Audit report by Baltimore City Auditor Robert L. McCarty, Jr. delivered to City Comptroller Joan M. Pratt, re Baltimore City Recreation and Parks Department 2012 financial statement

AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH
GOVERNMENT AUDITING STANDARDS

April 9, 2014
Honorable Joan M. Pratt, Comptroller
And Other Members of the Board of Estimates
City of Baltimore, Maryland

We have audited the Balance Sheet – Governmental Funds and the Statement of Revenues, Expenditures, and Changes in Fund Balances, the financial statements of the governmental activities, each major fund and the aggregate remaining fund information of the Department of Recreation and Parks, a unit of the primary government, City of Baltimore, Maryland, as of and for the year ended June 30, 2012, which collectively comprise the Department of Recreation and Parks’ basic financial statements, and have issued our report thereon dated, April 9, 2014. We conducted our audit in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.

Internal Control Over Financial Reporting

Management of the Department of Recreation and Parks is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the Department of Recreation and Parks’ internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing an opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Department of Recreation and Parks’ internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Department of Recreation and Parks’ internal control over financial reporting.
Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies or material weaknesses have been identified. However, as described below, we identified certain deficiencies in internal control over financial reporting that we consider to be material weaknesses and significant deficiencies.2
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency described below to be a material weakness.

Finding 2012 – 1: Financial Statements

The Departments of Finance and Recreation and Parks did not initially provide accurate financial statements of the financial activity of the Department of Recreation and Parks for fiscal year 2012. As established by the City Charter, Article VII, Section 11(a), the Department of Finance is responsible for the compilation of the City Agency’s financial statements. The Bureau of Accounting and Payroll Services (BAPS), as part of the Department of Finance, prepared, in December of 2012, financial statements containing the financial activity of Recreation and Parks, which did not fully agree to the underlying financial activity recorded on CityDynamics, the City’s financial accounting system. The Department of Recreation and Parks could not determine how the numbers were developed by BAPS, and subsequently developed separate financial statements. After numerous revisions by the Department of Recreation and Parks, the statements agreed to CityDynamics.
We recommend that BAPS, in conjunction with other City Agencies, establish written policies and procedures for the development and preparation of financial statements that agree to the financial activity recorded on the City’s financial accounting system (CityDynamics). Those policies and procedures should provide controls to review and approve those financial statements for accuracy, completeness and presentation in accordance with generally accepted accounting principles (GAAP).
We also recommend that Department of Recreation and Parks develop a manual to provide guidance to its accounting staff regarding the development of the annual financial statements. The procedures should provide a list of personnel who may provide needed details, guidance from BAPS over extracts from CityDynamics, and reference accounting standards’ requirements.

Finance Department Response:

The Finance Department concurs with the recommendation. BAPS will implement a process for compiling financial statements for City agencies in coordination with agency fiscal staff. In addition, BAPS will draft a policy and procedures manual for agency financial statement compilation.
Further, BAPS will evaluate the current financial reporting controls and design and implement additional controls, where necessary, to ensure the agency financials are compiled accurately.3
Recreation and Parks Department Response:

Recreation and Parks concurs with the recommendation. To prepare subsequent financial statements, the Department of Recreation and Parks Fiscal Services team will prepare a process manual to provide guidance to its accounting staff. The process manual will be prepared based upon meetings with members of the Reporting section at BAPS to discuss the relevant sources of data, common interpretation of that data and agreed-upon format to prepare the financial statements. Copies of the completed statements will be sent to BAPS for review, further discussion, agreed-upon necessary adjustments and agreed-upon final documents prior to issuance.
A significant deficiency in internal control is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider these deficiencies described below to be significant deficiencies.

Finding 2012 – 2 : Payroll Documentation

The Fiscal Service Division and Recreation Centers did not always adhere to the policies and procedures established by the City for the recorded time and attendance in the Enterprise E-Time System (E-Time), related payroll attendance records and required supporting documentation. We noted that the time and attendance posted to the E-Time was not consistently verified against supporting documentation (daily sign-in sheets, requested leave records). In some cases, the supporting documentation was not properly authorized or signed, did not support the entered information, or was not always captured in a way which validated the employee’s attendance.
As part of our testing of time and attendance records, we found instances where Fiscal Services Division employees’ E-time records were not supported by the daily sign-in sheets or requests for time off. For example, employees were marked as on leave in E-time when the sign-in sheets noted the employee as present, or the E-time had an employee marked present, but leave was approved and the employee did not sign-in.
We also tested time and attendance records at the Recreation Centers. We found that one center did not have employees use sign-in sheets. Supervisory personnel are held responsible for signing-in employees upon their arrival. The Center Director records the employee attendance time based on a weekly schedule and not the actual time for the employee. This weekly schedule is submitted to Central Office for posting into the E-Time system.

