Management Letter

Seattle School District No. 1

September 1, 2012 August 31, 2013


The District does not have sufficient controls in place to ensure that overtime and
extra time is properly authorized and the fringe benefit for personal use of vehicles
is accurately imputed.

The District employs 10 payroll analysts to review and process payroll of $475 million a
year for 10,000 employees. The payroll department is responsible for processing
overtime, pay under supplemental contracts or extra time, and imputing fringe benefit
compensation for personal use of the Districts vehicles. The District anticipates that
most errors in recording and authorizing overtime and extra time pay will be detected at
the departmental level by immediate supervisors when approving timesheets. The
District does not have policies or procedures in place for paying overtime or extra time to
exempt employees. In addition, the District does not have sufficient controls to ensure
that the fringe benefit for personal use of District owned vehicles is imputed correctly in
the employees wages.


Overtime
The District does not have a policy or procedure in place for paying overtime to exempt
employees. The District does not seek guidance from the Compensation Analyst when
assigning a pay rate for additional duties performed outside of an employees regular job
function.

The District relies on the discretion of the employees immediate supervisor to determine
when overtime pay is due to exempt employees on a case by case basis. During our audit
we noted 14 exempt level employees who received overtime pay of 1.5 times their
regular rate for a total of 1,659 hours. In 11 instances we noted that overtime was paid for
immediate duties and was not properly authorized. In three instances we noted employees
were paid overtime for performing duties outside their immediate job function. These
employees were paid one and a half times their regular pay rate instead of the applicable
rate for the job function. Also, we noted no documentation showing that overtime was
appropriate or necessary.


Supplemental Contracts
The District does not require written pre-authorization and justification for extra time
from supervisors. We noted in-sufficient documentation of extra duties and/or the
duration of additional assignments.

Extra time or supplemental pay is awarded to non-represented employees on a case by
case basis when an employee works outside the pay cycle or calendar days per the job
function. We noted nine non represented employees were paid extra time for a combined

total of 509 hours for duties performed outside the assigned work days. The payments
were based on verbal agreements made at the departmental level.


Fringe Benefits
Personal use of a district vehicle includes any activity that is not business related,
including commuting. If the employee does not have a vehicle log and business versus
personal use cannot be substantiated, the IRS will assume the vehicle is used entirely for
personal use. Any use of a district vehicle that cannot be substantiated as business use is
included in income. During the audit period we noted a total of 14 employees were
required to report imputed wages based on a commuter benefit on their Form W-2. The
imputed wages on the commuter benefit was undervalued in 11 of the 14 instances. In
three instances the imputed wages were undervalued by a total of $2,414 due to the use of
an incorrect valuation method. The imputed wages based on eight commuter benefit
amounts were incorrect due to insufficient records of vehicle usage. In these cases
Facility Operations did not keep records or respond to inquiries of total days commuted
by each of the eight employees. Based on the insufficient documentation we were unable
to determine the total of imputed wages under reported to the IRS.


We recommend the District:

Establish a district wide policy for overtime payments to non-represented exempt
employees and a policy for special assignments and/or dual assignments.
Require written pre-authorization and justification of extra time that would
include a reason for an additional assignment, pay scale and duration of duties.
Require supervisors to consult with the Human Resource Compensation Analyst
for appropriate pay scales when allowing employees to undertake additional job
functions.
Provide training to Supervisors responsible for authorizing and approving
timesheets.
Perform random payroll audits at the department level to bolster oversight and
monitoring of overtime payments.
Provide training to Payroll Analysts of IRS regulations (Publication 15B) and
adopt a district wide policy for personal use of District vehicles.
Establish a district wide policy for documentation and retention of commuter
activity data for reporting purposes to the IRS.