Transcription
INTERNAL AUDIT REPORT2019-05Accounts ReceivableFinance DepartmentApril 25, 2019MUNICIPALITY OF ANCHORAGEInternal Audit Department632 W 6th Avenue, Suite 710P.O. Box 196650Anchorage, Alaska 99519-6650www. mu ni. org/departmen ts/internal aud itINTERNAL AUDIT DEPARTMENTMichael Chadwick, CIA, CICADirectorPhone: (907) 343-4438Fax: (907) 343-4370E-Mail: chadwickmb@muni.org
Municipality of AnchorageEthan Berkowitz, MayorInternal Audit DepartmentApril 25, 2019Honorable Mayor and Members of the Assembly:I am pleased to present for your review Internal Audit Report 2019-05, Accounts Receivable,Finance Department. A brief summary of the report is presented below.In accordance with the 2018 Audit Plan, we have completed an audit of Municipal accounts receivable.The objective of this audit was to determine the methodology, effectiveness, and accuracy of theMunicipality of Anchorage's accounts receivable functions and systems. This audit was limited togeneral government and did not include enterprise activities. To accomplish our objective, we reviewedselected invoices from an SAP accounts receivable aging report dated August 15, 2018, and selectedcredit memos processed in 2017 and 2018. In addition, we also judgmentally selected and revieweddelinquent personal property tax accounts, based on age and dollar value. Moreover, we reviewed ifadequate internal controls were in place for the stand-alone billing systems used by the variousmunicipal agencies. Finally, we reviewed adequacy of the policies and procedures and desk procedureswhere available, and followed up on previous accounts receivable audit findings.Our audit revealed that management of the Municipality of Anchorage' s SAP accounts receivable couldbe improved. In addition, accounts receivable found in some stand-alone billing systems could be bettermanaged and some stand-alone billing systems used by Municipal agencies were not approved by theChief Fiscal Officer as required by Policy and Procedure 24-21, Customer Setup, Billing, andManaging PeopleSofl Accounts Receivable. Moreover, some accounts receivable were not recorded inthe Municipality of Anchorage's general ledger and departments using the SAP accounts receivablebilling system did not always process and submit billing paperwork as required by Policy andProcedure 24-21. Furthermore, Treasury did not always process invoices in accordance with therequirements of Policy and Procedure 24-21 and the Anchorage Fire Department did not bill for 2018false alarms until January 2019. Additionally, Policy and Procedure 24-21 needs to be revised. Finally,delinquent personal property taxes were not managed as required by Operating Instruction 3-8,Personal Property Tax Collection.There were nine findings in connection with this audit. Management was responsive to the findings andrecommendations.Michael Chadwick, CIA, CICADirector, Internal Audit632 West 6'hAve., Suite 710 I Mail: P.O. Box 196650 I Anchorage, Alaska 99519-6650 I www.muni.org I Phone: 907-343-4438
*Municipality of AnchorageEthan Berkowitz, MayorInternal Audit DepartmentApril 25, 2019Internal Audit Report 2019-05Accounts ReceivableFinance DepartmentIntroduction. According to Anchorage Municipal Code (AMC), Title 6, the Chief Fiscal Officer(CFO) is responsible for billing, collecting, and writing-off of the Municipality of Anchorage's(Municipality) accounts receivable. The Municipality's financial system of record is SAP. SAPreplaced PeopleSoft on October 2, 2017. Currently, the Treasury Division is responsible for SAPbilling and revenue posting in the SAP Accounts Receivable (AR) module, real and personal propertytax billings, and delinquent collections for Delinquent Criminal/Civil Fines and Fees (DCF). Sevendepartments utilize the SAP AR module for all, or part, of their billing for various services. Thesedepartments include: Anchorage Police Department (APD), Anchorage Fire Department (AFD),Finance Department, Planning Department, Parks and Recreation, Public Works Department, andPublic Transportation Department. In addition, we also found stand-alone accounts receivablesystems maintained by Anchorage Animal Care and Control; Anchorage Health Department's (AHD)Food Safety and Sanitation (FS&S) Program and Community Health Nursing Section; the AnchoragePublic Library (Library); and Risk Management. During the audit, we identified the following typesof accounts receivable and various billing systems: SAP Accounts Receivable - As of August 15, 2018, there was over 1.4 million of Municipalgeneral government accounts receivable in the SAP AR module.632 West 6' 1'Ave., Suite 710 I Mail: P.O. Box 196650 I Anchorage, Alaska 99519-6650 I www.muni.org I Phone: 907-343-4438
Internal Audit Report 2019-05Accounts ReceivableFinance DepartmentApril 25, 2019Miscellaneous SAP Accounts Receivableas of August 15, 2018AgingCurrent31-60 days61-90 days91-120 days121-365 daysOver 365 daysTotals:Amount 743,154205,795163 ,41236,817254,64525 ,641 1.429.464Number ofAccounts211544029292576 8 3Percent ofAccounts31%8%6%4%43%8%100%Source: Treasury staff and Auditor's analysis Real and Personal Property Tax Accounts Receivable - As of August 29, 2018, there wasabout 39.5 million in property taxes accounts receivable ranging from year 2009 to 2018.According to Treasury Division staff, for real property taxes, if no payment is received duringthe year, foreclosure action will be taken after January 31st of the following year. For personalproperty taxes, delinquent accounts are referred to the Treasury Division' s in-house collectorsfor further collection action before they are referred to the collection agency.- 2 of 23 -
Internal Audit Report 2019-05Accounts ReceivableFinance DepartmentApril 25, 2019Real and Personal Property Taxes Receivableas of August 29, tals:Real Pro ertv 10,9287,0081,967 15.486.391Personal Pro ertv 63-- 24. 114.625Source: Treasury staff and Auditor's analysis Anchorage Animal Care and Control Accounts Receivable - As of September 5, 2018, therewas 47,325 in accounts receivable. Accounts receivable are maintained on a stand-alonesystem by the Animal Care and Control Services' contractor.Animal Care and Control Accounts Receivableas of September 5, 2018AgingCurrent15-60 Days61-365 DaysOver 1 YearOver 2 YearsTotals:Amount 3,40020,02522,4003001,200 41 325No. ofViolationsPercent ofViolations1910%7940%9548%11%Q3%200100%Source: Animal Care and Control Services' staff and Auditor'sanal sis- 3 of 23 -
Internal Audit Report 2019-05Accounts ReceivableFinance Depar1mentApril 25, 2019 Anchorage Health Department Accounts Receivable - Accounts receivable are maintainedon two different stand-alone systems: Envision for the FS&S Program and Insight for theCommunity Health Nursing Section.Food Safety and Sanitation Program Accounts Receivable -As of October 5, 2018,there was 80,158 in the FS&S Program accounts receivable.AHD Food Safety & Sanitation Program Accounts Receivableas of October 5, 2018Aging91-120 Days121 -365 DaysOver 365 DaysTotals:Amount 26013,73366, 165 80,158Number ofInvoices27212240Percent ofInvoices 1%11%88%100%Source: Food Safety & Sanitation Program staff and Auditor's analysisCommunity Health Nursing Section Accounts Receivable - As of October 2, 2018,there was 422,504 in Community Health Nursing Section accounts receivable, whichincluded both open claims with insurances companies (including Medicaid, Medicare,Tricare and private insurance companies) and clients' copay.- 4 of23 -
Internal Audit Report 20 19-05Accounts ReceivableFinance Depai1mentApril 25, 2019AHD Community Health Nursing SectionAccounts Receivableas of October 2, 2018AgingClientCurrent30 Days60 Days90 Days120 Days180 DaysOver 1 YearTotals:Insurance 7,7935,1684,7051,56011,94236,97395,790 45,281 163 ,231 258 57342,80820,26821 ,23123 ,52264,99140,472Total 53 ,07447,97624,97322,79135,464101 ,965136,261 422 504Percentof Total13%11%6%5%8%24%32%100%Source: Community Health Nursing Section staff and Auditor's analysis Risk Management Accounts Receivable - As of August 31 , 2018, there was 411,570 inaccounts receivable maintained on a stand-alone system. According to Risk Managementstaff, some of the accounts are on payment plans.Risk Management Department Accounts Receivableas of August 31, 2018Year2018201720162015201320122008Totals:Amount 123 ,557169,340101 ,4629,1392,8933,5121,667 411,570Number ofClaims382061l.Q 8Percent ofClaims56%29%9%1%1%1%1%100%Source: Risk Management staff and Auditor's analysis Anchorage Public Library - As of September 4, 2018, there was 872,869 in accountsreceivable maintained on a stand-alone system.- 5 of 23 -
Internal Audit Report 2019-05Accounts ReceivableFinance Depa1imentApril 25, 2019Anchorage Public Library Accounts Receivableas of September 4, 2018AgingAmountCurrent61-365 DaysOver 1 YearOver 2 YearsOver 3 YearsOver 4 YearsOver 5 YearsOver 6 YearsOver 7 YearsTotals: 55 ,15 1403,75074,262102,85363,07763,54463,65446,166412 872.869Numberof UsersPercentof Users6, 10525,52711,58412,87811 , 16611,59111 ,0588,5416%26%12%13%11 %12%11%9% 1%100%21 Source: Library staff and Auditor's analysis Anchorage Fire Department Area Wide Emergency Medical Services - As of August 27,2018, there was about 4.1 million in emergency medical services (EMS) accounts receivable.Anchorage Fire Department provides EMS to all areas of the Municipality. Collection forambulance services accounts receivable are contracted by AFD to Wittman Enterprises, LLC.AFD Area Wide Emergency Medical Services Accounts Receivableas of August 27, 2018AgingCurrent31-60 Days61-90 Days91-120 Days121-180 DaysOver 180 DaysTotals:AmountPercent of Amount 9%7%8%10%100% 4,148,257Source: Treasury staff and Auditor's analysis-6of23-
