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Home My WebLink About01.02-Orange County Sanitation District - PDF Final 2017 Fictitious Employees.pdf ORANGE COUNTY SANITATION DISTRICT AGREED-UPON PROCEDURES REVIEW FICTITIOUS EMPLOYEE ANALYSIS FOR THE 21-MONTH PERIOD OF JULY 1,2015 TO MARCH 31, 2017 INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED-UPON PROCEDURES Board of Directors Orange County Sanitation District Fountain Valley, California We have performed the procedures set forth in this report, which were agreed to by the management of the Orange County Sanitation District, Fountain Valley, California (the District), for the 21-month period of July 1, 2015 to March 31, 2017. The District's management is responsible for establishing and maintaining internal controls over payroll to ensure there are no fictitious employees. The sufficiency of these procedures is solely the responsibility of the management of the District. Consequently,we make no representations regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. The procedures performed and the results of those procedures are as follows: Interual Controls 1. The District provided narratives and/or interviews regarding how the Employee Master File (EMF) is maintained. The narrative and/or interviews included: a. What data fields are maintained for each employee. b. What procedures are used to set up a new employee. c. What personnel are authorized to set up a new employee. d. Identified employees who have access to the EMF and also have authority to input data for purposes of issuing payroll checks. e. Identified the Information Technology (IT) employees that have access to the EMF and/or have the ability to make additions,deletions or changes to the EMF. f. Determined if any high-level officials obtain a periodic report of new employees added to the EMF. Results: a. The EMF included the following data fields: • Employee ID • Preferred and legal first name, middle name/initial, and last name • Benefit group • Bargaining group • Department • Division number and name • Pay status,whether active or retired,and pay frequency • Title(classification) • Current mailing address - 1 - 2875 Michelle Drive,Suite 300,Irvine,CA 92606 •Tel: 714.978.1300• Fax:714.978.7893 Offices located in Orange and San Diego Counties Internal Controls (Continued) 1. (Continued) Results (Continued): b. Only the Human Resources Department can enter new employees, remove employees, and make employee information changes, including the pay rate. The Human Resources Department requests the necessary information from the new employee including a signed employment eligibility verification form, I-9. c. Only the Human Resources Department can set up a new employee. d. The Payroll Department has access to the EMF and can input data for issuing payroll checks. However, the Payroll Department cannot make changes to the EMF; therefore, this does not cause an issue for segregation of duties. e. The IT Department has access to the EMF,but cannot make changes. I. High-level officials do not obtain a periodic report of new employees added to the EMF; however, given the District's other controls, we do not see a need to add this procedure. Overall.: Only the Human Resources Department can enter new employees, remove employees, and make employee information changes, including the pay rate. The Payroll Department is responsible for processing payroll and cannot change employee information in the EMF. The functions of making changes to the EMF and processing payroll are segregated. 2. The District provided the EMF as of March 13,2017. Results: We received the EMF file. No exceptions were noted as a result of this testing. 3. The IT Manager responsible for providing the EMF in procedure #2 above signed a representation that in the compilation or transmission of the EMF, all electronic data provided is as originally recorded in the District's system and was not altered for purposes of this agreed-upon procedure. Results: The representation letter was signed by the Principal Information Technology Analyst who provided the EMF. No exceptions were noted as a result of this testing. Analysis of EMF 1. We reviewed the EMF for any duplicate employee names and/or addresses. Results: We performed this procedure and utilized the results to select the samples for procedure #3 below within this "Analysis of EMF"section. -2 - Analysis of EMF (Continued) 2. We reviewed the EMF for any partial duplication of employee names and/or addresses (such as variations of employee names included in the EMF and the same street time, but different house/apartment number). Results: We performed this procedure and utilized the results to select the samples for procedure #3 below within this "Analysis of EMF"section. 3. Since there should be no duplicates within the EMF itself, we selected all exact or partial matches identified in procedures#1 and#2 above for testing. a. We reviewed the personnel files to verify a W-4 (IRS form for determining the correct federal income tax withholding), I-9 (Employment Eligibility Verification), and other identifying documents(driver's license, etc.)were retained and to note the pay rate in effect for the 21-month period. b. We reviewed the history of payments made over the 21-month period for reasonableness in relation to the pay rate noted in procedure#3a above. Results: We identified 39 partial matches when comparing the information within the EMF mostly due to similar addresses and selected them for testing. The majority of the matches occurred due to living on the same street and same city; however, there was a different street address or apartment number. For 38 out of the total 39 employees tested, we inspected the signed I-9 that was signed by the human resources personnel who indicated that they inspected the proper identifying documents. However, we were unable to inspect other identifying documents, such as a driver's license, on 13 of these personnel files since copies were not retained. For 1 employee out of the total 39 employees tested, we were unable to inspect the signed form I-9 or other identifying documents, such as a driver's license, since the employee had retired in October 2016 and the documents were not available. There were no other issues noted during this testing. New Employees 4. The District provided a list of new employees hired during the 21-month period. Results: We received this listing and utilized the information to select the sample as noted in procedure #6 below and tested in procedure #7 below within this "New Employee" section. 