Introduction. Implementation Status

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1 City of Cape Coral City Auditor s Office TO: Mayor and Council Members THRU: Dona J. Newman, City Auditor FROM: Margaret Krym, Assistant City Auditor DATE: September 17, 2008 SUBJECT: Follow Up of FY04 Payroll Distribution Audit Introduction From January 2004 through it s completion in July 2004 an audit was performed to examine payroll distribution. The audit was completed with the cooperation and support of the Human Resources Department (HR) and the Financial Services Department and included all areas of the City. It included payroll distributions of manual checks and direct deposits. The purpose of that audit was to determine that each person receiving a paycheck or direct deposit was a valid employee of the City and that no duplicate or multiple payments were made to the same person. The conclusion of that audit found no instances of duplicate or inappropriate payments. That engagement did, however, identify 14 findings of issues related to internal controls and the control environment within the Financial Services and Human Resources Departments. All 14 of these findings resulted in agreed upon action to be taken. Of the 14 findings, numbers 6, 7, 8, 10 and 11 related to the preparation, issuance and use of security identification badges. These five findings were followed up and reported on in the Follow Up FY04 Facility Access Audit and Follow Up FY04 Payroll Distribution Audit (Findings related to Swipe Cards only) Report that was issued on March 27, This memo will report on the implementation status of the remaining items of which eight are completed and one is partially completed. All nine are listed in Attachment A. Financial Services Department Implementation Status Agreed Upon Action Item # 1 related to maintaining an up to-date Policy and Procedure manual for the payroll process. The department has completed this action item. P O Box Nicholas Pkwy. Cape Coral, FL Phone Fax

2 Follow Up of FY04 Payroll Distribution Audit September 17, 2008 Page 2 of 3 Agreed Upon Action Item # 2 related to providing back up support staff for the payroll function. The department has completed this action item. Agreed Upon Action Item # 3 related to department compliance to Administrative Regulation # 4 Rotation of Responsibilities. The department has completed this action item. Agreed Upon Action Item # 4 related to safeguarding of undistributed paychecks. The department has completed this action item. Human Resources Agreed Upon Action Item # 5 related to removing inactive contract employees from the payroll system. This action item has been partially completed. During the FY04 audit, there were 33 individuals found who were listed as active employees but had not worked or received compensation for over 12 months. It had been Management s practice to retain some inactive contract employees in the active employee listing and therefore it has been unclear exactly what the status of active and inactive means. In FY04 Management agreed to develop a policy whereby employees who do not receive a paycheck for 60 days will appear on a monthly report that will inform HR of those individuals who may need to be removed from the system. HR has recently requested and obtained the first of these reports and is working to determine the status of the individuals it lists. Also, HR has again agreed to develop a proposed Administrative Regulation that will define the parameters for retention of inactive employees held in the active status and will identify those responsible for purging inactive employees from the active employee listing. This policy has not, as yet, been completed, authorized or implemented even though this was recommended 4 years ago and discussed with Management in October of Agreed Upon Action Item # 9 related to the accuracy of the spelling of employee names on their paychecks. The department has completed this action item. Agreed Upon Action Item # 12 and #13 related to maintenance of personnel files in the Human Resources department. The department has completed this action item. Agreed Upon Action Item # 14 related to allowing contract employees to use the direct deposit system. The department has completed this action item.

3 Follow Up of FY04 Payroll Distribution Audit September 17, 2008 Page 3 of 3 We would like to thank the Financial Services and Human Resources staff members who provided information and documentation that enabled us to complete this follow up review. All parties were professional and cooperative. Attachment A xc: Terry Stewart, City Manager Carl Schwing, Assistant City Manager Dolores Menendez, City Attorney Bonnie Potter, City Clerk Mark Mason, Financial Services Director Wayne Howard, Human Resources Director

4 Attachment A City of Cape Coral City Auditor's Office Follow Up of FY04 Payroll Distribution Audit Agreed upon action to be taken. Finding Recommendation Response Action Taken 1 The written policies and procedures related the City s payroll processes and the functions of the payroll coordinator, in finance, are incomplete and out of date. The Payroll Procedures Manual should be kept up to date to aid in the payroll process. The payroll coordinator does have written procedures for: the payroll process, manual checks and supplemental, hours entry instructions, leave buy back, disaster hours entry guide, direct deposit instructions, ICMA transmission instructions, savings bonds transmission instructions and tax deposit instructions. The payroll coordinator will review and update as needed. 2 There are no employees who have been trained to backup, support or substitute for the payroll coordinator in the event the payroll coordinator is unable to perform her duties. One or more qualified individuals should be trained to fill the role of Payroll Coordinator. Cross training with individuals within the department would ensure continuity of operation in the event the payroll coordinator is unavailable. Department of Financial Services concurs with this finding. Another employee is currently being trained to backup the payroll coordinator. Financial Services has included in their proposed budget for FY2005 an additional position which will be a support person for the payroll coordinator. This individual will be trained as the back up for the payroll coordinator. 3 The Payroll Coordinator has never taken a two week vacation or been replaced for a complete payroll cycle during her fifteen years in the position. As a control, the Payroll Coordinator should be removed from the payroll process for a complete payroll cycle, on an intermittent basis, a minimum of once a year. A written policy should be established to require this internal control procedure is followed. Department of Financial Services concurs with this finding. Financial Services has included in their proposed budget for FY2005 an additional position which will be a support person for the payroll coordinator. This individual will be trained as the back up for the payroll coordinator. After this employee is fully trained then he/she will do a complete payroll cycle. The policy that the payroll coordinator be removed from a complete payroll cycle will be added to the payroll procedures manual identified in #1 above. Page 1

