Office of the County Auditor. Broward County Property Appraiser Report on Transition Review Services

Transcription

1 Office of the County Auditor Broward County Property Appraiser Report on Transition Review Services January 14, 2005

2 Table of Contents BACKGROUND AND SCOPE...3 FINDINGS AND RECOMMENDATIONS Financial Summary as of December 31, Comparison of Selected Data to Other Florida Property Appraiser Offices Implement Management Control Segregate Financial and Administrative Support Functions Implement and Formalize Policies & Procedures Reliance on Antiquated Information Technology (IT) and External Contractors Evaluate the Current IT Migration Strategy Review Compliance with State Requirements for a Computer Assisted Mass Appraisal (CAMA) System Reassign Key Backup Functions to Internal Staff Reassign System Security for the Financial and Payroll Applications Correct Financial Reporting of Temporary Staffing Services Change the Method for Unexpended Revenue Reimbursement Evaluate Employee Bonding Requirements Locate a Secure Storage Site for Backup Media Amend IT Consultant Agreement...11 EXHIBIT A

3 BACKGROUND AND SCOPE At the request of the Property Appraiser Elect, we have performed certain transition services including: review of the financial status of the Property Appraiser s Office as of December 31, 2004, preparation of a budget forecast through September 30, 2005, analysis of selected accounts, transactions and contracts, reviews of existing policies and procedures and comparison of selected operating data with other Florida Property Appraiser Offices. Our procedures consisted of interviews with staff, examination of supporting records on a test basis, and surveys of comparable Property Appraiser Offices in the State of Florida. FINDINGS AND RECOMMENDATIONS 1. Financial Summary as of December 31, 2004 The summarized budget to actual comparison for the three months ended December 31, 2004 (Exhibit A) indicates the office has expended approximately 19% of the annual budget. Based on our analysis of the budget and year to date expenditures, our forecast of expenditures through September 30, 2005 indicates a surplus of approximately $500,000. Our forecast assumes existing positions will be filled at the budgeted rates of pay, capital expenditures will be within budget and operating expenses will be consistent with prior years. 2. Comparison of Selected Data to Other Florida Property Appraiser Offices The table below compares select data for four county property appraisers (Miami-Dade, Palm Beach, Hillsborough, and Orange) to the Broward County Property Appraiser. Real Property Parcels Average Number of Parcels per Employee 2004 TRIM Notices Mailed Average Number of Notices per Employee Budgeted County Positions Broward ,552 4, ,000 4,488 Miami-Dade ,700 2, ,399 3,380 Palm Beach ,296 2, ,496 2,415 Orange ,000 2, ,000 3,134 Hillsborough ,626 2, ,357 2,822 In addition to the 166 budgeted positions, the Broward County Property Appraiser s Office has 42 temporary staff and 8 part-time employees at December 31, Historically, the Office has relied heavily on temporary staff to augment regular budgeted positions. Temporary staffing agencies received payments of approximately 3

4 $982,000 for fiscal year 2004 and $200,000 for the three months ended December 31, As indicated above, the Broward County Property Appraiser s Office has significantly greater workloads per budgeted position than other counties surveyed. Even after adjusting for temporary employees, Broward workload is higher than the other offices. A more detailed comparison of staff positions between the above offices indicates a shortage of appraisers in Broward. Both the current appraiser and the former interim property appraiser recognized the need for additional staff. At the request of the interim appraiser, 28 positions were added in the 2005 budget. The current appraiser is reviewing staff requirements, staff compensation and organization structure. We support these efforts and recommend the Property Appraiser review the efficiency and effectiveness of using temporary staff in the current manner. 3. Implement Management Control During our review we noted the absence of supervisory and management reviews of the financial and administrative support functions. We recommend that the current property appraiser implement management controls over these functions through appropriate delegation and supervisory review. 4. Segregate Financial and Administrative Support Functions Most financial and administrative support functions, including payroll and vendor payment processing, cash management and financial record keeping are performed by one employee, resulting in a lack of appropriately segregated duties and excessive reliance on that individual. There are limited controls over transactions created and processed by this individual and there are no documented transaction processing procedures to follow in the event of a long term absence. We recommend that the Property Appraiser: Review conflicting responsibilities and logically re-assign duties to reduce the risk of potential errors and irregularities Develop written procedures for all essential functions to facilitate continuation of operations in the absence of individual employees Provide cross training in essential functions to reduce single person dependency Implement policies mandating leave for personnel with significant fiscal responsibility 4

5 5. Implement and Formalize Policies & Procedures The Property Appraiser s Office does not have documented policies and procedures relating to most financial and administrative support functions, including: Human Resource Management For example, recruitment of new employees was performed informally. Open positions were not posted or otherwise advertised. Applications generally resulted from referrals and off the street inquiries. Applicants submitted general applications for employment, but could specify their desired position on the application. The evaluation and hiring of applicants was the sole responsibility of the Deputy Chief Appraiser and the Property Appraiser. We recommend the Property Appraiser institute written personnel policies and procedures which, at a minimum, include: Minimum qualifications for all positions Documentation and approval of job descriptions for all positions Public advertising of all positions Objective evaluation of applicants based on qualifications and experience Pay ranges for each job classification Procurement & Contract Management The current procurement process is informal and inconsistent and contract administration is non existent. As a result: Bids are obtained for some procurements and not others Requests for bids are not posted or advertised Contract documents were incomplete Some vendors provided goods or services and billed beyond the contract termination dates Current insurance certificates for certain vendors were not on file Vendor billed rates did not agree to the contracted rates Invoices for contract consultants did not include a sufficient detail of daily hours to determine compliance with contract terms and were not submitted timely We recommend the Property Appraiser institute written policies and procedures governing procurement and contract management which, at a minimum, include: Requirements for open competitive solicitation for all procurements over a predetermined dollar limit 5

6 Standard agreements to facilitate contracting and contract administration Reviews to ensure compliance with contract terms and conditions Evaluation of contractor performance Requirements for general liability, workers compensation, and professional liability insurance where applicable Accounting and Payroll Processes Accounting and payroll functions require knowledge and application of many complex rules and regulations. Policies and procedures referencing these rules and regulations are important to ensure compliance. Our review disclosed: Vendor payments were not reported as required by Internal Revenue Service Regulations. Auto allowances paid to employees for were not reported as employee compensation as required by the IRS (Publication 15 Circular E). Capital expenditures were accounted for in the same manner as operating expenses. Financial activity and monthly financial reports were not subject to management review. We recommend the Property Appraiser institute written policies and procedures governing the accounting and payroll functions which, at a minimum, require: Reviews of financial activity and reports by management Supervision by knowledgeable personnel Compliance with IRS regulations relative to employee and vendor transactions Accounting in accordance with Generally Accepted Accounting Principles Continuing professional training of personnel in their areas of responsibility 6. Reliance on Antiquated Information Technology (IT) and External Contractors The legacy real property database (also referred to as the "mainframe system") and payroll application were developed in the late 1970's by two individual external contract programmers. These legacy applications are written in an older programming language, PL1, running on the County's mainframe; there are no experienced PL1 programmers on staff and it is difficult to find experienced PL1 programmer resources. Furthermore, the data is maintained in flat file structures which cannot be easily used in a decision support style information system and require special tools for querying or to generate useful reports. 6

