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Audit Report

Workers’ Compensation Program

The objective of this audit was to determine whether the City and County of Denver’s self-insured workers’ compensation program model delivers services to employees cost effectively and efficiently. Additionally, we assessed whether the City properly funds its self-insured program and is reporting in compliance with Generally Accepted Accounting Principles.

Watch the Audit Committee presentation here once available.

The 2017 Colorado Workers’ Compensation Act allows employees to claim workers’ compensation benefits for injuries and occupational diseases arising out of and during the employee’s employment. The City maintains a self-insured and self-administrated program to process and purchase excess insurance to cover costs greater than $2.5 million for an individual occurrence. In 2017, the Workers’ Compensation Unit of the City’s Risk Management Office processed 927 claims with incurred costs of approximately $6.8 million, according to infographics prepared by the Workers’ Compensation Unit. This reflects a continuing trend of reduced claims and cost of claims. Understanding the costs and process is an important facet to ensuring the program works effeciently.

In our second audit of the program, we identified issues with strategic planning and policies and procedures that should be updated to improve accounting presentation, the process and system controls environment as well as operational effectiveness and efficiency.
Program Costs Understated – Workers’ compensation salary continuation benefits are not charged to the Workers’ Compensation Internal Service Fund, which results in an understating of the total cost of workers’ compensation by approximately 10 percent. As a result, the internal service fund may not comply with financial accounting standards for an internal service fund. Additionally, the liability associated with salary continuation is not reported in the City’s annual comprehensive annual financial report.

No Formal Strategic Plan – Risk Management does not have a formal strategic planning approach to evaluate and compare different workers’ compensation organizational and operational models. A more comprehensive approach inclusive of total program costs and formal key performance indicator reporting could lead to more efficient and effective program management to potentially uncover new cost savings opportunities and provide more transparency to the City’s employees and the public.

Policies and Procedures Need Revision – The Workers’ Compensation Unit has not updated its internal policies to reflect current business practices. The audit also identified an ineffective supervisor report and check-logging controls and controls that should be upgraded, including formal contract monitoring and reviews of subcontractor control environments that provide outsourced operational and financial processes to the unit. The unit should also attempt to accept electronic fund transfers. Also, the unit should review the fund balance target policy and consider modifications.

Risk Management Information System Does Not Support Current Business Processes – STARS, used for reporting and tracking workers’ compensation claims, does not support current business processes effectively and efficiently. Limitations include the lack of ad hoc reporting for lost and restricted duty days, a lack of built-in data entry controls, allowing records to be deleted versus deactivated, and a lack of custom views and tools to work more effectively and efficiently.

1.1 Establish and Assign Locations – The Departments of Safety, Parks and Recreation, Public Works, General Services, Denver Arts and Venues, and the Wastewater Management Division should work with the Controller’s Office to establish new Workday locations as necessary, document a review of the agency’s asset list to identify assets that need a more precise location, and assign assets a more precise location in Workday.

Department of Safety Response: Agree – June 30, 2018

Department of Parks and Recreation Response: Agree – September 30, 2018

Department of Public Works Response: Agree – June 30, 2018

Department of General Services Response: Agree – June 1, 2018

Denver Arts and Venues Response: Agree – September 30, 2018

Wastewater Management Division Response: Agree – June 30, 2018

Detailed agency narratives are included in the Agency Response letter beginning on page 31.

1.2 Correct Errors Found During Testing – The Departments of Safety, Parks and Recreation, Public Works, General Services, Denver Arts and Venues, and the Wastewater Management Division should correct the errors and data inconsistencies identified in the audit’s detailed testing, as found in Appendix B of the report.

Department of Safety: Agree – June 30, 2018

Department of Parks and Recreation Response: Agree – September 30, 2018

Department of Public Works Response: Agree – June 30, 2018

Department of General Services Response: Agree – June 15, 2018

Denver Arts and Venues Response: Agree – June 30, 2018

Wastewater Management Division Response: Agree – June 30, 2018

Detailed agency narratives are included in the Agency Response letter beginning on page 31.

1.3 Clean Up Old Data Issues – The Departments of Safety, Parks and Recreation, Public Works, General Services, Denver Arts and Venues, and the Wastewater Management Division should develop and document a plan of action for the 2018 asset inventory count that will instruct personnel to detect and correct the types of errors identified in this audit, including blank identification numbers, wrong locations, and inaccurate or insufficient asset descriptions.

