INV-005(PS) Xerox Investigation Report...

INV-005(P) May 19, 2011

CONFIDENTIAL REPORT

Investigation Report

Auctioning Lease/Owned Copiers at Pierce College

Los Angeles Community College District Office the Inspector General 811 Wilshire Blvd., Suite 275, Los Angeles, CA 90017

May 19, 2011 Chancellor Dr. Daniel J. LaVista Los Angeles Community College District 770 Wilshire Blvd. Los Angeles, CA 90017 Chancellor LaVista, This is the Office of Inspector General’s Investigation Report on Auctioning of a Leased/Owned Copiers at Pierce College.

The Office of Inspector General’s investigation could not determine if the auctioning of the leased/owned copiers was intentional, however, our findings suggest that the internal controls over asset tracking may still be weak.

The OIG does not recommend further investigation of this specific incident; however, the OIG recommends that the District direct the Program Manager to distribute its reported new procedures and increased controls to all Campus Relocation Project Managers, Facilities Directors, and VPs of Administration Services.

I appreciate the courtesies and cooperation extended to us during this investigation. Sincerely,

Christine Marez Inspector General Los Angeles Community College District

Office of the Inspector General ii INV-‐005(P) May 19, 2011

TABLE OF CONTENTS

EXECUTIVE SUMMARY..................................................................................................1 ALLEGATION ..................................................................................................................2 BACKGROUND ...............................................................................................................2 INVESTIGATION APPROACH ........................................................................................2 FINDINGS ........................................................................................................................3 CONCLUSION AND RECOMMENDATIONS ..................................................................6 EXHIBITS.........................................................................................................................7

Office of the Inspector General 1 INV-‐005(P) May 19, 2011

EXECUTIVE SUMMARY

In February 2010 various assets were identified at Pierce College for disposal at public auction, including two Xerox copiers on lease to the college and one Canon copier owned by the College. The three copiers were subsequently auctioned and all appropriate documentation for the pickup, sale, and transfer of ownership was completed. When the Campus Relocation Project Manager advised the BuildLACCD’s asset management staff that copiers should not to have been sold, BuildLACCD contacted the owner to attempt to return the equipment; however the owner declined.

The OIG could not verify with BuildLACCD staff whether the District had settled with Xerox for a buyout amount or if the campus continues to make the lease payment. Based upon a review of documentation and interviews with various campus and BuildLACCD staff, the OIG cannot determine if the disposal of the copiers was intentional or accidental.

BuildLACCD staff reported to the OIG that new procedures have been developed and corrective actions implemented in the tracking and management of surplus assets identified for disposal. In OIG interviews with Campus Facilities staff, it appears that internal controls over asset tracking may still be weak and the reported new procedures have not been communicated to the responsible parties at all campuses.

From a cost-benefit perspective, the OIG does not recommend further investigation of this specific incident; however, the weak controls in this area should be addressed immediately.


ALLEGATION

At the request of the Office of General Counsel, the Office of the Inspector General has investigated allegations that assets were inappropriately sent to, and sold at, public auction.

BACKGROUND

In preparation for construction activities in the Administration Building, Campus Center, and the EOP&S, CalWORKS, and Business Office at Pierce College, various assets were identified as surplus and available for re-assignment to other on-campus users or disposal at public auction. An inventory (including photographs) of the items to be auctioned as surplus items was prepared starting on November 16, 2009. The inventory list was approved January 5, 2010. Included in this inventory were two (2) Xerox copiers on lease to the college and one (1) Canon copier owned by the College.

Between January 20 and January 29, 2009, the items were relocated and organized into similar auction lots, i.e., all copiers in the same location and auction lot in the Administration Building. The Xerox copiers were included in Lot #410469 and the Canon copier in Lot #410531.

The lists of items in the lots to be auctioned were posted on publicsurplus.com on February 11, 2010 with a closing date of March 11, 2010 and pickup date of March 26, 2010. The winning bids for the two lots containing the Xerox and Canon copiers was submitted by Anthony Chang—$127.50 for Lot #410469 containing the two Xerox copiers and $10.50 for Lot #410531 containing the Canon copier. Mr. Chang also won Lot #410467, primarily composed of office furniture and panels.

Mr. Chang retrieved the copiers on March 26, 2010. All the appropriate documentation for the pickup, sale, and transfer of ownership was completed, including the forms identifying the items as having been sold by the District to Mr. Chang. On March 30, 2010, BuildLACCD’s asset management staff was advised by the Campus Relocation Project Manager (“RPM”) that the three (3) copiers Mr. Chang had purchased and picked up were not to have been sold. BuildLACCD staff contacted Mr. Chang via telephone, FAX, and e-mail and offered to return the cashier check used to pay for the auctioned items if, and when, he returned the items. Mr. Chang declined to do so.

INVESTIGATION APPROACH

To start the investigation, all available documentation relating to the allegation was obtained and reviewed.


