Expense Report Approval Process

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Objective

To examine the city’s process for approving expense reports and to identify why the approval process allows for poorly documented and miscategorized expenses to pass through — an issue initially identified by our risk analytics.

Background

The City and County of Denver reimburses city employees for out-of-pocket expenses they make on behalf of the city. To be reimbursed, an employee submits an expense report through Workday, the city’s financial record system. The report should include information to fully describe the expenses. The Controller’s Office, within the Department of Finance, develops and manages the expense report approval process. After an employee submits an expense report, the document is then routed through multiple levels of approval, culminating in final approval by the Controller’s Office.

Why this matters

By not having a sufficient approval process and by not properly monitoring compliance citywide when reimbursing employees for business-related expenses, the city risks:
  • Processing improper expenses and reimbursing employees for them, which can waste or misuse taxpayer money.
  • Misclassifying expenses in financial accounts — causing potential inaccuracies in how agencies spend money, which can influence budget forecasts.

Findings

Finding 1 -   A Poorly Defined and Monitored Expense Report Process Leaves the City at Risk for Inappropriate and Misclassified Spending
  • The city’s expense report approval process is insufficient. We identified a high percentage of approved expense reports that lacked adequate documentation to support the dollar amounts listed and that did not include sufficient explanations of what an expense was for. Several expenses were also categorized inaccurately.

  • The roles and responsibilities for employees tasked with approving expense reports are not adequately defined or uniformly understood.

  • The insufficient approval process allows for potentially questionable purchases to be approved, even though they may not comply with city rules.

  • The approval process created by the Controller’s Office for the City Council president’s expense reports, in most cases, violates the separation-of-duties requirement in the city’s Fiscal Accountability Rules.

  • The Controller’s Office does not formally review the expense report approval process to identify and fix deficiencies and ensure it works as intended. 

Recommendations

1.1 Define Responsibilities for Expense Report Approvers – The Department of Finance should define and document the responsibilities for each level of approver for expense reports: manager, cost center approver, grants manager, and accounts payable data entry specialist. These definitions should address, but not be limited to: 

  • Definitions for each approver role that communicates the authority of each role.
  • The responsibility of each approver role with clear links to Fiscal Accountability Rules, Careers Service Rules, related procedures, and job aids.
  • The documentation associated with expense reports that each role is responsible for checking and approving. 

Agency Response: Agree, Implementation Date – March 31, 2022

1.2 Develop and Implement Standardized Guidance  –  The Department of Finance should develop, implement, and communicate standardized training, guides, and/or a set of procedures for approvers, so they fully understand the expense report process and their roles and responsibilities as an approver. The training, guides, and/or procedures should answer any commonly asked questions.

Agency Response: Agree, Implementation Date – March 31, 2022 

1.3  Promote Compliance with City Rules  –  As part of implementing Recommendation 1.2, the Department of Finance should include in its standardized training, guides, and/or set of procedures for approvers information about city executive orders, Fiscal Accountability Rules, and Career Service Rules that pertain to expenses and reimbursement. The department should emphasize to city agencies the importance of these regulations and promote the need for consistent compliance. 

 Agency Response: Agree, Implementation Date – March 31, 2022 

1.4 Update Policies and Procedures   – The Department of Finance should update its policies and procedures for expense reports to include a description of how city employees and expense report approvers should document in the city’s system of record, Workday, any clarifying conversations or agency-level forms that further describe the nature and purpose of an expense. 

Agency Response: Agree, Implementation Date –  March 31, 2022

1.5 Identify and Address Separation-of-Duties Issues  –   The Department of Finance should identify workflows with the appropriate expending authority where the expense report approval business process does not align with Fiscal Accountability Rule 2.4 related to the separation of duties — such as the workflow for a City Council president’s expense reports. For the identified workflows, the Department of Finance should develop a tailored Workday process to align with the fiscal rules related to the separation of duties and the department should verify the process is implemented.

Agency Response: Agree, Implementation Date –  December 31, 2022 

1.6 Develop Performance Metrics  – The Department of Finance should develop key performance metrics to measure how effective the expense report approval process is at ensuring reports are complete and accurate and in accordance with fiscal rules.  

Agency Response: Agree, Implementation Date –  March 31, 2022 

1.7 Monitor Compliance  – The Department of Finance should develop and implement a method to periodically assess and monitor city agencies’ compliance with the expense report approval process — including applicable fiscal rules and related procedures — and it should develop and implement a method to systematically respond to deficient approvals or approvers’ questions related to the approval process. 

Agency Response: Agree, Implementation Date –  May 31, 2022  

 

Auditor's Letter

November 18, 2021

The objective of our audit of the city’s expense report approval process was to determine the extent of expense categorization issues identified by our internal risk analytics. We also wanted to understand why expense reports with poor documentation and inaccurate expense categories were passing the approval process.

This audit builds on knowledge from the October 2020 “Travel Expenses” audit, which examined travel expense reports. While this latest audit focused on nontravel expenses, the findings relate to the overall expense report approval process and its controls — which apply to all expense reports. I am pleased to present the results of this audit.

The audit revealed a high percentage of expense reports were approved without appropriate documentation or accurate expense categories. Further audit work revealed the roles and responsibilities for employees tasked with approving expense reports are not adequately defined or uniformly understood. This insufficient process allows for purchases to be approved even though the purchase or its supporting documentation may not comply with city rules. Additionally, expenses can be categorized inaccurately, which reduces transparency in reporting city spending.

By implementing recommendations for stronger policies for approvers and for better monitoring of the approval process, the Department of Finance will be better equipped to protect the city from possible misuse, abuse, and fraud — either unintentional or intentional — and it will be better able to identify problematic expense reports and follow up on questionable costs that city employees seek reimbursement for.
This performance audit is authorized pursuant to the City and County of Denver Charter, Article V, Part 2, Section 1, “General Powers and Duties of Auditor.” We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

We extend our appreciation to the personnel in the Department of Finance who assisted and cooperated with us during the audit. For any questions, please feel free to contact me at 720-913-5000.

Denver Auditor,

Auditor's Signature
Timothy O'Brien, CPA

Follow-up report

A follow-up report is forthcoming. 


 

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AUDITOR TIMOTHY O'BRIEN, CPA
Denver Auditor


Denver Auditor´s Office

201 W. Colfax Ave. #705 Denver, CO 80202
Email: auditor@denvergov.org
Call: 720-913-5000
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