AUDIT OF ACCOUNTS RECEIVABLE (CITY-WIDE)

Transcription

1 AUDIT OF ACCOUNTS RECEIVABLE (CITY-WIDE) Report No. AUD December 30, 2014 City of West Palm Beach Internal Auditor s Office Roger Strout, City Internal Auditor, CIA, CRMA, CFE, CICA Connie Tory, Sr. Internal Auditor, CFE, CGAP, CRMA Elena Georgiev, Sr. Internal Auditor, CPA, CGMA Tuan Le, Internal Auditor Roseanne Visone, Administrative Assistant

2 The Capital City of the Palm Beaches Internal Auditor s Office P.O. Box 3366 West Palm Beach, Florida Tel: 561/ Fax: 561/ December 30, 2014 Audit Committee City of West Palm Beach 401 Clematis Street West Palm Beach, Florida RE: AUDIT OF ACCOUNTS RECEIVABLE (CITY-WIDE) Dear Audit Committee Members: Attached is the City of West Palm Beach Internal Audit Department's report on Accounts Receivable (City-Wide). Opportunities for improvement are presented in this report. We thank management and staff of the Development Services, Finance, Fire Prevention, Sanitation, Parks and Recreation, Utility Billing, Fiscal Services and Support Services Departments for their cooperation and assistance during this audit. Respectfully Submitted, /s/ Roger Strout City Internal Auditor cc: Jeri Muoio, Mayor Jeff Green, City Administrator Dorritt Miller, Deputy City Administrator Scott Kelly, Assistant City Administrator Danielle Slaterpryce, Assistant City Administrator Christine Thrower, Director of Recreation and Strategic Innovations Richard Greene, Director of Development Services Bryan Kummerlen, Chief of Police Carlos Cabrera, Fire Chief Kathleen Fernandez, Director of Information Technology E. Barrett Atwood, Sr., Interim Director of Finance

3 Table of Contents Background... 4 Statement of Objectives... 4 Statement of Scope... 5 Statement of Methodology... 5 Statement of Auditing Standards... 6 Audit Conclusions and Summary of Findings... 6 Analytics... 8 Opportunities for Improvement & Management Responses ) Accounts Receivable Turnover Ratio ) System Interface ) Write-off process ) Allowance for Uncollectible Account Rate Calculation ) Segregation of Duties ) Reconciliation Process ) Historical Data ) Generating Reports ) Back-Ups/Supporting Roles ) Standard Operating Procedures (SOP) ) Online Payment option of 32

4 Background The City of West Palm Beach maintains a number of operating systems to monitor and track billed services and other transaction types that require payment after services are rendered/goods are supplied. The City of West Palm Beach s main financial system is Oracle. It has the ability to interface with most of the subsystems for various financial and accounting functions except Emergency Medical Services Consultants. Some of the subsystems include but are not limited to: Customer Care and Billing (CC&B)/Community Plus, Emergency Medical Services (EMS) and RecTrack. The primary applications for the Customer Care and Billing (CC&B)/Community Plus system include: Public Works (Sanitation), Code Enforcement (Code Violations and Chronic Nuisance), Police Department (False Alarm and Permit for Alarm) and Customer Services (Utility Billing). The EMS Consultant system is used to create invoices, record and track payments for Fire Inspections and Community Plus is used to create invoices, record and track payments for False Fire Alarms. The RecTrack system is used by Parks and Recreation Department to track and bill for services provided. This audit was initiated as a result of an annual risk assessment and was included in the Internal Audit Department's FY 2014 Audit Plan. Statement of Objectives The objectives of this audit are to: 1. Determine whether there are receivables that are not recorded in the City s books. 2. Review and evaluate the type of records that are maintained to support the receivables. 3. Determine what steps, if any, are being performed to collect the outstanding receivables. 4. Determine whether billing systems are in place to bill timely those persons/entities that may owe the City monies. 4 of 32

