LOUISIANA LEGISLATIVE AUDITOR DARYL G. PURPERA, CPA, CFE The Honorable Jeffrey Rouse, M.D. 2612 Martin Luther King Blvd. New Orleans, Louisiana 70113 Dear Dr. Rouse: At your request upon assuming office, my advisory staff visited the Orleans Parish Coroner s office and applied our Checklist of Best Practices in Government to provide you with recommendations for improving financial operations and complying with applicable laws. Our assessment was limited in scope to the matters described in this report and was substantially less in scope than an audit. You will find that this report encompasses areas that my staff identified, as well as areas that you pointed out as needing improvement since taking office in May 2014. However, this report does not duplicate the reporting of findings and possible violations of laws that were previously reported on March 11, 2013, and January 21, 2015, by the City of New Orleans Office of Inspector General relating to its reviews of the previous administration s supplemental payments to employees and contractors. I understand that when my staff visited your office in October 2014 they were informed that those issues had not been corrected but were in the process of being addressed and resolved. Our recommendations are intended to assist you in your efforts to (1) improve controls over financial operations; (2) implement good business practices; and (3) ensure compliance with the Louisiana constitution and state laws. Your response to this report is presented in Appendix A. The following are areas where improvement is needed, along with our recommendations to help guide your efforts: 1. Financial Policies and Procedures The Coroner s office lacks written policies and procedures related to its financial/business operations. Written policies and procedures are necessary to provide a clear understanding of what should be done, how it should be done, who 1600 NORTH THIRD STREET POST OFFICE BOX 94397 BATON ROUGE, LOUISIANA 70804-9397 WWW.LLA.LA.GOV PHONE: 225-339-3800 FAX: 225-339-3870
Page 2 should do it, and when it should be done. In addition, written policies and procedures aid in the continuity of operations and for cross-training staff or training new staff. Recommendations: We advise the Coroner to develop and implement written policies and procedures, in accordance with applicable Louisiana laws, related to the following: Budgeting, including procedures for preparing, adopting, monitoring, and amending budgets Financial reporting, including the nature, extent, and frequency of providing financial statements/information to the Coroner Contracts, including monitoring procedures to ensure that services received comply with terms and conditions Payroll and personnel, including processing, reviewing, and approving time/attendance records, including leave taken and overtime worked Capital assets, including recording, tagging, inventorying, and safeguarding assets Collections, including billing, receiving, recording, and preparing bank deposits Procurement/purchasing process, including how purchases are initiated and approved and checks and balances to ensure compliance with the public bid law Disbursements/expenditures, including processing, reviewing, and approving Credit cards, including charges allowed and documentation required Computer, including backing up and storing computer files, general controls for the computer system, and a disaster recovery/business continuity plan Retention of public records, including e-mail communications, in accordance with Louisiana Revised Statute (La. R.S.) 44:411, which provides that a records retention schedule be prepared and
Page 3 submitted to the Louisiana Secretary of State Office (state archivist) for approval Ethics, including prohibited activities (e.g., nepotism) and requiring that an annual certification letter be signed by the Coroner and all other employees attesting to their compliance with the ethics policy 2. Annual Budget for Self-Generated Funds Although an annual budget was prepared for the funds appropriated by the City of New Orleans (submitted to and approved by the New Orleans City Council), an annual budget was not prepared for the receipts and expenditures of the Coroner s self-generated funds. Self-generated revenues totaled approximately $300,000 in each of the past two fiscal years (June 30, 2014 and 2013). The Coroner s office generates revenue by performing various services for the public. For example, the Coroner s office performs out-of-parish autopsies and toxicology reports, prepares cremation reports, provides transportation and storage, and sells pouches. Without a budget for these self-generated funds, it is difficult for the Coroner to effectively exercise his fiduciary responsibilities of managing all finances of his office. The Local Government Budget Act (LGBA), found in La. R.S. 39:1301-1315, directs political subdivisions of the state as to the manner in which the budget of the political subdivisions shall be adopted, implemented, and amended. The LGBA applies to all political subdivisions (as defined in La. R.S. 39:1302, which includes independently-elected parish offices such as the coroner) of the state with a general fund or a special revenue fund. According to the Coroner s 2013 annual financial report, which presents financial information solely related to the receipts and expenditures of self-generated funds, the Coroner s only fund is the General Fund which is the operating fund. Recommendations: We advise the Coroner to do the following: Annually prepare, adopt, and implement a comprehensive budget for the self-generated funds that are forecast to be received and spent during the fiscal year. Consult with legal counsel about the various requirements of the LGBA. We also encourage you to visit the Legislative Auditor s website (http://www.lla.state.la.us) which contains, among other resources, a frequently-asked questions (FAQ) document on the LGBA.
