HomeMy WebLinkAboutAudit Reports - Public - Utility Billing and Collections Audit - 7/24/2017
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1 Utility Billing and Collections
Date: July 24, 2017
To: Kevin R. Phelps
From: Candace MacLeod, City Auditor
Subject: Utility Billing and Collections Audit
As part of the FY17 approved audit plan, a utility billing and collections audit was
performed by an external consultant, REDW LLC., under the supervision of the City
Auditor’s Office. The purpose of the audit was to evaluate the effectiveness of the City
of Glendale’s (City) utility billing and collections processes and determine compliance
with applicable ordinances, policies, and procedures.
The audit report includes the following five observations:
1. Closed Accounts with $680,000 in Credit Balances
Controls were not in place to ensure that payments received for over 2,800 closed utility
accounts totaling approximately $680,000 were returned to customers. There were
many instances where customers established automated payments from a bank
account to the City, and those payments were received after the utility account was
closed.
2. Unauthorized Customer Account Adjustments
Adjustments to customer accounts require supporting documentation and supervisory
approval. Audit testing identified cases where adjustments did not have sufficient
support or approval from a supervisor. Furthermore, controls were not in place to
identify unauthorized account adjustments, including system limitations for the dollar
amounts a customer service representative could process.
3. Inappropriate Access to the NorthStar System
The City uses NorthStar to change utility rates, adjust accounts, and track customer
account information, which includes personal data for residents. Testing identified users
with the ability to change rate tables, although such access was not required to
perform their job duties; a user with inappropriate access to change rate tables; and
users that terminated or transferred and no longer required access to NorthStar.
4. Transferring Past Due Accounts to Third-Party Collections
City policy requires that past due accounts are transferred to a third-party collection
agency 90 days after the final bill is generated. Testing identified that there were no
documented procedures in place regarding the review process to ensure that
accounts were appropriately transferred to collections in accordance with City policy.
Additionally, processes were not documented to monitor the progress or effectiveness
of third-party collections.
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2 Utility Billing and Collections
5. New Account Set-up Information Not Complete
City Ordinance requires customers to provide a deposit, escrow/title information or
lease agreement, social security number, and driver’s license prior to account set-up. If
a deposit is waived, the reason must be documented. Audit testing identified a deposit
waiver without supporting documentation and accounts without escrow/title or lease
information on file.
Furthermore, there were many outdated policies and procedures or areas where they
did not exist at all.
Management concurred with all the recommendations and have developed action
plans to address them by September 30, 2017.
We would like to thank staff for their excellent cooperation during the audit.
Attachment
cc: Michael D. Bailey, City Attorney
Jessica Bundy, Principal, REDW LLC
Lisette Camacho, Assistant Director Budget and Finance
Tom Duensing, Assistant City Manager
Craig Johnson, Director of Water Services
Vicki Rios, Director of Budget and Finance
Utility Billing and Collections
Internal Audit
April 2017
City of Glendale
Utility Billing and Collections
Internal Audit
Table of Contents
Page
INTRODUCTION 1
PURPOSE AND OBJECTIVES 1
SCOPE AND PROCEDURES PERFORMED 1
OBSERVATIONS, RECOMMENDATIONS AND MANAGEMENT RESPONSES 4
PROCESS IMPROVEMENT OPPORTUNITIES 7
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City of Glendale
Utility Billing and Collections
Internal Audit
Report
INTRODUCTION
We performed the internal audit services described below solely to assist the City of Glendale in
evaluating the processes for utility billing and collections. Additionally, we evaluated
compliance with applicable City ordinances and policies and procedures. Our services were
conducted in accordance with the Consulting Standards issued by the American Institute of
Certified Public Accountants and the terms of our Professional Services Agreement for these
internal audit services. Since our procedures were applied to samples of processes, it is possible
that significant issues related to the areas tested may not have been identified.
Although we have included management’s responses in our report, we do not take responsibility
for the sufficiency of these responses or the effective implementation of any corrective action.
PURPOSE AND OBJECTIVES
The City of Glendale is responsible for all operations involving utility billings and collections.
Such procedures include the set-up of new accounts, closing of accounts, meter reading, billing,
performing rate updates, collecting customer payments, safeguarding personal information, and
performing account adjustments. Our internal audit evaluated the effectiveness of the City of
Glendale’s utility billing and collections processes and determined compliance with applicable
City ordinances, and policies and procedures.