5. The Human Resources Department is responsible for entering new employees, making employee changes, including pay rates, and removing employees. The Payroll Department is responsible for processing payroll and cannot change employee information. The list of new employees was provided to both the Human Resources and Payroll Departments to verify the existence of the employees. The employee in charge of each department signed a representation that the new employee listing contained actual employees and/or noted any discrepancies. Results: We received signed representation letters from both the Human Resources Assistant and the Finance Director.No discrepancies were noted. -3 - New Emulovees (Continued) 6. A sample of 25 employees was randomly selected from the listing obtained in procedure#4 above. Results: We selected the sample and tested the items in procedure #7 below within this "New Employee"section. 7. We reviewed the following for the employees selected in procedure 46 above: a. We reviewed the personnel files to verify a W4 and other identifying documents (driver's license, etc.)were retained. Results: No exceptions were noted as a result of this testing. Chan¢e in Pay Rates 8. The District provided a list of employees with pay rate changes during the 21-month period. Results: We received this listing and utilized the information to select the sample as noted in procedure #10 below and tested in procedure #11 below within this "Change in Pay Rates" section. 9. The District provided the payroll policy surrounding required signatures/approvals on personnel action forms for pay rate changes. Results: Pay rate changes due to promotions or a change in position require a Personnel Action Form (PAF). The payroll system automatically routes the PAF to the appropriate employee for approval, which will be a supervisor, manager, or department head of the employee's division. Cost of living increases are included in salary schedules containing the position title, step, and hourly rate, which we approved by the Board of Directors. Cost of living increases do not require a PAF and are entered into the system by the Human Resources Department based on the approved salary schedules. 10. A sample of 25 employees was randomly selected from the listing obtained in procedure #8 above, with 15 specifically selected as the largest pay rate changes and 10 randomly selected. Results: We selected the sample and tested the items in procedure #11 below within this "Change in Pay Rates" section. 11. We reviewed the following for the employees selected in procedure 410 above: a. We reviewed the personnel files to verify a W4 and other identifying documents (driver's license, etc.)were retained. b. We compared the new pay rate from procedure #8 above with the PAF in the employee's personnel file to verify the propriety of the rate change. c. We verified the PAF was approved by the appropriate supervisor in accordance with District policy noted in procedure#9 above. -4- Chance in Pay Rates(Continued) 11. (Continued) Results: For all 25 employees tested, we inspected the employment eligibility verification form, 1-9, that was signed by the human resources personnel indicating that they inspected the proper identifying documents. However, for 3 of these employees, we were unable to inspect other identifying documents, such as a driver's license, since copies were not retained in the personnel files. There were no other issues noted during this testing. Excess Paychecks 12. The District provided a listing of employees and the number of paychecks issued for July 1, 2015 through June 30, 2016. Normally, an employee should have only 26 paychecks for one full fiscal year; however, annual rate adjustments occur through a separate check; therefore, the existence of 27 paychecks for one fiscal yew would be reasonable. We reviewed the number of paychecks issued per employee and investigated employees who have received in excess of 27 paychecks. Results: We originally noted 105 employees with more than 27 paychecks; however, the District requested the population be sampled. We selected 25 employees for testing and found the reason for paychecks in excess of 27 were as follows: • Additional payouts for compensated absences, such as vacation, sick, bereavement, and comp time • Retroactive pay for rate changes • Tuition reimbursements Disclaimer This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to and did not conduct an examination or review, the objective of which would be the expression of an opinion or conclusion,respectively, on the existence of fictitious employees. Accordingly,we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. However, no fictitious employees were uncovered in this agreed-upon procedures engagement. Restriction on the Use of This Report This report is intended solely for the information and use of the Orange County Sanitation District Board of Directors and management of the District, and is not intended to be, and should not be, used by anyone other than those specified parties. 4�� ,/QLI&eaoXaJ !LP Irvine, California August 24, 2017 - 5 -