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Department of Revenue: Suspense IA Recommendations

Department of Revenue: Suspense IA Recommendations

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Published by: Statesman Journal on Jul 25, 2012
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June 11, 2012
Suspense Process Review
To: Jim Bucholz, Director CC: Audit Committee and Agency Management TeamFrom: Jason Robinson, Chief Audit ExecutiveClassification Level: 3
Purpose: Assessing the governance of the Suspense UnitBACKGROUND
A fraudulent return with a high dollar refund was able to get past the scrutiny of the Suspense Unit. This process included: a first look and clearing of the return from a first level Suspense Unit employee, a firstlevel review from a higher level Suspense Unit employee, 2
nd
level review from Suspense Unit Manager,and a supposed 3
rd
level review that should only be allowed by an administrator or delegate.
OBJECTIVE and SCOPE
The objective of this review was to provide a reasonable level of assurance to Agency Management thatthe policy and procedures governing the Suspense Unit are appropriate and working.The scope of the review was focused on the Suspense Unit within the PTAC Division at Revenue Main building located at 955 Center Street, NE, Salem Oregon.The review was conducted in accordance with the
 International Standards for the Professional Practiceof Internal Auditing.
AUDIT RESULTS
We can conclude with a reasonable level of assurance that the Department of Revenue (DOR)Management has put into place policies and procedures that, when adhered to, would have thwarted thisfraud from occurring. The result of this occurrence is due to employees not following policy and procedure during the initial processing of the return as well as the review process. Management hasassured us that adherence to the review process will be emphasized in the future. During the review wenoted items that could improve the efficiency of the Suspense Unit and possibly reduce the amount of human error that is possible with such manual processes.1.
 
Issue
: When interviewing the manger and staff of the Suspense Unit we discovered incomplete, andin some cases, non-existent documentation on desk procedures. Manager and staff all admitted to being self-taught on the numerous ways to scrutinize the nearly two hundred computer edits that leadto a tax return suspending from processing for further review.
Recommendation
: Management should provide the resources that will allow Suspense Unit tocreate and document thoughtful processes for all levels of Suspense and management review.
Response:
Management agrees with this recommendation and has begun the process of creatingunit desk procedures. Desk procedures are expected to be completed by December 31
st
, 2012.
 
 
June 11, 2012
Suspense Process Review
2.
 
Issue
: During the interview of four Suspense staff and the Fraud Team lead, we found that each person working in Suspense will pull their own queue. We also noted that some edits were very easyto resolve while others took a fair amount of research and judgment. Work from the suspense unit isnot assigned by either a lead worker or manager. More-complex edits could be pulled by less-qualified staff causing unwanted errors or missed opportunities to catch fraudulent returns. We notedthat certain edits within the fraud team are assigned to those individuals within the group that have anexpertise at processing those types of edits.
Recommendation:
We recommend that management consider the difficulty of each Edit andassign them as appropriate to the respective skill levels of the Suspense workers.
Response:
Management will explore the option of assigning “easier” and “harder” edits toappropriate staff by November 1, 2012. This may require adding different classifications into theunit. The majority of staff in the unit are AS1s, and the work they perform is within thisclassification, therefore, all AS1s should be able to perform the same type of work.3.
 
Issue
: “
It is as accurate as possible within the current scope of Suspense
”. Suspense workers areon a time line and have production numbers that they must meet or exceed. The production theory isthat if one or two edits look good enough, then the other edits will probably be good as well.Although some specific edits within ITX/ITA will usually be associated with other edits (if itsuspends for 
this
edit then it will more than likely suspend for 
that 
edit), Business has created eachedit for a specific reason. Therefore, each edit should be individually verified to make sure that thetax return is correct in its entirety. Otherwise there is a redundancy in the edits that suspend returns,causing Suspense workers to disregard some.
Recommendation:
Management should instill the necessity to prove (or disprove) each edit before clearing a return (this could be documented in policy and procedure or training).
Response:
Management agrees that each edit should be proved or disproved before clearing areturn and is in the process of creating desk procedures to ensure employees are doing appropriatereview of each edit. Desk procedures are expected to be completed by December 31, 2012.4.
 