SCOPE AND PROCEDURES PERFORMED
In order to gain an understanding of processes including applicable City ordinances, we
interviewed the following personnel:
Supervisor for Utility Billing
Deputy Director of Water Services
Customer Service Manager
Customer Service Supervisor
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Utilities Supervisor
Senior Applications Analyst for Water Services
City Auditor
In order to gain an understanding of the processes, we read relevant portions of:
Utility Fees Adjustment/Waivers Procedure (Effective November 7, 2016)
Utility Deposit Policy (Effective May 16, 2011)
Listing Agent Deposit Policy (Effective December 12, 2011)
Establishing Utility Services (Effective May 16, 2011)
Code of the City of Glendale Chapter 33- Water, Sewers and Sewage Disposal (Various
Effective Dates)
Water Billing Rates (Effective July 2010)
Utility Billing Rates (Effective July 2010 and May 2014)
We performed the following testwork:
Account Set-Up: Obtained a listing of new accounts set-up from July 1, 2014 through
December 31, 2016, and selected 40 new accounts. For each new account selected, we tested to
determine if:
Required personal information was obtained prior to opening an account.
Rights to the property were verified (county records were verified for owners; lease
agreements were obtained for lessors).
A $200 deposit for residential and $250 deposit for commercial customers was collected
prior to service being turned on.
The customer’s first bill included an initial service date that agreed to the turn-on date.
Account Cancellations: Obtained listing of cancelled accounts from July 1, 2014 through
December 31, 2016, and selected 40 cancelled accounts. For each cancelled account selected, we
tested to determine if:
A forwarding address was obtained from the customer.
The $200 or $250 deposit was applied to the final bill (if not previously refunded).
Additionally, we obtained the Credit Balance Summary Report, as of April 27, 2017, and
selected five accounts for tested. For each account selected, we performed inquires to determine
if the credit balance was accurate and the account had been closed.
Meter Reading and Data Transfer: Performed inquires with the Utilities Supervisor to gain an
understanding of the meter reading process and the controls in place to ensure meters are read
accurately and the data is accurately transferred to the customer accounts. Additionally, we
performed a physical observation of the meter reading process. We observed the reading for 27
meters, and tested to determine if the readings were accurately captured in the Itron meter
reading device. The following day, we observed the 27 accounts were accurately reflected in the
NorthStar system. Additionally, we determined if alerts for abnormal usage were researched, and
the address, serial number, and amount was checked before reentering the reading.
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Billing Preparation and Review: Obtained a listing of all accounts billed from July 1, 2014
through December 31, 2016, and selected 50 billing transactions. For each billing transaction
selected, we recalculated the billed amounts for water based on usage and water rates and
verified that trash charges were accurate. Additionally, we tested 12 of the 50 commercial
accounts to determine if the sewage amounts were charged based on the appropriate rate code.
Access to Update Rates: Obtained a system-generated listing of all individuals with the ability to
add, modify or delete rate tables within NorthStar, the utilities system. Through inquiry and
observation, we determined if the individuals with this access were appropriate based on job
description.
Rate Changes: Obtained a listing of all rate changes within the NorthStar, dating back to 2009.
We performed analytics to ensure that residential changes had not occurred since 2010 (latest
approved rate schedule) and seasonal commercial rate changes appeared appropriate. We
selected 11 rate codes, and observed the most recent two changes in order to capture
winter/summer rates and tested to determine if:
Minimum billing requirements according to the NorthStar report agreed to the approved City
rates.
The rate according to the NorthStar report agreed to the approved City rates.
The rate was appropriate for the season (i.e. changes made in March reflected summer rates,
and October reflected winter rates).
Collection of Amounts Due: Obtained a listing of payments received from July 1, 2014 through
December 31, 2016, and selected 50 customer payments. For each payment selected, we tested to
determine if the amount collected agreed to the third party summary report, and the amount was
credited to appropriate customer account in NorthStar. Additionally, we selected five monthly
reconciliations and tested to determine if a reconciliation was performed and the total funds
deposited to the bank agreed to the third party summary report.
Transfers to Third Party Collection Agency: Obtained an understanding of the process used to
transfer past due accounts to the third party collection agency. We selected 3 months (October,
November, and December 2016) and tested to determine if the past due accounts were properly
sent to the third party collector.
Safeguarding of Proprietary Information: We obtained listing of all users with access to
NorthStar as of April 27, 2017, and compared the listing to the current employees provided by
Human Resources. For any users which did not appear on the HR listing, we inquired with the
Customer Service Manager to determine if access for those individuals was appropriate.
Adjustments: We obtained a listing of activity for all accounts from July 1, 2014 through
December 31, 2016. We analyzed the transaction descriptions to identify adjustments (e.g. write-
offs, administrative adjustments, fee reversals) and selected 40 account adjustments. For each
adjustment selected, we tested to determine if:
The purpose and amount of the adjustment appeared reasonable (late fees, surcharges, etc.)