Department of Safety: Agree – June 30, 2018

Department of Parks and Recreation Response: Agree – September 30, 2018

Department of Public Works Response: Agree – June 30, 2018

Department of General Services Response: Agree – July 6, 2018

Denver Arts and Venues Response: Agree – June 30, 2018

Wastewater Management Division Response: Agree – June 30, 2018

Detailed agency narratives are included in the Agency Response letter beginning on page 31.

1.4 Develop Internal Capital Asset Policies and Procedures – In consultation with the Controller’s Office, the Departments of Safety, Parks and Recreation, Public Works, General Services, Denver Arts and Venues, and the Wastewater Management Division should develop internal capital asset policies and procedures. Policies and procedures should specify a strategy for conducting an efficient and effective inventory of their capital assets, such as selecting an inventory count approach, utilizing subsidiary inventory systems, utilizing of secondary reviews or spot checks, verifying of the accuracy of information in the capital asset list, developing internal training, and using performance metrics and goals for individuals involved in the annual inventory process.

Department of Safety: Agree – June 30, 2018

Department of Parks and Recreation Response: Agree – September 30, 2018

Department of Public Works Response: Agree – June 30, 2018

Department of General Services Response: Agree – July 15, 2018

Denver Arts and Venues Response: Agree – September 30, 2018

Wastewater Management Division Response: Agree – June 30, 2018

Detailed agency narratives are included in the Agency Response letter beginning on page 31.

1.5 Develop Plan to Monitor Internal Controls – The Controller’s Office should develop a plan to monitor internal controls to ensure that agencies are giving due process to the asset inventory counts, such as:

-Having a Controller’s Office representative sign the annual Asset Certification Form to indicate internal review;

-Performing spot checks of assets, potentially using GPS-tagged photos for existence verification.

Agency Response: Agree – July 31, 2018

Auditee Narrative: The Controller’s Office currently uses a spreadsheet to track agencies’ submission, notes from our review and follow-up on their inventory ‘packet’, which includes the Annual Asset Certification form. We will analyze this spreadsheet to see how we can more clearly indicate that the form was reviewed. The Controller’s Office will also look for ways to ensure the physical inventory was completed and this will include performing spot checks.

1.6 Update Fiscal Accountability Rules and Procedures – The Controller’s Office should continue to update relevant Fiscal Accountability Rules and associated procedures to address the following:

-Making changes due to the Workday conversion, including updating procedures and step-by-step guidance;

Requiring agencies, in consultation with the Controller’s Office, to determine whether they need supplemental asset procedures, which could include a step- by-step guide for conducting efficient and effective capital inventory counts. Policies and procedures should incorporate GAO’s best practices of inventory, such as selecting an approach, strategy, and frequency for different types of assets; utilizing subsidiary inventory systems and photos to verify existence during the annual count; performing spot checks of asset data in Workday; incorporating “floor-to-book” and “book-to-floor” tests; utilizing performance metrics; and developing agency-specific training; and

Mandating training requirements for all agency personnel involved in annual capital asset inventory counts.

Agency Response: Agree – July 31, 2018

Auditee Narrative: The Controller’s Office will update the Fiscal Accountability Rules so that the policy and procedures are current. We will work with agencies to develop internal procedures where necessary and ensure asset custodians have the knowledge and tools necessary to perform and manage the inventory process for their agency.

1.7 Develop Training Regarding Capital Assets – Once the FARs are updated, the Controller’s Office should develop asset training and make it available to all City personnel on City U. Topics for training should include, but are not limited to, allowable costs for capitalization, how to book partially donated assets, manual entry of assets (outside of the Workday procure-to-pay process), assigning costs of improvements to pre-existing assets, and how to split costs over multiple capital projects/assets.

Agency Response: Agree – July 31, 2018

Auditee Narrative: The Controller’s Office will develop training to ensure agencies have the knowledge and tools necessary to record and manage assets for their agency.

1.8 Update Agency-Specific Asset List and Asset Certification Form – The Controller’s Office should update the Asset Certification Form to require that agencies indicate which assets they spot-checked. 

Agency Response: Agree – July 31, 2018

Auditee Narrative: The Controller’s Office agrees that more controls need to be put in place to ensure the physical inventory was completed by the agency. For some agencies, this may include a spot check by the asset custodian as a part of their internal procedures. We will evaluate this specific suggestion along with other potential internal controls and make updates to the rule and agency internal procedures accordingly.

Follow-up report

A follow-up report is forthcoming.

Other related reports

None at this time.

In the news

None at this time

Audit Team: Jeremy Creamean, Rob Farol, Roberta Holbrook, Ronald F. Keller, Shannon Dale, Kevin Sear