Division of LocaL Government & schooL accountabiLity

o f f i c e o f t h e n e w y o r k s t a t e c o m p t r o L L e r

report of ExaminationPeriod Covered:

January 1, 2014 January 31, 20152015M-262

Town of GuilderlandEmployee Compensation

and Benefits

thomas p. Dinapoli

Page

AUTHORITY LETTER 1

INTRODUCTION 2 Background 2 Objective 2 Scope and Methodology 3 CommentsofLocalOfficialsandCorrectiveAction 3

EMPLOYEE COMPENSATION AND BENEFITS 4 Unsupported Compensation 4 Segregation of Duties 5 Recommendations 7

APPENDIX A ResponseFromLocalOfficials 8APPENDIX B AuditMethodologyandStandards 15APPENDIX C HowtoObtainAdditionalCopiesoftheReport 17APPENDIX D LocalRegionalOfficeListing 18

Table of Contents

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State of New YorkOffice of the State Comptroller

Division of Local Governmentand School Accountability January 2016

DearTownOfficials:

A toppriorityof theOfficeof theStateComptroller is tohelp localgovernmentofficialsmanagegovernment resources efficiently and effectively and, by so doing, provide accountability for taxdollarsspenttosupportgovernmentoperations.TheComptrolleroverseesthefiscalaffairsoflocalgovernmentsstatewide,aswellascompliancewithrelevantstatutesandobservanceofgoodbusinesspractices.Thisfiscaloversightisaccomplished,inpart,throughouraudits,whichidentifyopportunitiesforimprovingoperationsandTowngovernance.Auditsalsocanidentifystrategiestoreducecostsandto strengthen controls intended to safeguard local government assets.

FollowingisareportofourauditoftheTownofGuilderland,entitledEmployeeCompensationandBenefits.ThisauditwasconductedpursuanttoArticleV,Section1oftheStateConstitutionandtheStateComptrollersauthorityassetforthinArticle3oftheNewYorkStateGeneralMunicipalLaw.

This audits results and recommendations are resources for local government officials to use ineffectivelymanagingoperationsand inmeeting theexpectationsof their constituents. Ifyouhavequestionsaboutthisreport,pleasefeelfreetocontactthelocalregionalofficeforyourcounty,aslistedat the end of this report.

Respectfullysubmitted,

Office of the State ComptrollerDivision of Local Governmentand School Accountability

State of New YorkOffice of the State Comptroller

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Background

Introduction

Objective

The Town of Guilderland (Town), located in Albany County,encompasses59squaremilesandhasapopulationofapproximately35,300. The Town Board (Board) is the Towns legislative bodyand is responsible for managing operations. The Town Supervisor (Supervisor),whoisalsoonthefive-memberBoard,servesaschiefexecutiveofficerandchieffiscalofficer.TheBoardisresponsibleforestablishing policies and procedures governing Town operations. The Townprovidesservicesforitsresidentsincludingpoliceprotection,highwaymaintenance,water,sewerandgeneralgovernmentsupport.TheTownalsoownsandoperatesagolfcourse,whichisaprogramunder the Towns Department of Parks and Recreation. The Parks and Recreation Maintenance Supervisor oversees the day-to-dayoperations of the golf course.

The Town employs 406 employees, including seasonal and part-time employees. Budgeted appropriations for the2014fiscal yearwere approximately $37.7 million, funded primarily with realpropertytaxes,salestaxandservicecharges.PayrollandassociatedemployeebenefitscostsrepresentasignificantportionoftheTownsannualexpenditures.Forthe2014fiscalyear,payrollandassociatedemployeebenefitscoststotaled$18.6million,orabout60percentoftheTownstotalexpendituresof$31.1million.TheTownsHumanResources Department is responsible for the administration of payroll andemployeebenefits. ThisdepartmentalsoemploysaPersonnelAdministratorwhoisresponsibleforprocessingpayroll.