Appropriate documentation including the reason for the adjustment existed.
The adjustment was approved by a supervisor with appropriate authority.
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Additionally, we observed the access rights to perform account adjustments to determine if
system controls would catch any unauthorized adjustments.
OBSERVATIONS, RECOMMENDATIONS AND MANAGEMENT
RESPONSES
During the course of the audit we identified many areas which appeared to be functioning
properly. These areas included meter reading and data transfer as well as billing preparation and
review.
As a result of our testing, REDW identified the following observations:
1) Closed Accounts with Credit Balances
There were no controls in place to ensure that any payments received for closed accounts were
returned to the customer. Closed customer accounts were identified which had credit balances
although they had been closed for many years, dating back as far as 1990. There were many
instances where customers had set a bank account to send automated payments to the City and
those payments were received after the utility account was closed. The payments were
inappropriately accounted for in the Accounts Receivable – Water Fund account, and the total
credit balance on over 2,800 closed accounts as of April 2017 was approximately $680,000.
Potential Risk: High – The City may be inappropriately accounting for the overpayments on
closed accounts, and may be in violation of state unclaimed property laws, where credits owed to
a customer are presumed to be abandoned three years after the obligation occurred (A.R.S §44-
302). Additionally, customers with credit balances are not refunded for payments sent to the City
for services that were no longer being received.
Recommendation: The Budget and Finance Department should implement controls to ensure
that payments are not received on closed accounts. On a periodic basis, Budget and Finance
should review the credit balance report and determine if there are any closed accounts with a
credit balance and investigate the reason for the balance. The Budget and Finance Department
should also implement a process to refund overpayments to customers.
Management’s Response: Concur. Budget and Finance has determined its current software
system cannot reject payments on closed accounts automatically. Budget and Finance will
document procedures to review the credit balance report and issue refunds regularly by
September 30, 2017.
2) Unauthorized Customer Account Adjustments
Adjustments can be made within NorthStar to customer accounts for a variety of reasons.
Adjustments are typically made by customer service representatives, and are required to be
approved by a Supervisor. Two of 40 adjustments tested did not have sufficient support
documenting the reason for the adjustment. The two adjustments represented $780 of $40,750
tested. Eight of 40 adjustments tested were not approved by a supervisor. The eight adjustments
represented $31,654 of $40,750 tested. Additionally, there were no controls in place to ensure
that unauthorized adjustments would be identified, including system limitations for the amounts
each user can process.
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Potential Risk: High – If account adjustments are not appropriately documented, authorized, or
evaluated on a periodic basis, there is a risk that unauthorized or fraudulent adjustments could be
made to customer accounts.
Recommendation: The Budget and Finance Department should implement controls to ensure
that unauthorized adjustments to customer accounts would be caught. This may include
periodically running adjustment reports and evaluating the users and amounts, and following up
on any abnormal activity. Additionally, the Budget and Finance Department should train
individuals responsible for performing adjustments on the documentation required and the
authorization levels needed for performing adjustments.
Management’s Response: Concur. Budget and Finance will develop procedures to ensure all
adjustments have proper documentation and are reviewed and approved by supervisors by
July 31, 2017.
3) Inappropriate Access to the NorthStar System
NorthStar is the City’s primary system for tracking customer utility accounts. The system stores
personal data for all residents and is utilized for changing rates and adjusting customer accounts.
Our analysis of users with system access to NorthStar identified that:
One user group with 15 individual users had the ability to change the rate tables, although
that access was not required to perform their job responsibilities.
One user had inappropriate access to the SysAdmin account, which has the ability to change
rate tables.
40 users were identified as either terminated or transferred and no longer requiring access to
NorthStar.
Additionally, there were no controls identified which would detect an unauthorized transaction
or change in the rate table.
Potential Risk: High – The NorthStar system contains highly sensitive personal information. If
access is not restricted appropriately, there is a risk that personal information is inappropriately
shared, or unauthorized changes and transactions may occur. We did not identify any
unauthorized rate changes during the period tested.
Recommendation: The Budget and Finance Department should restrict access to update the rate
tables to individuals responsible for the rate change. Controls should be implemented to remove
terminated and transferred users on a timely basis. Additionally, a process should be
implemented to evaluate user access on a periodic basis to ensure that only appropriate
individuals have access to the NorthStar system and reduce the risk of unauthorized changes.
Management’s Response: Concur. Budget and Finance’s system administrator has modified the
permissions so users in the billing group no longer have permissions to edit rate data. Budget and
Finance’s system administrator created a new group with only two management level personnel
with permissions to modify the rate table/screens. Two Information Technologies Business
Analysts have access to the Admin group in NorthStar which gives them the ability to create and
maintain accounts and permissions in NorthStar. Budget and Finance will review the list of 40
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users identified as either terminated or transferred and disable their access in NorthStar by
July 31, 2017. Budget and Finance will develop and document procedures to detect and review
transactions performed on the rate tables by July 31, 2017.
