AUDIT REPORT. Administrative Expenses Audit. August 28, Report Number: OIA-2015-AUD-04 Administrative Expenses

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1 AUDIT REPORT Administrative Expenses Audit August 28, 2015

2 Table of Contents: Page Executive Summary Background 1 Audit Objectives and Scope 1 Individual Section Ratings 1 Audit Opinion 2 Appendix Definitions 3 Issue Classifications 4 Distribution 6 Audit Performed By 6

3 Executive Summary Background During the normal course of business, Citizens employees may incur expenses for business travel, professional dues, meetings, conferences, and training sessions to gain knowledge specific to their area of responsibility, enhance their professional skills or to conduct Citizens business. These expenses are processed using either a Citizens Purchasing Card (P-Card), personal funds, or direct billed to the organization. On April 7, 2013, Citizens adopted an expense policy which mirrors the Florida State Public Officers and Employees travel expense policy set forth in section of the Florida State Statutes. This policy specifies the types of expenses that are appropriate, required forms and supporting documentation and the approval process for such costs. The Accounts Payable function is responsible for processing and validating purchases made by employees and board members. Citizens administrative expenses from January 1, 2014 through December 31, 2014 excluding salaries and benefits totaled $94,792,943 compared to $110,045,657 for the same period in The expense totals for each category were as follows: Expense Categories Credit Cards $1,078,219 $945,958 Direct Bill $ 344,525 $309,267 Personal Expense Reimbursement $ 720,214 $509,517 Other Administrative Expenses $ 92,649,985 $108,280,915 Total Expenses $ 94,792,943 $110,045,657 Audit Objectives and Scope The objective of this audit is to evaluate the effectiveness and adequacy of key processes and control functions for administrative expense categories and to ensure compliance with the corporation s expense policy. This audit will cover transactions which occurred between January 1, 2014 and December 31, 2014 and include: Visa, Amex, Gas Card Expenses Check Expenses Direct Bill Expenses Card Inventory Reconciliation Policies and Procedure Review Individual Section Ratings Section Visa, AMEX, Gas Card Expenses Check Expenses Direct Bill Expenses Card Inventory Reconciliation Policies and Procedures Review Rating P a g e 1

4 Executive Summary Audit Opinion The overall effectiveness of the processes and controls evaluated during this audit is rated as. Based on our examination of invoices, expense reports and other supporting documentation, we found administrative, travel and meal expenses were properly documented and authorized within the expense policy guidelines. OIA performed a detailed analysis of all administrative expenses that were paid by Accounts Payable during the audit period. We noted that although Citizens has comprehensive policies and procedures in place to manage and monitor expenses, there remain a few categories of expenses (e.g. Misc. Personnel Expenses and Training-Internal) that are not covered under the existing policies; however, total expenses recorded for these categories during 2014 were minimal - $39,084. Management is currently developing a general business expenses policy and related procedures to capture all types of expenses not specifically governed. This policy is currently in draft form and awaits executive approval. Results from the audit highlighted some minor opportunities for improvement which have been discussed and are being addressed by Management. We would like to thank management and staff for their cooperation and professional courtesy throughout the course of this audit. P a g e 2

5 Appendix 1 Definitions Audit Ratings : Critical internal control systems are functioning in an acceptable manner. There may be no or very few minor issues, but their number and severity relative to the size and scope of the operation, entity, or process audited indicate minimal concern. Corrective action to address the issues identified, although not serious, remains an area of focus. Needs Improvement: Internal control systems are not functioning in an acceptable manner and the control environment will require some enhancement before it can be considered as fully effective. The number and severity of issues relative to the size and scope of the operation, entity, or process being audited indicate some significant areas of weakness. Overall exposure (existing or potential) requires corrective action plan with priority. Unsatisfactory: One or more critical control deficiencies exist which would have a significant adverse effect on loss potential, customer satisfaction or management information. Or the number and severity of issues relative to the size and scope of the operation, entity, or process being audited indicate pervasive, systemic, or individually serious weaknesses. As a result the control environment is not considered to be appropriate, or the management of risks reviewed falls outside acceptable parameters, or both. Overall exposure (existing or potential) is unacceptable and requires immediate corrective action plan with highest priority. P a g e 3

