Report on Accountability
We appreciate the opportunity to work in cooperation with your Network to promote accountability, integrity and openness in government. The State Auditors Office takes seriously our role to advocate for government accountability and transparency and to promote positive change. Please find attached our report on Northwest Open Access Networks accountability and compliance with state laws and regulations and its own policies and procedures. Thank you for working with us to ensure the efficient and effective use of public resources. Sincerely,
Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 TDD Relay (800) 833-6388
Table of Contents
Northwest Open Access Network King County July 12, 2013
Audit Summary .......................................................................................................................... 1 Related Reports ......................................................................................................................... 2 Description of the Network ......................................................................................................... 3 Schedule of Audit Findings and Responses ............................................................................... 5
Audit Summary
Northwest Open Access Network King County July 12, 2013 ABOUT THE AUDIT
This report contains the results of our independent accountability audit of Northwest Open Access Network from January 1, 2010 through December 31, 2011. We evaluated internal controls and performed audit procedures on the activities of the Network. We also determined whether the Network complied with state laws and regulations and its own policies and procedures. In keeping with general auditing practices, we do not examine every transaction, activity or area. Instead, the areas examined were those representing the highest risk of noncompliance, misappropriation or misuse. The following areas were examined during this audit period: Billing, receipting, adjustments and accounts receivable Review of projects procurement, contract and prevailing wage compliance Payroll and leave benefits Disbursements general, travel, employee reimbursements and credit cards
RESULTS
In most areas, the Network complied with state laws and regulations and its own policies and procedures. However, we identified a condition significant enough to report as a finding: The Network lacks adequate internal controls over expenses and assets increasing the risk of misuse, loss and misappropriation of public resources.
Related Reports
Northwest Open Access Network King County July 12, 2013 FINANCIAL
A financial statement audit was performed by a firm of certified public accountants. That firms report is available from the Network. The firm reported a material weakness in internal controls over financial reporting regarding the Networks treatment of its pension liability and classification of net assets for 2011.
APPOINTED OFFICIALS
These officials served during the audit period: Board of Directors: Fred Mitchell Douglas Miller (through November 2011) Dave Siburg John Jordan Ernie Bolz (through November 2011) Rich Nall (through November 2010) Warren Miller (through November 2010 and new term effective December 2011) Gary Ivory (effective December 2010) Tim Nies (effective February 2011) Linda Gott (effective December 2011) Greg Marney Dave Spencer
Phone: Website:
AUDIT HISTORY
We typically audit the Network every two years. The Network was free of findings in the prior 10 years.
Employee reimbursements Employees routinely request reimbursement for various business related expenses, including lodging, meals, airfare, cell phone charges, internet fees, etc. During the audit,
employees were reimbursed approximately $93,000 each year. For 2010 and 2011, we reviewed 16 employee reimbursements totaling $39,558 and 14 employee reimbursements totaling $16,723, respectively. Reimbursements made to employees lacked adequate documentation to support the validity of the payment. For 2010 and 2011, we questioned the business purpose for reimbursements totaling $27,619 and $4,629, respectively. A vehicle allowance is provided to select employees and, per policy, the allowance amount is $500 per month. We identified two employees receiving $600 without prior approval. In total, an additional $4,754 was paid to these employees.
Payroll The Network had $2.6 million in gross payroll costs in 2010 and $3.5 million in 2011. We noted the following: The Network pays employees double their regular rate for hours worked on holidays. The Network was unable to provide documentation, such as a policy, showing Board approval of this practice. In addition, we found two instances in which there were inconsistencies in the application of this practice. The Network policy allows employees to carry over unused leave as long as the minimum annual usage, prescribed in policy, is met. We tested support for 12 employees in 2010 and identified four employees that carried forward a total of 158 hours, or approximately $12,000, contrary to the policy. Employees are able to cash out excess leave; however, the formula used to calculate hourly rates was not consistently applied. Of the 10 employees tested in 2011, we identified two underpayments of $130 and $149, as well as an overpayment of $850.
Safeguarding of assets Some Network employees work out of their homes. Per policy, the Network purchases office and other miscellaneous equipment, such as printers, headphones and file cabinets, to furnish at-home work offices. However, the Network does not have policies and procedures for tracking and monitoring equipment purchased and as a result we were unable to trace $2,849 of equipment purchased to an equipment listing. In addition, the Network was unable to provide a list of all equipment and other items purchased and provided to Network employees.
Cause of Condition
Network management has not effectively implemented internal controls or policies and procedures to ensure it complies with state laws to support the public purpose of every transaction and prevent the loss of public funds.
While the Network has included operating policies in its employee handbook, the policies are not sufficiently detailed to address the issues noted in this audit. The Network does not have sufficient monitoring in place to ensure adequate supporting documentation is received and maintained.
Effect of Condition
Without maintaining proper documentation, in accordance with state law, the Network was not able to demonstrate that all payments reviewed in the audit were for a valid public purpose. Inadequate internal controls such as these increase the risk that misuse, loss or misappropriation could occur and not be detected in a timely manner, if at all, by Network officials.
Recommendation
We recommend the Network improve internal controls over expenses and assets to ensure appropriate use of public funds. We specifically recommend the Network: Clarify existing policies and add policies to ensure staff have the information needed to accurately interpret and act on Board expectations. These policies should include a more detailed travel expense reimbursement policy, including payment for meals with meetings, and should consider the use of per diem rates. Require and retain supporting documentation for all payments to demonstrate the public purpose and compliance with state laws. Establish monitoring procedures over all payments made and items purchased with public funds to safeguard public assets.