5 5. Determine whether the Department has developed and implemented written accounts receivable policies and procedures, and are operating in compliance with City policies and procedures; laws, regulations and/or guidelines. 6. Evaluate internal controls. Statement of Scope The audit period was FY 2013 (September 1, 2012 through October 30, 2013). However, based on the work performed during the preliminary survey and the assessments of risk, the audit period varied depending on the audit objective. The audit included examinations of procedures, controls, transactions and records associated with accounts receivable (city-wide). Statement of Methodology We utilized several audit methodologies to achieve the objectives. These methods included but were not limited to: 1) Reviewing City's Policies and Procedures. 2) Interviewing key employees from various departments and divisions such as: Finance, MIS, Development Services, Code Enforcement, Chronic Nuisance, Fiscal Services, Bureau of Fire Prevention, Parks and Recreation, Sanitation, Public Utility (Billing). 3) Visiting department/divisions and observing processes. 4) Examining each area s internal control systems and assessing its effectiveness. 5) Using data analysis programs and procedures to plan various tests and confirm audit findings and conclusions. 6) Performing tests consistent with the audit objectives. 7) Drawing conclusions and presenting recommendations based on our observations and the tests performed. 5 of 32

6 Statement of Auditing Standards We conducted this 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 objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Audit Conclusions and Summary of Findings Based upon interviews, test work performed, analytics, and the opportunities for improvement noted below, we concluded that: 1) The Finance Department and other departments and divisions processing accounts receivable should strengthen the internal control environment: Standard Operating Procedures (SOPs) should be improved to support all accounting functions, including write-off process and allowance for bad debt calculations. Segregation of Duties are not always adequate, in some areas employees are performing multiple tasks within a process. Reconciliations were not always adequately performed. 2) The Finance Department and other departments and divisions processing accounts receivable should update their operating systems and safeguard them from unauthorized access: Some of the subsystems are not currently interfacing with Finance s main operating system (Oracle). These should be evaluated for possible interfacing or replacement with modules 6 of 32

7 that support seamless transfer of data. Many systems have limited report writing capabilities and should be enhanced to deliver management reports. 3) The Finance Department and related departments and divisions should improve interdepartmental processes: Various positions within Finance should be evaluated to ensure they have adequate backup support. Communication among departments and divisions should be improved. Duties and responsibilities are not always clear or properly documented and communicated. 7 of 32

8 Analytics Aging Accounts Receivable *FY 2013 Aging General Fund Accounts Receivable - Selected $2,000,000 $1,500,000 $1,000,000 $500,000 $- Dollars CURRENT-AMOUNT PAST DUE 1-30 PAST DUE PAST DUE OVER-60 % of total AR 5% 1% 2% 92% Dollars $83,782 $18,046 $29,160 $1,610,259 *These are the receivables as recorded in Oracle, other receivables may be included on the general ledger. The Aging Accounts Receivable report shows over 90% of the receivables are due over 60 days, largely consisting of Police False Burglar Alarm. The Aging Accounts Receivable does not include code enforcement fines and penalties which may remain uncollectable for even longer periods of time. 8 of 32

9 FY 2013 Aging Accounts Receivable - Utility Fund $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- Billed Billed Billed Billed Billed 0-30 days days days days >120 days % of total utilities AR 53% 6% 4% 1% 36% Dollars $5,929,873 $623,329 $470,057 $91,105 $4,000,184 The Aging Accounts Receivable Utility Fund report shows over 36% of the total receivables are due over 120 days. However, City Code Sec 90-5 authorizes placing a lien on the property after delinquency and subsequent foreclosure. Opportunities for Improvement & Management Responses 1) Accounts Receivable Turnover Ratio Criteria It is a best practice to manage accounts receivable and monitor their collection. The Accounts Receivable turnover ratio measures how many times the City can turn its accounts receivables into cash during a period. In other words, the accounts receivable turnover ratio measures how many times the City can collect its average 9 of 32

