A REPORT FROM THE OFFICE OF INTERNAL AUDIT PRESENTED TO THE CITY COUNCIL CITY OF BOISE, IDAHO

TASK:

#15-01, HR Benefits Accounts / Administration

CLIENT:

Human Resources

REPORT DATE:

March 17, 2015

GRADE:

Not Graded

REPORT AUTHOR:

Steven Rehn CIA, CFSA

APPROVED FOR RELEASE:

Steven Rehn CIA, CFSA

AUTHORITY:

Boise City Code, 1-09-03 FY2015 Work Plan

REPORT OF CONSULTING ACTIVITIES Task #15-01, Benefits Accounts / Administration Date of Engagement: September 16, 2014 INTRODUCTION The City of Boise offers regular employees a variety of benefit plans. Some are required, while others are optional. They range from mandatory and optional retirement accounts, to flexible spending accounts; and from various life insurance plans through a number of health-related benefit options. Currently, there are approximately twelve liability accounts that support the various benefits-related options, and through which funds flow to external administrators or to other entities involved in serving the employee base. Based on FY’13 Consolidated Financial Audit results, the management teams of the Department of Finance and Administration and Human Resources put in place a plan to ensure the accounting practices and methodologies for maintaining accuracy in the payroll- and benefits-related liability accounts was established and maintained. Management responded proactively to the Audit results, and used them as an opportunity to strengthen the internal control environment surrounding the payroll liability accounts; commencing with the second quarter of FY’14, and then forward on a monthly basis. Both departments were, and continue to actively pursue those objectives. Near the end of FY’14, Internal Audit planned a review of the accounts in this area. Audit selected a total of eleven accounts to review. A summary look at the accounts, and the types of funds involved appears below. Accounts Selected for Review Account Name

Account Number

Employer Funds (ER)

Employee Funds (EE)

Union Medical Dental - EE LTD / Life Insurance Deferred Compensation (457) Flexible Spending PERSI Health – ER Share

200007 200010 200011 200012 200013 200017

Y Y Y Y

Y Y Y Y Y -

$254,000 $770,000 $7,515,000 $2,094,000 $26,435,000 $342,000

AFLAC Union Medical Dental - ER Retiree Insurance Garnishments Voluntary Deductions

200019 200021 201006 201021 201022

Y -

Y Y Y Y

$75,000 $10,807,000 $459,000 $346,000 $1,840,000

Annual Activity *

* Approximate Credits to account over the 12-month period of September 2013 - August 2014, inclusive.

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REPORT OF CONSULTING ACTIVITIES SCOPE AND METHODOLOGIES For Internal Audit, the overall purpose of the HR Benefits Accounts engagement was first to review the processes that were in place for administration of the accounts selected. Secondarily, Audit’s purpose was to provide management with any information or observations relative to opportunities for improvement that might be available. The work was undertaken and performed on strictly a consultative basis. Audit elected a scope period that included all account activity between October 1, 2012, and August 31, 2014; with primary focus being placed on the last twelve months of that period. The following specific objectives were established for the engagement: •

Gain an understanding of the flow of funds within the accounts.

•

Review recent reconciliation activities.

•

Identify opportunities to improve processes associated with the accounts.

•

Provide management with any insights developed during the engagement.

The materials and information generated during the engagement were deemed to be sufficient to support the observations contained within this report.

RESULTS AND COMMENTS During the course of the project, Internal Audit focused primarily on determining patterns in the flow of funds through the group of accounts selected for review. The patterns that were identified were impacted by several factors. Generally, those included the sources of funds (Employer versus Employee); the frequency and timing of Employer and / or Employee contributions; and, the timing of remittances. Audit documented those results, and provided the information to management for use at their discretion. (Refer to Table A for a description of funds flow for the accounts reviewed.)

Additionally, during the course of the project, management reversed a mid-year funding entry in one of the accounts that was determined to be unnecessary, and confirmed accounting practices associated with the flexible spending account in order to ensure the proper accounting treatment for the funds. Internal Audit also provided input on the potential to better align contributions and remittances in an insurance-related account

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REPORT OF CONSULTING ACTIVITIES CONCLUSION The Human Resources management team, and staff and management from the Department of Finance and Administration have been actively engaged in process improvement during the second half of FY’14. Those efforts have resulted in improvements in the control processes surrounding the accounts we reviewed. Internal Audit would like to recognize the assistance provided by management and staff of both DFA and Human Resources during the course of this engagement.

MANAGEMENT PARTICIPANTS Shawn Miller, HR Director / City of Boise Cindy Blackman, HR Benefits Manager / City of Boise Lynda Lowry, Chief Financial Officer / City of Boise Jim McMahon, Controller / City of Boise

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REPORT OF CONSULTING ACTIVITIES Table “A” Funds Flow and Projected Balances Account #

200007

200010

200011

200012

200013

200017

Account Description

Cash Flow / Projected Balances

Union Medical Dental EE

Flow: Funds flow into the account on a twice-monthly basis, and are remitted to the Health Care Trustee the same month. EOM Balance: The expected balance should be zero, though small balances / adjustments could be present at month end. Balance Pattern-Variations: None.

