Washington County. Internal Controls Over the Payroll Timekeeping System. Report of Examination

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1 O FFICE OF THE NEW YORK STATE COMPTROLLER DIVISION OF LOCAL GOVERNMENT & SCHOOL ACCOUNTABILITY Washington County Internal Controls Over the Payroll Timekeeping System Report of Examination Period Covered: January 1, 2010 December 31, M-156 Thomas P. DiNapoli

2 Table of Contents AUTHORITY LETTER 2 Page INTRODUCTION 3 Background 3 Objective 3 Scope and Methodology 3 Comments of Local Officials and Corrective Action 4 PAYROLL TIMEKEEPING 5 Recommendations 9 APPENDIX A Response From Local Officials 11 APPENDIX B Audit Methodology and Standards 14 APPENDIX C How to Obtain Additional Copies of the Report 15 APPENDIX D Local Regional Office Listing 16 DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 11

3 State of New York Division of Local Government and School Accountability November 2011 Dear County Officials: A top priority of the is to help local government officials manage government resources efficiently and effectively and, by so doing, provide accountability for tax dollars spent to support government operations. The Comptroller oversees the fiscal affairs of local governments statewide, as well as compliance with relevant statutes and observance of good business practices. This fiscal oversight is accomplished, in part, through our audits, which identify opportunities for improving operations and County Board of Supervisors governance. Audits also can identify strategies to reduce costs and to strengthen controls intended to safeguard local government assets. Following is a report of our audit of Washington County, entitled Internal Controls Over the Payroll Timekeeping System. This audit was conducted pursuant to Article V, Section 1 of the State Constitution and the State Comptroller s authority as set forth in Article 3 of the General Municipal Law. This audit s results and recommendations are resources for local government officials to use in effectively managing operations and in meeting the expectations of their constituents. If you have questions about this report, please feel free to contact the local regional office for your county, as listed at the end of this report. Respectfully submitted, Offi ce of the State Comptroller Division of Local Government and School Accountability 2 OFFICE OF THE NEW YORK STATE COMPTROLLER

4 Introduction Background Washington County (County) is located in the eastern part of New York State and has a population of approximately 62,000 residents. The County is governed by a Board of Supervisors (Board) which is comprised of the town supervisors from each of the County s 17 towns. The County offers a variety of services to the community, including highway maintenance, snow plowing, public safety services through the Sheriff s Department and County Jail, various Public Health services including the County Nursing Home (Pleasant Valley) and other general government support services, which are provided by the County s approximately 900 employees. The total County expenditures for all funds for the year ended December 31, 2010 was $104.6 million, 1 with $30.5 million in payroll expenses, including $1.6 million in overtime. The County implemented a biometric time and attendance system to account for its employees work time and leave accruals. The system uses fingerprint recognition time clocks instead of the traditional time card punch clock. The time clocks are tied into the time and attendance system so that time in and out is logged automatically into the time accounting system. The time and attendance system also interfaces with the County s payroll system which processes the payroll. The County upgraded the biometric time and attendance system in April 2010 to enhance security controls specifically related to user control, removing a user s 2 access to his or her own time record. Objective The objective of our audit was to review the County s system of internal controls over the payroll timekeeping system. Our audit addressed the following related question: Are internal controls over the County s timekeeping system adequate to ensure employees receive only the pay and benefits to which they are entitled? Scope and Methodology We examined controls over the County s payroll timekeeping system for the period January 1, 2010 to December 31, We conducted our audit in accordance with generally accepted government auditing standards (GAGAS). More information on such standards and the methodology used in performing this audit is included in Appendix B of this report total expenditures were $ million dollars, less inter-fund transfers of $7.9 million for a total of $104.6 million. 2 There are 125 user accounts designated to the manager for the review and sign-off of electronic timecards. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 33

5 Comments of Local Officials and Corrective Action The results of our audit and recommendations have been discussed with County officials and their comments, which appear in Appendix A, have been considered in preparing this report. County officials generally agreed with our recommendations and indicated they planned to initiate corrective action. The Board has the responsibility to initiate corrective action. A written corrective action plan (CAP) that addresses the findings and recommendations in this report should be prepared and forwarded to our office within 90 days, pursuant to Section 35 of the General Municipal Law. For more information on preparing and filing your CAP, please refer to our brochure, Responding to an OSC Audit Report, which you received with the draft audit report. We encourage the County Board to make this plan available for public review in the County Clerk s office. 4 OFFICE OF THE NEW YORK STATE COMPTROLLER

6 Payroll Timekeeping A good payroll system includes mechanisms for tracking employees work schedules, recording time worked, advance approval of overtime and leave accruals to be charged, as well as the retention of key payroll documents used to support an employee s biweekly time card. An effectively controlled payroll process includes policies, procedures, and practices that provide guidance to employees for preparing and approving time cards. An important component of payroll is a timekeeping system that ensures the employees are accurately paid for time worked. Management oversight is also an essential component of any internal control system. The absence of adequate controls over timekeeping may leave a payroll system susceptible to error, abuse, or even fraud. Salaries and employee benefits are the County s most significant operating cost and represented approximately 42 percent 3 of total expenditures in However, the County s internal controls over the payroll timekeeping system were not designed properly to ensure compliance with County policies and procedures. Enforcement of the Board-adopted policies and procedures related to payroll is handled at the department level and as such inconsistencies exist in recording employee schedules, recordkeeping and retention, approval of overtime and benefit leave, and meal breaks. Also, while the Board has adopted policies and procedures related to the time and attendance system, the Board has not established procedures to enforce compliance by the Department heads with the various policies listed in the time clock policy manual or create standardized forms to document advance approval of leave time and overtime. In addition, the Board has not appointed a central department or employee to be responsible for enforcing the timekeeping policies and procedures. The lack of management oversight of the timekeeping process has resulted in errors and irregularities occurring without being detected. The County uses a biometric timekeeping system to track its employee time and attendance and has established written policies and procedures in a time clock policy and procedure manual, eight collective bargaining agreements, and an employee handbook. The policies govern the usage of the time and attendance system and tracking of work time to ensure proper payments and standard practices. This policy also requires every employee of the County to use the timekeeping system to track their time and attendance, 3 County-wide 2010 expenditures for personal services and employee benefits were $30.5 million and $13.8 million respectively. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 55

7 6 OFFICE OF THE NEW YORK STATE COMPTROLLER have their daily work schedules recorded in the timekeeping system, to clock in whenever they are on duty and clock out whenever they go off duty, including lunch breaks, obtain advance approval for overtime and leave time, and track any schedule deviation on manual exception sheets. Exempt employees 4 are identified as single punch employees and must clock in once upon arrival to verify their attendance. Further, the departments are required to retain paper backup for payroll including the exception sheets. Our review of ten County departments found a lack of sufficient documentation to support biweekly payrolls. One reason is that the practice of recording employees work schedules in the timekeeping system is not consistent throughout all County departments. The inconsistencies we noted were as follows: There was no standardized County-wide form or process for requesting leave time and documenting the pre-authorization of overtime. There was no central County authority responsible for ensuring that all employees exception sheets are completed, accurate and properly signed by both the employee and supervisor. There was no formal system in place to ensure all County employees clocked in and out for lunch per their applicable bargaining agreement. As a result of these weaknesses we randomly selected 100 employees employed during our audit period from the 10 largest County departments 5 and reviewed payroll documentation for two randomly selected payroll periods 6 to determine the extent to which County employees were properly paid, received benefits they are entitled, and adhered to established time and attendance policies. We found that Board-established policies and procedures are inconsistently applied in the various departments, employees are not held accountable for lack of compliance and employees are paid for overtime with no supervisory prior authorization. Our examination identified deficiencies with the County s timekeeping for employee work schedules, payroll exception sheets, meal breaks, overtime, and leave time. 4 Not including elected officials who are not required to use the time clock, there are approximately 40 exempt staff include appointed Department heads, County Administrator, County Attorney, other administrators, assistant DAs, public defenders, County Attorney s legal staff, and other miscellaneous staff. 5 Fifteen employees were selected at random for the five largest departments and five each from the next five largest departments. 6 Payroll periods ending May 26, 2010 and September 29, 2010

