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Audit Report

Department of Finance and Public Works – Debt Management

The objective of the audit was to evaluate how well the Department of Finance is managing debt issuance and post-issuance processes. We also evaluated how the Departments of Finance and Public Works managed the expenditures of debt proceeds. In addition, the audit assessed agencies’ general controls over critical information systems.

Watch the Audit Committee presentation here.

As Denver wraps up projects built with voter-approved bonds and prepares to issue $937 million in new bond, Auditor O’Brien made some recommendations to make sure the city is managing its dept correctly. This audit found no improper spending, no deadlines missed and no problems with the bod issuance. However, the audit teams did find some instances where better records and processes could use improvement. This audit matters because tax payers deserve the peace of mind of knowing the city is issuing bonds and other debt they way voters intended.

Our review of City processes over debt issuance, administration of bonds and certificates of participation (COPs), management of bond proceed expenditures, and general controls over technology systems identified seven issues:

Finding 1: Debt Policy Does Not Require Documentation for Necessary Policy Deviations – The City executed and delivered COPs in 2015 without sufficiently meeting guidelines for new revenue, savings, or efficiencies. The reasons for this departure were not documented.

Finding 2: Post-Issuance Controls Could Be Improved – Various controls, such as review of covenant compliance checklists, review of the arbitrage rebate calculation, and compliance with private use requirements could be stronger.
Finding 3: Lack of a Citywide Expenditure Policy for Debt Funds – There is no formal policy to define allowable expenditures paid with funds from debt issuances.

Finding 4: Inadequate Succession Planning Over the Capital Integration System Application – One individual, who works for a third-party contractor, supports software application code for the City’s Capital Integration System, which tracks critical details of capital project management and planning. However, there is no backup for this position.

Finding 5: Risk of Unauthorized Access to Critical Debt Management Systems – The City does not have policies and procedures governing user access to three critical software systems used for managing City debt, project payments, and project and program management.

Finding 6: Software System Changes Could Not Be Verified – The Department of Public Works does not reconcile software changes made to the program management system by the vendor.

Finding 7: Departments of Finance and Public Works Are Not Reviewing SOC Reports – Departments of Finance and Public Works are not obtaining or reviewing Service Organization Control reports, which would offer assurance over the services provided by vendors.

1.1 The Department of Finance should update the City’s debt policy to require documentation for any deviation from the policy.

 

Agency Response: Agree – August 2018

2.1 The Department of Finance should improve internal controls over post-issuance procedures by requiring documentation of supervisory review of the covenant compliance checklist, the arbitrage rebate liability calculation, and debt workpapers for the Comprehensive Annual Financial Report.

Agency Response: Agree – March 2019

2.2 The Cash, Risk, and Capital Funding Division should work with the Controller’s Office to add a question to the annual financial questionnaire to City agencies. The question should be structured to ask agencies about new potential private use of tax-free, debt-funded facilities.

Agency Response: Agree – September 2018

2.3 The Department of Finance should improve oversight of event disclosure by establishing a formal process to periodically review all potential event disclosures.

Agency Response: Agree – September 2018

3.1 The Capital Planning and Programming Division should create a policy governing expenditures of tax-exempt debt proceeds or incorporate such a specific policy into existing City rules or policies for capital projects.

 Agency Response: Agree – July 2018

3.2 The Capital Planning and Programming Division and the Department of Public Works should provide and document training on the new policy.

Agency Response: Agree – July 2018

4.1 The Department of Public Works should require the new external program manager to train additional staff on how to operate and make changes to the underlying code of the Capital Integration System software. This training should be completed as quickly as possible to ensure that the City’s investment in this system is protected.

Agency Response: Agree – August 2018

5.1 The Department of Public Works should implement user access policies for Textura and the Capital Integration System based on Technology Services’ user access policies as soon as possible. These policies should include requirements for new users’ access, changes in users’ access, removing users’ access, and periodic review of users’ access rights by the appropriate business process owner.

Agency Response: Agree – August 2018

5.2 The Department of Public Works should fully document the procedures for setting user access based on the policies noted in Recommendation 5.1. as soon as possible.

Agency Response: Agree – August 2018

5.3 The Department of Finance should implement user access policies for DBC Debt Manager based on Technology Services’ user access policies. These policies should include requirements for new users’ access, changes in users’ access, removing users’ access, and periodic review of users’ access rights by the appropriate business process owner.

Agency Response: Agree – August 2018

5.4 The Department of Finance should fully document the procedures for setting user access based on the policies noted in Recommendation 5.3.

Agency Response: Agree – August 2018

6.1 The Department of Public Works should implement change management policies for the Capital Integration System application based on Technology Services’ change management policies. These policies should include requirements for how changes are requested, approved, and implemented into the production environment.

Agency Response: Agree – August 2018

6.2 The Department of Public Works should implement change management procedures for the Capital Integration System application based on the policies noted in Recommendation 6.1.

Agency Response: Agree – August 2018

6.3 The Department of Public Works should work with the new program manager to develop a procedure to identify and reconcile changes that have been made to the Capital Integration System application and its underlying database. This procedure should occur on a routine basis, at least annually.

Agency Response: Agree – August 2018

7.1 The Cash, Risk, and Capital Funding Division should review Service Organization Control reports on an annual basis to gain assurance over services provided by third parties.

 Agency Response: Agree – March 2019

7.2 The Department of Public Works should review Service Organization Control reports on an annual basis to gain assurance over services provided by third parties.

Agency Response: Agree – March 2019

Follow-up report

A follow-up report is forthcoming.

Other related reports

None at this time.

In the news

 

Audit Team: Dawn Wiseman, Jeremy Creamean, Vilma Balnyte, Brian Cheli, Roberta Holbrook, Alexandra Green