10 accounts receivable during the year. The ratio shows how efficient the City is at collecting from customers. Condition We have included the following additional analytic to provide a better understanding of the individual accounts. It appears as though False Alarms have the longest collection period with the largest amount of days outstanding. However, it is important to note that the EMS Billings Accounts Receivable are more than 20 times the dollars due from false alarms and have an average age exceeding eight months. Days A/R-FIRE INSPECTIONS Average-AR $41, Days of Billings Outstanding A/R POLICE-FALSE ALARMS Average-AR $275, A/R FALSE FIRE ALARMS Average-AR $32, A/R-EMS-ADPI Average-AR $7,246, Collection Period Cause Currently the Finance Department does not monitor the accounts receivable collection rate to analyze current year compared to prior years or per receivable type. *The Average-AR as noted in the above chart is calculated using the sum of FY 2012 & FY 2013 receivables divided by two. 10 of 32

11 Effect By not monitoring collections the City could experience extended collection periods and/or increase bad debt expense. Recommendation The Finance Department should monitor the receivable collection rates to determine how quickly receivables are collected for the different types of revenue. This will help determine which type of receivables should be collected through PennCredit, the City s contracted collection agency. This will also provide necessary analytical tools to determine which part of the City s receivable collection process needs additional focus. Management Response Management concurs with the recommendation. However, presently there is inadequate staffing in the Finance Department to implement this recommendation since it requires a full-time position. The Accountant position handling the collection of receivables was eliminated during the budget reduction periods. Once that position is restored, the Finance Department can begin implementation of this recommendation. 2) System Interface The Bureau of Fire Prevention's billing system (EMS Consultant) does not interface with Oracle (Finance Accounting System). Criteria Best Practices indicate that all subsystems within an organization should interface with the organization's main system or, at a minimum, interface with the main operating system that supports their specific function(s). 11 of 32

12 Condition Currently, the Bureau of Fire Prevention creates and mails out the invoice and Finance Department receives payment. Due to the inability of systems to communicate, the accounts receivable accountant has to send the payment information to the Bureau once payment is processed in the Finance Department. The Bureau will then take the information and post the payment into the EMS Consultant system. Fire Prevention sends out reminder/collection notices about every 6 months. Cause Bureau of Fire Prevention's (Fire Inspection) billing process is being done with the EMS Consultants System while the Community Plus System handles the billing process for False Fire Alarms. The two subsystems do not interface with the City s main system (Oracle). Effect Without adequate system interfaces, management could be faced with inaccurate data, delay in retrieving the data, inability to reconcile, untimely collection process and/or more manual processes. Recommendation We recommend that The Bureau of Fire Prevention initiates a process to evaluate the practicality of developing an interface between the EMS Consultants system, the Community Plus system and the Oracle system (Finance Department). The development of an interface between these systems will help reduce the risk of errors associated with data inaccuracy and facilitate reconciling and monitoring accounts receivable balances. Additionally, sending out reminder/collection notices more frequently then every six (6) months could improve the City s accounts receivable turnover rates. 12 of 32

13 Management Response Management concurs with the recommendation. The EMS Consultants System creates invoices, records and tracks payments for Fire Inspections but does not interface with the Oracle system. When One Solution is implemented (expected in February 2015), we will start billing our Fire Inspections through this system and it will interface into Oracle. The EMS Consultants System is an outdated, antiquated software program and extracting information and/or reports becomes a tedious task. We expect that One Solution will resolve most of the issues identified in this audit such as interfacing with Oracle, generating reports, maintaining historical data and segregation of duties as the Finance Department will be sending out the invoices as currently happens with the Community Plus system. The Community Plus system creates invoices, (data entered by the Bureau of Fire Prevention and the invoices are created and mailed by the Finance Department), records, and tracks payments (received by Finance) for False Fire Alarms and does interface into Oracle. We have set a goal to send out reminder/collection notices after the invoice is 30 days past due, then monthly if still not paid. We will start sending past due invoices over 365 days to the City s collection agency. 3) Write-off process The Finance Department has not written off uncollectible accounts in the General Fund since FY Criteria It is a best practice to periodically write-off bad debts, that is, declaring invoices to be non-collectible and removing them from the accounts receivable account and reducing the allowance account. 13 of 32

