OFFICE OF THE AUDITOR

Transcription

1 OFFICE OF THE AUDITOR FIRE DEPARTMENT POST EMPLOYMENT HEALTH PLAN COMPLIANCE AUDIT SEPTEMBER 2007 Dennis J. Gallagher Auditor

2 Dennis J. Gallagher Auditor City and County of Denver 201 West Colfax Ave., Dept. 705 Denver, Colorado , FAX September 28, 2007 Mr. James Sestrich, Interim Chief Mr. Burt Burrows, State Director Fire Department Nationwide Retirement Solutions, Inc. City and County of Denver P. O. Box Denver, CO Dear Mr. Sestrich and Mr. Burrows: Attached is the Auditor s Office Internal Audit Division s compliance audit of the Fire Department s Post Employment Health Plan (PEHP) effective January 12, The audit was for the period January 12, 2005 through December 31, The purpose of the audit was to determine whether Nationwide Retirement Solutions, Inc., and the City and County of Denver complied with the terms of the agreement and whether internal controls in place were adequate. The audit revealed a reportable internal control weakness relating to the lack of written policies and procedures. This weakness contributed to a delay in the posting of the City s contributions to the participants PEHP account. I wish to thank the Fire Department staff for their timely cooperation in response to inquiries by the Internal Auditors. If you have any questions, please call Kip Memmott, Director of Internal Audit, at Sincerely, DJG/kh cc: Dennis J. Gallagher Auditor Honorable John W. Hickenlooper, Mayor Honorable Members of City Council Members of Audit Committee Kelly Brough, Chief of Staff Claude Pumilia, Chief Financial Officer Chris Henderson, Chief Operating Officer Arlene Dykstra, Acting City Attorney Lauri Dannemiller, City Council Executive Staff Director Beth Machann, Controller Barbara Butler, Director of Budget and Finance Patrick Rhodes, President of Local Union 858 The prudent stewardship of Denver s finances, resources and financial records! We are also committed to improving accountability, efficiency, effectiveness and performance in city government. We will scrupulously protect the taxpayer s interests and work collaboratively with all concerned to improve our city and its government 1

3 TABLE OF CONTENTS Transmittal Letter 1 Table of Contents 2 Internal Auditor s Report 3 Executive Summary 4 Background, Scope, Objective, and Methodology 5 Findings, Recommendations, and Responses 7 Exhibit A Fire Department Response 9 2

4 Dennis J. Gallagher Auditor City and County of Denver 201 West Colfax Ave., Dept. 705 Denver, Colorado , FAX INTERNAL AUDITOR S REPORT We have completed a compliance audit of the Fire Department s Post Employment Health Plan (PEHP) effective January 12, The purpose of the audit was to determine whether Nationwide Retirement Solutions, Inc. (Nationwide) and the City complied with the terms of the agreement and whether internal controls in place were adequate. The Fire Chief requested this audit. This 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 Section F of the addendum to the agreement. We conducted our audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that Nationwide and the City are in compliance with the terms of the agreement. Our audit included examining, on a test basis, evidence supporting the compliance with the employer participation agreement and accounting and administrative internal controls. The Internal Audit Division is considered organizationally independent when audits are performed on activities not controlled by the Office of City Auditor. However, when the Internal Audit Division performs an audit of operational functions controlled or partially controlled by the Office of the City Auditor, the Division cannot be viewed as independent. Accordingly, we declare a potential impairment of our independence for this PEHP audit in accordance with generally accepted government auditing standards. Functions of the Auditor s Office Accounting and Payroll Division during this period included the processing and payment of the PEHP activity. We relied on this activity as part of our audit. Audit work determined that the Department lacks of written policies and procedures for the PEHP activity. The absence of written policies and procedures contributed to a delay in the posting of the City s contributions to the participant s PEHP account. We extend our appreciation to the personnel who assisted and cooperated with us during the audit. Internal Audit Division Date: September 28, 2007 Kip Memmott Director of Internal Audit Staff: Dick Wibbens, CPA, Audit Manager John Finamore, CPA, Internal Audit Supervisor Norine Reigan, CPA, Auditor-in Charge The prudent stewardship of Denver s finances, resources and financial records! We are also committed to improving accountability, efficiency, effectiveness and performance in city government. We will scrupulously protect the taxpayer s interests and work collaboratively with all concerned to improve our city and its government. 3

