720-913-5000 auditor@denvergov.org

Audit Report

Accounts Receivable – Denver International Airport

To determine whether Denver International Airport has effective internal controls, systems, and personnel to ensure accounts receivable are properly accounted for, collected, and reported.

Watch the Audit Committee presentation here soon.

In 2018, Denver International Airport remained the fifth busiest airport in the United States and 20th busiest in the world. The airport served about 64.5 million passengers in 2018.

Accounts receivable net of allowance for doubtful accounts increased from about $52 million in 2017 to about $67 million in 2018.

The airport’s Finance Division is responsible for managing cash receipts, processing revenue, and overseeing the creation and processing of invoices.

In our audit of Denver International Airport’s accounts receivable for 2017 through June 2019, we identified several areas in need of improvement within the airport’s Finance Division.

Denver International Airport’s Accounts Receivable Processes Have Inefficiencies Resulting in a Loss of Revenue

  • Inherited problems continue despite changes in management and software.
  • Duplicate and defunct accounts have not been removed, and a failure to properly charge interest on late payments has resulted in an average loss of an estimated over $1 million a year in revenue starting in 2018. Uncollectible debts are not being written off, and accounts receivable net of allowance for doubtful accounts lacked support for $4.5 million in 2018.
  • The airport’s Finance Division did not create a change management plan for converting to Workday accounts receivable software from 2015 to 2017, and the division does not have one for the conversion to PROPworks software now underway.
  • Weak policies and insufficient staffing limit the Finance Division’s ability to address inefficiencies.

    Longstanding accounts receivable process inefficiencies, such
    as researching customer account discrepancies and manually applying wire payments to outstanding invoices, are time- consuming activities that detract from the Finance Division’s ability to make process improvements. The staff is spread so thin that one employee spent six months trying to clean up a single account. The Finance Division needs to conduct a staffing analysis for long-term staff planning and to hire temporary staff in the short term.

1.1 Require Submission of Customer Remittance – The Senior Vice President of Financial Management should implement a remittance policy that requires customers to include specific payment details to ensure payments are applied accurately.

Agency Response: Disagree (see response and Auditor’s Addendum on pg 41)

1.2 Open Separate Bank Account and Use Lockbox Services – The Senior Vice President of Financial Management should consult with the City’s Department of Finance’s Cash, Risk, and Capital Funding Division to create a separate bank sweep account for the airport and evaluate the need for an airport lockbox, which would streamline its cash receipt and payment application functions.

Agency Response: Agree, Implementation Date – December 31, 2019

1.3 Reconcile Customer Accounts and Correctly Apply Customer Payments – The Chief Financial Officer should ensure customer accounts are fully reconciled and accurate prior to the transition to PROPworks.

Agency Response: Agree, Implementation Date – December 31, 2020

1.4 Clean Up Customer Master Files – The Senior Vice President of Financial Management should ensure the customer master files are cleaned up—including removing unnecessary accounts and combining duplicate accounts, thus establishing an ownership hierarchy. This cleanup should be completed prior to going live with the reimplementation of PROPworks and included within the change management plan.

Agency Response: Agree, Implementation Date – December 31, 2020

1.5  Configure PROPworks to Charge Interest and Fees on Late Payments – The Senior Vice President of Financial Management should work with the PROPworks consultant and project manager to ensure reimplementation of PROPworks is configured to assess interest on late payments and incorporate this functionality into a formal project strategy, timeline, and scope of work. Until the reimplementation of PROPworks is complete, financial management should develop an alternative automated or manual interest calculation mechanism to ensure late invoice payment interest is calculated and collected.

Agency Response: Disagree (response and Auditor’s Addendum on pg 43)

1.6 Conduct Variance Analysis – The Senior Vice President of Financial Management should regularly perform and document a financial statement variance analysis at the individual account and fund level to identify unexpected variances and abnormal balances. In addition, variances and abnormalities should be investigated and corrections made as needed.

Agency Response: Agree, Implementation Date – Implemented

1.7 Reevaluate Classification of Receivables – The Senior Vice President of Financial Management should assess the underlying nature of the receivables accounts and identify the appropriate category for financial reporting purposes.

Agency Response: Agree, Implementation Date – Implemented

1.8 Formalize Write-Off Policy – The Senior Vice President of Financial Management should develop and formalize a write-off policy and procedure for uncollectible accounts and distribute it to all relevant personnel.

Agency Response: Agree, Implementation Date – December 31, 2019

1.9 Track Write-Offs – The Senior Vice President of Financial Management should develop a process to identify and track accounts that are written off.

Agency Response: Agree, Implementation Date – Implemented

1.10 Enforce Policy – The Senior Vice President of Financial Management should enforce the Finance Division’s collection policy efforts on past-due accounts.

Agency Response: Agree, Implementation Date – December 31, 2019

1.11 Enhance Collection Efforts – The Senior Vice President of Financial Management should identify the accounts significantly past due and turn them over to a collection agency or use the City Treasurer’s Asset Recovery Program.

Agency Response: Agree, Implementation Date – December 31, 2019

1.12 Develop Allowance Methodology Based on Historical Experience – The Senior Vice President of Financial Management should document the methodology for estimating the allowance for doubtful accounts, including a policy for gathering, documenting, and maintaining historical information to support significant assumptions. The methodology should be based on an objective and unbiased determination of collectability using true historical experience. Significant management decisions that depart from the policy should be formally documented, evidenced by source documentation, and retained in accordance with the City’s record retention requirements.

Agency Response: Agree, Implementation Date – January 31, 2020

1.13 Conduct Ratio Analysis – The Senior Vice President of Financial Management should regularly perform an analysis to evaluate the accuracy of the allowance for doubtful accounts estimate, such as comparing the beginning-of-year allowance for doubtful accounts to actual write-offs of accounts receivable recorded during the year.

Agency Response: Agree, Implementation Date – December 31, 2019

1.14 Develop Change Management Plan – The Chief Executive Officer should ensure a change management plan for the transition to PROPworks is developed.

Agency Response: Agree, Implementation Date – Implemented

1.15 Review Policies and Procedures – The Senior Vice President of Financial Management should develop a schedule to review accounts receivable policies and procedures annually and update them as changes occur to ensure all processes are documented as the division implements them.

Agency Response: Agree, Implementation Date – December 31, 2019

1.16 Conduct Staffing Analysis – The Chief Financial Officer should work with the airport’s Human Resources Division and the Budget Management Office, as needed, to ensure a short-term staffing analysis—as well as one following the implementation of PROPworks—is conducted of accounts receivable’s staff resources. The analysis should consider accounting’s roles and responsibilities and assess workload imbalance.

Agency Response: Disagree (response and Auditor’s Addendum on pg 44 and 45)

1.17 Hire Temporary Staff – The Senior Vice President of Financial Management should hire temporary staff to assist with accounting tasks as needed.

Agency Response: Agree, Implementation Date – December 31, 2019

1.18 Update Workforce Readiness – The Senior Vice President of Financial Management should work with the airport’s Human Resources Division to establish a review of the Finance Division’s workforce readiness action plan, as well as updates to the plan when trigger events occur including large staffing changes or changes in software systems. This review should include a discussion of cross-training and the development of employees in the accounts receivable teams.

Agency Response: Agree, Implementation Date – December 31, 2019

The objective of our audit of Denver International Airport’s accounts receivable was to assess the airport Finance Division’s management of accounts receivable as it relates to internal controls, systems, reporting, and staffing. I am pleased to present the results of this audit.

The audit revealed Denver International Airport’s deficient accounts receivable processes resulted in inefficiencies, loss of revenue, and inconsistent financial reporting—including an estimated over $1 million a year lost in uncollected interest on late payments and a lack of support for $4.5 million of the airport’s accounts receivable net of allowance for doubtful accounts in 2018. Further, poor planning by airport officials resulted in a failed implementation of new accounts receivable software and could result in another software implementation failure.

By strengthening financial reporting, policies and procedures, and long-term planning, the Finance Division can improve revenue collection and the accuracy of accounts, while ensuring its staff resources are appropriate and efficient in both the short term and long term. Our report lists several related recommendations.

This performance audit is authorized pursuant to the City and County of Denver Charter, Article V, Part 2, Section 1, “General Powers and Duties of Auditor,” and was conducted in accordance with generally accepted government auditing standards. Those standards require we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

We extend our appreciation to the airport’s Finance Division and Accounts Receivable personnel who assisted and cooperated with us during the audit. For any questions, please feel free to contact me at 720-913-5000.

Follow-up report

A follow-up report is forthcoming. 

Audit Team: Kevin Sear, Sonia Montano, Ivy Anderson, Dave Hancock, Chris Keller