Town employees are compensated based on one of four collective bargaining agreements, rates set by the Board as indicated in theBoardminutes,andby theTownsemployeepolicymanual.Townemployees use a manual or an electronic time card to record hours worked. Department heads are responsible for submitting the hours worked for their employees on a bi-weekly basis to the PersonnelAdministrator. The PersonnelAdministrator then enters the hoursworked into theTownscomputerizedfinancialdatabaseaspartofprocessing the Towns payroll.

The objective of our audit was to review the Towns employee compensation and benefits transactions using computer-assistedauditing techniques. Our audit addressed the following related question:

DidTownofficialsensuretheaccuracyofthecompensationpaidandemployeebenefitsprovidedtoemployees?

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Scope and

Methodology

Comments ofLocal Officials andCorrective Action

We examined the Towns employee compensation and benefitstransactionsfortheperiodJanuary1,2014throughJanuary31,2015.WeextendedourscopeperiodbacktoJanuary1,2012toreviewtimeand attendance records for two Town golf course employees.

We conducted our audit in accordance with generally accepted governmentauditingstandards(GAGAS).Moreinformationonsuchstandards and the methodology used in performing this audit are includedinAppendixBofthisreport.

The results of our audit and recommendations have been discussed withTownofficials,andtheircomments,whichappearinAppendixA, have been considered in preparing this report. Town officialsgenerally agreed with our recommendations and indicated they plan to initiate corrective action.

The Board has the responsibility to initiate corrective action. Awrittencorrectiveactionplan(CAP)thataddressesthefindingsandrecommendations in this report should be prepared and forwarded toourofficewithin90days,pursuanttoSection35oftheGeneralMunicipalLaw.FormoreinformationonpreparingandfilingyourCAP, please refer to our brochure, Responding to an OSC Audit Report,whichyoureceivedwiththedraftauditreport.Weencouragethe Board to make this plan available for public review in the Clerks office.

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Employee Compensation and Benefits

EmployeecompensationandbenefitsareasignificantoperatingcosttotheTown.Assuch,theBoardshouldensurethatTownemployeesarepaidandprovidedemployeebenefitsinaccordancewithcollectivebargaining agreements (CBAs), Board-authorized rates and theTowns employee policy manual. Written policies and procedures should also be in place to provide reasonable assurance that assets are properly safeguarded;payroll transactions are authorized, recordedand reported properly; and work performed is monitored and reviewed routinely by department heads. The Supervisor is responsible for establishing effective controls over employee compensation and benefitsbyprovidingadequatesegregationofdutiessothatnooneperson controls all phases of a transaction. When segregating payroll dutiesisnotfeasible,Townofficialsshouldimplementcompensatingcontrols,suchasincreasedoversight,toreducetheassociatedrisk.

The Parks and Recreation Maintenance Supervisor did not ensure theaccuracyofthehoursworkedbygolfcourseemployees,whichresulted in improper payments. Two golf course employees were compensated over $16,000 in a three-year period for hours paidthatwereunsupportedbytimerecords.Furthermore,theSupervisordid not adequately segregate payroll duties or establish sufficientcompensatingcontrols,whichincreasestheriskthatfundscouldbemisused without being detected.

Time and attendance records should be maintained in accordance with Board policy. Department heads are required to certify time worked for each employee within their department and submit hours workedto thePersonnelAdministrator,whoprocessespayroll. Assuch,departmentheadsshouldreviewandapprovetheiremployeestimerecordstoensuretheyaccuratelyreflectactualhoursanddatesworkedforregulartime,overtime,shiftdifferentialpayandtheuseof leave time.

During2014,theTownemployedfourfull-timeandseveralpart-timeseasonal golf course employees who used an electronic time clock to record their daily time and attendance. The Parks and Recreation Maintenance Supervisor received these timecards and recorded the total hours worked for each payroll period on a payroll summary sheet. The Parks and Recreation Maintenance Supervisor signed the payroll summarysheetandsubmittedittothePersonnelAdministrator.ThePersonnelAdministrator entered the hours into the payroll systemand generated the payroll checks.

Unsupported Compensation

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Weexaminedall timecards, leave recordsandpayroll registers forallTownemployeesforanentirepayrollperiod.Wealsoexaminedtimecards, leave records and payroll registers for another payrollperiod for five departments. Our tests were to determine whetherhours paid were supported by time worked on timecards and leave wasappropriatelychargedandapprovedfortimenotworked.InthemajorityofTowndepartments,wefoundonlyminordiscrepancies,which we discussed with Town officials. However, we foundnumerous discrepancies between electronic timecard hours worked and hours paid as indicated in the payroll register for two golf course employees. Because of these discrepancies, we also reviewedtimecards and leave records for these two employees for the 2012 and2013fiscalyears.

We found that the Town overpaid the two golf course employees approximately $16,000 for time not worked and for leave timetaken and not charged to leave accruals over a three-year period.One employee left Town employment prior to our audit and the other employee left Town employment during our audit. Upon the terminationoftheemployeewholeftduringouraudit,theSupervisordenied the payment of this employees unused vacation time amountingtoapproximately$4,700.Aftertakingintoconsiderationthedenialofunusedvacationtimeforthisemployee,bothemployeeswereovercompensatedapproximately$5,700each.

These time and attendance discrepancies occurred because the Parks and Recreation Maintenance Supervisor did not verify the accuracy of hours worked on the employee time cards or ensure that leave time was used when employees were absent. Instead, he certifiedand submitted total hours worked to the PersonnelAdministratorindicating that these employees worked the entire week or charged theappropriateleaveaccruals. Thelackofverificationofreportedhoursworkedresultedinemployeesbeinginappropriatelypaid.Inlightofthesediscrepancies,theBoardtransferredtheresponsibilitiesof reviewing and certifying employee time at the golf course from the Parks and Recreation Maintenance Supervisor to the Superintendent of the Towns Transfer Station in May 2015 and demoted the Parks and Recreation Maintenance Supervisor to a Park Foreman position in June 2015.

Proper segregation of payroll processing duties should ensure that one employee does not control all phases of the payroll process. For example,anemployeewhohastheabilitytochangesalaryandpayrate information and process the payroll could make unauthorized and inappropriate changes to an employees pay rate and hours workedwithout detection. To helpmitigate such risks, employeesshould not have access to the computerized payroll application and administrative rights to the system.

Segregation of Duties

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IfitisnotfeasiblefortheSupervisortoadequatelysegregatepayrollprocessingduties,managementshouldexerciseappropriateoversightto mitigate risk. Mitigating controls include having someone independent of the payroll preparation process perform a review of the completed payrolls. This payroll review should compare net payroll checks to payroll journals and assess the payroll for reasonableness. Anothermitigatingcontrolisthereviewofthepayrollchangereportsbysomeoneindependentofthepayrollprocess.TheTownsfinancialmanagement software generates payroll change reports that document anyeditsortransactionstotheTownspayroll.Townofficialsshouldreview these reports to ensure that payroll changes are correct and appropriately authorized. Further, someone independent of thepayroll preparation process should review the payroll bank account reconciliations.

The Supervisor did not adequately segregate payroll duties. The PersonnelAdministratorprocessedallphasesofpayrolltransactions,including adding or terminating employees, changing pay rates,entering time sheet information, processing and posting payrolls,submitting electronic bank files and printing and distributingpaychecks. Further, thePersonnelAdministrator had full access toallpartsofthecomputerizedpayrollapplication,includingaccesstotheSupervisorsdigitalsignatureandadministratorrights.However,whenwebroughtthistoTownofficialsattentionduringourfieldwork,theydisabledtheadministratorrightsforthePersonnelAdministrator.

ThePersonnelAdministratoralsopreparedthedirectdepositfiletothe bank and performed monthly bank reconciliations of the payroll account.WhileTownofficialsinstitutedsomecompensatingcontrols,likecertificationofpayrollsbydepartmentheads,thesecontrolswerenot sufficientbecause theydidnotverify these transactions toanysourcedocuments(i.e.,physicalchecks,timesheets,etc.).Further,while the Towns software program has the capability to generate payrollchangereports,Townofficialsdidnotprepareorreviewthesereports.