14 Condition With the exception of the enterprise funds (utilities etc.) which are written off monthly, the general fund has not written off balances since Cause The Finance Department does not consider writing off AR as a priority function since there is no consequence to the financial position, however, will start writing off old balances during down time. Effect The allowance for uncollectible accounts is meant to provide a conservative estimate of the amount of monies the City anticipates being uncollectible. This amount should be adjusted and necessary write-offs should be performed once further knowledge is gained substantiating the unlikelihood of collection. Without performing these periodic adjustments the allowance for uncollectible accounts (which is a percentage of aged accounts) will not accurately reflect what has become uncollectible in the past year, but instead represents what has become uncollectible over many years. Recommendation We recommend that the Finance Department perform periodic write-offs of accounts that are uncollectible; in order to more clearly represent the financial position of the City. The FY2013 CAFR general fund includes a total allowance for uncollectibles of $18,945,244 which totals to 62% of the gross accounts receivable balance of $30,682,623. While the allowance balance is a conservative estimate, it could possibly be misleading to stakeholders since it does not clearly reflect the amounts the City recently (within the last year) believes to be highly unlikely revenue and may no longer be pursuing collection efforts. We recognize that the Finance Department is utilizing the Allowance Method, and 14 of 32

15 writing off a bad account does not affect the income statement because the writeoff is covered under the earlier adjusting entries for estimated bad debt expense. The entry to write-off bad debt accounts affects only the balance sheet accounts. Additionally the CAFR does include notes that provide additional information clarifying the composition of the allowance for uncollectibles account. Additionally, we recommend the Finance Department document their write-off process in a revised standard operating procedure. Management Response Management concurs with the recommendation. The Finance Department will develop a policy and resulting procedure to record annual write-offs of accounts receivable that are considered uncollectible. At this point, our thought is to record the write-offs in as much detail as possible into a separate memo accounts not reported in the CAFR. The memo accounts would be maintained up to date and provide an added level of internal control for collection of past-due accounts receivable. 4) Allowance for Uncollectible Accounts Rate Calculation The Finance Department has not established a defined methodology/policy to determine the reserve rates used in the allowance for uncollectible accounts calculation. Criteria It is a best practice to review, analyze and calculate the effectiveness of collections and determine the adequacy of provisions for the allowance for uncollectible accounts receivable at least annually at fiscal year-end. Condition The rates currently used do not represent a direct linear correlation with the likelihood of collection. The Finance Department does not have adequate 15 of 32

16 documentation to outline the methodology of calculating the reserve rate. The Finance Department does not perform periodic evaluations to update the rate (%) for the allowance for uncollectible accounts receivable. Cause The Finance Department does not have adequate operating procedures to provide guidance on the reserve rate calculation and directives to conduct annual evaluations of the reserve rate. As previously noted the Finance Staff has endured significate staffing reductions due to economic conditions. Effect When the Allowance for Uncollectible Accounts Receivable is included in the reporting of Receivables (net) on the City s Statement of Net Position and the Balance Sheet, the City anticipates that some of its accounts receivable will not be collected. Without performing periodic evaluation of collections and adjusting the reserve rates accordingly, the reported allowance for uncollectibles may be over/under stated. Recommendation We recommend the reserve rate be developed and refined based on the actual collection history of a particular operation. The reserve rate should have a direct correlation with likelihood of collection; applying a higher reserve rate to older receivables and vice versa. The effectiveness of collections and adequate provision for the Allowance for Uncollectible Accounts Receivable should be reviewed, analyzed and calculated at least annually at fiscal year-end. We recommend the Finance Department codify its methodology by documenting the process in the Standard Operating Procedures. This will provide guidance and operational consistency. 16 of 32