Issue
: It was suggested that the Over-limit edit be changed this year from suspending any refund or liability that is over to suspending any that is over . When asked why make thechange to that specific amount, the two-fold answer was to lessen the workload and to pick a number everyone could accept. The edit recommendation was never brought forward because the group feltthat the Agency was too conservative and would not loosen the constraint. Although the edithas been in place for a number of years and the system could be used to gather some statistics on it, itappears that statistics were not used during the evaluation process. The edit review process appears to be a best guess effort without using relevant data to support the changes. It also appears that theAgency may not support the decisions of the evaluation team.
Recommendation:
Management should fully support (to include IT support) the edit reviewteam or reconfigure it into a team capable of making solid recommendations. Additionally, editmodification recommendations should be based on facts, not best guesses.
 Response:
Management agrees with the recommendation and has implemented the majority of recommendations made by the edit review team. All of the edits that were brought forward tomanagement for approval had relevant data to support the recommendations. Relevant data iscurrently being gathered to determine if an increase in the second level Over-limit toleranceshould be raised, and to what dollar amount. A recommendation is expected to be ready byAugust 31, 2012.
 
 
June 11, 2012
Suspense Process Review
 5.
 
Issue
: The management position for the Suspense unit is required to review the work of every unitemployee that has reviewed and cleared a return with a refund or liability of more than . Thismanagement review is called a 2
nd
Level Review. The purpose of this review has never been defined(Is it a cursory review to find any glaring errors? Is it a review performed because of the risk of refunding large amounts of money in error?). With Internal Audit (IA), the review process for anauditor’s working papers is done to make sure there have been no mistakes made. The review is done by a higher level of auditor to verify that work was done appropriately. It seems to IA that the currentmanager has not been trained to do a proper review. She has very little experience in the currentSuspense process and she has not been trained in any way to verify what her staff has submitted for review. IA does not feel that a cursory review of a significant amount of money meets the Agency’sneeds. A higher level review of tax returns would require years of knowledge that would beunavailable to any manager that would transfer into this position. IA noted that AS2s generally havea higher level of knowledge and understanding of the process of reviewing tax returns.
Recommendation:
Management should consider the possibility of having 2
nd
Level Reviews beconducted by a higher level of Suspense worker, thus freeing the Suspense Manager to managethe personnel aspects of the Suspense unit.
Response:
Management agrees with this recommendation and is looking into available options,such as having current AS2s in the Suspense unit or TA1s currently located outside of the unitreview this work. Management will review and consider options by September of 2012.6.
 
Issue:
DOR occasionally allows employees to take management positions over units in which theyhave little or no experience. For the majority of these opportunities there is not a critical step that themanager must perform that could damage the Agency. In cases where a manager must perform sucha critical function as a second review over a function that can take years to learn such as the SuspenseUnit, it would seem prudent to hire someone with those critical skills or backfill the position to learnfrom the exiting manager before they retire.
Recommendation:
Acknowledging that the Agency will likely wish to continue providingvaluable staff and managers with new challenges, IA recommends that the Agency consider taking on the responsibility of properly training those staff and managers for the new leadership positions they’ll face, specifically those positions with oversight authority to release cash. Thisincludes not just staff management training, but also training in the systems and processes themanagers will face in their new duties.
Response:
Management agrees with this recommendation and will pursue setting up training for new managers within the Program Services Section that have authority to release cash. TheProgram Services Section will review and consider options for training for new Managers by November 1
st
, 2012.7.
 
Issue
: The Fraud Team and Suspense Unit work closely with each other passing work back and forthto get items processed faster. There currently is no formal policy that requires the two groups to work with each other besides the fact that both of the current managers of the separate units see the overall benefit to the Agency. Without formal agreements between work units, this type of cohesiveness maynot be possible in the long-term. This can be seen in the breakdown of the relationship that onceexisted between Audit and Suspense to provide quality reviews on more complex items.

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