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Fleet Management is responsible for purchasing and maintaining the City’s fleet of more than 1,200 vehicles and equipment. Fleet Management operates as an internal service fund, allocating its costs to departments that are fleet users. A key principle for internal service funds is applying a cost allocation methodology that charges fees equitably based on use or other causal factors.
The audit concluded that Fleet Management can improve its replacement rate methodology and the accuracy and consistency of its application:
- Using a published inflation rate for general purpose vehicles and discrete escalation rates for specialty vehicles would improve forecasting future replacement costs. The use of a single fleetwide escalation rate for vehicle replacement fees results in cost shifting rather than departments paying their correct proportionate share of fleet costs.
- The estimated salvage value of vehicles should be included when calculating replacement costs.
- The length of actual vehicle and equipment use should be compared to the estimated useful lives to improve estimates.
As well, about 42% of replacement fees were not correctly or consistently calculated, including a programming error, timing errors and fee exclusions. As shown in Table 8 of the report, the net effect of these errors was that Fleet overcharged departments more than $763,000 over the past 6 fiscal years, with the General Fund undercharged approximately $128,000, the Transportation Fund overcharged more than $628,000, and the Solid Waste Fund overcharged more than $362,000.
Further, cost savings or avoidance may be achieved by reducing low-use vehicles and ensuring timely preventative maintenance.