CITY OF HARTFORD
 
Date:
 August 21, 2015
 To:
 Internal Audit Commission
From:
 H. Patrick Campbell, Chief Auditor
P
Telephone:
 860.757.9951
 Subject:
 
Special Review of Tax Collector’s Office Delays in Processing Certain Payments
Made by Check via the Bank of America Lockbox At the request of a an Internal Audit Commission member, which was subsequently discussed with and approved by the Internal Audit Commission, we were asked to review reported delays
 by the Tax Collector’s Office in pro
cessing certain payments made by check on behalf of taxpayers. We were informed that due to the delays in processing the checks in question, a number of property owners were informed that their accounts were delinquent and some checks which they had presented for payment were returned from the bank for insufficient funds. These checks returned by banks for insufficient funds are also referred to as Non-Sufficient Fund or  NSF checks. Background Beginning in February 2015,
the Treasurer’s Office noticed t
hat there was an increase in the number of taxpayer checks being returned by Bank of America (BOA) due to insufficient funds or stop payment orders. After further inquiries,
the Treasurer’s Office found that this was
occurring because BOA had returned to
the Tax Collector’s Office
checks that they had received in their lockbox for the City of Hartford (the City) but not processed.
The Tax Collector’s Office
then held the
taxpayers’
checks returned to them by BOA for an extended period of time before  processing and presenting them for deposit. These delays in processing and depositing the checks returned by BOA contributed to the increase in taxpayer stop payment orders and NSF checks. It was subsequently learned that the taxpayer checks were being returned to the Tax
Collector’s Office by BOA
due to a change in the lockbox check process that had been reviewed with and confirmed by Tax Collector Office management.
The Tax Collector’s Office receives payments from
Real, Personal and Motor Vehicle property owners for taxes due in the form of cash, checks, money orders and credit cards. Property owners have the option of paying for taxes due either in person via cash, check, money order or
credit card at the Tax Collector’s Office in City Hall, via checks se
nt in the mail either directly to
the Tax Collector’s Office or
to a designated BOA lockbox account or via credit card on-line. The process and checks that resulted in a delay in processing relate to a number of those sent by  property owners to the BOA lockbox account.
The Tax Collector’s Office currently uses the
 
INTERDEPARTMENTAL
 
MEMORANDUM
 
 
 2 Quality Data Services, Inc. (QDS) Tax module to bill Real, Personal and Motor Vehicle taxes and process and account for related property owner payments. QDS was implemented by the Tax Collector 
’s Office in July 2014 replacing the MUNIS Tax module.
 Sometime in January 2015,
the Tax Collector’s Office began receiving packets of
tax payments and checks through next day express mail that were rejected from the BOA automated lockbox  process. These checks were then required to be manually recorded in QDS and prepared for deposit by the
Tax Collector’s Office.
 Review Results Various tests and reviews of why this occurred, the checks involved and resulting processing issues disclosed the following: 1.
 
A
t the City’s request and based on billing data it receives from the Tax Collector’s Office,
BOA has the ability to accept or reject the automatic processing and deposit of checks it receives in the designated lockbox from taxpayers. When the Tax Collector 
’s Office was
using the MUNIS Tax module to bill and collect taxes, the agreement with BOA was to accept and process for deposit all payments sent to the lockbox by taxpayers. At some point after the City implemented the QDS Tax module, the BOA lockbox process was changed to not accept checks that included back taxes. In instances where the taxpayers
 checks included payments for back taxes, they were not automatically processed and deposited by
BOA but were instead sent back to the Tax Collector’s Office
 by next day express mail to be manually recorded in QDS and prepared for deposit. In an email correspondence from a BOA representative to
Tax Collector’s Office
management,
the following was noted, “I have attached the new test file. This file had the
working stop file, and multiple payments were stopped due to back tax flag. Please let me
know if you have any issues with it.” BOA indicated that this was the basis for the change in
the process. The Tax Collector, however, indicated there was never any intention or specific direction on
his Office’s part to
change the process so that checks that were previously handled by BOA would be returned to the City for processing. The Tax Collector further indicated that this would not make sense as it would cause additional unnecessary work on
the part of the Tax Collector’s Office. Both BOA and Tax Collector’s Office management
have indicated that they believe their respective offices handled this transition in accordance with their understanding of what was required/expected. Regardless, as a result of this change, checks that were stopped in the lockbox process due to the back tax flag were not deposited by BOA
and were instead returned to the Tax Collector’s Office to be manually
deposited and processed
.
Once this occurred and the Tax Collector was notified of the
 problem by the Treasurer’s Office, the Treasurer’s Office worked with the Tax Collector and
BOA to ensure that BOA processed and deposited all checks sent to the lockbox by taxpayers as had been the case previously. 2.
 