Page 4 Provide a copy of the annual budget to the bookkeeper for use in generating a budget-to-actual comparison report each month. Monthly budget-to-actual comparisons (of receipts and expenditures of self-generated funds) with variances will allow the Coroner to detect when corrective action is needed. This comparison report should be received and reviewed monthly and the budget amended as necessary to reflect current realities. Provide a copy of the annual budget of self-generated funds to the City Council. 3. Financial Management The Coroner was not receiving monthly financial statements and budget-to-actual comparisons for all funds of the Coroner s office. The Coroner s expenditures in 2015 are estimated to be in the $2.4 to $2.5 million range and are funded by two sources. Without having timely and complete financial information on all operations, the Coroner cannot effectively exercise his fiduciary responsibilities of managing the finances of his office. The Coroner s office is a component unit of the City of New Orleans (City), and its operations are primarily funded, accounted for, and reported by the City. Funding from the City in 2015 is budgeted to be approximately $2.17 million. The remaining portion of operations that are funded by self-generated fees are accounted for and reported solely by the Coroner s office. Therefore, to obtain a complete picture of the Coroner s financial operations, one has to manually combine information from the City and the Coroner s office. Recommendations: We advise the Coroner to do the following: Consult with appropriate City personnel on options available to immediately begin generating and receiving monthly financial statements/information and budget-to-actual comparisons on the use of funds appropriated by the City. Reviewing monthly budgetto-actual comparisons with variances (amounts and percentages) will allow the Coroner to detect when corrective action is needed. Require the contract bookkeeper to prepare and provide monthly financial statements on the receipts and expenditures of the selfgenerated funds, including budget-to-actual comparisons. The Coroner should review this financial information in detail and make inquiries of the bookkeeper as necessary, including questioning the propriety/accuracy of account balances shown.
Page 5 Any unusual balances should be immediately researched and properly resolved. Consult with legal counsel and appropriate City officials to develop a formal agreement regarding this separate financial reporting and funding arrangement of the Coroner s office. Such agreement should also address the various services performed by the Coroner s office and the fees that are being billed, collected, and spent by the Coroner, including the rights and obligations of both the Coroner and City. 4. Collections of Self-Generated Funds The Coroner s office has collected approximately $300,000 in self-generated monies in each of the past two fiscal years. Our assessment revealed that controls over collections need to be strengthened. The following are our recommendations: Recommendations: We advise the Coroner to do the following: Restrict and designate who can collect money at the Coroner s office and ensure that the office has fidelity bond insurance in effect that covers the employees who collect or have access to monies. A fidelity bond provides insurance reimbursement on losses caused by the dishonest acts (e.g., theft) of bonded employees. Review the duties of office personnel to ensure that there are adequate checks and balances over collections (received at the office and received through the mail), daily reconciliations, and bank deposits. No one person should have the ability to perform all functions related to collections. Without adequate segregation of duties and supervisory oversight, errors or fraud could occur and not be detected. For all collections made at the office, require the issuance of standard pre-numbered receipt forms. We recommend that receipts be issued in numeric sequence and be in triplicate form. One copy of the receipt form should be (1) given to the payer; (2) used in balancing the daily collections with bank deposits and be kept as part of that supporting documentation; and (3) kept in numerical sequence with other receipt copies.
Page 6 For collections received through incoming mail, require all items (e.g., checks, money orders, etc.) to be listed in detail on a daily log and be endorsed for deposit. Require the daily collections to be counted and reconciled with amounts recorded on the pre-numbered receipt forms and daily log. Any differences should be immediately investigated and resolved. We also advise that state law (La. R.S. 39:1212) requires all funds to be deposited on a daily basis when practicable. Receive the monthly bank statement directly (unopened) from the bank and review timely to ensure that deposits appear reasonable and that any unusual disbursements, if any, are identified and resolved. We advise that La. R.S. 10:4-406(d) (2), in part, allows 30 days to examine bank statements and canceled checks for unauthorized signatures or alterations. After 30 days, the entity is precluded from asserting a claim against the bank for unauthorized signatures or alterations. 5. Delinquent Accounts Receivable Records indicate that at October 31, 2014, the Coroner s office was owed $40,102 for services billed (e.g., out-of-parish autopsies and toxicology reports, transport services, storage, sale of pouches), of which $26,082 (65%) was delinquent/past due more than 90 days. We advise that continuing to provide services without actively trying to collect delinquent account balances is prohibited by Louisiana s Constitution (Article VII, Section 14(A) of the Louisiana Constitution of 1974). Recommendations: We advise the Coroner to do the following: Develop and implement a written policy requiring bills to be collected timely (e.g., within 30 days), or continued services for such clients will be terminated. Designate the office manager to monitor the unpaid accounts and perform follow-up collection efforts on a periodic basis. The timely billing of services and collection of accounts are key components to having a positive cash flow. Obtain and review the listing of unpaid accounts each month and ensure that aggressive action is taken, including legal action when necessary, to collect all client accounts.
