REPORT OF INTERNAL AUDIT

Transcription

1 REPORT OF INTERNAL AUDIT PRESENTED TO AUDIT/TASK: #09-05, Building Permit Processes AUDIT CLIENT: Planning and Development Services AUDIT DATE: March 11, 2009 REPORT DATE: September 11, 2009 AUDITOR: Steven Rehn CIA, CFSA APPROVAL: Steven Rehn CIA, CFSA INTRODUCTION In accordance with Boise Municipal Code Title 1, Chapter 9; and in response to the request and approval of members of the City Council, the Office of Internal Audit undertook a scheduled review of the processes and procedures surrounding the issuance of Building, Plumbing, Electrical, and Mechanical Permits. The City s Department of Planning and Development Services bears overall responsibility for these activities. Title 4 of Boise City Code contains a compilation of the City s building regulations. Consisting of sixteen (16) separate Chapters, this title generally establishes minimum standards and requirements designed to safeguard health, property, and the public welfare through regulating the design, construction, quality of materials used, occupancy, location, and maintenance of structures within the City. Planning and Development Services (PDS) is responsible for administering Title 4, as well as the underlying International Building Codes that have been adopted and incorporated therein. This entails oversight and approval of building, and related activities within the city limits; the assessment of fees related to those activities; and enforcement of the detailed

2 codes and requirements that underlie the overall process. Only after all requirements have been met, and code inspections passed are structures and / or improvements deemed to be suitable for occupancy. PDS s Building Services Division is the entity primarily responsible for issuing building and related permits, conducting the corresponding inspections, and issuing final certificates of occupancy. Building Services has experienced significant variations in the levels of service delivery demanded of it over the course of the past several years. Revenues generated in this Division from permits peaked in fiscal year 2007 at $8.04 Million, on a volume of 18,541 permits issued. The level of activity fell off during fiscal year 2008 in response to the economic downturn; revenues realized totaled $6.45 Million with a total of 15,044 permits issued. Volumes of permits issued for the current fiscal year, through May 31, 2009, were down by approximately 30% when compared to activity for similar periods in In order to effectively respond to the permit volumes recently experienced, and which might reasonably be expected to occur again, Building Services has adopted and implemented a highly-automated business process. The automated system the Division relies upon Tidemark Advantage allows staff to track, and to move proposed projects through the approval and permitting processes, and ultimately to final inspection. Staff and management can more effectively manage thru-put; and ensure that permitted projects receive the necessary oversight, and are successfully closed out. 2

3 SCOPE AND METHODOLOGIES Internal Audit established the scope of the review to include operations, compliance, and associated activity related to the issuance of building and other permits; the timely and accurate assessment and collection of permit fees; and the successful close out of permitted projects. The period of time under review encompassed all permits and permit-related activity commencing October 1, 2006, and generally ending March 31, In some instances, transactions occurring after this date were reviewed as specific questions developed during the audit were followed up and/or resolved. The overall purpose of the audit was to gain a reasonable degree of assurance that the control environment surrounding the permitting and fee assessment processes was adequate. Generally, an adequate control environment should ensure that resources are properly safeguarded, and that the goals and objectives established by management for the program(s) under review are being met, including compliance with applicable policy, law, and/or regulation. Specific objectives that were established for the audit included the following: Review and document the current PDS permitting processes, providing an independent assessment of whether management has implemented an adequate control environment relative to those processes. Test a sample of issued permits to ensure that information, approvals, and necessary documents in support of the permits are being collected; and that management s goals and objectives for thru-put are being substantially achieved. Ensure that PDS is appropriately accounting for all deposits, fees, and revenues assessed and collected; and that all associated general ledger accounts are properly reconciled to existing subsidiary ledgers where appropriate. Determine the presence and effectiveness of any monitoring and control systems that have been put in place by management to measure progress toward achieving identified goals and objectives. Internal Audit oriented its review of permitting processes so as to pay particular attention to measures established to manage and track permits; to ensure the accurate and timely assessment and collection of fees; and the monitoring tools available to management. During the audit we utilized methodologies consisting of observations, interviews, detail testing, and analysis in order to achieve the identified objectives. All activities were planned and conducted in a fashion that was deemed to be adequate to support the findings and general comments contained within this report. 3

4 EVALUATION AND COMMENTS Based on the work performed, Internal Audit believes the grade that best represents PDS s overall performance in the area of permitting is a Satisfactory. Audit grades are formally established in the Office s approved policies and procedures; a Satisfactory grade is defined as follows: Reportable issues may exist within the audited area, but they are not deemed to be representative of pattern or practice within the area. Issues are typically of an isolated nature. Overall, systems of internal control are effective, and management oversight is adequate and supportive of the accomplishment of goals and objectives The Department (PDS) has implemented a sophisticated computerized system that allows it to effectively manage and process large volumes of work routing work to specialized staff for required reviews, and subsequently for required inspections and close-out of the associated permits. Fees are also loaded to the system, and can be assessed to projects or permits via selection in drop-down menus. Human intervention is required, but only to the extent that staff members are required to select the appropriate category of fee, and then assess it to a project or permit according to the attributes of the particular project or permit in question. Highly-automated processes typically present management with significant opportunities to monitor operations, and to validate activities of various types. Internal Audit believes that PDS is no different; opportunities not yet realized may be available to PDS s Building Services Division in certain of the areas under their control. Even though management has gone to extra-ordinary lengths to ensure that workflow is as seamless as possible, there may be areas where computerized monitoring / audit techniques could be employed that would ensure revenues are maximized, and applicants are assessed allowable fees more accurately than they have been in the past. Audit s comments, findings, and recommendations relative to these issues, and to others, appear in the sections that follow. 4