The checks originally sent to the BOA lockbox by taxpayers but not processed due to the  previously noted change in the BOA lockbox process
were returned to the Tax Collector’s
Office beginning in January 2015. The problem of the BOA lockbox not accepting certain taxpayer checks was fixed by the end of March 2015. During this three month period, BOA
 
 3 returned a considerable number of checks
to the Tax Collector’s Office to be processed
manually. Tax Collector Office management informed us that the checks were stored securely in a locked safe within a locked vault and that there was a delay in processing them as staffing levels are currently not adequate to manually process such a large number of transactions. In certain instances, when property owners realized that the checks they had issued to the City for their taxes due had not been cashed, they either placed stop payment orders on them or spent the money in their bank accounts that had been designated to clear the checks once they were presented for payment. During the three months ended March 31, 2015, 76 taxpayer checks totaling $358,247 were unable to be processed by the Tax
Collector’s Office
due to returns for stop payments and taxpayer accounts with non-sufficient funds. This was a significant increase in the 29 checks totaling $76,104 that were returned for stop payments and taxpayer accounts with non-sufficient funds during the same three month period ended March 31, 2014. Tax Office management did not explore or initiate other potential options to expedite the more timely deposit of these checks including determining the feasibility of obtaining the assistance of other City check processing operations or returning the checks to BOA. 3.
 
The problem with the BOA lockbox was not identified and resolved as promptly as it could have been.
The delay in processing the checks returned to the Tax Collector’s Office by
BOA resulted in a number of other actual or potential issues and concerns including, but not necessarily limited to, the following: a.
 
Lost investment income  b.
 
Additional processing time and effor 
t by the Tax Collector’s Office
 c.
 
Taxpayer customer service issues As previously noted, this all resulted from a change made in the BOA lockbox check process as a result of the implementation of and the transition to the QDS Tax module. The other issues resulted from the checks not being followed-up on and processed in a timely manner after being
returned to the Tax Collector’s Office by BOA.
Although this should be a one-time condition that should not occur again once problem has been resolved,
we recommend that Tax Collector’s
Office management ensure that appropriate action is taken to follow-up on and address anomalies, such as unexpected packets of tax payments and checks returned by BOA, in a more timely manner in the future. As indicated above, Tax Office management informed us that the delay in processing the checks returned to them by BOA was due to Tax Office staffing limitations. In addition, Tax Office management indicated that the delays in processing the checks did not solely occur after the Tax Office got them from BOA but that there was a delay in BOA even getting the checks to the Tax Office. According to a BOA representative, the BOA procedure for returning checks is to express mail them the next day by FEDEX or UPS so it is not clear to what extent BOA contributed to the delay in processing the returned checks or how much of the delay could be
attributed to BOA or the Tax Collector’s Office.
We recommend that a process and procedures  be established
 by the Tax Collector’s Office to have BOA notify
 designated management in their office when checks are returned to the City by BOA for manual processing. This should include a prompt investigation and resolution of the reason for the BOA processing problem.
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