OFFICE OF THE AUDITOR

Transcription

1 OFFICE OF THE AUDITOR CAREER SERVICE AUTHORITY AND PUBLIC WORKS PARKING MANAGEMENT EMPLOYEES VOLUNTARY SALARY REDIRECTION PLAN FOR TRANSPORTATION BENEFITS QUALIFIED PARKING PROGRAM UNIT FEBRUARY 2005 Dennis J. Gallagher Auditor

2 Dennis J. Gallagher Auditor City and County of Denver 201 West Colfax Ave., Dept. 705 Denver, Colorado , FAX February 17, 2004 Ms. Kelly Brough, Personnel Director Career Service Authority City and County of Denver Mr. Bill Vidal, Manager Department of Public Works City and County of Denver Dear Ms. Brough and Mr. Vidal: Attached is the Auditor s Office Internal Audit Division s report of their program audit of the Employees Voluntary Salary Redirection Plan for Transportation Benefits-Qualified Parking program for the year ended December 31, The purpose of the audit was to determine whether internal controls in place were adequate under the circumstances and to ensure the City is in compliance with its Qualified Parking plan and IRS regulations regarding qualified transportation fringe benefits. The Department of Public Works-Parking Management Division should be commended for its administration of their portion of the Qualified Parking plan for parking in city-owned lots. We extend our appreciation to all personnel who assisted and cooperated with us during the course of our examination. If you have any questions, please call Mike Clark, Director of Internal Audit, at Sincerely, DJG/kh Dennis J. Gallagher Auditor cc: Honorable John Hickenlooper, Mayor Honorable Members of City Council Members of Audit Committee Cole Finegan, City Attorney Gary Oppliger, Director-Finance & Administration, Public Works Tenlee Shoffstall, Chair, Salary Redirection Committee for Qualified Parking The prudent stewardship of Denver s finances, resources 2 and financial records! We are also committed to improving accountability, efficiency, effectiveness and performance in city government. We will scrupulously protect the taxpayer s interests and work collaboratively with all concerned to improve our city and its government. 1

3 TABLE OF CONTENTS Transmittal Letter 1 Table of Contents 2 Internal Auditor s Report 3 Executive Summary 4 Background, Scope, Objective, and Methodology 5 Findings, Recommendations, and Responses 7 Statement of Fiduciary Net Assets 10 Schedules of Receipts and Disbursements 11 Notes to the Financial Statements 12 2

4 Dennis J. Gallagher Auditor City and County of Denver 201 West Colfax Ave., Dept. 705 Denver, Colorado , FAX INTERNAL AUDITOR S REPORT We have completed an audit of the Employees Voluntary Salary Redirection Plan for Transportation Benefits-Qualified Parking program. The purpose of the audit was to determine if the program was being monitored by the City in an efficient manner and verify compliance with the plan and IRS regulations. This audit was included in the Auditor s Office Internal Audit Division s Annual Audit Plan, is authorized pursuant to the City and County of Denver Charter, Article V, Part 2, 5.2.1, and is mandated by Denver Revised Municipal Code Section to be performed annually. 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 about the efficiency of internal controls and status of regulation compliance. An audit includes examining, on a test basis, evidence supporting the compliance with applicable rules and regulations, and accounting and administrative internal controls, as we considered necessary in these circumstances. We reported separately with respect to matters involving the Auditor s Office and disclose our lack of organizational independence since the Internal Audit Division is a part of the Auditor s Office. Our objectives were met in all areas except as noted in the findings contained in this report. We extend our appreciation to the personnel who assisted and cooperated with us during the course of our audit. Internal Audit Division Date: February 17, 2005 Staff: Dick Wibbens, CPA, Audit Manager John Finamore, CPA, Audit Supervisor Sonia Montano, Lead Auditor Michael Clark, CPA Director of Internal Audit The prudent stewardship of Denver s finances, resources and financial records! We are also committed to improving accountability, efficiency, effectiveness and performance in city government. We will scrupulously protect the taxpayer s interests and work collaboratively with all concerned to improve our city and its government. 3

