Denver International Airport Finance and Administration Division Follow up Report

Transcription

1 Denver International Airport Finance and Administration Division Follow up Report July 2014 Office of the Auditor Audit Services Division City and County of Denver Dennis J. Gallagher Auditor

2 The Auditor of the City and County of Denver is independently elected by the citizens of Denver. He is responsible for examining and evaluating the operations of City agencies for the purpose of ensuring the proper and efficient use of City resources and providing other audit services and information to City Council, the Mayor and the public to improve all aspects of Denver s government. He also chairs the City s Audit Committee. The Audit Committee is chaired by the Auditor and consists of seven members. The Audit Committee assists the Auditor in his oversight responsibilities of the integrity of the City s finances and operations, including the integrity of the City s financial statements. The Audit Committee is structured in a manner that ensures the independent oversight of City operations, thereby enhancing citizen confidence and avoiding any appearance of a conflict of interest. Audit Committee Dennis Gallagher, Chair Maurice Goodgaine Leslie Mitchell Rudolfo Payan Robert Bishop Jeffrey Hart Timothy O Brien, Vice Chair Audit Staff John Carlson, Deputy Director, JD, MBA, CIA, CRMA, CGAP Dawn Wiseman, Audit Supervisor, CRMA Anna Hansen, Lead Auditor You can obtain copies of this report by contacting us at: Office of the Auditor 201 West Colfax Avenue, Department 705 Denver CO, (720) Fax (720) Or download and view an electronic copy by visiting our website at:

3 City and County of Denver 201 West Colfax Avenue, Department 705 Denver, Colorado FAX Dennis J. Gallagher Auditor July 14, 2014 Ms. Kim Day, Chief Executive Officer Department of Aviation City and County of Denver Re: Audit Follow Up Report Dear Ms. Day: In keeping with professional auditing standards and the Audit Services Division s policy, as authorized by D.R.M.C , our Division has a responsibility to monitor and follow up on audit recommendations to ensure that audit findings are being addressed and to aid us in planning future audits. This report is to inform you that we have completed our follow up effort for the Denver International Airport Finance and Administration Performance Audit issued September 13, Our review determined that the Department of Aviation has adequately implemented nearly all of the recommendations made in the audit report. Despite the Department s efforts, auditors determined that the risk associated with the audit team s initial findings has not been fully mitigated. As a result, the Division may revisit these risk areas in future audits to ensure that appropriate corrective action is taken. For your reference, this report includes a Report Highlights page that provides background and summary information on the original audit and the completed follow up effort. Following the Report Highlights page is a detailed implementation status update for each recommendation. This concludes audit follow up work related to this audit. I would like to express our sincere appreciation to you and to Department personnel who assisted us throughout the audit and follow up process. If you have any questions, please feel free to contact me at or Dawn Wiseman, Internal Audit Supervisor, at Sincerely, KRM/ALH Kip Memmott, MA, CGAP, CRMA Director of Audit Services cc: Honorable Michael Hancock, Mayor Honorable Members of City Council To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people. We will monitor and report on recommendations and progress towards their implementation.

4 Members of Audit Committee Ms. Cary Kennedy, Deputy Mayor, Chief Financial Officer Ms. Janice Sinden, Chief of Staff Mr. David P. Edinger, Chief Performance Officer Ms. Beth Machann, Controller Mr. Scott Martinez, City Attorney Ms. Janna Young, City Council Executive Staff Director Mr. L. Michael Henry, Staff Director, Board of Ethics Mr. Patrick Heck, Chief Financial Officer, Department of Aviation To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people. We will monitor and report on recommendations and progress towards their implementation.

5 City and County of Denver Office of the Auditor Audit Services Division REPORT HIGHLIGHTS DIA Finance and Administration Division Follow up Report: July 2014 The Department of Aviation has implemented eight out of the nine recommendations made in the September 2011 audit report. Background DIA operates as an enterprise fund, which is a governmental organization that operates as a self sustaining business where revenues and expenses are recorded as incurred. DIA s Finance and Administration Division (Division) must operate in accordance with Generally Accepted Accounting Principles. The Division comprises six sections, each of which performs a different function: Accounting; Financial Planning and Analysis; Rates and Charges; Technical Services; DIA Internal Audit; and Special Projects. Organizational culture can be defined as the values, attitudes, beliefs, artifacts, and behaviors of an organization. Some key components of the control environment include the organizational culture, management s philosophy, and human resources policies and practices. Purpose The purpose of the audit was to examine and assess the effectiveness of the internal control environment and the organizational structure within the Division to identify possible inefficiencies and opportunities for improvement. Highlights from Original Audit The performance audit of the Denver International Airport (DIA) Finance and Administration Division (Division) revealed four areas for improvement. First, the Division s Accounting Section had a weak internal control environment evidenced by poor segregation of duty controls, inappropriate access rights to the automated accounting system, and process weaknesses with respect to the review and preparation of financial statements. Second, we found that the DIA Internal Audit Section (DIA Internal Audit) was lacking independence and did not have an effective reporting structure. For example, an analysis of recommendations issued by DIA Internal Audit indicated that their recommendations were not being implemented consistently. Third, we determined that the Division s accountability culture required improvement. Specifically, Division management was not providing timely staff evaluations and performance feedback provided was limited. Finally, we noted a duplication of financial analysis functions. Our research of comparable airport staffing and outsourcing approaches indicated that the Division had tangible opportunities to enhance its efficiency and effectiveness through organizational adjustments and improved utilization of resources. Findings at Follow up The Division has strengthened its internal control environment by incorporating segregation of duties controls and by ensuring DIA s Internal Audit independence. In addition, the Division has improved its accountability culture by providing timely staff evaluations, complete with feedback that supported the rating and clear expectations. Finally, the Division has consolidated its duplicative financial analysis functions under the same section. The Division, however, was still reviewing its current consulting engagements to find appropriate areas where work could be insourced with the goal of reducing costs. For a complete copy of this report, visit Audit Contact Person: Dawn Wiseman dawn.wiseman@denvergov.org

