7 | 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 2. NAPA Product Costs. Observation 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 that NAPA Product Costs are to be “billed to the County at a 10% gross profit rate.” The contractor provides County staff with access to a live database that shows pricing for over 750,000 parts. After an order is processed, the County is invoiced and the prices are based on the live database prices. The auditor obtained access to the database and reviewed details related to pricing listed in the database. Each part listed includes the List price and the Cost price. The Cost price is what the County pays when they order from the contractor. It appears the County is receiving a discounted rate. However, based on the pricing provided in the database, there is no way to determine if the contractor is yielding a gross profit of 10% on NAPA Product Costs. Additionally, there is no documentation being retained that would indicate the list price at the time of the purchase. Recommendation The County should require the contractor to include their cost for parts listed in the database, or consider modifying the language of the contract to reflect the percentage discount the County is entitled to that would approximately equate to yield a gross profit of ten percent. Management Response The NAPA billing system does not have the capability to show the vendor cost on the invoice. However, NAPA has created a monthly report that reflects the cost of the product sold and the delivered price of the product. The Fleet Services Division has adopted a new Internal Procedure that includes a monthly audit of this report and verification that the correct Profit rate was charged.
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