by Andrew Walden
The Kauai County Auditor this week released two reports prepared for the County by local auditing firm PKF Pacific.
PKF Pacific partner Patrick Oki was recently arrested at the Honolulu Airport on embezzlement and money laundering charges so obviously this company is well-positioned to understand Kauai's accounting systems. PKF has also provided auditing services to HART and OHA.
Here are some highlights from the PKF audit of Kauai County's payroll system:
Finding 1: The amount of supporting documentation maintained by Department of Personnel Services ("DPS") is inconsistent and could expose the County to risk of noncompliance with bargaining unit agreements.
Employee files are not centrally and securely maintained. There were many instances of missing documents due to lack of record retention and poor transitions of duties and responsibilities as payroll personnel turnover occurred. Documentation for benefit elections were not maintained prior to 2013.
Finding 2: The County applied incorrect pay or benefit rates resulting in overpayments to employees.
Finding 3: Certain County personnel have the ability to make changes in both the hiring and payroll systems, resulting in a lack of proper segregation of duties.
Certain employees outside the payroll function are capable of creating positions requisitions, adding new users and updating user permissions, among other user rights. They also have the ability to reapply base rates, rebuild hours, override and make pay adjustments. Though they cannot create new employees themselves, personnel outside of the payroll function should not have the ability to adjust an employee's pay rate due to the potential for fraud.
And these are highlights from the PKF audit of Kauai County's hiring practices:
Finding 1: The County did not consistently adhere to Hawai'i Revised Statutes ("HRS") and County policies when hiring and conducting promotions, transfers and reallocations.
The Department of Personnel Services ("DPS") did not conduct physical examinations for two of the employee numbers in our sample. DPS also delegates certain procedures to the appointing authority but does not require formal documentation to show the procedures were actually performed.
Recommendation; DPS should reassess current procedures and controls to ensure compliance with HRS and County policy to establish fair and consistent hiring, promotions, transfers and reallocations....
Finding 2: The amount of supporting documentation maintained by DPS is inconsistent and could expose the County to the risk of non-compliance with bargaining unit agreements, internal policy and HRS.
We noted 64 instances where DPS was unable to provide documentation for one of our hiring, promotion, transfer or reallocation testing procedures, including four files that were missing in their entirety....
Finding 3: A lack of controls surrounding certain procedures subjects the County to fraud risk.
In accordance with internal policy, DPS is allowed to designate certain positions as "unskilled labor," which permits the appointing authority to bypass the interview process during recruitment. However, we noted there were insufficient approval and monitoring controls surrounding the assignment of this designation, which potentially allows the interview process to be circumvented for all county positions....
KGI: Payroll audit finds overpayment
April 6, 2015: