Assessor s Office Performance Audit

Transcription

1 Assessor s Office Performance Audit June 2012 Office of the Auditor Audit Services Division City and County of Denver Dennis J. Gallagher Auditor

2 The Auditor of the City and County of Denver is independently elected by the citizens of Denver. He is responsible for examining and evaluating the operations of City agencies for the purpose of ensuring the proper and efficient use of City resources and providing other audit services and information to City Council, the Mayor and the public to improve all aspects of Denver s government. He also chairs the City s Audit Committee. The Audit Committee is chaired by the Auditor and consists of seven members. The Audit Committee assists the Auditor in his oversight responsibilities of the integrity of the City s finances and operations, including the integrity of the City s financial statements. The Audit Committee is structured in a manner that ensures the independent oversight of City operations, thereby enhancing citizen confidence and avoiding any appearance of a conflict of interest. Audit Committee Dennis Gallagher, Chair Maurice Goodgaine Leslie Mitchell Rudy Payan Robert Bishop Jeffrey Hart Timothy O Brien, Co-Chair Audit Staff John Carlson, Deputy Director, JD, MBA, CIA, CRMA Chris Wedor, Audit Supervisor, MBA, CICA You can obtain copies of this report by contacting us at: Office of the Auditor 201 West Colfax Avenue, Department 705 Denver CO, (720) Fax (720) Or download and view an electronic copy by visiting our website at:

3 City and County of Denver 201 West Colfax Avenue, Department 705 Denver, Colorado FAX Dennis J. Gallagher Auditor June 21, 2012 Mr. Paul Jacobs, Assessor Department of Finance Assessment Division City and County of Denver Dear Mr. Jacobs, Attached is our performance audit of the Assessor s Office. The purpose of the audit was to evaluate the Assessor s Office s information management practices and its customer relations approach, specifically with regard to whether exempt properties within the City and County of Denver are properly categorized. I am pleased to report that our review affirmed that exempt properties within the City and County of Denver are properly categorized by your office. The audit yielded two recommendations as the result of our work. I am confident that you will do everything in your power to address these recommendations in a timely manner. Furthermore, I enjoyed working collaboratively to evaluate your internal control system. The controls observed appear to be working adequately. The assessor function is an important one and I appreciate your time and attention over the Denver assessment process consistent with Colorado Revised Statues, Title 39. If you have any questions, please call Kip Memmott, Director of Audit Services, at Sincerely, DJG/ccw Dennis J. Gallagher Auditor cc: Honorable Michael Hancock, Mayor Honorable Members of City Council Members of Audit Committee Ms. Cary Kennedy, Deputy Mayor and Chief Financial Officer Ms. Janice Sinden, Chief of Staff Ms. Stephanie O Malley, Deputy Chief of Staff Ms. Beth Machann, Controller Mr. Doug Friednash, City Attorney Mr. L. Michael Henry, Staff Director, Board of Ethics 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 by management and the people. We will monitor and report on recommendations and progress towards their implementation.

4 City and County of Denver Dennis J. Gallagher Auditor 201 West Colfax Avenue, Department 705 Denver, Colorado FAX AUDITOR S REPORT We have completed an audit of the Assessor s Office. The purpose of the audit was to evaluate the Assessor s Office s compliance with information management practices and its customer relations approach, specifically with regard to exempt properties within the City and County of Denver. This performance audit is authorized pursuant to the City and County of Denver Charter, Article V, Part 2, Section 1, General Powers and Duties of Auditor, and was conducted in accordance with generally accepted government auditing standards. 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 objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The audit affirmed that the information management practices of the Assessor s Office appear functional for the City and County of Denver, based on our testing of both automated and manual control systems. However, we offer two recommendations that we believe will assist the Assessor s Office in continuing to mitigate risks and strengthen the integrity of the County property tax exemptions process. Specifically, the Assessor s Office should upgrade the Tyler Cm software program for monitoring of exempt properties. Additionally, the Assessor s Office should update its policies and procedures to accurately reflect current manual processes being used to handle exempt properties. We extend our appreciation to Mr. Jacobs and the personnel who assisted and cooperated with us during the audit. Audit Services Division Kip Memmott, MA, CGAP, CRMA Director of Audit Services 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 by management and the people. We will monitor and report on recommendations and progress towards their implementation.

5 TABLE OF CONTENTS EXECUTIVE SUMMARY 1 Automated and Manual Control Systems Governing Exempt Properties Appear Sound but Can Be Enhanced 1 INTRODUCTION & BACKGROUND 3 Assessor s Office Structure and Governance 3 Mission and Responsibilities 3 Property Tax Exemptions 4 Information Technology Systems 4 SCOPE 5 OBJECTIVE 5 METHODOLOGY 5 FINDING 6 Automated and Manual Control Systems Governing Exempt Properties Appear Sound but Can Be Enhanced 6 RECOMMENDATIONS 10 APPENDICES 11 Appendix A Assessor s Office Organizational Chart 11 Appendix B Automated Controls Sign-Off s and Approvals 12 AGENCY RESPONSE 13

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7 EXECUTIVE SUMMARY Automated and Manual Control Systems Governing Exempt Properties Appear Sound but Can Be Enhanced Our audit of the Assessor s Office originated from our 2012 Audit Plan, but we reduced the scope of the audit after concerns emerged regarding exempt property classifications monitored by the Assessor s Office. Accordingly, we were able to target our audit to a very specific objective, thereby dedicating fewer audit hours than would have been spent on the more comprehensive audit that was originally envisioned in the Audit Plan. The resulting audit examined information management practices within the Assessor s Office that could have caused misclassification of properties with regard to their property-tax exemption status. The Assessor s Office calculates the values of all real and personal property within the City and County of Denver for tax purposes. Certain types of property, including those that are non-profit, educational, governmental, or religious in nature, may be fully or partially exempt from property taxes, and exemption status can change from time to time. For example, if a property is owned by a religious organization and is sold to a private homeowner for use as a personal residence, the status of the property would change from exempt to non-exempt. The Assessor s Office utilizes both automated and manual systems and procedures to ensure that property tax exemption records are updated accurately and timely. Audit work tested the controls in the automated and manual systems to verify accuracy and timeliness of updates, which revealed the following: Automated Control Systems and Processes An analysis and review of 100 percent of the exempt property records for the City and County of Denver revealed no exceptions. A review of the software programs Oasis and Tyler CM revealed a specific programming weakness regarding exempt properties. Our review of an audit performed by an independent third-party, as required by the State of Colorado, revealed no exceptions for the Assessor s Office. Manual Control Systems and Processes A review and evaluation of the Assessor s Office manual controls revealed that processes are working effectively. A review of the Assessor s Office policies and procedures revealed that the manual procedures have not been formalized with regard to exempt properties. A review and evaluation of Assessor s Office technicians performing duties related to exempt properties revealed a high level of technician competency Page 1 Office of the Auditor

8 and accountability and high levels of quality assurance for records updated by the Assessor s Office. Although our testing did not reveal any major concerns or exceptions with automated or manual controls, we offer two recommendations that will allow the Assessor s Office to work more efficiently and reduce the risk of errors with regard to exempt properties records management. First, the Assessor s Office should consider installing upgraded programming to allow the Tyler CM program to notify technicians when a property record they are reviewing is classified as an exempt property, also known as redflagging. This will eliminate the possibility of a property being improperly recorded and serve as a contingency plan if the Manatron system is not installed in 2012 as scheduled. Second, the Assessor s Office should update its policies and procedures to reflect current practices regarding the manual process of handling exempt properties. City and County of Denver Page 2

9 INTRODUCTION & BACKGROUND Assessor s Office Structure and Governance The Assessment Division, also known as the Assessor s Office, is located within the Department of Finance and is overseen by the Assessor, who reports to the Chief Financial Officer. 1 The Assessor s Office comprises four teams Geographical Information Systems (GIS) Mapping, Information Management, Personal Property, and Real Property and is staffed by fifty-three full-time employees. 2 The Assessor's Office is governed by County regulations, which derive their authority from Title 39 of the Colorado Revised Statues. The regulations provide that county assessors must calculate the values of all real and business personal property within their respective counties for tax purposes. 3 Mission and Responsibilities The mission of the Assessment Division is to fairly and uniformly value all real and business personal property within the City and County of Denver and to comply with the Colorado Constitution, state laws, regulations, and industry standards. The Assessor s Office endeavors to perform its duties thoroughly and efficiently and serve the public in a courteous, friendly, and responsible manner. 4 The Denver Assessor manages a team of appraisers, analysts, managers, and technicians to calculate the values of all real and business personal property, published annually as a list known as the Assessment Roll. Additionally, the Assessor s Office performs the following five major duties. Keeping and updating property ownership data Maintaining maps of tax parcel boundaries Collecting and revising property characteristics Verifying properties eligible for exemption from property taxation Analyzing trends in property sales, prices, construction, and renovation costs, and rent for commercial and industrial properties Property values listed on the Assessment Roll are used to calculate annual property taxes, which are billed and collected by the Denver Treasury Division. The Assessor does not establish tax rates (millages), set taxes, or collect tax payments. 1 See Appendix A for Assessor s Office Organizational Chart Colorado Revised Statues, Title 39 includes authority for property exempt from taxation. See C.R.S et seq. 4 Page 3 Office of the Auditor