17 Management Response Management concurs with the recommendation, however, current staffing may not be sufficient or capable of undertaking this task in the near future. Finance Department staff will need to determine and document the present practices for billing, recording and collecting each type of billed revenues and the direct entry into the Oracle system or through system interface with an existing subsystem. This process will need to determine an accounts receivable aging for each type of billed revenues recorded as accounts receivable. In turn, the Finance Department staffing and the capability of the billing and receivable module of the Oracle is critical to determining present and implementing future practices. We will need to determine the average collection period for each billed revenue type to develop receivable reserve rates for each receivable type. For example, outstanding receivables for given revenue types may be reserved as follows: Reserve Receivable Percent Past Due 25% 60 Days 50% 120 Days 75% 180 Days 100% 360 Days After thorough analysis, staff would recommend and upon approval, implement a reserve schedule for each revenue type versus the above example. 5) Segregation of Duties The Division of Sanitation and the Bureau of Fire Prevention do not have adequate segregation of duties. 17 of 32

18 Criteria The Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control Integrated Framework report defines segregation of duties as dividing or allocating tasks among various individuals making it possible to reduce the risk of errors and fraud. Adequate segregation of duties reduces the likelihood that errors (intentional or unintentional) will remain undetected by providing for separate processing by different individuals at various stages of a transaction and for independent reviews of the work performed. There are four general categories of duties or responsibilities which are examined when segregation of duties is discussed: authorization, custody, record keeping and reconciliation. In an ideal system, different employees would perform each of these four major functions. In other words, no one person should have control of two or more of these responsibilities. The more negotiable the asset, the greater the need for proper segregation of duties - especially when dealing with cash, negotiable checks and inventories. Condition Currently, the Division of Sanitation's service requests are for special solid waste pick-ups and/or household furniture etc. being handled by one employee. The employee records the initial service request, creates the work order, assigns the work order, and logs the completed work order. Additionally, the Bureau of Fire Prevention's services are being handled by one employee. The employee creates the invoice for services provided, mails out the invoice, records payments (received from Finance which mitigates some risk) and performs collection duties for outstanding balances. 18 of 32

19 Cause The Division of Sanitation and the Bureau of Fire Prevention do not appear to have adequate staffing to properly segregate duties. The limited staff (one employee) has to perform all accounts receivable responsibilities/duties in her/his department or division. Therefore, the department and division have not achieved adequate segregation of duties. Effect Segregation of duties is critical because it ensures separation of different functions and defines authority and responsibility over transactions. Segregation of duties is critical to ensure effective internal controls; it reduces the risk of both erroneous and inappropriate actions. Recommendation We recommend that the Division of Sanitation and Bureau of Fire Prevention develop a process to further segregate its accounts receivable duties. The Division of Sanitation and Bureau of Fire Prevention should consider the following steps: 1. Identify where segregation of duties conflicts exist through a riskbased examination of its key processes; 2. Implement mitigating controls where possible; and 3. Periodically review all segregations to ensure that they are valid and working properly. Management Response Management concurs with the recommendation. As recommended, we will undertake the following steps: 19 of 32

20 1. Identify where segregation of duties conflicts exist through a riskbased examination of its key processes of authorization, custody, record keeping and reconciliation; 2. Implement mitigating controls where possible; and 3. Periodically review all segregations to ensure that they are valid and working properly. We will validate and incorporate the first two steps above in connection with our response to item 10) Standard Operating Procedures (SOP). Due to limited staffing, Fire Rescue will not be able to meet the four general categories of duties or responsibilities regarding segregation of duties. The Finance Department receives and posts all payments for inspections and false alarms, Fire Rescue updates EMS Consultants with the information provided from those postings which partially meets one of the categories. We may have the opportunity to have the Senior Accounting Clerk who does the Special Events billing perform the collection duties for outstanding balances for these fees and have the Administrative Assistant who does the inspections and false alarms billings perform the same for Special Events. When this happens, one employee will be responsible for two of the four categories instead of three or four of the four categories. Late in FY 2013/14, the Fire Department was able to justify the need for a new position in Fiscal Services; a Fiscal Services Supervisor. The position was filled in September 2014 and is reviewing the processes and this audit and will reallocate resources and tasks as necessary. Since the audit team visited the Sanitation Division, management has identified areas of work that require improvement that are in line with the audit report. As noted in the report, there is limited staff to address the issue. However, duties for authorization, custody, record keeping and reconciling the Accounts Receivable are being divided among two employees. A Standard Operating Procedure (SOP) is being developed to reflect this change. 20 of 32