8 Work Schedules The Board-adopted time clock policy requires all hourly employees to have their daily work schedules recorded in the County timekeeping system, however, this policy is not enforced. Of the 100 employees reviewed, 23 employees daily work schedules were not recorded in the timekeeping system. Consequently, policies such as those related to docking an employee s pay for late punches could not be enforced for these staff. For example, the Department of Probation, consisting of 18 employees, 7 did not have their work schedules recorded in the timekeeping system and were allowed to work flexible daily schedules. While, the Probation Director established office hours as 8:30-4:30, staff was allowed to work various daily schedules that equate to 35 hours a week. When employees do not have a formally documented work schedule, not only are payroll policies not enforced by the timekeeping system, management does not know when staff is expected to report to the office or leave for the day, making it difficult to manage staff work flow. We also noted the Department of Public Works does not enforce the County policy related to recording all hours worked through the biometric time clock. For employees who are scheduled to work in the field, total daily work hours are recorded by the supervising foreman on a daily work log and the department payroll clerks manually enter the hours into the timekeeping system, thereby circumventing the biometric time clock. This practice is not only inconsistent with Board policy, which states every employee must clock in when going on duty and out when going off duty, but also with other County departments who have field staff. For example, the Department of Public Health has staff that travels to various locations and requires them to punch in and out through the time clocks located throughout the County at the Department of Public Works barns and transfer stations. Payroll Exception Sheets The Board adopted time clock policy requires all edits to the timekeeping system be documented on an official payroll exception sheet 8 (exception sheet). We found 38 of the 100 employees we examined over two payroll periods did not have exception sheets on file for edits to the timekeeping system. For example, the Department of Public Works did not utilize the County issued exception sheets for 14 of the 15 employees 9 included in our sample. Further, we found at the Pleasant Valley Nursing Home 12 of 15 employees did not have an exception sheet on file for both of the 7 Five of which were in our original sample of The Payroll Exception Sheet is a County form defined in the County Time Clock Policy. 9 Further examination found of 132 employees in the Department of Public Works, biweekly exception sheets are used only by the eight office staff. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 77

9 8 OFFICE OF THE NEW YORK STATE COMPTROLLER payroll periods tested. The Departments did not have systems in place to ensure exception sheets were received from each employee and as a result, edits or overrides to employees time cards and subsequent supervisory electronic approval are not supported by sufficient documentation or employee signatures. 10 Of the 62 employees that did have exception sheets on file, 27 did not contain all the exceptions to the work schedule as recorded in the timekeeping system. While we were told by the various departments that department supervisors reconcile the exception sheet to the electronic timecard before approving the timecard, we did not see evidence of this occurring. For example, of the 62 employees that had an exception sheet on file, 17 employees 11 did not document overtime on the exception sheet. However, in all 17 instances, the overtime was recorded on the electronic timecard; therefore reconciliation was not performed by the supervisor to ensure all variances from the daily work schedule were recorded on the exception sheet. Meal Breaks The bargaining agreements and County Employee Handbook stipulate which groups of employees are eligible for a paid meal break and those who are not. We found 21 of the 100 employees examined were not eligible for a paid meal break and did not routinely clock out during the day, indicating they worked eight continuous hours without lunch. According to union contracts and/ or the employee handbook, these employees were scheduled to work eight hours a day with an unpaid lunch, however their work schedules were not extended to account for an unpaid lunch period. Considering all employees are required to break for lunch, the County paid an additional hours valued at $2, to these employees during the 2010 fiscal year for lunch breaks that were not authorized by contract or the Employee Handbook. Overtime County policy states all additional hours beyond the normal work schedule must be approved in advance. To control overtime costs, management must review and approve overtime requests in advance. At the end of the payroll period, these approvals should then be reconciled to the employee s exception sheet and time card to verify that all overtime was properly authorized and recorded. Of the 100 employees examined, 56 worked overtime during our sample period. We found no evidence that management approved overtime for 17 of the 56 employees totaling hours and valued 10 Since the County uses an electronic timekeeping system, the exception sheet is the sole document used by the County for the employee to attest that the electronic time card is accurate and complete. Without the exception sheet there is no employee sign-off on his timesheet. 11 Refer to the Overtime section for more details on these 17 employees. 12 The paid meal break was calculated at straight pay for all 21 employees.

