for 74% of spend. The Service advised that they believed this to be as a result of moving between a paper and electronic method of capturing and storing these forms and they were confident that the fuel fobs and cards in use would have had appropriate authorisation prior to their being issued. Action Point 4 6.6 Fuel Fobs / Fuel cards disabled from system: Fuel fobs / cards are disabled from the FuelTran system once they are no longer to be used for that
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vehicle. These can then be re-issued to other vehicles as required. Whilst records were held which recorded fobs/cards being disabled, only the month was recorded rather than the exact date. Action Point 5 6.7 Faulty fuel gage and fuel pump instruments: Fuel pumps in use record individual disbursements of fuel against the relevant fuel fob. The pumps also have the facility to record cumulative fuel disbursements from when a delivery has been received. These pump readings should be recorded for each delivery, however this has not been possible in all cases because of a broken gage at the Friarton pump. Fleet Management was not aware of this fault. Action Point 6 6.8 Policies and Procedures: Fleet Management have policies and procedures in place, however some of the fuel management procedures are out of date (e.g. procedures for the safe delivery of fuel), and are no longer relevant and have not been updated since 2015. Action Point 7 6.9 Receiving Fuel at Depots: The audit found that delivery notes held were not always signed by Council staff to verify receipt of delivery. The majority of fuel is delivered to Friarton and Blairgowrie, where fuel delivery is always supervised. During discussion, it was revealed that Council staff are sometimes not present during fuel delivery at Kinross, Crieff and Pitlochry, which tends to be when there has been a breakdown in communication regarding the timing of these deliveries and the relevant foreman is not on site at the time of delivery. Where this has occurred, the foreman will undertake a reasonableness check with reference to the tank Guage. The lack of Council staff being present to receive the delivery is not in accordance with fuel procedures. Action Point 8 6.10 Fuel usage per fleet or per mechanical equipment: As noted in 5.4 above, it is difficult to predict fuel usage on some of the larger vehicles by calculating miles per vehicle, due to the hydraulic connected to the engine which means they can be using fuel whilst not travelling any distance. However, it was noted that there was no analysis of fuel usage per vehicle or per mechanical equipment in order to identify any vehicle that is using more fuel than usual. The fuel budget is not based on mileage per vehicle or hours per mechanical equipment, this makes it difficult to analyse fuel usage per vehicle. The fuel usage of each vehicle is recorded into the system. However, no independent verification is done of odometer of the vehicles or equipment to confirm figures in the system. Action Point 9 6.11 Ordering Fuel: There is no specified quantity re-order level figure set and approved by Fleet Management for ordering fuel, instead it is left to the discretionary of each Depot supervisor to place an order for fuel as and when they need it. Action Point 10
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7. Conclusion 7.1 The Internal Audit review is able to place limited assurance on the overall control environment for Climate Change at this time. The agreed actions, once implemented, should enable Internal Audit to place reasonable assurance on these. 8. Acknowledgements 8.1 Internal Audit would like to thank all officers who were involved in this audit: A Brown, Assistant Fleet Manager. P Taggart, Fleet Manager L Dow, Support Service J McMahon, Friarton Depot Supervisor F Souter, Finance Officer. N Taylor, Direct Services Manager 9. Action Implementation & Follow up 9.1 Responsibility for the maintenance of adequate and effective controls rests with management. Where the audit has identified areas for management action, these are identified in the Management Action Plan. Where a decision is taken by management not to act in response to finding from this review, it is the responsibility of management to assess and accept the risk arising from non-implementation. 9.2 Achievement of the agreed actions is monitored through Internal Audit’s ‘follow up’ arrangements.