21 Estimated timeframe for the completion of the SOP is three (3) months. 6) Reconciliation Process The Division of Sanitation does not have a reconciliation process to ensure that service requests were performed and billed. Criteria Billing Reconciliation is a process of identifying, explaining and correcting the differences between services requested and billed. It's a Best Practice to perform billing reconciliation on a periodic basis (daily/weekly) to ensure that the Division's records are accurate and current, track requests performed and any requests not complete and make any necessary adjustments or notes once they have been approved. Condition The Sanitation Division's Accounting Clerk receives all service requests, assigns the requests to staff and bills for services rendered (including pick-ups for solid waste, household furniture, etc.). The service requests are recorded on a multi-layer request form. The clerk will key in the request information into the Community Plus system. This system is used to record requests but it does not interface with Oracle. The Clerk would keep a copy for the file and hand out the other copy to either the sanitation crew or superintendent to assign to a crew. Once the request form is submitted back to the Accounting Clerk, the clerk will key in the service request into the accounting system (Oracle) so that the invoice can be generated and mailed to the customer. Currently, the clerk does not reconcile the data between the systems. Cause We noted the Sanitation Division was not reconciling their service requests to what is billed. The Accounting Clerk relies on field employees to return all completed work orders for billing. Reconciling the generated work orders to the completed work orders was not performed before submitting it for billing. 21 of 32

22 Effect Without a reconciliation process, it could be difficult for management to ensure that all services requested were performed and/or billed timely. This could lead to unsatisfied customers and/or uncollected revenue if services rendered are not billed timely. Management could be unaware of fraudulent activities if no reconciliation and/or periodic review is conducted. Recommendation We recommend that the Sanitation Division develop a reconciliation process (perform daily, weekly, etc.) that is documented and reviewed by management. Periodic reconciliation will help identify errors early so that corrections can be made timely and will help ensure that the City is billing and collecting all monies owed to the City. Management Response Management concurs with the recommendation. As there is not a direct interface between the Community Plus System and Oracle, management will initiate a two-step process in order to provide added internal control over a reconciliation process to provide reasonable assurance that all service requests were performed and billed. 1. Replace the existing multi-layer service request forms with preprinted numerically controlled multi-layer service request forms. In turn, the Sanitation Division should develop a procedure whereby the Accounting Clerk will account for all service request forms to determine that field employees return all distributed work orders whether completed or not. For those completed, the Accounting Clerk will enter the necessary information into both the Community Plus System and Oracle systems. 22 of 32

23 2. The Public Works Department is implementing Vieworks, an electronic work order system, which will allow for better tracking and monitoring of service requests. While this is being done, the duties for reconciling service requests have been split between two staff members. Estimated timeframe for the implementation of Vieworks and training of staff is six (6) months. 7) Historical Data The City does not have immediate access to historical data in the EMS Consultants System. Criteria Management should have easy access to the Bureau of Fire Prevention s historical data. Below are three items for management s consideration: What historical data should be immediately available for various analyses. Retention period for the collected data without having to restore backup media. How often the data backup process should occur. Condition Currently, the Bureau of Fire Prevention does not have immediate access to its historical billing data. The current EMS Consultant system is antiquated and not user friendly. The Bureau could not easily access their historical data in the EMS system. Cause 23 of 32

