Date: August 8, 2013 To: Julio Molleda, Director, Finance Department Debra Carabillo, Assistant Director, Human Resources Department From:
H. Patrick Campbell, Chief Auditor Tele: 860.757.9951
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City of Hartford Finance Department Payroll Accounts and Operations Audit Report 1401
 
I. Executive Summary
At the request of Mayor’s Office,
we completed an audit in June 2013 of the City of Hartford Finance Department Payroll Accounts and Operations. The purpose of the audit was to evaluate and test internal accounting and operating controls, the accuracy and propriety of transactions processed, the degree of compliance with established operating policy and procedures, and to recommend improvements where required. The results of our examination were reviewed with J. Molleda, Director, Finance Department; L. A. Ralls, Controller; P. Beaudry, Supervising Payroll Manager; D. Carabillo, Assistant Director, Human Resources Department; and, other responsible members of operating management. The summary that follows includes only exceptions disclosed and recommended operating improvements. For each reported item, management agreed to implement our recommendations or take other appropriate corrective action unless specifically indicated otherwise.
Included are management’s actions taken or planned including timeframes to resolve each finding and/or recommendation in this
 report. We thank Finance Department management and staff for their cooperation and courtesies extended to us during our audit. Background The Payroll Unit of the Finance Department is responsible for processing payrolls for employees of the City of Hartford (the City). This includes the administration of bi-weekly, weekly and monthly payrolls for approximately 1,870 full-time, part-time and temporary employees. The Payroll Unit (Payroll) consists of a manager and three full-time employees. Data entry for payroll related transactions is decentralized with each department and operating unit responsible for entering transactions in the MUNIS Financial Management System Payroll module. The MUNIS Financial Management System (MUNIS) Payroll module was implemented in January 1, 2008 and is used to account for all payroll related transactions and activity including tracking employee vacation, sick and other attendance related transactions, computing the payroll the weekly and bi-weekly payrolls and generating related checks and direct deposits. It should be noted that there has been a significant amount of turnover in Payroll at both the staff and management level over the last four years including four different full time or Acting Supervising Payroll Managers during this period. The current Supervising Payroll Manager was recently hired as of February 2, 2013. For the eleven months ended May 31, 2013, the City payroll expense totaled more than $113 million.
 
City of Hartford Finance Department Payroll Accounts and Operations Audit
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Scope The scope of our audit included various tests of transactions recorded during the fiscal year ending June 30, 2013. The following audit procedures were performed: Reviews and evaluations of policies, procedures and related internal operating and accounting controls; Performing tests and reviews of payroll transactions and activities during the transition period between full-time Payroll Managers from September 2012 through February 2013. Following-up to determine actions taken by management to address the findings and recommendations in our City of Hartford Finance Department Payroll Accounts and Operations Audit Report 1202. General In general, we found that actions had not been taken by Finance Department management to follow-up on and address most of the findings and recommendations in our City of Hartford Finance Department Payroll Accounts and Operations Audit Report 1202. This included, but was not limited to, not following-up on and recovering various actual and potential overpayments as noted in the details that follow. We also noted additional problems that developed and occurred after our last audit. This included not completing and filing state and federal 941 quarterly reports for the five quarters ended December 31, 2012 and state and federal 945 annual reports for the two calendar years ended December 31, 2012. Not filing federal and state tax forms as required can result in substantial fines and penalties. We also noted and were informed by various sources that a number of processing errors, overpayments and other problems occurred during the period from September 2012 through March 2013 when the Payroll Unit was being managed by an Acting Supervising Payroll Manager. During the course of our review, we noted that the newly hired Supervising Payroll Manager has taken action to improve the Payroll Unit and its operations while working to develop, document and implement policies, procedures and controls.
II. Audit Results
Follow-up on City of Hartford Finance Department Payroll Accounts and Operations Audit Report 1202 Various reviews to determine what action was taken by management to follow-up on and address the findings and recommendations noted in the City of Hartford Finance Department Payroll Accounts and Operations Audit Report 1202 disclosed the following: 1.
 
Action has not been taken by management to follow-up on and address most of the items noted in the prior audit report.
 
City of Hartford Finance Department Payroll Accounts and Operations Audit
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2.
 
Policies, procedures and controls were not documented in narrative form for many key processes and functions. One of the key processes where policies and procedures were not documented is relating to payroll error identification, investigation, follow-up and correction. During this review, we noted that error correction documentation needed improvement. 3.
 
Finance Department management indicated that action has been taken to reduce the number of standard payroll checks issued to employees and retirees; switch to net-zero checks to direct deposits and advices; and, switch hard copy direct deposit advices to email payment notifications. While Finance Department management indicated that improvements have been made in these areas, additional work will be required until all employees and retirees are paid in the most efficient and cost effective manner possible. 4.
 
Payroll processing procedural issues and errors that resulted in actual and potential overpayments were not addressed. a.
 
Two overpayments totaling $10,602 paid to one employee were not recovered. At the time of our prior audit, the Supervising Payroll Manager and a Workers Compensation representative from the Travelers agreed with this overpayment. This overpayment was reconfirmed during our current audit.  b.
 
The MUNIS workflow process has not been changed to require that Department Heads or their designees review, approve and release departmental payrolls prior to payment. 5.
 
While Finance and Human Resources Department management took action to follow-up on and collect a majority of unpaid furlough balances totaling an estimated $16,600 due from 29 employees, approximately $1,400 still remains to be recovered from nine employees. 6.
 
Policies, procedures and controls relating to security and access to the MUNIS Payroll module were not documented. In addition, it was not clear that Finance Department management addressed the other MUNIS Payroll module system security and access control issues identified. 7.
 
Although Finance Department management informed us that they had implemented a new process to address the issues we previously identified with the payment of Military Leave, related policies and procedures were not documented and formally implemented with Department management. In addition, it was not clear that any action had been taken to follow-up on and determine the feasibility of recovering an estimated $37,000 in military leave related overpayments identified during our prior audit. 8.
 
It was not clear that Human Resources Department management had followed-up on and addressed all of the findings and recommendations relating to their operations. It should be noted that the Director position in the Human Resources department has turned over twice in the last two years. This included the following: a.
 
Monitoring, maintaining and adjusting as required employee accruals for earned time-off. Current Human Resources Management informed us that they were not aware of the previous audit report, however, several part-
time employees’
 accruals were reviewed and zeroed out (they are paid for a certain number of hours if they meet a threshold of 750 hrs). Previously, the hours were just entered  but never zeroed out when paid. In our recent year end processing report of accruals, we noticed this and they were corrected. We also have taken internal steps to ensure that accrual b
alances on Form B’s match MUNIS and make appropriate corrections as needed.
Current Human Resources management also indicated that they are not aware if a legal opinion was provided as to whether they can zero out balances once and employee leaves. As to the caps on certain accruals, last year was the last year to carry over 320 hours for
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