5 POST EMPLOYMENT HEALTH PLAN EXECUTIVE SUMMARY FOR THE PERIOD JANUARY 12, 2005 THROUGH DECEMBER 31, 2006 This summary highlights the findings of the Post Employment Health Plan (PEHP) audit, which are more fully described in the Findings, Recommendations, and Responses section beginning on page 7. The Findings, Recommendations, and Responses section also includes the responses of the Fire Department. 1. Internal Controls The Fire Department did not have written policies and procedures for the PEHP activity. This contributed to a delay in the posting of the City s.5% contributions to the participants PEHP account. We recommend the Fire Department develop and implement written policies and procedures that address all of the different activities of the PEHP. 4

6 POST EMPLOYMENT HEALTH PLAN BACKGROUND, PROCESS OVERVIEW, SCOPE, OBJECTIVE, AND METHODOLOGY FOR THE PERIOD JANUARY 12, 2005 THROUGH DECEMBER 31, 2006 Background The Employer Participation Agreement for the Post Employment Health Plan (PEHP) for Collectively Bargained Public Employees between the City and County of Denver, and Nationwide Retirement Solutions, Inc. (Nationwide), became effective January 12, The PEHP is an addition to the Fire Fighter s Collective Bargaining Agreement. The PEHP provides post-employment reimbursement or payment for health care premiums and/or qualifying medical care expenses to fire fighters. Effective from January 12, 2005 through December 31, 2005, the trust funded 75% of a terminating firefighter s (for any reason other than death) accumulated and unpaid sick and vacation time. 1 Starting January 1, 2006, the trust funded 100% 2 of a retiring firefighter s accumulated and unpaid sick and vacation time. 3 Fire fighters who are eligible for fully paid family retiree medical benefits through TRICARE or by status as a Native American through the Bureau of Indian Affairs medical benefits programs are not eligible or subject to this funding. 4 Additionally, starting January 1, 2006 the City began contributing.5% per year of base pay on behalf of each firefighter covered by the old hire pension plan (i.e. personnel hired before April 7, 1978). 5 There are some exceptions to this rule, which are addressed in the Colorado Revised Statues. 6 Overview of PEHP Process The Fire Department provides to Career Service Authority the documentation necessary for the PEHP codes to be keyed into the PeopleSoft payroll system. When a fire fighter terminates from the City, the Fire Department prepares the Separation Request form calculating what, if any, amount is to go to the fire fighter s PEHP account. The Auditor s Internal Audit Department audits the separation pay, but does not ascertain whether the correct amount was calculated for the PEHP account. The Payroll Department generates the final payout and the PEHP payout portion is recorded into a clearing account (Fund 59000/Account ). Additionally, PeopleSoft automatically calculates the.5% City PEHP contribution each pay period, which is recorded into the same clearing account. The Controller s Payroll Department uploads the PEHP file to Nationwide. The Fire 1 Memorandum of Understanding, Section 2. 2 Denver Fire Fighters Local 858 letter dated November 28, Fire Fighters Collective Bargaining Agreement, Article XX, Section 3 (b). 4 Memorandum of Understanding, Section Fire Fighters Collective Bargaining Agreement, Article XX, Section 4 6 Colorado Revised Statutes,

7 BACKGROUND, PROCESS OVERVIEW, SCOPE, OBJECTIVE, AND METHODOLOGY PEHP Department provides the Controller s Accounting Department with the documentation for the Automated Clearing House (ACH) deposit to be sent to Nationwide. Scope Objective Methodology The scope of the audit was to examine and evaluate the adequacy and effectiveness of the internal controls for the agreement the City and County of Denver has with Nationwide Retirement Solutions, Inc. (NRS). The audit period will be January 12, 2005 through December 31, The objective of the audit was to determine if Nationwide Retirement Solutions, Inc. (NRS) and the City and County of Denver are in compliance with the agreement. The Fire Chief requested the audit. To achieve the scope and objective of the audit, we conducted the following activities: Interviewed personnel involved in the various functions of the Plan; Reviewed the terms of the agreement and all other rules and regulations that apply to the PEHP; Examined the amounts withheld from separating employees on a sample basis to determine if they were in compliance with the agreement (Sample size selected was a total of 7. For the 2005 activity, the sample was 5 out of 39. For the 2006 activity, the sample was 2 out of 15. Both samples were approximately 13% and judgmentally selected.); Examined the City s.5% contributions paid to the Plan on a sample basis to determine if they were in compliance with the agreement (Sample size selected was 10 out of 118 or approximately 8%; 8 random and 2 judgmentally selected items.); Reviewed the selected employee s account in the Plan to determine all deposits had been recorded; Reviewed the selected employee s account in the Plan to determine if any annual administration charges were in compliance with the agreement; Reviewed the timing of payments to the Plan; and Verified the City is making the.5% contributions for each active old hire fire fighter. 6

