6 | A u d i t o f C o n t r a c t N o . 2 0 1 7 ‐ 0 5 5 A p r i l 2 0 2 1 1. Plan Pricing Summary. Observation In Exhibit B of the Agreement, the “Fee Schedule”, refers to a Price Plan Summary which outlines the net profit rate that the contractor is to bill the County for product costs. Language in the contract states that NAPA product costs and Non‐NAPA product costs are to be billed to the County at a 10% gross profit rate, unless the Non‐NAPA product cost is listed as an “outside” product or service. Any “outside” purchase would result in either an 8% or 6% gross profit rate, based on the amount of the invoice. However, directly underneath the language that states a 10% gross profit rate, a calculation is also provided that states the gross profit is to be calculated by the “acquisition cost divided by .9”. The auditor determined that the gross profit rate is actually 11.1% when using this calculation. Recommendation The County should review the contract and determine which gross profit rate was intended and then the language and calculation should be modified so that they are both in alignment. Management Response Amendment No. 3 was approved September 9, 2020 by the BCC, with a new “Gross Profit” Rate amount of 8% on NAPA products costs, Non‐NAPA product costs, and “Outside” products or services. The new pricing will be effective October 1, 2020. As stated in the Amendment, the “Gross Profit” is calculated by dividing the Current NAPA Jobber Acquisition Cost by 0.92. The Fleet Services Division has reviewed this calculation and confirms that this is an accurate methodology for calculating the Agreement “Gross Profit.” “Gross Profit” is based on a percentage of the delivered price; markup is based on a percentage of the vendor cost. In addition, the Fleet Services Division has adopted a new Internal Procedures that include purchase threshold approvals for high‐cost items. Any item purchase of $250,000 or above requires approval from the Generals Services Director. Items costing $50,000 or more require approval from the Facilities and Fleet Operations Manager. All other items are approved and reviewed weekly by the Fleet Manager or Assistant Fleet Manager. Furthermore, the monthly audit of the profit rate charged and verifies the “Gross Profit” on “outside” service invoices with supporting documents showing vendor cost are attached prior to submitting to the Clerk’s Office. NAPA has created a monthly report that reflects the vendor cost of the product sold and the delivered price of the product which will be utilized for the monthly audit.
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