7 The payroll system that is resident on the mainframe is inefficient and outdated, requiring significant staff time to process bi-weekly payroll and is only supported by one of the two individual external IT contract programmers. The two contractors do not have direct access to the source code on the mainframe, which is controlled by the County s Office of Information Technology s production control group; however, there is no review or validation of program modifications developed by contractors. Key reliance on external IT contractors to support and maintain the legacy real property database, Peachtree financials and the legacy payroll application costs the Property Appraiser approximately $200,000 annually. In the event of a long term absence of either individual, the Property Appraiser will have difficulty maintaining the legacy systems and may be unable to generate the annual tax roll for Currently, the Director of IT is developing a strategy to migrate the legacy real property system from the mainframe, PL1 environment to an Oracle client-server environment to provide the Property Appraiser a true "information" system. A secondary objective is to reduce the level of reliance on external contractors; however, the current strategy relies heavily on contract programmers. While we strongly support the migration from the existing real property system, we recommend the Property Appraiser evaluate the feasibility of the current system development strategy (see finding 7 below). With respect to the legacy payroll application, the Property Appraiser should explore alternative processing options, including the use of currently licensed Peachtree payroll modules or available outsourcing substitutes. 7. Evaluate the Current IT Migration Strategy Although an IT strategy has been conceptually documented, the plan has not been fully defined, i.e., the plan does not define specific requirements for an application system and does not consider the comprehensive, detailed costs, scope or objectives or regulatory requirements of the proposed $1,000,000 investment in a computer assisted mass appraisal (CAMA) system. The plan is based on heavy utilization of contract programmers to develop a customized application in lieu of purchasing a packaged CAMA solution. There are no formal contractor commitments for specific development of the proposed software, which creates single points of dependencies, should a contractor relationship change. Without clearly defined requirements, scope and objectives, management will be unable to determine resource requirements or even whether investments in technology meet users' needs. 7

8 We recommend the Property Appraiser evaluate the current IT strategy and direct IT management to define project requirements for all significant technology investments. This will require allocation of appropriate resources to assess the current environment against the proposed strategy. At a minimum, all significant IT projects should have a detailed statement of work to define the following: The software development problem The users and the user environment What the users want to accomplish using the software The technical capabilities and main features of the proposed application(s) Project timeline Areas not addressed by the proposed technology Description of training activities Expectations Follow-up assessments In addition to the formal statement of work, significant IT projects should have a detailed requirement analysis to define: Models of the required data, information and control flow, and operational behavior General description of the application characteristics and intended users Use-Case models Functional description Database description - data structure diagrams, data dictionary, normalization considerations Development language standards Performance criteria - number of users, memory size, disk space, response time, workload and throughput Output description Design constraints - software, hardware and implementation Description of the business process(es) Documentation of the business rules 8

9 8. Review Compliance with State Requirements for a Computer Assisted Mass Appraisal (CAMA) System We noted the following related to compliance with Florida Department of Revenue (DOR) Guidelines over the Property Appraiser s CAMA system: Two IT contractors are not on the DOR s approved bidder list System documentation is not in compliance with State requirements Support and maintenance agreements and contractor access to systems are not in compliance with State requirements for controls over data quality We recommend the Property Appraiser Review DOR requirements relating to the CAMA system and related IT contracts to ensure compliance Coordinate with the DOR and other state appraisers in the development or replacement of the real property system Institute controls to ensure integrity of data and CAMA programs 9. Reassign Key Backup Functions to Internal Staff One Information Technology contractor serves as a principal backup to the Accounting/Benefits Director for maintaining financial records, including payroll. Allowing an external contractor to serve as backup translates to unrestricted, unmonitored access to the Property Appraiser's financial records. We recommend the Property Appraiser: Provide for training of appropriate staff to serve as a backup to the Accounting/Benefits Director Restrict contractor access to the financial and payroll systems only as required for support and maintenance Institute formal procedures for subsequent supervisory review of activities performed by backup staff in the absence of the Accounting/Benefits Director 10. Reassign System Security for the Financial and Payroll Applications System security has not been defined on the Peachtree financial or payroll applications to create role-based access to menus/functions. Although the applications are installed only on one workstation, users who access this PC may create financial or payroll transactions. 9