6 Recommendations: Status of Implementation Recommendation Auditee Action Status Finding 1: Limitations with Current Division Organizational Structure Hinder Accountability and Operational Effectiveness 1.1 The Chief Financial Officer of the incorporate segregation of duties controls into the accounting system and ensure compliance. The ability of both the Accounting Manager and Accounting Supervisors to create and approve entries should be removed immediately. 1.2 The Chief Financial Officer of the ensure that administrative rights to the accounting system reside only with Information Technology personnel and not accounting staff. 1.3 The Chief Financial Officer of the segregate the review and preparation of financial statements. This review should be conducted by someone who does not prepare the financial statements. When auditors initiated follow up activities, accounting supervisors' journal entries were being approved and released by the controller in accordance with department procedures. The ability to make changes to approval levels in the Accounting Management System (AMS), however, was dependent on an upgrade to AMS targeted for the third quarter of Auditors followed up with the DIA Technologies Division in July 2014 on the status of the upgrade and found that it was completed and that AMS was configured to prohibit inappropriate administrative access rights. When auditors initiated follow up activities, the ability to make changes to administrative rights was dependent on an upgrade to AMS that was scheduled to occur by the third quarter of In April 2014, auditors followed up with the DIA Technologies Division and found that the upgrade was completed and AMS was configured to prohibit inappropriate administrative access rights. Reviews of the financial statements are now being conducted by two people outside of the Accounting group as well as by separate individuals within the Accounting group. Page 1 Office of the Auditor

7 Recommendations: Status of Implementation Recommendation Auditee Action Status.41.4 The Chief Financial Officer of the ensure that DIA Internal Audit has controls in place to ensure compliance with an updated Internal Audit Charter, the International Professional Practices Framework (Red Book), and a revised section of the policies and procedures manual. DIA Internal Audit should track audit follow up activities and periodically report the status of pending audit recommendations to the Manager of Aviation. 1.5 The Chief Financial Officer of the ensure that DIA Internal Audit is not performing operational duties that impair the independence of the DIA Internal Audit function. 1.6 The Manager of Aviation should ensure that employee evaluations within the Finance and Administration Division are completed in a timely manner consistent with Career Service Rule 13. The DIA Internal Audit Charter was revised, reviewed, and signed off on for approval on December 2, DIA Internal Audit personnel are now ensuring that follow up activity is being performed in accordance with the International Professional Practices Framework/Red Book through the use of an Audit Plan Status document to identify the follow up due date. Follow up is then added to the Audit Plan accordingly. The Chief Audit Executive reviews the Audit Plan Status document and outstanding recommendations with the Manager of Aviation at quarterly meetings, and with the Chief Financial Officer monthly. Operational duties have been reassigned; DIA Internal Audit is not performing any review of DIA s quarterly financial statements. The objectives for DIA Internal Audit assurance engagements have been significantly broadened and are evidenced by the "Audit Objective" column in the 2012 Audit Plan Status document. The City implemented a common date by which all City employee performance evaluations must be completed each year, which addressed this issue. Auditors verified that Division annual reviews were completed by the due dates established by the Career Service Authority for City and County of Denver Page 2

8 Recommendations: Status of Implementation Recommendation Auditee Action Status 1.7 The Chief Financial Officer of the ensure that employee evaluations within the Finance and Administration Division contain relevant evaluation criteria, specific job feedback, and clear performance expectations consistent with Career Service Rule The Chief Financial Officer of the consider consolidating the Rates and Charges Section into the Financial Planning and Analysis Section. 1.9 The Chief Financial Officer of the examine internal staff expertise necessary to perform required job functions. In addition, the Chief Financial Officer should promote the efficient use of third party consultants when outsourcing is necessary. All Performance Enhancement Plans (PEPs) for 2011 were revised to reflect performance criteria and a mid year review process has been put in place to provide more timely feedback. All employees had criteria included in their annual PEPs that were completed for 2012 by the end of January Consolidation was completed in August As of July 2014, a review is underway of current consulting engagements to find appropriate areas where the work could be in sourced with the goal of reducing costs. Analysts have been hired to replace consulting needs for ad hoc financial analysis. A Transition Plan is being developed to potentially limit consultant spending based on rates and charges. Agree / Not Page 3 Office of the Auditor

9 Conclusion While the Department has implemented nearly all of the recommendations made in the Denver International Airport Finance and Administration Division Performance Audit report, one has yet to be acted upon or fully implemented. At the end of the original audit, we reported that the DIA Division of Finance and Administration (Division) had opportunities to improve efficiency and reduce staffing costs by evaluating the current number of staff and outsourcing practices. Furthermore, a review of comparable airports revealed possible personnel management alternatives, which could reduce staffing and limit the use of outsourcing work. The review results indicated that the Division employs the second highest number of full time staff and outsources more work than the majority of peer airports surveyed. To assist the Division in improving their efficiencies and reducing staffing costs, we recommended that the Division re examine its staffing structure and re evaluate the cost of its outsourcing practices; the Division agreed to the recommendation. At the time of our follow up, however, the Department reported that the implementation of this recommendation was still in progress. As a result, we consider this recommendation Agree Not implemented as we deem that the risk associated with the audit team s initial findings has not been fully mitigated. Therefore, the Audit Services Division may revisit this risk area in future audits to ensure that appropriate corrective action is taken. On behalf of the citizens of the City and County of Denver, we thank staff and leadership from the Department for their cooperation during our follow up effort and for their dedicated public service. City and County of Denver Page 4