8 POST EMPLOYMENT HEALTH PLAN FINDINGS, RECOMMENDATIONS, AND RESPONSES FOR THE PERIOD JANUARY 12, 2005 THROUGH DECEMBER 31, Internal Controls Audit work determined that the Fire Department has internal controls weaknesses for handling the Post Employment Health Plan (PEHP). These weaknesses include: The department does not have written policies and procedures; Reconciliations are not performed on the contributions to verify that the contribution has been properly posted to the individual s account; and Lack of communications between the Fire Department, Controller s (formerly the Auditor s Office) Payroll Department, and Nationwide Retirement Solutions, Inc. (Nationwide). More specifically, the Fire Department does not have written procedures for administering the PEHP program. As a result, assigned personnel do not have documented procedures for administering the PEHP, and, therefore, are not aware of what tasks need to performed and who is responsible for performing them. Additionally, while the Fire Department reconciles the activity posted into the General Ledger, the Department does not reconcile contributions posted to the individual s account. As a result of these control deficiencies, audit test work revealed the City s June 2, 2006 contribution of $1,565 was not recorded into the employee s PEHP account. Therefore, the employees account was understated. This understatement affected the payout amount for 112 employees, ranging from $3.95 to $18.26 per employee depending on the base pay for this pay period. Further, the contribution was sent to Nationwide but without supporting detail. Additionally, there was a lack of communication between the Fire Department, Controller s Payroll Department, and Nationwide. The parties are not communicating with each other regarding the contributions. For example, the Fire Department was not aware that Nationwide had not received the allocation of the contribution discussed previously. When we discovered the contributions not being recorded to the employees account, we alerted Payroll and Nationwide. Thereafter, Payroll sent the detail to Nationwide and the contribution was posted to the employees PEHP account. Nationwide subsequently backdated this activity and we confirmed the contribution was properly posted. Duties for the PEHP in Section 6 of the Agreement With each Contribution to the Plan, the Employer will provide the Administrator with a Contribution Summary Sheet (or similar Report) which shall list the employees for whom contributions are made, their social security numbers, names, a statement and whether the contribution are for health care premiums or unreimbursed health care expenses and the amounts to be allocated on behalf of each employee. 7

9 FINDINGS, RECOMMENDATIONS, AND RESPONES PEHP The Administrator or its designee shall record the Contribution and reconcile the Employers Contribution Summary Sheet or other Report. Recommendation 1. We recommend the Fire Department develop a written PEHP policies and procedures manual. The manual should include all of the requirements from the different sources (i.e. Memorandum of Understanding, Amendment, Fire Fighters Agreement, and Colorado Revised Statutes). We also recommend the manual detail the different tasks that need to be completed and the related roles and responsibilities. 2. We recommend that the Fire Department reconcile Nationwide s quarterly statement to the activity of the PEHP account. This reconciliation can be accomplished by adding all of the activity for the quarter (include the City s contributions and payments for separating employees) and reconciling that amount with Nationwide s quarterly statement under the column Deferrals/Transfers. By implementing this recommendation, the Fire Department will be aware that Nationwide has not recorded activity into the employees PEHP account. If there is a discrepancy, we recommend that the Fire Department contact Nationwide to resolve this difference. 3. We recommend that the Fire Department receive confirmation from Nationwide via Payroll that the report containing the allocation has been received. If the department does not receive the confirmation, then they should contact Payroll and Nationwide to resolve the issue. We also recommend Nationwide to contact the Fire Department and Payroll if they do not receive the Employers Contribution Summary Sheet (or similar report) providing the allocation of the contribution. By implementing these recommendations, the communications will improve between the three parties. Additionally, the parties will know who to contact if these actions are not taking place in a timely fashion. Auditee Response (see Exhibit A) 8

10 EXHIBIT A PEHP 9

11 EXHIBIT A PEHP 10

12 EXHIBIT A PEHP 11