12 | Follow-up of Contract No 2022-003 with NAPA Auto Parts and Cooperative Purchase Request Contract with Sourcewell November 2024 3. Gross Profit Rate (Contract 2022-003) Current Status, Follow-Up Audit dated November 2024: Current Contract, No. 2022-003, outlines a new, consistent “Gross Profit” Rate of 8% across all NAPA product costs, non-NAPA product costs, and “Outside” products or services. This contract also includes a more in-depth explanation for calculating the gross profit rates, containing the formula, Acquisition Cost/0.92. Utilizing this formula, IAD tested 62 COPAR Invoice Packets that were paid during the period of January 1st, 2023- December 31st, 2023. Based on IAD calculations, an average gross profit rate of NAPA and non-NAPA transactions is at, or slightly below, the contracted 8%. No material issues were identified during the audit process. IAD considers Opportunity for Improvement No. 3- Gross Profit Rate, as closed. Original Audit Observation, Report dated April 2021: In Exhibit B of the Agreement, the “Fee Schedule”, refers to the contractor being able to bill the County at a specified gross profit rate. The contract states both “NAPA Product Costs and Non‐ NAPA Product Costs shall be set by the Contractor to yield a gross profit of ten percent (10%).” However, in the first amendment, on September 25, 2017 “outside” purchases and services (Non‐NAPA Product Costs) are to be charged a gross profit rate of 8% for purchases under $25,000 and 6% for purchases over $25,000. The auditor identified a total of 484 paid invoices against Purchase Orders issued between Fiscal Year 2018 and 2020. Of those paid invoices, a statistical sample of 214 paid invoices were selected for review. Each invoice batches multiple invoices into a single invoice that is applied to a Purchase Order. Upon review of the 214 sampled invoices and supporting documentation, it was determined that 13 individual invoices (or 6.1%) exceeded the allowed gross profit rate. This resulted in an overpayment of $1,584. Original Recommendation, Report dated April 2021: To ensure compliance with the contract, the County should review and verify the gross profit rate of each invoice prior to approving them for payment.
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