24 The Bureau of Fire Prevention uses two separate systems: EMS Consultant to generate invoices and Community Plus to record and track payments received. Effect The lack of immediate access to historical data could limit management's ability to effectively analyze historical billing data and/or reports. Recommendation We recommend that the Bureau of Fire Prevention consider opportunities to address its historical data access. Some key elements that should be considered include: types of data to be recorded and stored, availability to the data, and retention period. Additionally, whereas backups are only created monthly, we would recommend management consider running more frequent backups. Management Response Management concurs with the recommendation. At the end of each month a backup of the data is stored off-line. Obtaining access to historical data is tedious and time consuming as historical data must be retrieved from backup media and restored. The planned implementation of the One Solution software will help eliminate these current limitations. Implementation of the software is scheduled for early Finance is responsible for Community Plus historical data where the False Fire Alarms are billed. 24 of 32

25 8) Generating Reports Management does not have adequate reporting capabilities and system access to the current EMS Consulting system. Criteria It is a best practice for an organization to have adequate reporting capabilities and access to all systems. This enables staff to access the necessary information and/or data needed to perform their daily functions/tasks. When developing a guideline for system accesses and reporting functions, management should consider the following: How often system licenses should be reviewed. Are the licenses adequate in providing access to data and reports to support all functions/tasks. Are there adequate system administrators and back up administrators for all systems; and, have they been trained. Condition The Bureau of Fire Prevention only uses the EMS Consulting system to generate invoices. They record payments, credits, adjustments, etc. in the Community Plus System. The Bureau relies on MIS assistance to extract data from the system. Unfortunately, IT does not have administrative access to the EMS Consulting System and has not renewed its license for the past few years. Cause The City did not renew their EMS Consulting System's administrative access license(s); therefore, IT was not able to generate the requested reports. 25 of 32

26 Effect Without the necessary system access, management could face delays in retrieving data, information or their ability to generate reports to make business decisions. Relevant data, information and reports may be needed for employees to perform their functions and perform various analyses which could lead to process efficiency. Recommendation We recommend that management implement a periodic review of all system accesses to ensure that the City has adequate access to all operating systems and applications. Management should address areas such as: functionalities, reporting capabilities, authorities, access and responsibilities when developing the system access guideline(s). The access review guideline(s) should provide guidance to all staff involved in the process to effectively perform their task(s). The guideline(s) should define some of the following areas: how often access should be reviewed, who should be involved in reviewing system accesses, responsibilities of each individual involved or required in the process, define levels of reviews and approvals; and, what type of accesses/functionalities are required for each system, training, etc. Management Response Management concurs with this recommendation. Fire Inspection reports can be run in EMS Consultants System from the restored backup file which will provide data for that given time period. Again, although reporting data can be extracted it is an extremely tedious, time consuming process. One Solution should resolve all of the issues identified. Finance is responsible for Community Plus reporting where the False Fire Alarms are billed. 26 of 32

27 9) Back-Ups/Supporting Roles Management does not have adequate backup positions or personnel to accommodate all the various data/information requests. Criteria To help ensure that there is full support for various requirements; management should develop and implement a cross-training program to prepare individual employees. Condition The Finance Department has developed employees that are experts within their field without ensuring a full and complete knowledge transfer/retention program. Cause The Finance Department is one of many departments that have endured staffing cutbacks due to economic conditions. Effect In addition to designating full back-up responsibilities, full cross-training not only helps management fill work positions on a stop-gap basis, it also represents an excellent way to cultivate leadership within City/Departments. Recommendation We recommend that the Finance Department develop a cross-training program to the extent possible. A well-thought-out cross-training program represents a proactive plan to help keep the department running smoothly despite temporary loss of key employees. Once the program is in place, management should assess the program periodically. Management should provide ongoing training and role rotation to ensure employees' skills remain sharp because unapplied knowledge will diminished over time. 27 of 32