5 FINDINGS AND RECOMMENDATIONS 1. FINDING: ACCURACY OF PERMIT FEES During its review of PDS s permitting processes, Internal Audit selected a sample of 140 permits for detailed review, which included a validation of fees assessed under the permits. Permit fees were re-calculated based on the Department s published schedules. Approximately 5.71% of the fees re-calculated did not appear to have been assessed accurately. Since these errors resulted from a number of dissimilar issues, no single causal factor was readily apparent. Generally, the errors broke down into the following categories: Two errors involved the assessment of a fee amount that had been outdated since October 1, Two errors involved the assessment of building permit fees based on initial valuations, not final valuations. Fees were not adjusted and re-assessed. Five errors involved actions on the part of technicians selecting and imposing erroneous fees at the time of permit issuance. Two of these errors resulted in over-charges to the applicants involved. Seven of these errors resulted in under-charges to the applicants involved. The net financial effect of the errors, while not significant relative to the total dollar value of the sample reviewed (approximately 1.31% of the dollar value), does represent a clear departure from approved and published fee schedules. Over time, if any of these types of errors were allowed to persist, the net impact to revenue could become material. To illustrate, if the error rate noted is projected across the entire revenue stream generated by these fee types during FY 08, PDS could experience a revenue drain estimated at as much as $72, annually. RECOMMENDATION: Internal Audit recommends that management review the permits in question and determine the extent to which either systemic or staff-related issues played a part in the errors. If systemic, then resolution with IT staff should be pursued. If the causal factors are determined to be staff-related, additional training / education, and monitoring processes should be pursued in order to ensure that staff are fully trained in the proper assessment of fees, and that they consistently enforce the published fee schedules. 5

6 MANAGEMENT RESPONSE After review of the permits in question, management either implemented, or is pursuing the following corrective actions: System-based issues An administrative fee that was increased at the most recent fee review had not been updated in the Advantage permit system. The fee database has been updated, and the correct fee is now being calculated and assessed. A project value that was updated on PDS s on-line system did not trigger a recalculation of permit fees due. Additional system coding has been implemented to resolve this issue. Updated values now result in a recalculation of permit fees. The Advantage system allowed dissimilar permit types to be grouped under the same project; i.e. commercial sub permits could be issued under a residential building permit. Management has requested programming from IT that will require customers to correctly group sub-permits to the main building permit, thus ensuring the right type of use and type of work. Personnel-related issues Two of the fee-related issues were the result of changes to existing permits that were input at the time of final inspection. Permit technicians did not update the fees accordingly. Additional training of permit counter staff has occurred. Error checking procedures will be enhanced in order to detect these issues in the future. In one instance, a building permit was assessed a plan check fee rather than a building permit fee. Management has reinforced with staff those instances where plan check fees are, and are not required. This particular instance also represented a specific employee-performance issue; that individual has since terminated employment with the City. Procedural issue In one instance, a subsequent billing for additional fees due was returned to the City with a note indicating the company was no longer in business. Staff will be directed to send collection-related issues such as this to the City s Collections Division for further follow-up. Customer issue One error was customer-initiated. No action possible. 6

7 2. FINDING: PUBLISHED FEE SCHEDULES During the process of re-calculating various permit fees, Internal Audit had the opportunity to utilize all of PDS s published fee schedules. Audit detected instances where not all fees were disclosed, where additional issues relative to clarity of the schedules was present, and where the accessibility of fee-related information appeared to be an issue. Fee structures approved by the City Council typically included a provision for the assessment of one or more charges in addition to the base fees. Those additional charges were intended to cover re-inspections, inspections outside of normal business hours, additional plan review fees, fees for Certificate of Occupancy only, etc PDS s published fee schedules typically did not disclose these additional fees neither by existence nor amount. Structural Fee schedules indicate fees for structures valued at over $100,000 are arrived at by assessing $ for the first $100,000, and $5.17 for each additional $1,000 increment thereafter. Those less familiar with the schedules might conclude the $ applies to values between $100,001 and $200,000, with $5.17 per $1,000 assessed thereafter. The Fire Sprinkler and Alarm Fee schedule establishes a base fee of $ Additional fees per sprinkler head or alarm device exist, purportedly to be assessed In addition to the Base Fee In practice, the fees are assessed on an either / or whichever is greater basis, which is consistent with the fee structure approved by City Council. In at least one case (Electrical permit fees), City Code does not contain detailed information relative to the fee structure; rather, it refers the reader to official copies maintained at PDS s front desk, at the City Clerk s office, or on PDS s web site. Copies available at those three locations did not include all fees that could be assessed (see the first bullet-point, above). Accessing all fee-related information would require the research of City Council agendas dating back three or more years in order to locate details relative to those fee updates. The fees appearing on the schedules were approved by City Council August 30, 2005, with an effective date of October 1, The City Code was amended accordingly, though the details relative to the various permit types are not always included in the Code (i.e. the Electrical Fee schedule referred to above). The current fee schedules, as published, do not provide the user with easy access to the actual, approved fee amounts. 7