5 QUALIFIED PARKING PROGRAM EXECUTIVE SUMMARY FOR THE YEAR ENDED DECEMBER 31, 2003 This summary highlights the findings of the Qualified Parking Program audit which are more fully described in the Findings, Recommendations, and Responses section beginning on page 7. The Findings, Recommendations, and Responses section also includes the responses to the findings from the Career Service Authority (CSA). 1. Internal Controls The internal controls surrounding the administration of the Qualified Parking program in CSA need improvement. We noted that procedures used to process reimbursement claims were not documented or followed in a consistent manner. As a result of weak internal controls, participants and the City were not able to take full advantage of the pre-tax benefits this program offers. 2. Reconciliations Our audit noted CSA personnel did not perform detailed reconciliations of the Qualified Parking Fund in As a result, incorrect entries caused the fund to be misstated. 4

6 Background QUALIFIED PARKING PROGRAM BACKGROUND, SCOPE, OBJECTIVE, AND METHODOLOGY FOR THE YEAR ENDED DECEMBER 31, 2003 The City and County of Denver established a Qualified Parking Plan for employees pursuant to Section 9010 of the Surface Transportation Revenue Act of 1998 and Section 26 U.S.C. 132(f) of the Internal Revenue Code for the purpose of allowing employees to obtain qualified parking on a before tax basis. According to the Denver Revised Municipal Code (DRMC) Section , the City and County of Denver is authorized to enter into salary redirection agreements with employees for transportation benefits. The code also states that a seven member salary redirection committee will be appointed by the Mayor to oversee the program. At least one member must be an officer or employee of the department of environmental health. At least two of the members shall be participants in the plan or become participants within one year of their appointment. The committee members shall serve terms of three years and will be eligible for reappointment. The current committee also oversees the City s other salary redirection plans: flex cash and Eco Pass. Qualified parking is defined as parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work by transportation. Qualified parking does not include any parking on or near property used by the employee for residential purposes. Eligible employees may authorize pre-tax monthly payroll deductions for qualified parking expenses. Deductions are made in the last pay period of each month. The maximum deduction allowable is the limitation set forth in Section 26 U.S.C. 132(f)(2)(B), as adjusted for inflation each taxable year. The Qualified Parking program for the City of Denver includes three activities. Career Service Authority is responsible to account for employees that pledge a monthly deduction to be deducted from their pay. The employees must submit monthly parking receipts for reimbursement. The City s program is more restrictive than IRS regulations require because it only allows pre-tax dollars to be used for monthly parking. IRS regulations allow daily and meter parking also; currently the City does not. Public Works, Parking Management Division, accounts for monthly parking in city-owned parking lots. Employees authorized to park in city-owned lots submit a request to have a monthly pre-tax deduction taken from their paycheck which directly pays for their parking. The last activity is for CSA employees that work at the Denver Health Authority (DHA). These employees are allowed to pay for parking in DHA parking lots and structures with pre-tax deductions. Since the properties are owned by DHA, the revenue from these deductions is reimbursed to DHA at the closing of each payroll processed by the City. The City s only responsibility for this activity is to ensure the amount of payroll deductions for parking at DHA coincide with the reimbursements. DHA reimburses the City for the gross amount of pay for the CSA employees they employ. Therefore, DHA receives the applicable FICA savings. 5

7 BACKGROUND, SCOPE, OBJECTIVE, AND METHODOLOGY QUALIFIED PARKING Scope Review of internal controls and compliance with regulations applicable to the Qualified Parking Program. Career Service Authority Fund 58300; Public Works, Parking Management Division Fund 01010/Org ; and Denver Health Authority Fund were all included within the scope of this program audit. Objective Determine if the various agencies correctly managed the Qualified Parking program and reported financial information to the Auditor s Office and complied with applicable City rules and regulations, and appropriate accounting and administrative internal controls. Methodology To meet the audit objective the following evidence gathering and analysis techniques were used: Discussions with management and staff responsible for the program. Review of internal controls. Reviewing the City Charter and Code, IRS regulations, the Plan Document, and information issued to employees. Verification of compliance with rules and regulations. 6