28 The newly implemented plan for rotating bank account reconciliations is a good example of well-thought-out cross-training. Management Response Management concurs with the recommendation. As noted in the preceding comments, a full cross-training program in all areas may not be possible with existing reduced staffing levels. However, we will evaluate those critical areas that occur daily or monthly, like bank account reconciliations, to identify the priority areas. We can look at each existing position and the occupant s critical job responsibilities. This will determine the impact to the Department to fulfill its responsibilities if the occupant of that position were to be absent for an extended period of time relative to the critical nature of the task. For those critical areas, we will develop cross-training on a regular basis. 10) Standard Operating Procedures (SOP) The Finance Department and other departments and divisions processing accounts receivable should strengthen the internal control environment by revising their Standard Operating Procedures (SOPs) to better address the current Accounts Receivable tasks. Criteria Best Practice: Standard Operating Procedures are what organizations use to create consistency when a process is performed. The approved procedure is documented in a format that is easy to follow and reduces the chance of errors. The principle behind it is to enhance consistency, reduce defects through human errors and improve communication. 28 of 32

29 Condition Employees that are tasked with Accounts Receivable functions rely on selfgenerated documents to capture their work process. The Finance Departments SOPs are outdated and may describe an obsolete process. Cause Employees are being asked to do more with less; therefore, other prioritized tasks often supersede the development and/or revision of SOPs. Effect Poorly written and outdated SOPs are not sufficiently descriptive, do not always describe current operations, may not facilitate employee s best performance and may not support training efforts. Poorly written and outdated SOPs could result in process errors and inconsistent actions. Recommendation We recommend that the Finance Department and other departments and divisions processing accounts receivables establish well-written SOPs for the Accounts Receivable function. Well-written SOPs facilitate training and cross-training by providing step-by-step instructions and serving as a reference resource/guide for staff. Employees can teach and support one another if they have documentation available that describes exactly how a task should be done. We recommend that the Finance Department collaborate and communicate with different departments/divisions that have accounts receivable tasks when developing the SOPs to ensure there is a clear understanding of roles and responsibilities. Management Response Management concurs with the recommendation and that Finance should take the 29 of 32

30 lead to develop standard, consistent and well-written procedures. However, the current availability of resources in Finance may extend or delay the timing of completing uniform procedures with improved internal control. Once resources become available, the process can begin by Finance interviewing all areas that have accounts receivable functions by (1) collecting and evaluating existing written procedures where they exist, and (2) documenting existing or improved steps (or lack thereof). We will use/develop and recommend a standard SOP format for City-wide use. In turn, we and other department staff can draft supplemental or modified procedures for each area processing receivables. 11) Online Payment option Although the City does currently provide online payment options for certain fees and/or services, expanding this payment option for all provided services could help further reduce accounts receivable balances. Criteria It is a best practice to provide citizens with the most efficient, convenient services. Encouraging online payments for as many fees and services as practical can help provide faster collection and reduce accounts receivable balances. Condition Currently, the city provides an online payment option for a limited amount of services including but not limited to Utilities, EMS and Parking. Cause The City has many different sources of revenue that are currently not collected online. These may potentially contribute to slower collections, and requiring staff to perform significant amounts of payment processing activities. 30 of 32

31 Effect By not providing citizens with the option to pay online and advertising/encouraging these availabilities could contribute to a lower accounts receivables turnover rate. A "low" turnover indicates that receivables take a longer time to collect. Recommendation Paying for City services online is more convenient for citizens and could provide faster payment for services rendered. As part of the City s commitment to provide citizens with efficient and convenient service, the City should consider offering a secure online payment option for an increased number of services that the City provides. Services such as special solid waste pick-ups, code violations, fire alarm, etc. could benefit from an online payment system that interfaces with the city s accounts receivable systems. We recommend reviewing the possibility of providing an online payment option for an increased array of services. Reviewing this option should consider its costbenefit and the appropriate ways to ensure the security of financial information processed over the Internet. Management Response Management concurs with the recommendation. We will explore the possibility of expanding online payment options to one or more of the services that are billed through Oracle such as special solid waste pick-ups. This will require testing the way the bank handles online payments and the detail information they provide the City in order to apply the online payment to the payee s account. The impact on the bank account reconciliation process will also require updating. Once we determine the practicality and benefits for special waste pick-ups, we will 31 of 32

32 look at other areas such as those suggested in the Recommendation. Final implementation will require that we develop improved procedures and controls in connection with Management s Response to Finding 6) Reconciliation Process. 32 of 32