10 at over $4, The absence of prior approval for overtime could result in the County paying for unnecessary overtime. Leave Time The Employee Handbook states vacation time shall be granted by the department head. We found that of the 100 employees reviewed over two payroll periods, 83 employees used benefit leave. Of the 83 that used benefit leave, 59 employees 14 did not have a leave request form on file and available to review. To ensure benefit leave is properly charged, sufficient documentation is needed to support the approval and use of leave. Consequently, without adequate documentation of prior approval, subsequent charges to benefit leave accruals may be inaccurate and the responsibility for correctly editing the time card is given to the supervisor without sufficient supporting documentation. The deficiencies noted with the County s timekeeping system are a result of departments being inconsistent with enforcing County policies. Without a central department or person responsible for enforcing the Board adopted timekeeping policies and procedures, internal controls are weakened and errors and irregularities may occur. Recommendations 1. The Board should ensure all department heads enforce County policies, collective bargaining agreements and the employee handbook. 2. The Board should appoint a central department or employee to ensure the timekeeping system is being used in accordance with County policies. 3. Department heads should ensure all employees have a work schedule recorded in the time and attendance system. 4. Department heads should ensure exception sheets are used and retained per the County's retention schedule. 5. Department heads should ensure exception sheets are completed and signed by staff and subsequently reviewed and signed by supervising staff. 6. Department heads should ensure employees are working the appropriate schedules indicated in corresponding collective bargaining agreements and the County handbook. 13 $4, was calculated from payroll records pertaining to the two payroll periods sampled. 14 Twenty-four employees had no supporting documentation on file, 31 employees supporting documentation was approved after the fact, and four employees supporting documentation was not sufficient in detail to account for leave time used. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 99

11 7. Department heads should ensure all overtime is approved prior to work being performed. 8. The Board should approve a standard leave request form for all County departments to use. 10 OFFICE OF THE NEW YORK STATE COMPTROLLER

12 APPENDIX A RESPONSE FROM LOCAL OFFICIALS The local officials response to this audit can be found on the following pages. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 111

