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Richmond DPU audits note $2M+ in extra parts, unsafe storage

A general view of City Hall
Shaban Athuman
/
VPM News
City Hall as seen on Thursday, December 12, 2024 in Richmond, Virginia.

In 2024, auditors found warehouses have no written policy to track stock.

Richmond’s auditor recommended changes to nearly 50 issues in the city’s Department of Public Utilities that remain unresolved, according to city documents.

The agency has missed target dates to address at least 32 of those issues, six of which were deemed high-priority changes after audits of DPU’s warehouses.

Months before Richmond’s water plant failure, city audits detailed issues within DPU's warehouses — including a lack of written operating policies and insufficient oversight that potentially delayed critical repairs.

Audits of DPU’s main and wastewater treatment plant warehouses issued in late 2024 also found inadequate inventory oversight, and inaccurate and incomplete data that led to unaccounted-for inventory and “significant financial discrepancies.”

The audits found no written policies for the warehouses’ operations, inventory management and monitoring, tracking, stock levels, physical inventory count process, roles and responsibilities or documentation requirements. It was noted that each warehouse has a system to track inventory.

“The current environment exposes the City to significant risk for error, fraud, and waste that could go undetected,” the city audits concluded in both reports, each with a scope that included “FY 2023 and the current environment.” (Virginia's fiscal year runs from July 1–June 30; fiscal 2023 was July 1, 2022 through June 30, 2023.)

Auditors wrote that a lack of policies could drive staff confusion, inefficiencies, process inconsistencies and lead to “non-compliance with laws and regulations,” and “legal risks.”

A DPU spokesperson did not respond to multiple VPM News requests for an interview. 

The audits said DPU leadership concurred with all recommendations. A few had been fully implemented at the time of the report’s release, but most of the recommendations remained open or had been partially implemented.

Among other findings, auditors discovered hundreds of thousands of dollars in inventory purchases that were unaccounted for, at least $45,000 in unnecessary costs to the city and damaged and exposed inventory.

City auditors also learned DPU bypassed the city’s procurement rules, which was referred to Richmond’s inspector general for review. A request for comment was not returned by the IG’s office.

April Bingham voluntarily left her position leading DPU on Jan. 15 — a little more than a week after Richmond’s water issues began.

Warehouse inspection

DPU’s warehouses were inspected as part of a six-phase audit of inventory management and efficiency at the city’s six main warehouses.

Inventory is bought and stored at DPU’s main warehouse, a facility staffed by five employees, and then sold to other DPU divisions, per the audit.

According to the report, issued Oct. 8, 2024, auditors found inadequate internal controls, oversight and inventory monitoring at the main warehouse that led to inaccurate and unreliable data, overstating inventory value by roughly $955,000.

DPU’s tracking at the time of the audit wouldn’t promptly identify staff of incorrect inventory balances and could have led to “overages, shortages, and unnecessary spending of government funds,” city auditors found.

Warehouse staff told auditors the inventory count strategy included daily reports that are reviewed to identify items that need to be reordered. Two warehouse technicians count these items before placing orders and documenting the counts and system changes, DPU told auditors without providing documents.

In a review of this process, auditors found that 26% of items — valued at $2.4 million — listed on the city’s inventory report wouldn’t be flagged for periodic counts because no minimum stock levels had been set.

The audit found inventory stored in Building 20 at the rear of DPU’s main warehouse “improperly safeguarded and subject to damage and deterioration.”

“Part of this building has been demolished, and the remaining portion is used to store inventory items,” the audit said. “The roof of the remaining portion of the building is compromised, and the inventory items are exposed to the weather elements, falling debris, and pests.”

During physical inventory counts, city auditors noted rust damage and deterioration to some items. The damage made it impossible “to clearly identify the manufacturer, part number, or item descriptions,” the audit said.

“In addition, the building appears unsafe, and employees may be subject to injury when entering the building, thereby creating a liability for the City,” the audit warned.

DPU concurred with all 13 of the audit’s recommendations. The report said management advised that eight had been partially implemented and five remained open as of Oct. 8, 2024. Three days later, DPU said it would implement standards of procedures for the warehouse’s operations and inventory management.

DPU said it expected to start demolishing Building 20 on Oct. 11, 2024, though a recent quarterly city audit report indicates the project remains open.

Looking into the wastewater plant

The second audit — issued on Nov. 13, 2024 — found similar issues at the Richmond Wastewater Treatment Plant warehouse.

The facility, staffed by three employees, had poor oversight of inventory purchases, incorrect records and no written operation procedures, the audit found.

Other issues included at least $404,265 of unaccounted-for inventory at the warehouse, inventory worth at least $563,000 not properly monitored and roughly $100,000 in costs to the city to buy items already in inventory.

The auditor’s office was told that during inventory counts, items are also stored in two buildings on the WWTP grounds and at the Water Treatment Plant.

DPU reportedly bypassed the city’s competitive procurement process once by hiring a subcontractor through an existing contractor without proper approval, leading the city to overpay for a project.

“The subcontractor completed diffuser replacements for $180,000, while the prime contractor, who appeared to have no significant role, billed the City $224,900,” according to the audit. “The prime contractor also received full payment upfront and attested that the work was completed when it was not, violating contract terms and city policies.”

Neither of the contractors responded to the city auditor. The issue was also referred to Inspector General Jim Osuna’s office for review.

City auditors also identified two times vendors were paid roughly $362,000 before providing goods and services. This led an unnamed DPU official to send a memo to department officials, telling them not to pay vendors before goods and services were received and confirmed.

The lack of standardized processes at the warehouse, the audit found, led items to have outdated stock levels and resulted in more than 2,200 items missing minimum totals. The audit found 730 items past maximum levels, resulting in at least $1.4 million in extra inventory.

Roughly 51% of inventory items hadn’t been requisitioned or received for at least five years, based on a March 6, 2024, inventory report. Auditors said this indicates “a significant portion of stock” could be obsolete.

DPU concurred with all 18 of the audit’s recommendations. The report said DPU management advised that three were put in place, two were being implemented and the rest remained open as of Nov. 13, 2024.

According to the audit, DPU said it would implement standards of procedures by Oct. 11, 2024, for the warehouse’s operations and inventory management, processes to ensure accurate and complete inventory data, tracking items taken to job sites and making sure they’re removed from the system.

Based on another recommendation, DPU said in the audit that it “will create [a standards of procedure] to define the optimal level of inventory based on historical usage, lead times, and anticipated projects” by the end of March.


Disclosure: Richmond's Department of Public Utilities is a sponsor of VPM. Questions about this article and VPM News’ overall editorial policy should be directed to Managing Editor Dawnthea M. Price Lisco and News Director Elliott Robinson.

Dean Mirshahi is a general assignment reporter at VPM News.