10 Property Tax Exemptions Certain organizations are eligible for exemption from property taxes. Colorado state law has been amended to include full or partial exemptions from property taxes for certain types of property, including those that are non-profit, educational, governmental, or religious in nature. Three of the four teams within the Assessor s Office are integrally involved in the exemptions process: Information Management, GIS Mapping, and Real Property. Collectively, they monitor exemption status changes, update the Assessor s information systems with the new data, and notify the property owner of any payment or reimbursement implications, if applicable. Information Technology Systems The Assessor s Office utilizes automated information technology systems to update property records and house its database of information. Specifically, the Assessor s Office uses seven separate software programs to manage multiple databases: Access, CAMA, Oasis, Landisc, Tyler CM, Virtual Office, and WinTotal. Two of these software programs, Oasis and Tyler CM, are relevant to this audit. Oasis is an information database system that houses all assessment information including property descriptions, locations, exemption status, and property price. Also relevant to this audit is a new system called Manatron, which is an all-in-one information system, scheduled for installation in the Assessor s Office in It is designed to reduce the total number of systems currently utilized by the Assessor s Office and increase efficiencies by allowing all groups to work within the same system. City and County of Denver Page 4

11 SCOPE The scope of this audit included evaluating the Assessor s Office s information management practices and its customer relations approach, specifically with regard to exempt properties within the City and County of Denver. OBJECTIVE The objectives of this audit were to verify proper classification of exempt properties, ensuring that: The data in the Assessor's Office systems are complete and entered timely Automated controls are functional Manual controls function properly Policies and procedures are up-to-date Assessor's Office staff are trained appropriately METHODOLOGY The audit team utilized several methodologies to achieve the audit objectives, including but not limited to: Interviewing Assessor s Office personnel Evaluating the automated system controls Evaluating the manual controls Ensuring that policies and procedures meet control procedures Performing 100 percent population analysis of exempt properties to determine accuracy and completeness Reviewing State of Colorado guidance and regulations Reviewing outside audit work completed on the Assessor s Office Reviewing Assessor s Office policies and procedures Page 5 Office of the Auditor

12 FINDING Automated and Manual Control Systems Governing Exempt Properties Appear Sound but Can Be Enhanced The Assessor s Office utilizes processes that incorporate automated and manual systems to ensure that property tax exemption records are updated accurately and timely. Audit work tested the controls in the automated and manual systems to ensure accuracy and timeliness of these updates regarding property tax exemption records. While we identified areas where controls can be enhanced, audit work determined that exempt property records maintained by the Assessor are accurate. Automated System Controls Although testing revealed no anomalies, omissions, or errors when compared with the State of Colorado s database, we did identify a weakness in the integration of Oasis and Tyler CM that could result in overlooking a change in exempt status. Analysis Revealed No Exceptions The audit team evaluated the Assessor s Office s information management practices using a two-step approach. First, we conducted an analysis of the entire database of exempt properties within the City and County of Denver to determine the accuracy of the exemption data. We compared 100 percent of Denver s exempt property population to the State of Colorado s exempt properties database, testing for any anomalies, omissions, or errors in Denver s data and none were found. 5 System Testing Revealed Tyler CM Program Weakness The analysis conducted was able to test and verify 100% of the exempt properties in the City and County of Denver. The second testing step involved directly observing work performed by Assessor personnel from three of the four teams within the Assessor s Office: Information Management, GIS Mapping, and Real Property. Specific testing included verifying approvals and processes performed in all of the automated information technology systems, such as reviewing automated system controls sign-offs and approvals in the systems that require final approval of data. In each group, responsible designates 5 Our testing was performed in real-time. The data in both databases is updated on a daily basis. Our tests were valid for the specific day we extracted the data set. City and County of Denver Page 6

13 reviewed and approved all data that had been submitted for review. 6 were noted. No exceptions However, interviews and testing revealed an issue related to the Tyler CM system. Due to the scheduled installation of the Manatron system in 2012, the suite of programs utilized by the Assessor s Office has not been updated to allow it to red flag any exempt properties. 7 In the past, such a red flag would alert technicians that the associated exempt property may need additional review to Due to the anticipated installation of the Manatron System in 2012, the Tyler CM System upgrade for redflagging exempt properties in the system was not completed. determine its exempt status. As the system currently operates, it does not alert technicians when a record they are accessing is categorized as an exempt property. The Assessor opted not to incur the cost to update the Tyler CM system based on the planned implementation of the Manatron system in Testing concluded that the likelihood of incurring risk as a result of losing the red-flag alert feature was minimal due to the relatively low percentage of exempt properties in Denver in relation to non-exempt properties. Specifically, the number of unique property identification records in the City and County of Denver is currently over 200,000. Of this total population, 10,000 unique property identification records are currently listed as exempt properties. Despite the relatively low risk, the impact associated with missing an exempt status update is high because of the effect that improper tax classification could have on a property owner. Additionally, the manual control has an impact on the productivity of the Assessor s Office. Time currently dedicated to exempt property monitoring by technicians and subsequent review by supervisors will only continue to increase until an automatic control is put in place. We recommend that the Assessor s Office deploy upgraded red-flag programming to allow the Tyler CM system the ability to alert users of changes to the status of exempt properties. The upgrade would eliminate the possibility of a change to an exempt property record being overlooked. Further, it would serve as a contingency plan should the Manatron system not be installed in 2012 as planned. 6 See Appendix B for Automated System Controls sign-offs and approvals. 7 Red-Flag A term referring to an automated control that alerts technicians to anomalies in an information technology system. 8 The estimated cost for the upgrade was approximately $10,000 according to interviews with Assessor s Office personnel. Page 7 Office of the Auditor