4) Transferring Past Due Accounts to Third Party Collection Agencies
The City requires that past due accounts are transferred to a third party collections agency 90
days after a final bill is generated. The monthly transfer to collections for the three months tested
were each over $20,000. For one of three months, there were four accounts identified which were
not appropriately transferred to the third party collections agency. These four accounts had a past
due balance totaling $454, which was credited using funds from another account the customer
had open. The credit balance did not cover the full amount owed and the remaining portion was
past due and should have been transferred to the third party collection agency. There were no
documented procedures regarding the review process to ensure that appropriate accounts are
transferred in accordance with the policy or to follow up or monitor the progress or effectiveness
of third party collections.
Potential Risk: Moderate – Although there is a risk that accounts are being inappropriately
excluded from the transfer to collections, our testing only identified four accounts which were
not transferred and had unique circumstances.
Recommendation: The Budget and Finance Department should evaluate the review process for
the monthly transfer of accounts to third party collection agencies, and determine additional steps
to ensure that all required accounts are transferred. Additionally, the Budget and Finance
Department should document its process for following up with third party collections agencies to
ensure the City collects all available past due accounts.
Management’s Response: Concur: Budget and Finance will review and document its processes
for review of its monthly transfers and for follow up with the third party collection agency by
August 30, 2017.
5) New Account Set-Up Information not Complete
City Ordinance – Section 33-4 and subsequent Administrative Procedure 501 requires that
customers provide a deposit, escrow/title information or lease agreement, social security number
and driver’s license prior to set-up of an account. If a deposit is waived, the reason must be
allowable and documented within NorthStar. One of 40 accounts tested did not have
documentation of the reason the deposit was waived. Two of 40 accounts tested did not have
social security information on file, and six of 40 accounts tested did not have escrow/title or
lease information on file.
Potential Risk: Low – If appropriate information is not obtained prior to an account being set-
up, there is a risk that accounts may be inappropriately activated.
Recommendation: The Budget and Finance Department should train customer service
representatives on the required information necessary for new account set-up. If a deposit is
waived, a supervisor should review the reason to ensure the waived deposit is allowable and
appropriately documented.
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Management’s Response: Concur. Budget and Finance has developed a process to track the
training for new and existing customer service representatives on the required information
necessary for new account set-up using documented Procedure 500 “Establishing Utility
Services” and Procedure 501 “Utility Deposit Procedure.” Budget and Finance will ensure it
completes training for current staff by October 31, 2017. The tracking process will be used to
ensure all new staff are properly trained. Budget and Finance will develop procedures to have
proper documentation for the reviewing and auditing of the new account set up/deposit processes
by September 30, 2017.
PROCESS IMPROVEMENT OPPORTUNITIES
In addition to the observations above, we identified the following process improvement
opportunity:
1) Policies and Procedures
Throughout the course of our internal audit, we observed that there were many outdated policies,
including desktop procedures, which were often difficult to locate. Additionally, there were areas
identified where no policies and procedures existed.
Recommendation: The Budget and Finance Department, along with Water Services should
create a centralized and easily accessible location for all policies and procedures. They should
evaluate the following areas and determine if formal policies and procedures should be created or
updated:
Collections – including the treatment of payments to closed accounts.
Meter reading – including the process for reviewing error reports and ensuring all meters are
read on a continual basis.
Billing – including the process for reviewing error reports prior to sending the monthly bills.
NorthStar user access – including adding and removing access, evaluating access on a
periodic basis, and administrative access controls.
Third party collection agencies – including the process for transferring accounts to the third
party collection agencies and following up on the collections process.
Management’s Response: Concur. Budget and Finance created a centralized and easily
accessible location for all policies and procedures effective July 1, 2017. Water Services will
update the meter reading audit policy to include the reviewing of error reports. This will be
completed by August 1, 2017.
Procedure location - N:\BILL_SUP\CUST_SERVICE_Procedures
Archive location - N:\BILL_SUP\ARCHIVE_Inactive_Cust_Service_Procedures
* * * * *
This report is intended for the information and use of the City of Glendale, City Council and
others within the organization. However, this report is a matter of public record, and once
accepted its distribution is not limited.
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We discussed and resolved other minor observations with management and received excellent
cooperation and assistance during the course of our interviews and testing. We sincerely
appreciate the courtesy extended to our personnel.
Phoenix, Arizona
July 17, 2017