8 QUALIFIED PARKING PROGRAM FINDINGS, RECOMMENDATIONS, AND RESPONSES FOR THE YEAR ENDED DECEMBER 31, Internal Controls The internal controls used in the administration of the Qualified Parking program by CSA need improvement. Our audit found the following exceptions related to internal controls: Enrollment forms did not coincide with the timing of payroll deductions. Amounts on claim reimbursements were changed by CSA without explanation. At times, the result was that incorrect amounts were reimbursed. Total amounts of reimbursement claims were changed causing incorrect amounts being reimbursed. Some claims were only partially paid due to the individual s account not having enough available funds. The claims were filed away and not revisited to have the remainder paid. The total amount of a particular claim was not paid in full because a line item was missed in error. Multiple claims were paid together without proper documentation to distinguish the claims from one another, thus making it difficult to verify if payments were correct. In one instance a City employee not in the program was entered as a participant causing deductions to be made to the employee s pay. Some participants received excess reimbursements and/or refunds over the amount available in their account. Participants that terminated from the program for various reasons (e.g., resignation, dismissal, death, etc.) during the year were not provided refunds for the remaining account balances until year end. A few of these exceptions resulted in the participants and the City not being able to take full advantage of the pre-tax benefits this program offers. The individual s accounts for this program were tracked in an Access database rather than using PeopleSoft increasing the possibility of participants receiving excess amounts. At year end, a few employees that had received excess amounts were discovered and the necessary payroll entries were made to fix the errors. However, a few of these entries, as well as some of the issues noted above, could have been avoided if overall internal controls were stronger. We also noted in our testing that CSA reimbursement procedures are not documented, therefore contributing to the inconsistent application of practices. Recommendation We recommend CSA take steps to document the procedures necessary to process reimbursement claims and ensure staff apply them in a consistent manner. Also, changes to existing procedures should be made to address the following: 7

9 FINDINGS, RECOMMENDATIONS, AND RESPONSES QUALIFIED PARKING PROGRAM Accounts of participants that terminate from the program for any reason should be monitored to ensure refunds are generated in a timely manner. If claims are changed, partially paid, or multiple claims are paid together, proper documentation should be generated and retained to support what happened. If an entire claim is not paid, the amount excluded should be flagged so that the next time a claim reimbursement is made on the same account, the administrator will know an amount is outstanding and should also be paid. All reimbursement claims received that are to be paid with pre-tax dollars should be processed before a refund is generated in order to ensure participants are receiving the full benefit of the plan and the City is receiving the benefit from savings to the employer matching FICA tax. CSA management should be more involved in the administration of the program. Any changes made to a claim should be approved by management and refunds should be reviewed and approved. Spot checks should be done to ensure reimbursement claims are being processed correctly. Also, CSA management should be involved with any problems that arise and the steps taken to resolve them. In 2004, this portion of the Qualified Parking program was administered through the PeopleSoft system similar to the other Salary Redirection programs rather than on an Access database. As a result, participants should not receive reimbursements or refunds in excess of the amounts paid into their accounts. This should also resolve a few of the problems mentioned in the finding above but individual accounts should still be reviewed periodically to ensure the system is working properly. Career Service Authority s Response As noted in your concluding paragraph, a major difference from the time period in which the audit was conducted and the present state is that the PeopleSoft system is now being used to administer the program. And, as a result, much of the findings noted above do not apply (e.g., receiving reimbursements in excess of the amounts paid into the accounts, processing claims for people not enrolled in the program). With that said, however, we agree that stronger internal controls can be helpful in improving the administration of the program. Toward that end, we are working on the following recommendations: Creation of a procedures document: The document will clearly define the process for administering claims, making changes to claims and documenting changes made to claims. The document will also detail the steps to be taken when handling partial and multiple claims. Increased management oversight: Management will be responsible for approving and signing off on any changes made to claim forms. The program administrator will be responsible for bringing to management s attention unusual or problem items. Management will also be responsible for periodic spot checks to ensure adherence to defined procedures. Processing terminations: CSA will develop and run a monthly query to identify participants who have terminated from the program and refunds will be sent to the affected employees. 8