From the information provided, parties familiar with and/or involved in the issue were identified for interviews and to obtain additional relevant information and/or documentation. The interviews included:

• Todd Cozolino, BuildLACCD, Director of Construction, • Desiree Shier, BuildLACCD, Relocation Services Group Manager, • Danielle Lyons, BuildLACCD, Asset Management, and • Sonseeahray Barrett, BuildLACCD, Asset Management.

Interviews with the identified parties were conducted and the findings documented.

Follow-up interviews via telephone with either the Vice President of Administration or Facilities Director/Manager at other colleges were conducted to verify implementation of reported corrective measures and procedures (BuildLACCD Surplus Disposal Services Procedures, Exhibit A). The interviews included:

• Bob Garcia, Facilities Director at City College • Tom Furukawa, Assistant V. P. Administration Services at East Los Angeles College • Bill Englert, Facilities Director at Harbor College • Randy Craig, Facilities Director at Southwest College • Dr. Mary Gallagher, V.P. Administrative Services, LA Trade/Technical College • Alan Hansen, Facilities Manager at West LA College • Wally Bortman, Facilities Director at Mission College

This is the Investigation Report documenting conclusions and recommendations.

FINDINGS

All the BuildLACCD Asset Management staff provided a consistent description of the “normal” surplus asset disposal process. The following summarizes the process described:

1. A building or area with equipment or furniture is identified as being taken out of service for remodeling or demolition.

2. The Campus Relocation Project Manager (RPM) is notified of the need to relocate and/or dispose of equipment and/or furniture in the affected facilities.

3. The Campus RPM works with the Department Head(s) and Facilities Director to determine what is to be moved or retained for continued use and what is surplus for disposal and/or will be replaced.

4. Items to be moved or retained are tagged to identify their new locations and relocated from that area to their new location or an interim holding location.


5. A contract relocation firm (Red Ball or Suddath) is brought onto the project to inventory (a listing identifying condition, asset tag, and serial number of items); photograph (while in the original location); remove asset tags; and move to the staging area for assembly into “lots” for auction.

6. Lots are palletized and/or the items plastic wrapped, and a list of items and quantities in the lots is prepared. According to BuildLACCD, a copy of the list is placed in a visible location in the lot before it is plastic wrapped.

7. The lists are sent to BuildLACCD for entry into the publicsurplus.com auction site.

8. The lists of items to be posted on publicsurplus.com are sent to the V.P. of Administration and Facilities Director at the campus for final review and approval.

9. The VP of Administration, Facilities Director, or RPM at the campus identify items to be removed from the list, items claimed by other departments, or items that were incorrectly identified as surplus.

10. The list of remaining items is posted to the publicsurplus.com website and initially opened exclusively to other campuses for two weeks to “claim” items they can use.

11. The Facility Directors and VPs of Administrative Services at other campuses are notified by e-mail of the publicsurplus.com website.

12. After the two-week period for this exclusive “internal” review, the auction is opened to the public for review and bidding.

13. When the winning bidder picks up the items awarded, BuildLACCD Asset Management staff verifies that what is removed is what was on the bid list, and that everything on the bid list is available for pickup.

On this project, several areas in several different buildings were scheduled for remodeling. This required collection of the items into a single building for assembly into lots and bidder pickup. The “unique” aspect of this project (referenced in the May 14, 2010 BuildLACCD Report, Exhibit B) was that BuildLACCD was asked to prepare an inventory (including photographs) of all items remaining in the various buildings after those items to be relocated and/or kept by the departments were removed—and before the relocation companies were brought onto the project. This was done to give the other campus departments an opportunity to “claim” items being “surplused” from the various buildings prior to their being posted to the web. It was started on November 2009 and completed by December 9, 2009.

The resulting inventory was provided to the OIG for review. It lists three (3) Xerox copiers in the areas where the copiers were believed to have been located. These copiers had no asset tag numbers listed. Two (2) of the copiers have photographs associated with their listing. After the copiers were reported to have been erroneously sold, it was claimed that “Do Not Surplus” signs had been placed on the leased copiers; however, as evidenced in the photographs (and reported by the staff that conducted the inventory), there were no signs posted when BuildLACCD prepared its inventory and took pictures and there are no notations of any such signage on the handwritten inventory prepared by the relocation company.


The OIG was also advised that not all items owned by the District have asset tags. AsseTek apparently did not place asset tags on all items when it prepared the baseline master asset list in 2004 and/or did not include all items on the list. Also, items are known to have had the asset tags removed or were purchased after 2004 and not “tagged” or added to the master asset list. The list of items auctioned had a significant number of items without asset tags.

Regarding the current status and disposition of the copier leases, Xerox provided the District with a buyout quote request for the two copiers; however, no one at BuildLACCD was certain whether the District had settled with Xerox or had continued to make the lease payment. It was reported that various entities had proposed to take responsibility for the incident and buy out the lease, but those offers had been rejected.

Other observations from the BuildLACCD staff included:

• Mr. Cozolino believes this incident may have resulted from an oversight by the campus staff.

• Ms. Shier thought it unusual that the copiers sat unused for several months on the auction list and nobody recognized they were being sold.

• Ms. Lyons also believed this incident was a simple oversight and was inevitable given the magnitude of the program and procedures in place at the time.

