Jan 30, 2018
DENVER –According to a recent audit, agencies could do a better job of following fiscal accountability rules regarding governmental activities receivables, or money owed to the city which has not yet been collected. These findings are already helping agencies across the city make changes to ensure reliability of information and adherence to formal accounting policies and procedures.
“When we take a close look at the city’s books, we can help agencies improve their use of taxpayers’ money,” said Denver Auditor Timothy M. O’Brien, CPA. “In this case I am glad to see agencies planning to make changes to how they do business based on our findings.”
Auditor O’Brien directed his team to assess the degree to which city agencies and the Controller’s Office properly record governmental activities receivables, including related allowances for uncollectible accounts, in the city’s Comprehensive Annual Financial Report (CAFR). The team selected the four largest agencies including the Department of Economic Development, the Department of Community Planning and Development, the Denver Public Library and the Department of Public Works’ Right-of-Way Enforcement Division and reviewed their compliance with fiscal accountability rules related to receivables. The Office of Economic Development was the only one correctly reporting its receivables and following all relevant fiscal rules.
In the report, auditors found the library does not follow accounting rules when reporting receivables for fees and fines under $25. These small fines and fees are not included in the receivables reconciliation provided to the Controller’s Office each reporting period. They are deemed to be uncollectible when assessed and are only reported as revenue when and if they are collected.
A circulation desk employee also has the discretion to forgive a fine with no supervisory approval. This could allow friends and family to indefinitely forego paying fines and fees or an employee could pocket cash and then write off the balance. The audit team also found the library staff sometimes share system logins and this could put the city a slightly higher risk of fraud or make it harder to trace errors to an individual. The library says they rely on employees informed judgment when waiving fines. The agency says late fines are meant only to motivate library customers to return items and to keep accounts open, enabling continued use of the library.
The result of all these findings is that government activities receivables and associated revenues reported in the annual financial statements could potentially be understated. The departments of Community Planning and Development and Public Works, as well as the Denver Library, all showed signs of problems with reporting and reconciling receivables. These impactful findings are already inspiring change within the library system. Since the audit, the library says it will consider doing away with late fees entirely and only focus on collecting fines to replace lost items.
The audit team also found agencies could do a better job of making sure financial information from third-party vendors is reliable. Many city agencies contract with third-party providers to process collections. For example, the parking enforcement division uses a third party for issuing parking tickets. These third-party vendors make recommendations on receivables to be written off for the current accounting period. However, the treasury division, the public library and parking enforcement do not collect reports from the vendors ensuring the reliability of financial information provided by these third-party vendors from their collection systems.
In order to maximize revenues for the city, it’s important to ensure all receivables are collected reliably. The team recommends annually obtaining reports from these third-party collection agencies that ensure financial data and collections reporting are reliable. This finding is already making a difference in how Denver does business. The Controller’s Office agrees with the recommendation to collect the appropriate reports and is looking into requiring them in all city agencies.
Our office recommended more thorough documentation of compliance with fiscal accountability rules to ensure best practices when handling and making decisions related to city money. The agencies agreed to all five of our recommendations.