OFFICE OF THE AUDITOR

Transcription

1 OFFICE OF THE AUDITOR SELECT PAYROLL TRANSACTIONS PARKS AND RECREATION PERFORMANCE AUDIT NOVEMBER 2008 Dennis J. Gallagher Auditor

2 Dennis J. Gallagher Auditor City and County of Denver 201 West Colfax Ave., Dept. 705 Denver, Colorado , FAX November 20, 2008 Mr. Kevin Patterson, Manager Department of Parks and Recreation City and County of Denver Dear Mr. Patterson: Attached is the Auditor s Office Audit Services Division s audit report of Select Payroll Transactions for Parks and Recreation for the period March 1, 2007 through August 31, The purpose of the audit was to determine whether Parks and Recreation properly authorized and processed payroll updates and off cycle checks. The audit revealed a reportable condition related to a lack of effective internal controls as disclosed within the accompanying report. If you have any questions, please contact Kip Memmott, Director of Audit Services, at Sincerely, Dennis J. Gallagher Auditor DJG/et cc: Honorable John W. Hickenlooper, Mayor Honorable Members of City Council Members of Audit Committee David Fine, City Attorney Lauri Dannemiller, City Council Staff Director Beth Machann, Controller Kelly Brough, Chief of Staff Chris Henderson, Chief Operating Officer Claude Pumilia, Chief Financial Officer Linda Misegadis, Payroll Manager 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 my management and the people. We will monitor and report on recommendations and progress towards their implementation. 1

3 TABLE OF CONTENTS Transmittal Letter 1 Table of Contents 2 Auditor s Report 3 Executive Summary 4 Background, Scope, Objective, and Methodology 5 Findings and Recommendations 7 Exhibit A Parks and Recreation s Response 9 2

4 Dennis J. Gallagher Auditor City and County of Denver 201 West Colfax Ave., Dept. 705 Denver, Colorado , FAX AUDITOR S REPORT We have completed an audit of Select Payroll Transactions for Parks and Recreation for the period March 1, 2007 through August 31, The purpose of the audit was to determine whether Parks and Recreation properly authorized and processed payroll updates and off cycle checks. This audit was included in the Auditor s Office Audit Services Division s 2007 Annual Audit Plan and is authorized pursuant to the City and County of Denver Charter, Article V, Part 2, Section 1, General Powers and Duties of the Auditor. We conducted our audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that payroll transactions were properly authorized and recorded and internal controls were adequate. An audit includes examining, on a test basis, evidence supporting payroll transactions along with relevant compliance issues. The audit revealed Parks and Recreation did not comply with basic internal control procedures resulting in several weaknesses disclosed in detail within the accompanying report. We extend our appreciation to the personnel who assisted and cooperated with us during the audit. Audit Services Division Kip Memmott, CGAP, CICA Director of Audit Services Date: November 20, 2008 Staff: Ken Kemple, CISA, Audit Manager Mike Widner, CICA, Audit Supervisor Jessica Quintana, Senior Auditor 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 my management and the people. We will monitor and report on recommendations and progress towards their implementation. 3

5 SELECT PAYROLL TRANSACTIONS EXECUTIVE SUMMARY FOR THE PERIOD MARCH 1, 2007 THROUGH AUGUST 31, 2007 This summary highlights the audit findings of Parks and Recreation during our Select Payroll Transactions audit. The Findings and Recommendations section of the report beginning on page 7 further describes these issues in detail. The Agency s response is contained in Exhibit A beginning on page 9. Finding Department Lacks Adequate Control Environment for Payroll Administration Audit work determined that Parks and Recreation did not have an effective and efficient internal control environment over payroll administration during the audit period. Specific control weaknesses identified included, but were not limited to, lack of policies and procedures, inadequate supervisory review, incorrect or incomplete source documentation, and the untimely performance of duties related to processing payroll updates and off cycle checks. The absence of effective internal controls resulted in improper and inaccurate payments to Parks and Recreation employees. 4

6 SELECT PAYROLL TRANSACTIONS BACKGROUND, SCOPE, OBJECTIVE, AND METHODOLOGY FOR THE PERIOD MARCH 1, 2007 THROUGH AUGUST 31, 2007 Background An off cycle payroll check is a warrant or direct deposit advice not created during the City s normal pay cycle. In accordance with Fiscal Accountability Rule 10.4, Off Cycle Payroll Check Request, off cycle payroll checks shall be limited to those situations that cause an undue financial hardship on employees and may be processed only in the following situations: a. To pay an employee who is missing 39 or more regular hours of his/her salary. b. To prevent an employee from being overpaid as long as a payroll warrant was prepared and is still in the possession of the Controller s Office or in the possession of the Agency Payroll Technician. c. To resolve a returned/rejected direct deposit advice, but only if the return of the funds into the City s payroll bank account had been confirmed by the Controller s Office. In most cases, refunds of payroll deductions taken in error and exception pay are processed with the next regular paycheck and are not requested as an off cycle payroll check. These transactions are called payroll updates and are used to update dollar amounts to the pay line. The employee update forms are submitted by the agency payroll clerks who do not have access to the pay line. During 2007, the City and County of Denver created a centralized payroll and human resources team. This change will eventually move data entry of timecards and leave slips, personnel action preparation and tracking, personnel records, PEP notification and monitoring, network and PeopleSoft security access requests, and employee ID request responsibilities from each individual agency to the Controller s Office. The purpose of this structural change is to ensure consistent application of Career Service Authority (CSA) rules, improve the accuracy of paychecks, enhance overall payroll efficiencies, reduce redundancies and expedite processes, and ensure timely and accurate payouts upon separation from the City. Scope The audit of Select Payroll Transactions for Parks and Recreation (PeopleSoft fund/org / ) covers the period of March 1, 2007 through August 31, The scope of our audit focused on evaluation of Parks and Recreation s system of administrative and internal controls over payroll updates and off cycle checks. The audit also examined the Agency s compliance with applicable City rules and regulations. Testing included a review of Tuition Reimbursement Requests. These requests are submitted by CSA to the Controller s Office after each applicant has finished their classes and approval has been given by the Education Refund Committee. Objective The objective of the audit was to determine whether Parks and Recreation properly authorized and processed payroll updates and off cycle checks, including an assessment of internal control 5