We recommend that Recreation and Parks establish and implement written procedures which will assure adherence to the City’s procedures for the E-Time automated payroll time and attendance system. We also recommend that the entry of employees’ time in the E-time system be taken from records that document an employee’s absence or actual time in attendance.4
Recreation and Parks Department Response:

A review showed that some of the inconsistencies in the time and attendance records on the paper document versus the time and attendance record in electronic format (E-time) are mainly due to employees’ mistakes or errors. While the inconsistencies in information documented on paper and in E-time are a concern, there are more reliable measures of controls that are used to validate employees’ time and attendance records. One measure of control is the summary time sheet that is approved by the supervisor who directly supervised the employee and submitted to the payroll clerk with supporting documents. Sign-In sheets are never submitted to the payroll clerk for entry into E-time. Personnel policies and procedures are currently under review and the findings have increased the urgency to change or update time and attendance policies and procedures.
Immediate steps have been taken since the release of the findings, such as those taken in the Fiscal Services Division, to improve the consistency of the time and attendance data on the paper document and E-time. In the Fiscal Services Division the sign-in procedures have been changed and documents have been redesigned to avoid errors. Directives have been issued to supervisors in all divisions to ensure that payroll documents are consistent with information in E-time and approved supporting documents must be attached to all time sheets submitted. We have asked our IT Division to revive its efforts to explore the possibility of installing an electronic payroll time and attendance record keeping system.

Finding 2012 – 3: Procedures Manual

The Department of Recreation and Parks did not have a standard operating policies and procedures (SOPs) manual to guide, direct and instruct its employees on cash handling. We found inconsistencies among the Recreation Centers in how to account for tickets which supports the collection and reporting of cash for activities. Currently the Department is only using the City’s Administrative Manual. These SOPs should concur with the City’s Administrative Manual and provide more in-the-field direction and instruction to employees. A manual promotes the ability for the rotation of staff and provide guidelines for newly hired staff. These standard operating policies and procedures should include, at a minimum, direction in cash handling, cash collection and disbursement, payroll, time and attendance, financial and program reporting, required documentation for activities, and reconciliation of tickets.
We recommend that Recreation and Parks develop standard operating policies and procedures to provide uniformity in the handling of cash collecting, recording and reporting. These procedures should also include documenting the attendance of participants, recording cash collected, and the reconciling and reporting of activities.

Recreation and Parks Department Response:

There are individual policies, procedures and directives in place to execute select administrative functions. Some of these policies and procedures were recently developed to incorporate new elements, such as RecPro (a new recreation and parks activities management software), in the agency’s operations. Teams of staff members are currently going through the process of 5
developing an administrative manual for all areas of operation as part of the Commission for Accreditation of Parks and Recreation Agencies (CAPRA) certification process. Having the department certified by CAPRA is the standard of operation the Mayor required of the department. In the meantime, newly written and updated policies and procedures will be immediately implemented where necessary.

Finding 2012 – 4 : Accounting for Revenues

The Fiscal Service Division did not always use the appropriate revenue account for recording certain revenues. We found that the Fiscal Service Division was depositing revenue funds in an expense account. Offsetting revenues against expenditures can understate actual expenditures and revenues reported in the financial statements.
We recommend that Recreation and Parks use the proper account (400000 series) to record the receipt of revenues. If necessary, we recommend that Recreation and Parks contact Bureau of Accounting and Payroll Services (BAPS) to assist in setting up the appropriate accounts to record all revenues. We also recommend that Recreation and Parks establish policies and procedures that require periodic supervisory review of all account activity.

Recreation and Parks Department Response:

To improve the accounting for all revenues, we have taken the following actions. First, we reviewed and updated the revenues’ charts of accounts provided to the Department of Recreation and Parks’ Cashier’s office. The Cashier’s office is the final determinant of the selected revenue account. Second, a short retraining and guidance was provided to the Cashier on the use of the chart of accounts and how to identify the correct and incorrect accounts submitted by program managers with their deposits. Third, we have requested a meeting with members of the Bureau of Accounting and Payroll Services (BAPS) to identify the unusual or incorrect account structure that uses the Natural 600000 as a revenue account. Once identified, we will request that these accounts be disabled or eliminated. Fourth, while at BAPS, we will discuss the possibility of creating a new family of accounts to record business generated revenues from the special facilities and permit activities. These revenues are currently being recorded in the ‘local/miscellaneous’ grant account.

Finding 2012 – 5: Expenditure Documentation – Capital Projects

The Department of Recreation and Parks did not maintain support for interagency billings related to capital project expenditures. We tested expenditures of capital projects for the period July 1, 2011 to June 30, 2012. Among the tested transactions were interagency expenditures which were not documented in the Department of Recreation and Parks’ project files. These transactions were related to services provided by the Department of Public Works, but authorization and other supporting documentation for the transactions were not maintained in the Department of Recreation and Parks’ files for the projects involved.
We recommend that Recreation and Parks establish a system by which the Fiscal Services Division assures the proper accounting, approvals, and monitoring of authorized capital 6
project expenditures. We also recommend that a review be conducted quarterly, at a minimum, by the Fiscal Services Division to assure proper approval and support has been obtained for all capital expenditures.

Recreation and Parks Department Response:

The Department of Recreation and Parks has maintained a tradition, borne out of the budget process, to keep capital financial management and the operating financial management separate. However, under the current Director, efforts have been made to get the Fiscal Services Division more involved with the financial management of capital development activities. The Chief of Fiscal Services now attends capital improvement planning (CIP) meetings. Quarterly financial management meetings have been held between with both entities. The next meeting will be held in April. New policies and procedures to improve the capital approval process are currently being formulated for implementation.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Department of Recreation and Parks’ financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
The Department of Recreation and Parks’ responses to the findings identified in our audit are described above. We did not audit the Department of Recreation and Parks’ responses and, accordingly, we express no opinion on them.
This report is intended solely for the information and use of the management of the City of Baltimore, Maryland, the Department of Recreation and Parks and others within the entity.

Respectfully submitted,
Robert L. McCarty, Jr., CPA
City Auditor