8 | 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 3. Gross Profit Rate. 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 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. Recommendation 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. Management Response The Fleet Services Division has adopted a new Internal Procedure that includes a monthly audit of the Profit rate amount, and verification of the “Gross Profit” calculation on “Outside” service invoices where supporting documents showing vendor cost are attached prior to submitting to the Clerk’s Office. NAPA has created a monthly report that reflects the cost of the product sold and the delivered price of the product.
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