Page 7 6. Payroll and Personnel We identified the following matters related to payroll and personnel: Delinquent Payroll Taxes - We noted that the Coroner s office was delinquent in reporting and remitting payroll taxes to the Internal Revenue Service (IRS) and Louisiana Department of Revenue. The total amount of unpaid taxes was unknown at the time of our visit because the payroll records were not up-to-date. Although the City pays the salaries and benefits of employees, the Coroner was using self-generated funds to make additional payments to certain employees. As a result, the Coroner is required to comply with the federal and state payroll tax withholding and reporting rules with respect to these additional payments. Based upon inquiries, the taxes withheld from paychecks issued in the second and third quarters of 2014 (April 1, 2014, through September 30, 2014) were not reported and remitted/paid as required. We advise that penalties and interest may be assessed to the Coroner s office. Recommendations: We advise the Coroner to do the following: Take immediate actions to ensure that (1) payroll records are brought up-to-date; (2) the total amount of taxes owed to both the IRS and Department of Revenue is calculated and paid; and (3) the applicable quarterly payroll tax reports are completed and filed. Consult with legal counsel and appropriate City officials about whether the additional payments (issued out of self-generated funds) to employees should be included in the Coroner s annual budget that is subjected to City Council approval and paid directly by the City. Segregation of Duties - At the time of our visit, the chief investigator appeared to be performing most of the payroll duties. Without adequate segregation of duties and oversight, errors or fraud could occur and not be detected, increasing the risk of loss or theft of Coroner assets. Recommendations: To strengthen controls, we advise the Coroner to designate someone independent of the payroll function to review all payroll changes input into the City s computer system (e.g., increase in pay rates, adding/deleting employees, etc.) for accuracy and proper authorization, and the accuracy of the biweekly payroll information that is input into the computer system for processing by the City.
Page 8 Time and Attendance Records - Our assessment revealed that not all employees were preparing daily time records to account for their attendance at work. Recommendations: All employees should be required to prepare simple time reports that document their daily hours worked and leave (e.g., annual and sick) taken. Such time records should be signed by the employee and the review/approval of an appropriate supervisor should be documented on the records before being submitted for payroll processing. Written Job Descriptions - The Coroner s office did not have written job descriptions for its employees. A formal job description provides a list of the general tasks, or functions, and responsibilities of a position. Typically, it also includes to whom the position reports, qualifications needed by the person in the job, and the salary range for the position. Recommendation: Written job descriptions for every job position should be developed. Employees should have a clear understanding of their duties and responsibilities. 7. Contracting for Services The Coroner s office spent $151,756 (approximately 50% of its self-generated funds) on professional services during the fiscal year ending June 30, 2013. Our assessment revealed that controls over the contracting process needs to be strengthened. The following are our recommendations: Recommendations: We advise the Coroner to conduct a review and evaluation of all contractual arrangements for services. Answers to the following questions should be determined with respect to each arrangement and appropriate actions should be taken as considered necessary: Is there clear evidence or support that the contracted services are needed by the Coroner s office? Was the service arrangement competitively bid (e.g., subject to a request for proposal (RFP) process)? Does the service arrangement appear to be prohibited by any provisions of the Louisiana Code of Governmental Ethics (e.g., nepotism, transactions with employees or immediate family members)? If so, consult with legal counsel and report any violations to the Louisiana Board of Ethics.
Page 9 8. Recurring Purchases Is the service arrangement supported by a written contract? Was the contract reviewed and approved by the Coroner s legal counsel prior to signing and execution? Is the signed contract on file at the Coroner s office? Prior to issuing payments, are the services monitored and verified for compliance with the terms and conditions of the contract? Are the payments to the contractor required to be reported to the IRS on IRS Form 1099-MISC? If so, ensure that the form is properly completed and filed with the IRS as required. We noted that the Coroner s office purchases laboratory and morgue supplies on a recurring basis. The Public Bid Law (La. R.S. 38:2211, et seq.) requires obtaining quotes when purchasing recurring or large-dollar items to ensure that goods are obtained at the most favorable prices. The bid law, among other things, requires that purchases of materials and supplies between $10,000 and $30,000 be made by obtaining at least three telephone or facsimile quotations. The Louisiana Attorney General (A.G.) has opined in A.G. Opinion No. 02-122 that purchases of like commodities during the course of a fiscal year must be aggregated and be publicly bid if the total amount of purchases of those commodities during the fiscal year exceeds the statutory threshold for bidding. Recommendations: Annually, the Coroner should review all supplies/items that are being purchased frequently (recurring basis) and consider requesting bids for such items to ensure the lowest possible prices and to ensure compliance with the bid law. Documentation of price quotes should be obtained and maintained as part of the approval process before the recurring purchase is made. 9. Capital Assets Controls over capital/fixed assets should be implemented. State law [La. R.S. 24:515 (B)(1)] requires records to be maintained of all land, buildings, improvements other than buildings, equipment, and any other general fixed assets, which were purchased or otherwise acquired. The records should include information as to the date of purchase of such property or equipment and the initial cost.