The May 14, 2010 report also identified specific corrective measures that were to be implemented at Pierce College and District-wide to avoid repetition of this oversight. Corrective measures included:

1. All auctions at Pierce College are to be approved by the V.P. of Administrative Services.

2. The department head or Dean of each college is to visually inspect and approve items as surplus once they are collected and prior to bringing the contract relocation service consultant onto the project.

BuildLACCD provided a copy of an e-mail approving the list of surplus items by the Pierce College VP of Administrative Services.

During the interviews, the BuildLACCD staff confirmed that these corrective measures had been implemented but modified. The current “modified” process now requires the RPM to provide the VP of Administration Services or Facility Director with a copy of the list of items to be auctioned and receive either a “sign off” on the list or approval via e-mail prior to posting the list on publicsurplus.com and to follow up if the required approval document was not received before the posting date. The BuildLACCD staff also identified additional preventative measures that are in process, including: tagging new assets as they are received; inputting the information into the District SAP system; and retaining an asset management consultant (Annans) to assist in specifying an RFID system.


To verify the status of the implementation of the corrective measures as described, the VP of Administration Services and/or Facility Director at each of the other campuses was contacted. The results were as follows:

• Bob Garcia, Facilities Director at City College, has not seen a memo or policy regarding the need for a “positive action” response approving items to be auctioned prior to their being posted.

• Tom Furukawa, Assistant VP Administration Services at East Los Angeles College, indicated he had sent about three (3) auction item list approvals over the last several months and will send the OIG a copy of one of the e-mail approvals. (The OIG has not received an email as of this date.)

• Bill Englert, Facilities Director at Harbor College, gets a list of the posting to the web and does not respond unless something should be removed.

• Randy Craig, Facilities Director at Southwest College, gets a list of items to be auctioned but does not check IT items. The procedure does not require a final approval by the Facilities Director or VP of Administration Services. (The OIG received a copy of an e-mail from BuildLACCD staff to Randy Craig asking for verification of the price on several items to be auctioned before the listing would be posted. It did not reference any requirement for approval of the list by Mr. Craig or the VP of Administration Services.)

• Dr. Mary Gallagher, VP Administrative Services, LA Trade/Technical College, believed the referenced policy had been implemented but was not personally aware of the status. Ms. Gallaher indicated that she would have her facility director, Bill Smith, call the OIG since he was the one who would have implemented it. (The OIG has not received a call to date from Mr. Smith.)

• Alan Hansen, Facilities Manager at West LA College, said sale of items on the surplus disposal list were authorized by a BOT sign-off; and that BuildLACCD sends a list by e-mail to his foreman (Abel Rodriquez) who reviews it and sends to Mr. Hansen for approval; however, the description of the review by Mr. Hansen and Mr. Rodriguez suggests it is the listing already posted to publicsurplus.com and that Mr. Rodriguez deletes any items that are not to be sold. Four (4) people at WLAC are able to review and delete items from the listing.

• Wally Bortman, Facilities Director at Mission College and currently the General Foreman, is the one verifying the website for surplus items. As far as he is aware, nothing written has been sent out and he is not sure procedures are really being followed. He said only “tagged” items are put up for auction. Items without tags are “flagged”.

CONCLUSION AND RECOMMENDATIONS

Based on the interviews, the OIG cannot determine if the disposal of the copiers was intentional or accidental. No one interviewed knew how the copiers ended up in the surplus area; however, it appears that they were part of the items initially inventoried in November, as they appear to have been on the list that was generated at that time. The distance from the location where they


originated to the “surplus area” where they were stored and assembled into lots for auction suggests they were moved intentionally.

The interviews suggest internal controls over asset tracking are still weak. The OIG was told that not all assets have been tagged and recorded in the general ledger. Until this incident, the approval process for disposing of surplus assets was informal and/or non-existent. Since the inadvertent disposal of the leased copiers, the OIG was told controls had been improved; however, Sonseeahray Barrett, who is deeply involved in the processing and disposal of surplus assets, couldn’t tell us what specific changes have been made. The OIG has not seen any formal written procedures and it appears that the reported new procedures have not been communicated to the responsible parties at all campuses.

From a cost-benefit perspective, the OIG does not recommend further investigation of this specific incident; however, the weak controls in this area should be addressed immediately. Documentation and distribution of the described procedures is strongly recommended followed by awareness training of BuildLACCD staff, Campus RPMs, Facilities Directors and VPs of Administration Services.

Danielle Lyons told us that she co-chairs a task force that is implementing new procedures for tracking assets in SAP and the acquisition of an automated tracking system. To prevent a re-occurrence of this incident, it will be important to ensure that effective internal controls are built into the process. We recommend someone from internal audit or perhaps an internal control consultant participate in this task force.

EXHIBITS

Exhibit A: BuildLACCD Surplus Disposal Procedures

Exhibit B: BuildLACCD Report – Leased Xerox Copiers Pierce College


EXHIBIT A


EXHIBIT B

INV-005(PS) Xerox Investigation Report...

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