Internal Audit Report 2019-05Accounts ReceivableFinance DepartmentApril 25, 2019 Delinquent Criminal/Civil Fines and Fees - As of August 2018, the DCF database containedabout 2.5 million of in-house accounts receivable. Treasury maintains the Municipality' sDCF database. These fees and fines are ordered by the Alaska Court System and theMunicipal Administrative Hearing Officer and include items such as criminal fines, trafficcitations and minor offense fines, cost of imprisonment fines, indigent defense fees , andMunicipal code enforcement fines. Most of the fees and fines have been turned over to theMunicipality by the Court System. Treasury Division DCF staff try to match these accountswith Permanent Fund Dividends (PFD) to facilitate payment and perform bank sweeps.However, sufficient PFD funds may not be available to pay the debt, since other organizationsmay also have claim on this money. Delinquent Criminal/Civil Fines and Fees are sent tocollections ifthe account is non-responsive to a final demand letter and the individual is olderthan 18 years. Accounts are adjusted to 0 and collection action ends if: 1) the account is olderthan ten years; 2) the account has no activity for three consecutive years; 3) the account hasnot been matched to the PFD for three consecutive years; 4) the debtor is deceased; 5) thedebtor is in bankruptcy; or 6) the debtor is incarcerated.The Municipality is dependent upon the collection of taxes and other revenue to provide services toits citizens. The Municipality is under pressure to maximize revenue and provide the highest level ofservice possible within budget constraints. To help accomplish this, an efficient collection system isrequired. This report discusses the management of the Municipality' s accounts receivable and effortsto collect on amounts owed. Management of receivables includes the methods and proceduresadopted by departments to ensure that amounts owed are collected. It also encompasses systems formeasuring, reporting, and monitoring performance.The objective of any system of receivables management is to maximize collection of amounts duewhile minimizing bad debt losses. In some cases, write-offs of bad debts are necessary to providefinancial managers with an accurate picture of the real value of outstanding accounts. Prudentbusiness practice normally dictates that resources should not be wasted on accounts that have little orno chance of collection, or where the cost of collection clearly exceeds the valu of the account.Effective receivable systems should contain most of the following elements:- 7 of 23 -
Internal Audit Repo112019-05Accounts Receivab leFinance DepartmentApril 25 , 2019 Prompt and accurate recording of amounts due and identification of debtors. Timely billing of outstanding accounts. Accounting systems that provide management with timely information. A well-conceived collection process. Use of commercial credit bureaus and collection agencies and litigation where potential gainexceeds the cost. Fair reporting of the value of outstanding accounts receivable, as well as recording andreporting information on collection effectiveness. Write-off of accounts that are clearly not collectible.The Municipality's 2017 Comprehensive Annual Financial Report (CAFR) shows the Municipalitywith a 33 .3 million accounts receivable balance and a 4.4 million allowance for uncollectibleaccounts. Because of these large balances, it is critical to have effective accounts receivable systemsto maximize collection.Objective and Scope. The objective of this audit was to determine the methodology, effectiveness,and accuracy of the Municipality's accounts receivable functions and systems. This audit was limitedto general government and did not include enterprise activities. Our audit included a review ofselected invoices from an SAP accounts receivable aging report dated August 15, 2018, and selectedcredit memos processed in 2017 and 2018. In addition, we also judgmentally selected and revieweddelinquent persona
INTERNAL AUDIT REPORT 2019-05 Accounts Receivable Finance Department MUNICIPALITY OF ANCHORAGE Internal Audit Department 632 W 6th A venue, Suite 710 P.O. Box 196650 Anchorage, Alaska 99519-6650 www. mu ni. org/ departmen ts/internal_aud it April 25, 2019 INTERNAL AUDIT DEPARTMENT Michael Chadwick, CIA, CICA Director Phone: (907) 343-4438 Fax: (907) 343-4370 E