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15 APPENDIX B AUDIT METHODOLOGY AND STANDARDS Our overall objective was to assess the internal controls over payroll, specifically the timekeeping system. To accomplish this, we performed an initial risk assessment of the internal controls to determine those aspects of the payroll process most at risk. We reviewed timekeeping procedures and documentation from the County s operations and determined that the internal controls surrounding the timekeeping system were most at risk. We therefore examined the timekeeping system at the ten largest departments within the County for the period January 1, 2010, to December 31, To accomplish our objective, our procedures included the following: We reviewed the County s employee handbook, the Board-adopted time clock policy and procedure manual, and eight collective bargaining agreements to gain an understanding of the procedures used to control the timekeeping system. We also interviewed County officials and employees. We randomly selected 100 employees employed during calendar year 2010 from the County s ten highest staffed departments; fifteen each from the largest five departments and five each from the next five largest departments. To determine the random starting location for our sample we used a dollar bill and took the last two numbers of the serial sequence (49). For the five largest departments, we began at the 49th employee and selected every fifth employee on the payroll list. For the smaller five departments, we began with the last number of the serial number (9) and started with the ninth employee from the payroll list, selecting every fifth to test. We reviewed timekeeping records maintained at the County s departments that included various formats such as: electronic timecards, time card exception sheets, and documentation supporting overtime and benefit leave usage, to determine if they were properly initiated, reviewed, approved and consistent with Board policies. We randomly selected two pay periods during calendar year 2010 for review. We reviewed time card exception sheets to determine if they were complete, accurate, and appropriately signed by the employee and supervisor. We compared the exception sheet to the electronic time card for accuracy and completeness. We traced supporting documentation, overtime approval and benefit leave request, to the exception sheet and electronic time card to determine if support was given for extra hours worked or accruals used. We conducted this performance audit in accordance with generally accepted government auditing standards (GAGAS). Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. 14 OFFICE OF THE NEW YORK STATE COMPTROLLER

16 APPENDIX C HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT To obtain copies of this report, write or visit our web page: Public Information Office 110 State Street, 15th Floor Albany, New York (518) DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 1515

17 APPENDIX D OFFICE OF THE STATE COMPTROLLER DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY Steven J. Hancox, Deputy Comptroller Nathaalie N. Carey, Assistant Comptroller LOCAL REGIONAL OFFICE LISTING BINGHAMTON REGIONAL OFFICE H. Todd Eames, Chief Examiner State Office Building - Suite Hawley Street Binghamton, New York (607) Fax (607) [email protected] Serving: Broome, Chenango, Cortland, Delaware, Otsego, Schoharie, Sullivan, Tioga, Tompkins Counties BUFFALO REGIONAL OFFICE Robert Meller, Chief Examiner 295 Main Street, Suite 1032 Buffalo, New York (716) Fax (716) [email protected] Serving: Allegany, Cattaraugus, Chautauqua, Erie, Genesee, Niagara, Orleans, Wyoming Counties NEWBURGH REGIONAL OFFICE Christopher Ellis, Chief Examiner 33 Airport Center Drive, Suite 103 New Windsor, New York (845) Fax (845) [email protected] Serving: Columbia, Dutchess, Greene, Orange, Putnam, Rockland, Ulster, Westchester Counties ROCHESTER REGIONAL OFFICE Edward V. Grant, Jr., Chief Examiner The Powers Building 16 West Main Street Suite 522 Rochester, New York (585) Fax (585) [email protected] Serving: Cayuga, Chemung, Livingston, Monroe, Ontario, Schuyler, Seneca, Steuben, Wayne, Yates Counties GLENS FALLS REGIONAL OFFICE Jeffrey P. Leonard, Chief Examiner One Broad Street Plaza Glens Falls, New York (518) Fax (518) [email protected] Serving: Albany, Clinton, Essex, Franklin, Fulton, Hamilton, Montgomery, Rensselaer, Saratoga, Schenectady, Warren, Washington Counties SYRACUSE REGIONAL OFFICE Rebecca Wilcox, Chief Examiner State Office Building, Room E. Washington Street Syracuse, New York (315) Fax (315) [email protected] Serving: Herkimer, Jefferson, Lewis, Madison, Oneida, Onondaga, Oswego, St. Lawrence Counties HAUPPAUGE REGIONAL OFFICE Ira McCracken, Chief Examiner NYS Office Building, Room 3A10 Veterans Memorial Highway Hauppauge, New York (631) Fax (631) [email protected] STATEWIDE AND REGIONAL PROJECTS Ann C. Singer, Chief Examiner State Office Building - Suite Hawley Street Binghamton, New York (607) Fax (607) Serving: Nassau and Suffolk Counties 16 OFFICE OF THE NEW YORK STATE COMPTROLLER