6 Appendix 2 Issue Classifications Control Category High Medium Low Financial Controls (Reliability of financial reporting) Operational Controls (Effectiveness and efficiency of operations) financial statement misstatements >USD 5 million Control issue that could have a pervasive impact on control effectiveness in business or financial processes at the business unit level A control issue relating to any fraud committed by any member of senior management or any manager who plays a significant role in the financial reporting process losses >USD 2.5 million Achievement of principal business objectives in jeopardy Customer service failure (e.g., excessive processing backlogs, unit pricing errors, call center non responsiveness for more than a day) impacting 10,000 policyholders or more or negatively impacting a number of key corporate accounts prolonged IT service failure impacts one or more applications and/or one or more business units negative publicity related to an operational control issue An operational control issue relating to any fraud committed by any member of senior management or any manager who plays a significant role in operations financial statement misstatements between USD 2.5 million to 5 million Control issue that could have an important impact on control effectiveness in business or financial processes at the business unit level losses between USD 0.5 to 2.5 million Achievement of principal business objectives may be affected Customer service failure (e.g., processing backlogs, unit pricing errors, call center non responsiveness) impacting 1,000 policyholders to 10,000 or negatively impacting a key corporate account IT service failure impacts more than one application for a short period of time financial statement misstatements below USD 2.5 million Control issue that does not impact on control effectiveness in business or financial processes at the business unit level losses below USD 0.5 million Achievement of principal business objectives not in doubt Customer service failure (e.g., processing backlogs, unit pricing errors, call center non responsiveness) impacting less than 1,000 policyholders IT service failure impacts one application for a short period of time P a g e 4

7 Appendix 2 Control Category High Medium Low Any operational issue leading to death of an employee or customer Any operational issue leading to injury of an employee or customer Compliance Controls (Compliance with applicable laws and regulations) Remediation timeline for public censure, fines or enforcement action (including requirement to take corrective actions) by any regulatory body which could have a significant financial and/or reputational impact on the Group Any risk of loss of license or regulatory approval to do business Areas of non-compliance identified which could ultimately lead to the above outcomes A control issue relating to any fraud committed by any member of senior management which could have an important compliance or regulatory impact Such an issue would be expected to receive immediate attention from senior management, but must not exceed 60 days to remedy. for public censure, fines or enforcement action (including requirement to take corrective action) by any regulatory body Areas of noncompliance identified which could ultimately lead to the above outcomes Such an issue would be expected to receive corrective action from senior management within 1 month, but must be completed within 90 days of final Audit Report date. for non-public action (including routine fines) by any regulatory body Areas of noncompliance identified which could ultimately lead the above outcome Such an issue does not warrant immediate attention but there should be an agreed program for resolution. This would be expected to complete within 3 months, but in every case must not exceed 120 days. P a g e 5

8 Appendix 3 Distribution Addressees Andrew Woodward, Controller Director of Accounting Cherri Linn, Director of Facilities & General Services Copies Juan Cocuy, Citizens Audit Committee Chairman Bette Brown, Citizens Audit Committee Member Jim Henderson, Citizens Audit Committee Member Barry Gilway, President/CEO/Executive Officer Jennifer Montero, Chief Financial Officer Dan Sumner, Chief Legal Officer & General Counsel John Rollins, Chief Risk Officer Kelly Booten, Chief Systems & Operations Jay Adams, Chief Claims Officer Steve Bitar, Chief Consumer & Agent Services Charles Johnson, Chief Human Resource Officer Christine Ashburn, VP, Legislature & External Affairs and Communications Bruce Meeks, Inspector General Matt Gerrell, Assistant Controller Cam Atwell, Financial Manager Beverley Stevens, Manager- General Services Following Audit Committee Distribution The Honorable Rick Scott, Governor The Honorable Jeff Atwater, Chief Financial Officer The Honorable Pam Bondi, Attorney General The Honorable Adam Putnam, Commissioner of Agriculture The Honorable Andy Gardner, President of the Senate The Honorable Steve Crisafulli, Speaker of the House of Representatives Audit Performed By Auditor in Charge Audit Director Under the Direction of Angela Smith, Internal Auditor John Fox, Audit Director Joe Martins Chief of Internal Audit P a g e 6

AUDIT REPORT. Citizens Insurance Suite Check Printing Audit Opinion: Needs Improvement. June 11, 2015

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