LTD / Life Insurance

Flow: Funds flow through this account in the form of EE* contributions at each pay date, and ER* contributions at each pay period end date. Each month’s contributions are paid to the insurance carrier at, or shortly after EOM. EOM Balance: Account balance at month-end should equate to the ER’s last contribution, which is posted as of the last pay period end date of the month. Balance Pattern-Variations: Account balance should be zero at the end of those months containing three payroll dates, which generally occurs twice yearly.

Deferred Comp

Flow: Funds flow into the account in the form of EE contributions at each pay date, and ER contributions at each pay period end date. Funds are transferred to the Plan Administrator on, or shortly after, each pay date. EOM Balance: Account balance at any given month-end should equate to the ER’s last contribution, which is posted as of the last pay period end date of the month. Balance Pattern-Variations: Account balance should be zero only in those instances where a pay date fell in the last week of a month, and the month ended within the two days after. This generally occurs at least twice yearly.

Flexible Spending / FSA

Flow: Funds flow into the account in the form of EE contributions for medical, and for childcare expenses. Processed claims are paid from the account as received. EOM Balance: Balance will be contingent on EE contributions, and claims paid. Balance Pattern-Variations: N/A. Special Considerations: Due to the unique attributes of FSA’s, this account may be impacted by participant deficit-spending, surplus funds not utilized, and / or amounts rolled over under recent IRS rule changes.

PERSI Retirement

Flow: Funds flow through this account in the form of EE and ER contributions. Contributions occur at each pay date for EE funds, and at each pay period end date for ER funds. Funds are transferred to PERSI generally on, or immediately after, each pay date. EOM Balance: Account balance at any given month-end should be equal to the ER’s last contribution, which is posted as of the last pay period end date of the month. Small, immaterial balances that are associated with adjustments, additions, and terminations may also be present. Payment timing differences could occur periodically, resulting in carryover balances at month-end. Balance Pattern-Variations: None.

Health ER Share

Flow: ER contributions are credited to the account at each pay period end date. The funds are then passed to the Health Care Trust on the payroll date immediately subsequent to the accrual – generally about eleven days later. EOM Balance: At each month-end, the balance should be comprised of the most recent pay period end date accruals, + / - any minor transient adjustment amounts in the account. Balance Pattern-Variations: Balance should be zero in the event the month ended in the two days immediately after a payroll date; which generally occurs twice yearly.

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REPORT OF CONSULTING ACTIVITIES

200019

200021

201006

201021

201022

AFLAC

Flow: EE’s contribute to the account on two payroll dates per month. Funds are passed to the insurer in the form of plan premiums. EOM Balance: This account should be zero balance, though small variations attributable to adjustments, additions, and/or terminations may be present. Any significant carryover balance would likely be due to the timing of payroll, and the corresponding remittance to the carrier. Balance Pattern-Variations: None.

Union Medical Dental ER

Flow: Credits to the account represent the ER’s contractually obligated contributions to the Union Health Trust. Funds are credited twice monthly, as of the pay period end dates. EOM Balance: At the end of any given month, the account balance should reflect the second of the two monthly ER contributions. Small amounts attributable to adjustments may also be present. Balance Pattern-Variations: Twice-annually, there is an exception to this general rule. In any month where there are three pay period end dates, the first two ER contributions of that month fund the payment. No contribution occurs at the end of the preceding month; the balance at that month end should be zero.

Retiree Ins-General

Flow: Two separate streams of funds flow through this account. One involves contributions from individual retirees for payment of health insurance premiums to the designated plan administrator. The second involves an in-flow of funds from PERSI (on behalf of retired police and fire employees), and the subsequent transfer of those funds to the Police / Fire Health Care Trust. EOM Balance: Month-end balance is comprised of: (1) The net debit / credit position of the individual retirees’ account payments in aggregate; and, (2) Amounts attributable to changes in coverage for individual police / fire retirees. Balance Pattern-Variations: None.

Garnishment

Flow: The flow of funds through this account represents deductions from EE paychecks at each pay date, with a corresponding payment to assorted public / private recipients of the garnished funds. EOM Balance: Account should essentially be zero balance, with only small adjusting or timing differences resulting in any balance. Balance Pattern-Variations: None.

Payroll Voluntary Ded Payable

Flow: EE deductions are directed toward various agencies, e.g. the United Way, etc… Funds are deducted twice-monthly from payroll in all cases, and are remitted on the same day as deducted. EOM Balance: No residual balances, other than those attributable to small adjustments, are expected to exist at any month end. Balance Pattern-Variations: None.

*EE signifies employee, ER signifies employer.

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