5 Attachment A City of Cape Coral City Auditor's Office Follow Up of FY04 Payroll Distribution Audit Agreed upon action to be taken. Finding Recommendation Response Action Taken 4 Undistributed paychecks are kept overnight in an unsecured area of the Finance Department s storage room by the payroll coordinator. Management should identify a more secure location with limited access to store undistributed paychecks. Written procedures for handling undistributed payroll checks should be established and communicated to operating departments and personnel. Department of Financial Services concurs with this finding. Financial Services has purchased a locked safe for undistributed payroll checks. Access will be limited to the payroll coordinator and the controller. Written procedures for handling undistributed payroll checks will be established and incorporated into the payroll procedures manual identified in #1 above. 5 Two hundred sixty-six (266) employees were on the active employee listing and were not issued a paycheck for the payroll distribution. Of the 266 identified, one hundred fourteen (114) were contract employees who had not been issued a paycheck for a period greater than three months but less than twelve months. An additional thirtythree (33) contract employees were inactive for 12 months or more but were identified as active in the payroll system as well. One of these individuals has not worked for fifty-four months (4.5 years) and another has not been paid for twenty-eight months (2.3 years). Criteria for deactivating contract employees should be established. Controls should be implemented to assure employees are deactivated or removed from an active employee status and the payroll system timely. Management should periodically review the active list of employees in their department and properly terminate contract employees who have been inactive for a reasonable length of time. Human Resources should be informed immediately when it is learned that a specific contract employee does not intend to return to work. Written policies and procedures should be prepared, documented and communicated to operating departments addressing the termination of contracted employees. Accept recommendation. Policy will be developed and implemented by whereby employees who do not receive a paycheck for 60 days will appear on a monthly report provided by ITS to inform HR on who to remove from the system. Person responsible for this activity is Dayiana Burdier in HR. 9 Five (5) employees stated the spelling of their names on their City I.D. badges is correct but the spelling on their paychecks is wrong. Written procedures should be prepared which defines the process of inputing the employees information into the payroll system and verifying the validity of the information. Human Resources should verify with the employees in question their correct name for both the personnel record and their City I.D. badge. Accept recommendation. Employees files in question will have their spelling updated in the HTE payroll module. Action is assigned to P. Salzano for completion by Page 2

6 Attachment A City of Cape Coral City Auditor's Office Follow Up of FY04 Payroll Distribution Audit Agreed upon action to be taken. Finding Recommendation Response Action Taken 12 Two (2) former employees personnel files did not include documents related their terminations. Written policies and procedures should be Accept recommendation. prepared and documented which addresses the termination process and defines the supporting documentation needed to effect the termination. Upon termination, supporting documentation should be filed soon after receipt and processing by the Human Resources Department. Human Resources should be sure the required documents are received and properly filed for all employee status changes entered into the payroll / computer records. The process is in place but the instances mentioned are caused by miss-filing. In the past, light-duty personnel were used for filing and this practice which led to the miss-filing has been discontinued. 13 Two (2) personnel files contained documentation related only to the most recent portion of the employee s employment. Both employees were hired in 2000 but personnel records were not available for one employee before August 2002 and June 2003 for the other. Written policies and procedures should be Accept recommendation. established concerning the handling and distribution of personnel files. Human resource employees should be properly labeling new personnel files when they are created and carefully filing them after each use. See # 12 above. 14 Contract employees are not currently permitted to participate in the City s direct deposit payroll program. Generally, direct deposit is a more efficient and less costly means of distributing payroll. Efficiencies may be obtained if contract employees were provided the option of participating in the direct deposit program. Consideration should be given to opening up participation to the direct deposit payroll program to contract employees. Management should consider the benefits of allowing contract employees to participate in direct deposit and create guidelines for their participation should the decision be made to open participation. Accept recommendation. A change to the direct-deposit policy will be recommended by HR to Finance for contract employees whose term of employment is expected to exceed 6 months in duration. Page 3