8 RECOMMENDATION: REPORT OF AUDIT Internal Audit recommends that management review the existing schedules, determine whether enhancements would provide additional transparency, and provide the public with a more user-friendly set of tools as they contemplate applying for permits. MANAGEMENT RESPONSE: After reviewing the fee schedules in question, management is pursuing the following corrective actions: Disclosure of Additional Fees The tables found on PDS on-line focused on the calculation of the most common fees that PDS deals with and not the infrequent levying of fees such as the need for a refund, double fees for performing work without a permit, etc PDS will adopt this recommendation by the Auditor, and will ensure that additional fees found in ordinance are added to its on-line fee tables. The target date for completion is October 31, Structural Fee Schedules An example as to how to calculate structural fees will be added to the on-line fee schedules found on PDS on-line. The target date for completion is October 31, PDS will also explore creating an on-line electronic fee estimator for use by PDS customers in the future. Fire Sprinkler and Alarm Fees The on-line fire sprinkler and alarm fee schedules will be modified to align with current practice and City Code. The target date for completion is October 31, Electrical Fee Schedule The electrical fee schedule has been placed at the permit counter as required by ordinance. Also, the schedule will be revised to include all of the fees that were found in the electrical ordinance. The target date for revising the fee schedule is October 31,

9 OTHER AREA OF CONCERN REPORT OF AUDIT While performing detailed testing relative to the accurate and timely assessment and collection of permit fees, Internal Audit noted a small number of incidents somewhat isolated in nature where fee accuracy and / or collection was not consistent with what would appear to be best practice. Within the primary sample of transactions that were tested, Audit noted nine (9) instances where the fees assessed were not consistent with published schedules; two (2) excess fee assessments, and seven (7) deficient fee assessments. As detailed in associated Findings, these were the result of various causal factors. In conjunction with those instances, we discussed pursuing the collection of fees due the City with Department staff. Based on staff s representations, it appears PDS had not, as of the date of audit s review, articulated a policy relative to pursuing fees when undercharges are discovered. An exploratory review of an additional sample of transactions confirmed the fact that fees assessed did, at times, depart from the published fee schedules. These findings suggested there may be opportunities to realize improvement in the monitoring and collection of fees; with corresponding gains in revenue maximization. Since the permit process currently in place is automated, it lends itself to the development and implementation of automated audit and monitoring techniques. A computerized validation of fees assessed in the major permit categories (such as building permits where value is a key process driver), when run on a recurring basis, would identify potential under- or over-charges soon after their occurrence. This would allow the Department to correct the fees early on potentially within the life cycle of the project when they would likely be most easily collected. The fees in question are adopted and approved by City Council. Policies geared toward maximizing the collection of fees found to be due and owing after project close-out would likely enhance this revenue stream, and would allow the Department to treat all permit applicants in a fair and equitable fashion. Internal Audit recommends management explore its options relative to the issues noted above, and determine the feasibility of integrating these measures into current operations. Implementation of the automated fee validation techniques described would require an up-front investment in programming time in order to create the required capabilities. However, that cost could well be offset fairly quickly by the amount of revenues that would be collected that might otherwise be foregone under current protocols. And, if these techniques were incorporated into the suite of management monitoring activities, 9

10 they likely would resolve many of the issues of timeliness that might otherwise impact the Department as it attempted to collect fees owed it that are now being discovered much later in the permits life-cycles. CONCLUDING REMARKS Overall, the PDS management team has implemented a highly efficient and effective system that allows them to oversee a large volume of building-related projects. Each of these projects can be entirely unique given the variability in attributes that are subject to permitting and monitoring. The process can become and oftentimes is extremely complex. Additionally, the documentation demands are daunting under the best of circumstances. Systems currently in place address these challenges very effectively. If the recommendations and corrective actions contained within this report are pursued and implemented, they will likely yield incremental improvements to a system that is already functioning at a high level. The steps recommended will also assist the Department in achieving a higher level of compliance with applicable building codes and the enabling City Code. Internal Audit would like to express its appreciation for the assistance provided by management and staff of PDS, and the Building Services Division during the course of the review. MANAGEMENT PARTICIPANTS Bruce Chatterton, Director / Planning and Development Services Jenifer Gilliland, Manager / PDS Building Services Division Rita DeYoung, Office Coordinator / PDS Building Services Division 10