Audit Objective
Did the Town of Lockport (Town) Highway Superintendent (Superintendent) properly safeguard and account for asphalt millings (millings) inventory and sales?
Audit Period
January 1, 2023 – September 24, 2024
Understanding the Audit Area
Millings are recycled asphalt pavement crushed into a smaller gravel-size rock. Millings are generally collected during road paving projects that require a certain depth of the existing road to be milled and removed before the road is paved. Millings may be used for certain projects as a cost-efficient alternative to other materials such as stone or gravel. For example, millings may be used to construct walking paths and for road maintenance, including road base, shoulders and pothole repairs. Millings may be screened to remove rocks and other particles allowing for a smoother project surface. Screened millings are typically more expensive than unscreened millings.
We observed one pile of screened and one pile of unscreened millings behind the Town highway garage that have a combined value of approximately $89,000. The piles consist of approximately 1,400 tons of screened millings, valued at approximately $60,000, and a similar size pile of unscreened millings, with a sale value of approximately $29,000. While unscreened millings were available for sale, if more screened millings are needed for Town projects, they can be screened. Therefore, the value of the unscreened millings is potentially more than the sale value.
Physical safeguards and strong and effective internal controls are required to help ensure all inventory is safeguarded and all inventory and sales of such materials are accounted for.
The Superintendent in office during the audit fieldwork was appointed on August 16, 2023. The former Superintendent was in office for the remainder of the audit period.
Audit Summary
The Superintendent did not properly safeguard and account for the millings inventory or unscreened millings sales. When the millings inventory is not properly safeguarded and accounted for and the collections from millings sales are not monitored, there is an increased risk of fraud, abuse and misuse of millings inventories and sales revenue that could occur and go undetected. In addition, because millings are a lower-cost alternative to stone and other materials used for roadway and other Town projects, officials may incur added costs if the Town’s millings inventory is depleted. Specifically, the Superintendent did not:
- Ensure millings were physically secured and did not review surveillance camera footage (camera footage) to identify any potential issues related to the inventory of millings stored behind the highway garage.
- Develop procedures to ensure all millings from road projects were added to the Town’s inventory or that the proper amount of millings sold and/or used for Town projects was removed from inventory.
- Maintain a perpetual inventory of millings – a record of the beginning balance, additions, reductions and ending balance. Therefore, he could not determine an accurate inventory of the millings the Town should have on hand.
- Update the sale price of millings in accordance with the current average market price, as required by the Town’s surplus asphalt millings policy (Policy).As a result, 483 tons of unscreened millings that were sold for $929 should have been sold for $9,875 based on average market prices at the time of the sale, a difference of $8,946.
- Ensure all fees owed to the Town for millings sales were collected. Specifically, one invoice for the sale of unscreened millings to the Highway Clerk’s (Clerk) family member that totaled $36 for 36 tons was not paid until we brought it to the Clerk’s attention during our audit. The Clerk was solely responsible for collecting payment for the sale of millings without any oversight from the Superintendent.
- Establish written procedures that provide clear guidance to the individuals responsible for the various aspects of managing millings, including: maintaining perpetual inventory records, reconciling inventory records to physical inventory on hand, monitoring physical inventory safeguards such as video footage, maintaining detailed and accurate sale records, issuing invoices and duplicate receipts for sales, reconciling collection records to bank deposits, monitoring and updating the average market price of millings, identifying who is authorized and responsible for each procedure and monitoring for compliance.
Because there were no procedures or physical safeguards in place, and proper inventory records were not maintained and reconciled to physical inventory, officials could not ensure that all millings were accounted for. When the sales of millings are not sufficiently documented and reconciliations are not completed between sales, collections and deposit records, the Superintendent cannot verify that all funds owed were billed, received and deposited. In addition, because the Superintendent did not adjust the millings sales price to the current average market rate, the Town received significantly less revenue for millings sales. Furthermore, allowing one individual to control key processes and procedures without compensating controls increases the risk that errors or misappropriations could occur and remain undetected. The lack of internal controls over the millings inventory leaves a valuable Town material being left to possible misuse.
The report includes 11 recommendations that, if implemented, will improve the Town’s safeguards and accounting for the millings inventory and sales. Town officials agreed with our recommendations and indicated they will take corrective action.
We conducted this audit pursuant to Article V, Section 1 of the State Constitution and Office of the New York State Comptroller’s (OSC) authority as set forth in Article 3 of the New York State General Municipal Law. Our methodology and standards are included in Appendix C.
The Board has the responsibility to initiate corrective action. A written corrective action plan (CAP) that addresses the findings and recommendations in this report should be prepared and provided to our office within 90 days, pursuant to Section 35 of the New York State General Municipal Law. For more information on preparing and filing your CAP, please refer to our brochure, Responding to an OSC Audit Report, which you received with the draft audit report. We encourage the Board to make the CAP available for public review in the Town Clerk’s office.