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10. Management Action Plan Action Point Para. No Finding Risk Rating Agreed Action & Evidence Action Owner Target Completion Date 1 6.2 Monthly Fuel Audit The Fuel Policy requires a monthly audit to be carried out by Fleet Management with a comparison being made between actual fuel held in tanks and that expected within the FuelTran system. Fleet Management informed us that this exercise has not been completed since the COVID pandemic, but recognise that this is a key control in identifying discrepancies, which should be re- established. 4 The monthly audit lapsed during the covid pandemic and has not recommenced following the Fleet Manager leaving. 1. A quarterly audit of all the depots fuel will be carried out by Fleet Manager. Any discrepancies will be identified, investigated and any adjustments will be recorded with a reason and signed off by Fleet Manager. 2. The Fuel Policy will be updated regarding the frequency of this audit. P Taggart, Fleet Manager P Taggart, Fleet Manager April 2024 April 2024 2 6.3 Override of fuel readings in the FuelTran system: There is no oversight of the manual adjustments made in the system as they are as they are not reported to Fleet Management nor investigated.. 4 1. A record of any changes will be kept and any adjustments will be reviewed and verified by an officer designated by A Brown, Assistant Fleet Manager April 2024
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the Fleet Manager. Following this, a yearly audit will be carried out. 2. In addition the service is exploring installing new gauges and are also looking at the possibility of a direct link between the fuel tank gauge and Fueltran. 3 6.4 Monitoring fuel budget: It is a Services responsibility to monitor their own budgets for the draw down of fuel. To enable this, summary information is provided to Services by the Finance team, once it has been reviewed by the Assistant Fleet Manager. There is scope to improve the provided to Services in order to ensure that they are able to fully monitor the usage by their vehicles and plant. 2 1. The information provided to Services will be expanded to include All information provided to Fleet Management to enable Services to better monitor their fuel usage. This will highlight if their year’s spend is on target and highlight in advance if there will be an overspend. 2. This matter will also be added to the agenda of the quarterly fleet user group for consideration. P Taggart, Fleet Manager April 2024
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4 6.5 Fuel disbursements: From a sample of 19 fuel fobs/cards for the period April 2022 to March 2023, with total usage of £505,630, justification sheets were not available for 13 fobs/cards, which represented 68% of spend. A further sample of 16 fuel fobs/cards for the period from April 2023 to October 2023 with total usage of £215,353 was reviewed and the justification sheets could not be located for 74% of spend. The Service advised that they believed this to be as a result of moving between a paper and electronic method of capturing and storing these forms and they were confident that the fuel fobs and cards in use would have had appropriate authorisation prior to their being issued. 3 1. Each Service will be provided with a list of fuel fobs and cards currently issued to their vehicles and Services will be required to confirm and validate their fobs/cards in use. 2. Going forward, a record of all justification forms will be filled in a central point. A Brown, Assistant Fleet Manager A Brown, Assistant Fleet Manager April 2024 April 2024 5 6.6 Fuel Fobs / Fuel cards disabled from system Fuel fobs / cards are disabled from the FuelTran system once they are no longer to be used for that vehicle. These can then be re-issued to other vehicles as required. Whilst records were held which recorded fobs/cards being disabled, only the month was recorded rather than the exact date. 3 A new spreadsheet has been established for when a fuel fob has been disabled. This includes the date of disablement, the vehicle registration and the fuel fob number, the new vehicle that the fob has been reallocated to and date. The key fob number or card number will be entered on to our fuel management system Key2 and a reconciliation will be carried out quarterly. L Dow. Support Services Officer April 2024
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6 6.7 Pump readings should be recorded for each delivery, however this has not been possible in all cases because of a broken gage at the Friarton pump. Fleet Management was not aware of this fault. 3 Fleet Management will ensure that the broken gauge is fixed, as part of an existing service contract. If required, new fuel gauges will be fitted which will be connected to the fuel tanks and new gauges fitted to the fuel pumps. When gauges are fitted, the Service will arrange to carry out a calibration test of the gauges every 6 months. A yearly audit will take place at each financial year and will be recorded. P Taggart, Fleet Manager September 2024 7 6.8 Policies and Procedures: Fleet Management have policies and procedures in place, however some of the fuel management procedures are out of date (e.g. procedures for the safe delivery of fuel), and are no longer relevant and have not been updated since 2015 2 The Fleet Manager will review the policies and procedures to ensure that they are fit for purpose and remain relevant and ensure that staff are aware of the revised procedures. P Taggart, Fleet Manager May 2024 8 6.9 Receiving Fuel at Depots: Delivery notes held were not always signed by Council staff to verify receipt of delivery. During discussion, it was revealed that Council staff are sometimes not present during fuel delivery.. 3 The Service will ensure that the Foreman at the outlying depots will take delivery of fuel, sign the delivery note given by the fuel company and scan the A Brown, Assistant Fleet Manager March 2024
