Background Checks & Overload Pay. Objectives of Training

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1 Background Checks & Overload Pay Presenters David Terry, CPA, CFE, CIA and Christine Croskey Director of Internal Audit Senior Internal Auditor Portland State University Portland State University Objectives of Training Background Checks 1) Overview of the Fair Credit Reporting Act (FCRA) Requirements. 2) Audit Approach and Best Practices. Overload Pay 3) Overview of Audit Approach. 4) Risks Identified and Best Practices to Consider. 1

2 Objective 1 - FCRA FCRA Federal law (Title 15 Section 1681) regulates the collection, dissemination, and use of consumer information, including consumer credit information. The Federal Trade Commission is tasked with overseeing and enforcing the provisions of this regulation. Historically, the FCRA only applied to consumer credit reports, but amendments in 1997, the FCRA applies to many other types of information about an individual obtained through third parties Objective 1 FCRA Examples of Consumer Reports Consumer reports provided by consumer reporting agencies covered by the FCRA include: Criminal Background Checks, Credit Checks, Driving Records, Education, personal, and employment checks, Internet and social media checks. 2

3 Objective 1 FCRA Requirements 1. Provide applicants with a clear and conspicuous separate written disclosure that the employer might obtain a report. 2. Obtain the applicant s written authorization. 3. Inform the 3 rd party that the employer has complied with the FCRA s notice requirements. 4. Inform the 3 rd party that the employer will not use the information to violate any equal employment law. Exception to FCRA The Fair and Accurate Credit Transactions Act of 2003 amended FCRA to exempt certain reports involving employee misconduct investigations. Objective 1 FCRA Requirements for Adverse Actions If employer relies on a consumer report for an adverse action decision, then individual must be provided with: A pre adverse action disclosure before taking the adverse action, and A copy of A Summary of Your Rights Under the Fair Credit Reporting Act. After adverse action is taken, the employer must notify the individual via an adverse action notice that includes: Name, address, and phone number of the consumer reporting agency that supplied the report. A statement that the consumer reporting agency did not make the adverse action decision and cannot explain why the adverse action was taken. A notice of the individual s right to dispute the accuracy or completeness of the information furnished, and their right to an additional free consumer report from the agency upon request within 60 days. 3

4 Objective 1 FCRA Penalties Sprint will pay $2.95 million in civil penalties to settle Federal Trade Commission charges that the company failed to give proper notice TeleCheck to pay $3.5 million for Fair Credit Reporting Act violations. Texas auto dealer will pay more than $82,000 to settle FTC charges it violated the Fair Credit Reporting Act. Source: Federal Trade Commission press releases at events/press releases Source: ACFE 2016 Global Fraud Study Figure 62 4

5 1) What department(s) obtain consumer reports at your organization? a) If multiple departments, do they follow the requirements of the FCRA? 2) What types of consumer reports are obtained for positions? 3) What does your organization do when negative results are returned on consumer reports? 4) Are the types of consumer reports that are being obtained for hiring decisions appropriate? % of Universities that Run Background Checks on All Positions vs. Security Sensitive Positions 90% 80% 80% 70% 60% 50% 40% 30% 20% 20% 10% 0% All Positions Some Positions Source: PSU IAO 2017 survey of 15 universities throughout the US. 5

6 # of New Hires by Classification That Went Through Background Check # of New Hires # New Hires that had Background Checks Performed 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0% 78% classified IATSE classified SEIU full time faculty full time unclassified unrepresented % of New Hires That Went Through Pre Employment Criminal Background Check % 73% 1% 6% 19% 24% 26% graduate assistant part time faculty student employee temporary wage agreement 6

7 30 Results Sent to Background Check Committee # referred to background check committee # not cleared for hire # not cleared for a specific job or department ~2% of all background checks results obtained needed further review by an oversight committee (i.e. background check committee); however, approximately.3% of all background checks performed during the time period under audit resulted in a decision to not hire a final candidate. 7

8 Cost of Background Checks per Year $20,000 $18,000 $18,282 $16,000 $14,000 $12,000 $11,975 $13,299 $12,527 $10,000 $8,000 $6,000 $5,537 $4,000 $2,000 $ Some best practices noted from our audit included: 1. Background Check Committee; 2. Clear policies on what positions require pre employment background checks; 3. Periodic training on FCRA requirements; 4. Periodic background checks for positions that work with children or other vulnerable populations or with highly sensitive materials. 8

Objective 3 Overload Pay Audit Approach Compensation and Benefit Costs represented ~66% of total operating expenses for PSU in Fiscal Year 2016.

9 Objective 3 Overload Pay Audit Approach Compensation and Benefit Costs represented ~66% of total operating expenses for PSU in Fiscal Year Therefore, payroll controls are deemed key and material. High risk transactions in Payroll: i. Stipends; ii. Overload Pay; and iii. Differentials. Fiscal Year 2016 ~$1.2M to 260 employees for overload pay. ~$1.2M to 161 employees for stipends. Objective 3 Overload Pay Audit Approach PSU Overload Policy Regular On Campus activity only allowed for emergency circumstances, Cannot be based on the number of students registered; Presidents, vice presidents, deans, and other equivalent level officers are ineligible; Services must be outside position description and/or classification specification Overload cannot be more than 20% of base salary 9

Objective 3 Overload Pay Audit Approach PSU Stipend Policy Services must be of a higher level than and outside the normal scope of their primary

Objective 3 Overload Pay Audit Approach Audit Procedures Reviewed Overload/Stipend Letters; Reviewed Position Descriptions; Reviewed Classification

10 Objective 3 Overload Pay Audit Approach PSU Stipend Policy Services must be of a higher level than and outside the normal scope of their primary position; Stipend must be of short duration; and Additional services are performed during regular expected work hours. Objective 3 Overload Pay Audit Approach Audit Procedures Reviewed Overload/Stipend Letters; Reviewed Position Descriptions; Reviewed Classification Specifications; Recalculated Overload/Stipend amounts paid from available letters; Reviewed HR compensating Controls: Review of Letters before input Run Reports on Payroll over certain thresholds 10

11 Objective 4 Overload Pay Risks Duties already in position description risk Objective 4 Overload Pay Risks Input error risk 11

Objective 4 Risks to Consider Other Risk to Consider: Missing Letters Overload checklist not filled out Instances of a conflict of interest Excessively high overload Objective 4 Best Practices to

12 Objective 4 Risks to Consider Other Risk to Consider: Missing Letters Overload checklist not filled out Instances of a conflict of interest Excessively high overload Objective 4 Best Practices to Consider Overload/Stipend Policy Best Practices: Ceilings on the amount allowed to be authorized. Time limits and/or periodic re authorizations for stipends. Limits on the amount of overload courses faculty can teach to help ensure quality educational services are provided. Compensating Controls Best Practices: Review monthly paychecks above $10,000 or $12,000 12

13 Questions? 13

UNIVERSITY OF DAYTON NONRESIDENT ALIEN TAX GUIDE CONTENTS COMMON VISA TYPES AND THEIR TREATMENTS

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