Page 10 Recommendations: We advise the Coroner (or designee) to do the following: 10. Vehicle Decals Consult with appropriate City officials to coordinate a recordkeeping process for capital assets purchased with selfgenerated funds. Ensure that a physical inventory of assets is conducted at least annually. The detailed listing should be updated for any additions and deletions made during the fiscal year. Identify (tag) assets that belong to the Coroner s office and include the tag number on the listing of capital assets. We noted that not all vehicles of the Coroner s office were marked in accordance with state law. La. R.S. 49:121 requires (with limited exceptions) public vehicles to have inscribed, painted, decaled, or stenciled on the outside door on each side of the vehicle, an insignia containing the name of the office. Recommendation: The Coroner should consult with legal counsel and ensure that all office vehicles comply with state law and are properly marked with decals. 11. Public Records At the time of our visit, certain financial records were in the possession of the contract bookkeeper, and copies were not available at the Coroner s office. La. R.S. 44:36 requires diligence and care in preserving public records. Allowing records to be taken offsite without maintaining copies on-hand exposes these public records to additional risks of loss and damage and unnecessarily impedes access to these records for public review and/or audit. Recommendations: We advise the Coroner to do the following: Ensure that records are being properly safeguarded and maintained onsite. Establish a records management program in accordance with state law (La. R.S. 44:411). The coroner should consult with appropriate City officials and legal counsel about preparing and submitting a records retention schedule to the state archivist (Louisiana Secretary of State Office) for approval. The Louisiana State Archives Records Management Handbook can be found on the Secretary of State s website (www.sos.la.gov).
Page 11 12. Disaster Recovery/Business Continuity Although not required by state law, good internal control requires that the Coroner develop a written disaster recovery/business continuity plan. Recommendations: The Coroner should consult with appropriate City officials, including the New Orleans Office of Homeland Security and Emergency Preparedness, about developing a formal plan that ensures the continuance of operations in the event of a natural disaster, fire, or terrorist attack. The plan should be tested each year and revised as necessary. My staff appreciates your input and cooperation, and we encourage you to continue your efforts in addressing and resolving all issues presented in this report. If you have any questions, please contact Eric Sloan or Stuart Dickey at (225) 339-3800. Respectfully submitted, DGP/aa Daryl G. Purpera, CPA, CFE Legislative Auditor OPC 2015
APPENDIX A Coroner s Response
NEW ORLEANS FORENSIC CENTER New Orleans Coroner s Office 2612 Martin Luther King Blvd., New Orleans, LA 70113 (504) 658-9660 FAX: (504) 658-9674 Jeffrey Rouse, M.D., CORONER March 5, 2015 Darryl G. Purpera, CPA, CFE Louisiana Legislative Auditor 1600 North Third Street Baton Rouge, LA 70804-9397 Mr. Purpera, Let me first sincerely thank you for honoring my request for the Legislative Auditor s assistance. One of my very first acts in office was to reach out to your organization, and your staff has been nothing but helpful from the beginning. Your staff was generous of their time and invaluable in their assistance and recommendations. Their onsite visits and consultations were an integral part of my top to bottom review of the s Office. The s Office has historically handled the most investigations, death and otherwise, of any coroner s office in the state of Louisiana. Yet, as a government organization, the volume of our duties does not exempt us from complying with all local, state, and federal laws. It does not excuse this office from the obligation to remain efficient stewards of the taxpayer s money. Under my leadership, I seek to exceed mere minimum compliance and to make this office an example of best practices in government, all the while modernizing our performance of our core duties. Your advisory report is in line with my personal observations during my own review. That is, this office has to make a vast number of significant strides to achieve my ultimate goal. Since your visit last fall, I am pleased to state that we have already: Hired a business manager For the first time in the history of this office, presented the self-generated fund budget to the City Council as required by the Local Government Budget Act Collected a significant portion of the past due receivables Consulted with a new accounting firm to correct payroll tax issues Executed new and necessary contracts in compliance with procurement guidelines and thresholds A.1
Improved our financial monitoring of expenditures against our budget Instituted a purchase order system to provide better oversight over expenditures I asked you for a complete and thorough roadmap of how to bring this office into full compliance, and this report clearly shows that we have more work to do. Thank you for showing us the way and for providing this assistance at no cost to my office or the citizens of New Orleans. I shall strive to implement your recommendations on their behalf. Sincerely, Dr. Jeffrey Rouse Coroner, City of New Orleans A.2