Networks Response
The Network recognizes the importance of adequate internal controls, as reflected in the Recommendation section in this report. Since the 2010-2011 audit period covered in this report the Network has taken steps to increase its controls as follows: 1. Clarification of existing policies in the employee handbook including a more detailed travel expense reimbursement policy. Some of the items brought up by the State Auditor in this report were allowed under previous policies and practices and have since been corrected; 2. Improvement in the retention of supporting documentation for payments by centralizing storage and implementing a new financial information system where files are primarily stored in electronic format with sufficient backup procedures; 3. Increase in the number of employees in the accounting department to compensate for an increase in work load as a result of sustained Network growth. Management believes that there is currently sufficient staff in place to ensure that review and monitoring procedures are followed, proper safeguards of public assets are enforced and payroll policies are consistently implemented. The Network continues to pursue options to improve and strengthen its internal controls and is open to any further specific recommendations from the State Auditors Office.
Washington State Auditors Office 7
Auditors Remarks
We thank the Network for its response and appreciate the steps it is taking to resolve this issue. We will follow up with the Networks corrective action during the next audit.
RCW 40.14.070 Destruction, disposition, donation of local government records Preservation for historical interest Local records committee, duties Record retention schedules Sealed records, states in part: (1)(a) County, municipal, and other local government agencies may request authority to destroy noncurrent public records having no further administrative or legal value by submitting to the division of archives and records management lists of such records on forms prepared by the division . . . (2)(a) Except as otherwise provided by law, no public records shall be destroyed until approved for destruction by the local records committee. Official public records shall not be destroyed unless: (i) The records are six or more years old; (ii) The department of origin of the records has made a satisfactory showing to the state records committee that the retention of the records for a minimum of six years is both unnecessary and uneconomical, particularly where lesser federal retention periods for records generated by the state under federal programs have been established; or (iii) The originals of official public records less than six years old have been copied or reproduced by any photographic, photostatic, microfilm, miniature photographic, or other process approved by the state archivist which accurately reproduces or forms a durable medium for so reproducing the original. RCW 42.24.090 Municipal corporations and political subdivisions Reimbursement claims by officers and employees, states: No claim for reimbursement of any expenditures by officers or employees of any municipal corporation or political subdivision of the state for transportation, lodging, meals or any other purpose shall be allowed by any officer, employee or board charged with auditing accounts unless the same shall be presented in a detailed account: PROVIDED, That, unless otherwise authorized by law, the legislative body of any municipal corporation or political subdivision of the state may prescribe by ordinance or resolution the amounts to be paid officers or employees thereof as reimbursement for the use of their personal automobiles or other transportation equipment in connection with officially assigned duties and other travel for approved public purposes, or as reimbursement to such officers or employees in lieu of actual expenses incurred for lodging, meals or other purposes. The rates for such reimbursements may be computed on a mileage, hourly, per diem, monthly, or other basis as the respective legislative bodies shall determine to be proper in each instance: PROVIDED, That in lieu of such reimbursements, payments for the use of personal automobiles for official travel may be established if the legislative body determines that these
payments would be less costly to the municipal corporation or political subdivision of the state than providing automobiles for official travel. All claims authorized under this section shall be duly certified by the officer or employee submitting such claims on forms and in the manner prescribed by the state auditor. Washington State Constitution, Article 8, Section 7, Credit Not to be Loaned, states: No county, city, town or other municipal corporation shall hereafter give any money, or property, or loan its money, or credit to or in aid of any individual, association, company or corporation, except for the necessary support of the poor and infirm, or become directly or indirectly the owner of any stock in or bonds of any association, company or corporation. Attorney General Memorandum May 14, 1987, Eating and Drinking at Public Expense RCW 42.24.115 Municipal corporations and political subdivisions Charge cards for officers' and employees' travel expenses, states in part: (1) Any municipal corporation or political subdivision may provide for the issuance of charge cards to officers and employees for the purpose of covering expenses incident to authorized travel. (2) If a charge card is issued for the purpose of covering expenses relating to authorized travel, upon billing or no later than thirty days of the billing date, the officer or employee using a charge card issued under this section shall submit a fully itemized travel expense voucher. Any charges against the charge card not properly identified on the travel expense voucher or not allowed following the audit required under RCW 42.24.080 shall be paid by the official or employee by check, United States currency, or salary deduction. RCW 43.09.2855 Local governments Use of credit cards, states in part: (1) Local governments, including counties, cities, towns, special purpose districts, municipal and quasi-municipal corporations, and political subdivisions, are authorized to use credit cards for official government purchases and acquisitions. Part II. Virtual Office Environment, Section K. Credit Card Usage of the Employee Handbook, states: Employees may be issued a NoaNet credit card to charge expenses properly reimbursable by NoaNet. Personal charges or charges for expenses not reimbursable by NoaNet shall not be made on NoaNet credit cards. Part III. Benefits, Section G. Combined Leave Benefits of the Employee Handbook, states in part:
If any employee has not used at minimum the Minimum Annual Usage itemized below between January 1 and December 31 of each calendar year the difference between the Minimum Annual Usage and the actual usage will be removed from that employees Combined Leave Benefit prior to being carried over to the next year.
NoaNet Combined Leave Benefit Accrual Schedule Annual Combined Leave Employees years Maximum Benefit Accrual of service Accumulation (approx hours per month) Less than 2 years 10 hours (1.25 days per month) 200 hours Less than 5 years 12 hours (1.5 days per month) 400 hours At least 5 years 20 hours (2.5 days per month) 600 hours
Minimum Annual Usage 40 Hours 60 Hours 80 Hours
www.sao.wa.gov www.sao.wa.gov/EN/News/Subscriptions