10 As roles transition, particularly for support and backup, we recommend that the Property Appraiser take steps to: Restrict access only to those areas of the application required to perform assigned job functions. Assign administration of system security to individuals independent of the financial recordkeeping functions. 11. Correct Financial Reporting of Temporary Staffing Services The prior year audited financial statements and current year draft financial statements contain an expenditure line item labeled "Personal services temporary of approximately $70,000 related to temporary staff hired directly by the Broward County Property Appraiser. Temporary resources hired though external agencies at approximately $982,000 for fiscal year 2004 were reported under "Operating expenditures". This inconsistent treatment understates the personal services costs. We recommend the Property Appraiser account for costs related to temporary resources, both contracted and direct hires, under Personal services temporary in the financial statements and budgets. 12. Change the Method for Unexpended Revenue Reimbursement Unexpended revenues at the end of the fiscal year are not refunded to the appropriate taxing authorities; instead, the Property Appraiser s Office adjusts the second quarter billing of the following year. This treatment of unexpended revenues is inconsistent with other Broward County constitutional offices and may result in potential errors in financial reporting for the Property Appraiser s Office. We recommend the Broward County Property Appraiser timely reimburse the taxing authorities through direct payment of unexpended revenues at year end. The payment will eliminate reconciling items created across fiscal years; create a permanent accounting record of monies refunded to the taxing authorities, and permit clear appropriations for the following fiscal year. 13. Evaluate Employee Bonding Requirements The Interim Property Appraiser, the Director of Accounting/Benefits and the Budget Director are bonded by the Broward County Property Appraiser s office for $10,000, $100,000 and $100,000, respectively. We recommend the Property Appraiser evaluate the adequacy of bonds held for individual employees in positions of fiscal responsibility. 10

11 14. Locate a Secure Storage Site for Backup Media Electronic backup media of the Peachtree financials and payroll registers are physically maintained adjacent (in the same room) to the only PC workstation processing financial/payroll data. If the area is physically compromised, the Property Appraiser may lose both the primary and backup instances of financial and payroll data. Backup media should be stored in a physically separate and secure location. We recommend the Property Appraiser consider secure storage of backup media outside of the Property Appraiser's main office to reduce the risk of lost financial and payroll data. One alternative may be secured storage in an offsite branch location. 15. Amend IT Consultant Agreement One contract with an IT consultant includes an indemnification clause in favor of the consultant. Indemnification of vendors against harm or damage exposes the Property Appraiser s office to undue risk and is not consistent with Broward County s policy. We recommend the Property Appraiser amend this contract to remove the indemnification clause. 11

12 EXHIBIT A BROWARD COUNTY PROPERTY APPRAISER BUDGET TO ACTUAL COMPARISION AND FORECAST As of December 31, Budget Original Amended Actual 3 Months Ended Dec 31, 2004 Variance with Amended Budget % of Budget Used Forecast Through Sept. 30, 2005 REVENUES Commissions from taxing authorities $15,066,858 $15,066,858 $3,763,872 ($11,302,986) 25% $15,000,000 Less: unexpended portion - - (886,367) (886,367) (496,000) Other ,215 29, ,000 Total revenues $15,066,858 $15,066,858 $2,906,720 ($12,160,138) 19% $14,904,000 EXPENDITURES Current Salaries and benefits $ 9,746,063 $ 9,746,063 $2,089,265 ($ 7,656,798) 21% $8,478,000 Personal services temporary 50,000 50,000 33,133 (16,867) 66% 133,000 Operating expenditures 4,707,469 3,884, ,906 (3,204,763) 18% 4,907,000 Capital outlay 563,326 1,386, ,416 ( 1,281,710) 8% 1,386,000 Total expenditures $15,066,858 $15,066,858 $2,906,720 ($12,160,138) 19% $14,904,000 Notes Actual operating expenditures include approximately $200,000 temporary staffing costs. Actual amounts do not include accrual adjustments or un-submitted vendor invoices. Forecasted salaries and benefits expense is based upon current positions and does not consider vacancies. Forecasted capital outlay expenditures are based upon amended budget. 12