14 External Audit Work Identified No Exceptions for Denver In addition to our test work, we reviewed the results of the 2011 external audit of the Assessor s Office required annually by state statute. This audit was conducted by the Audit Division of Wildrose Appraisal Incorporated, an independent, third-party audit firm. The audit found no exceptions and had no recommendations for the City and County of Denver. The City and County of Denver was in full compliance with the State of Colorado s requirements for County Assessors. 9 Manual System Controls An independent 3 rd party state audit of the Assessor s Office found that the City and County of Denver was in full compliance with state law. Audit work determined that manual controls in place to monitor potential changes in exempt property status are working effectively and that technicians are being held accountable for the quality of their work with regard to exempt property monitoring. However, the new manual procedures that were designed to compensate for the lack of an automatic red-flag alert should be formalized in the Assessor s Office policies and procedures. Manual System Controls Are Working Effectively Audit testing also included the manual system controls that were put in place when the Tyler CM system red-flag programming was not upgraded. These manual controls were put in place to ensure that proper monitoring and oversight of exempt properties continued. Since the system could no longer notify technicians when a property needed to be evaluated for a possible change in exempt status, they manually reviewed each record that needed some other sort of amendment in the system. For example, if a property underwent a change in ownership, Manual process controls are in place regarding exempt properties. However, they have not been updated in the Assessor s Office policies and procedures. the record for that property in the Oasis system would be updated to reflect the new ownership. At that time, a technician would also review the record to see if the change in ownership prompted a change in exempt status. If the technician recognized that this property was exempt, he or she would then his or her Supervisor, who would perform additional review. 9 State Audit of the Assessor s Office 2011 Denver County Property Assessment Study, City and County of Denver Page 8

15 Review of the manual controls revealed that they are functioning correctly and that the three teams (Information Management, GIS Mapping, and Real Property) are managing the associated procedures according to internal policies. However, review of the Assessor s Office policies and procedures revealed that they have not been updated to reflect some of these new processes. Rather, guidance regarding the new manual system controls is only available in various internal memorandums. Testing Revealed High Level of Technician Accountability In addition to testing the new manual controls for effectiveness, we looked at the training provided to technicians for performing the new control procedures. We also assessed the competency exhibited by technicians when reviewing data with regard to exempt properties. Based on our observations of technicians, they appear to have had the appropriate training necessary to competently perform the new manual control procedures for handling exempt properties. Interviews and testing also revealed that the Assessor s Office has incorporated the new manual controls into the technicians respective Performance Enhancement Plans (PEPs) to hold them accountable for these and other data input by each technician. Any error discovered in an employee s data input will be reflected in his or her annual review and recorded in the employee s Performance Enhancement Plan Report (PEPR). This was implemented to ensure that high quality work is completed by every technician and to minimize human error associated with data input and updates performed by the Assessor s Office. During testing, we reviewed PEPRs for technicians in each group, which revealed that technicians are being held accountable to the standards set forth in their respective PEPs. Although our testing did not reveal any major concerns with manual controls or technician accountability, we recommend that the Assessor s Office update its Policies and Procedures to reflect current processes regarding the manual process of handling exempt properties to clearly define related expectations, processes, and procedures going forward. Page 9 Office of the Auditor

16 RECOMMENDATIONS 1. Red-Flag Programming We recommend that the Assessor s Office deploy upgraded programming to allow the Tyler CM system the ability to red-flag exempt properties to eliminate any possibility of a manually missed exempt property record being identified and ensure a contingency plan is in place if the Manatron system is not installed in 2012 as planned. 2. Policy and Procedure Update We recommend that the Assessor s Office update its Policies and Procedures to reflect current processes regarding the manual process of handling exempt properties to clearly define related expectations, processes, and procedures going forward. City and County of Denver Page 10

17 APPENDICES Appendix A Assessor s Office Organizational Chart Page 11 Office of the Auditor

18 Appendix B Automated Controls Sign-Off s and Approvals City and County of Denver Page 12

19 AGENCY RESPONSE Page 13 Office of the Auditor

20 City and County of Denver Page 14