10 FINDINGS, RECOMMENDATIONS, AND RESPONSES QUALIFIED PARKING PROGRAM 2. Reconciliations A detailed financial reconciliation of the Qualified parking Fund (PeopleSoft Fund 58300) was not performed by CSA in Consequently, incorrect entries made to the fund were not discovered resulting in the fund being misstated. Also, entries made to correct problems throughout the year were not verified to ensure they were done accurately. Without routine reconciliations, there are no assurances that Qualified Parking participants accounts are accurate. Performing a detailed reconciliation of the fund on a routine basis, i.e., monthly or quarterly, would help ensure participants accounts are correct, inadvertent entries were not made, and verify that balances are not misstated. Also, having performed reconciliations will provide greater assurance that at year end closing, the information is stated correctly on the City s financial statements. Recommendation Under normal circumstances we would recommend CSA hire an accountant to perform regular reconciliations of the Qualified Parking fund and any other financial functions needed for the agency. We realize that due to budgetary issues it may not be feasible to hire an accountant at this time. Therefore, we recommend the CSA management and/or the Qualified Parking Committee delegate someone at CSA other than the plan administrator to perform regular reconciliations of Fund Having the fund reconciled by someone other than the plan administrator will provide a proper segregation of duties. If discrepancies are discovered during the reconciliation process, follow-up procedures should be monitored to ensure the problem is corrected. We also recommend a detailed reconciliation of Fund be completed for the year 2003 so the year-end balance can be corrected. If discrepancies are found, the necessary correcting journal entries should be produced and entered into PeopleSoft. Career Service Authority s Response We agree that someone other than the plan administrator should reconcile the funds and that it would beneficial to hire an accountant to reconcile accounts as well as perform other financial analyses in the Benefit Division. However, the budget shortfall and hiring freeze prohibit hiring an accountant at this time. CSA will make every effort to reconcile funds on a monthly basis with its current resources and capabilities and, when the financial situation of the City improves, request an additional position to perform the required accounting duties. In the meantime, a senior personnel analyst has been assigned the responsibility of doing the reconciliations on a monthly basis. It is our understanding that CSA did work with the Auditor s office to perform a year-end reconciliation to the Qualified Parking Fund for the 2003 fiscal year. It is also our understanding that incorrect entries were made to the fund but that was not the fault of Career Service Authority. And, the detection of the errors was delayed due to the implementation of PeopleSoft and to changes made with the PeopleSoft tables. 9

11 QUALIFIED PARKING PROGRAM STATEMENT OF FIDUCIARY NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 2003 PARKING IN NON CITY-OWNED LOTS Assets Equity in Treasurer s Cash and Investments $ 36, Total Assets $ 36, Liabilities Vouchers Payable $ 36, Total Liabilities $ 36, See accompanying notes to the financial statements. 10

12 QUALIFIED PARKING PROGRAM SCHEDULES OF RECEIPTS AND DISBURSEMENTS FOR THE YEAR ENDED DECEMBER 31, 2003 PARKING IN NON CITY-OWNED LOTS Receipts Qualified Parking Pre-Tax - III900 $74,050 Disbursements Reimbursements to Participants (Code 670) 61,322 Refunds to Participants (Code 680) 8,113 Total 69,435 Net $ 4,615 PARKING IN CITY-OWNED AND DENVER HEALTH AUTHORITY LOTS/STRUCTURES Receipts City Lot Parking Pre-Tax III801 $202,450 Castro Parking Pre-Tax III ,165 Parking-Denver Health Pre-Tax III ,333 Total 430,948 Disbursements Reimbursed to Denver Health Authority 105,333 Deposited to General Fund 325,615 Total 430,948 Net $ - See accompanying notes to the financial statements. 11

13 NOTES TO THE FINANCIAL STATEMENTS QUALIFIED PARKING PROGRAM Note 1. Assets and Liabilities Amounts collected and due to employees that have not requested reimbursement for out of pocket costs. Due to an incorrect entry, the fund was overstated as of December 31, A correcting entry in the amount of $32,425 was made in Note 2. Receipts These amounts include all pre-tax deductions from the payroll of participants enrolled in the Qualified Parking program. Note 3. Disbursements Reimbursements to participants are made for out of pocket costs of participants that park in non city-owned lots. For participants that park in non city-owned lots and retained balances in their accounts as of November 30, 2003, the balances were refunded in December Reimbursements are made to DHA for participants that pay for parking in lots and structures owned by DHA through pre-tax payroll deductions. Amounts deposited to the General Fund through Public Works-Parking Management are from participants that pay for parking in cityowned lots through pre-tax payroll deductions. 12