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delivery note to a designated member of staff who will enter the delivery into Fueltran. 9 6.10 Fuel usage per fleet or per mechanical equipment: As noted in 6.4 above, it is difficult to predict fuel usage on some of the larger vehicles by calculating miles per vehicle, due to the hydraulic connected to the engine which means they can be using fuel whilst not travelling any distance. However, it was noted that there was no analysis of fuel usage per vehicle or per mechanical equipment in order to identify any vehicle that is using more fuel than usual. The fuel budget is not based on mileage per vehicle or hours per mechanical equipment, this makes it difficult to analyse fuel usage per vehicle. The fuel usage of each vehicle is recorded into the system. However, no independent verification is done of odometer of the vehicles or equipment to confirm figures in the system. 3 A report will be provided to services showing their fuel spend and will highlight the top four and the lowest four vehicles/equipment. The responsible person for fuel for each service will be provided with access to Fueltran to check and verify the vehicle mileages they are responsible for. A Brown, Assistant Fleet Manager April 2024 10 6.11 Ordering Fuel: There is no specified quantity re- order level figure set and approved by Fleet Management for ordering fuel, instead it is left to the discretionary of each Depot supervisor to place an order for fuel as and when they need it. 2 An agreed fuel level will be set for each depot depending on usage. This will be entered into the Fueltran system. A Brown, Assistant Fleet Manager March 2024
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11. Authorisation 11.1 The auditor for this assignment was I Iman. The supervising auditor was J Clark. This report is authorised for issue: 12. Distribution 12.1 This report has been distributed to: T Glen, Chief Executive B Renton, Executive Director (Communities) A Williams, Director, Economy, Place & Learning C Mailer, Director, Strategy, People & Resources F Crofts, Strategic Lead – Environment M Butterworth, Head of Environmental & Consumer Services N Taylor, Direct Services Manager P. Taggart, Fleet Manager A Brown, Assistant Fleet Manager L Simpson, Head of Legal & Governance Committee Services External Audit 13. Assessment Definitions 13.1 The following table contains the definitions of the control objective assessment. Control Objective Assessment Level of assurance Definition Substantial Assurance A sound system of governance, risk management and control exists, with internal controls operating effectively and being consistently applied to support the achievement of objectives in the area audited. Reasonable Assurance There is a generally sound system of governance, risk management and control in place. Some issues, non- compliance or scope for improvement were identified which may put at risk the achievement of objectives in the area audited. Limited Assurance Significant gaps, weaknesses or non-compliance were identified. Improvement is required to the system of governance, risk management and control to effectively manage risks to the achievement of objectives in the area audited. No Assurance Immediate action is required to address fundamental gaps, weaknesses or non-compliance identified. The system of governance, risk management and control is inadequate to effectively manage risks to the achievement of objectives in the area audited.
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13.2 The following table contains the definitions applied by Internal Audit in rating audit findings/actions. Risk Rating for Individual Findings Rating Rating description Definition 5 Critical Significant observations / major concerns which require immediate action. Management will need to add these to the appropriate Service risk register Issue represents a control weakness which could cause, or is causing, severe disruption of the process or severe adverse effect on the ability to achieve process objectives 4 High Significant observations regarding the absence / failure of key controls requiring urgent action. Management should consider adding these to the appropriate Service / divisional risk register Issue represents a control weakness which could have, or is having, major adverse effect on the ability to achieve process objectives 3 Medium Observations regarding the effectiveness of key controls requiring reasonably urgent action. Management should consider these when updating any divisional / team risk registers Issue represents a control weakness which could have, or is having, significant adverse effect on the ability to achieve process objectives 2 Low Minor observations regarding the adequacy of controls which require action to improve the efficiency, effectiveness, or economy of operations or which otherwise require to be brought to the attention of Senior Management Issue represents a minor control weakness with minimal but reportable impact on the ability to achieve process objectives 1 Trivial / Minor Very minor observations which will be raised during the audit and may not be included within the final report Issue represents a very minor control weakness with negligible impact on the ability to achieve process objectives. The issue will be raised during the audit and may not be included within the final report.