7 BACKGROUND, SCOPE, OBJECTIVE, AND METHODOLOGY SELECT PAYROLL TRANSACTIONS weaknesses in the payroll update transaction process and the identification of any overpayments and underpayments to employees within our sample. We also determined why payroll updates and off cycle checks are required and attempted to recommend prevention solutions. Methodology To meet the audit objectives, the following evidence gathering and analysis techniques were used, but not limited to: Reviewing system of administrative and internal controls; Interviewing Parks and Recreation management, payroll, and human resources personnel; Verifying documentation completeness; Determining timeliness of updates; Verifying accuracy of update forms; Testing 43 judgmentally selected high dollar payroll update requests; and Testing 58 judgmentally selected high dollar off cycle check requests. 6

8 SELECT PAYROLL TRANSACTIONS FINDINGS AND RECOMMENDATIONS FOR THE PERIOD MARCH 1, 2007 THROUGH AUGUST 31, 2007 Finding Department Lacks Adequate Control Environment for Payroll Administration Our audit identified the following substantive internal control weaknesses related to Parks and Recreation s system of processing payroll updates and off cycle check requests: Lack of Policies and Procedures Parks and Recreation does not have any formal written policies and procedures related to the processing of payroll updates or off cycle checks. Formal policies set forth a number of requirements, definitions, and procedures for conducting these payroll functions and without them, consistency in the overall process will be difficult to achieve. Inadequate Supervisory Review Payroll updates and off cycle check requests are not reviewed, approved, and signed off by supervisory personnel within Parks and Recreation. The lack of a supervisory review process creates an opportunity for payment request inaccuracies to occur and to go undetected increasing the risk of fraudulent claims. Incorrect or Incomplete Source Documentation Audit work determined that source documentation submitted by Parks and Recreation to justify or explain the reason(s) for payroll updates or off cycle requests were largely incorrect or inadequate. For example, off cycle requests did not always include the correct pay code. Proper source documentation is essential to ensure the accuracy and the propriety of the requested payment. Untimely Performance of Duties Parks and Recreation personnel were consistently late in the performance of duties related to processing payroll updates and off cycle checks. These duties include performing employee evaluation reviews (PEPRs), calculating retro pay adjustments, submitting timesheets, and entering Personnel Action Forms (PAFs) into PeopleSoft. Of the 43 payroll updates tested, 38 (88%) were for late retro and evaluation payments. In our test of off cycle checks, we found that 37 of 58 (64%) were due to the late submission of timesheets or PAFs. Tardy execution of any and all of these duties result in an increased number of payroll updates and off cycle check requests and, subsequently, increase the possibility of payment errors. Poor Controls Result in Inaccurate Payments The lack of internal controls reduced Parks and Recreation s ability to pay their employees the correct amounts for payroll updates and off cycle check requests. Specifically, audit work identified the following improper and inaccurate payments: During our test of payroll update transactions, we determined that 10 of the 43 (23%) transactions we reviewed were improper overpayments to employees representing a total of $1,292. Furthermore, 19 of the 43 (44%) transactions tested resulted in a total of $812 in underpayments to employees. 7

9 FINDINGS AND RECOMMENDATIONS SELECT PAYROLL TRANSACTIONS During our test of off cycle checks, we identified three employees that were paid incorrectly. An overpayment was made to one employee for $24, and two employees were underpaid by a combined amount of $43. Recommendations 1. We recommend Parks and Recreation create and implement formal written policies and procedures for processing payroll updates and off cycle check requests. The implementation of effective and efficient internal controls will assist in providing reasonable assurance that employees are being paid correctly and in a timely manner. 2. We recommend that Parks and Recreation conduct mandatory reviews of payroll updates and off cycle check requests and require that all requests be signed off by a supervisor. A thorough formalized mandatory review process will promote greater accountability and reduce mathematical calculation and information errors. 3. We recommend Parks and Recreation require source documents for all payroll updates and off cycle check requests and mandate that all requests be substantiated with written justification explaining the adjustment. 4. Parks and Recreation is responsible for establishing and maintaining a system of administrative and internal controls in order to ensure they are paying their employees correctly and in a timely manner. To that end, we recommend: Parks and Recreation include PEPR timeliness for assigned staff into respective supervisors annual performance evaluations. This will be an incentive for personnel to submit PEPRs in a more timely manner. Parks and Recreation continue working with the Controller s Office to implement an automatic pay rate update process for employees and periodically audit payments to help detect system errors. Parks and Recreation assign each payroll technician a specific group of employees that they are responsible for tracking, collecting, and ensuring the timely submission of timesheets. Parks and Recreation work with CSA to expedite the submission and input of PAFs into PeopleSoft. Greater efficiency in the PAF entry process will decrease the amount of off cycle check requests. 5. In accordance with Fiscal Accountability Rule 10.1, Overpayments to Employees and Contract Employees, we recommend Parks and Recreation work in conjunction with the Controller s Office to assess and collect all overpayments identified in our audit. Additionally, we recommend all noted underpayments be paid to affected employees. 8

10 EXHIBIT A SELECT PAYROLL TRANSACTIONS 9