Using a combination of manual and computer-assisted auditingtechniques (CAATs) procedures,1 we reviewed all of the payroll records for more than 400 employees during the audit period to identify high-risktransactions.Thisresultedintestingrecordsforover8,000checksanddirectdepositstomorethan180employeebankaccountstotaling$8.8million.Aspartofourreviewofchecks,welookedatall additional pay items and payroll withholdings. We judgmentally selectedandtestedemployeepayratesfortheauditperiodandverified

1 See Appendix B, Audit Methodology and Standards, for details on sampleselectionandtheuseofCAATstoperformdataanalysis.

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thatemployeeswerecompensatedaccordingtoBoard-approvedratesand rates as set per theTownsCBAs. In addition,we examinedactual payroll payments made to selected employees in the Towns financialsystemtoensuretheappropriatenessandaccuracyofthosepayments.Wealsoverifiedtheaccuracyofmultipletypesofpaymentstoemployees, aswell as theeligibilityof theemployees receivingthem.Thesepayments includedstipends,vacation leavepayments,sick leave incentives, health insurance buyouts, educational andcontinuing education bonuses and longevity and separation payments.

Wealsoexaminedwithholdingsasreportedonfederalwagereportingtaxforms(W-2)andwithholdingsforvariousagencies,suchastheNewYorkStateandLocalRetirementSystem.WeverifiedthatallpayrecipientswereactualTownemployeesandverifiedtheeligibilityandaccuracyofemployercontributionsandofemployeehealth,dentalanddisabilityinsurancebenefits.Finally,wereviewedallpaymentsmadetokeyofficialsforaccuracy,eligibilityandappropriateness.

ExceptforthosediscrepanciesnotedinthesectiontitledUnsupportedCompensation, we identified only minor discrepancies, which wediscussedwithTownofficials duringourfieldwork.CompensationandbenefitsprovidedtoemployeesagreedwithBoard-approvedpayschedules andCBA stipulations, and employees received only thebenefitstowhichtheywereentitled.However,becausetheSupervisordidnotsegregatethePersonnelAdministratorsincompatibledutiesandprovideadequateoversightofherwork,errorsorirregularitiescould occur and go undetected.

TheBoardshould:

1. Ensure that department heads properly review and approvetheiremployeestimerecordstoensuretheyaccuratelyreflectactualhoursanddatesworkedforregulartime,overtime,shiftdifferential pay and the use of leave time.

2. Work with the Supervisor to segregate the duties over the payroll process. If proper segregation of duties is notpractical, then someone independent of those duties shouldprovide effective oversight. The independent party should periodically review payroll operations and activities.

Recommendations

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APPENDIX A

RESPONSE FROM LOCAL OFFICIALS

Thelocalofficialsresponsetothisauditcanbefoundonthefollowingpages.

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APPENDIX B

AUDIT METHODOLOGY AND STANDARDS

Weused computer-assisted auditing techniques to review theTowns employee compensation andbenefitstransactions.TheuseofCAATsincreasesefficiencyandenablestestingonlargedatasets.WeobtainedvariousdatasetsfromtheTownscomputerizedfinancialdatabaseandthenperformedtestsonthemusingspecializedsoftwaretoidentifyanomaliesandhigh-risktransactions.WealsoreviewedtheTownsinternalcontrolsandproceduresoverthecomputerizedfinancialdatabasestohelpensurethattheinformationproducedbysuchsystemswasreliable.Further,wereviewedtheTownsinternalcontrols over payroll.

A significant portion of our testing used electronic accounting data from the Towns accountingprogram.Theoverall populationof electronicdata for the audit period consistedof 8,006payrollchecks,406employees(allpaidemployees includingpart-timeandsubstitutes)and182employeebankaccounts.Aspartofour reviewofchecks,we lookedatalladditionalpay itemsandpayrollwithholdings.

WeusedCAATstocalculatepayandperformdetailedanalysesofactualratesofpaymadetocertainemployeesintheTownsfinancialsystem.WealsousedCAATstoverifytheaccuracyofmultipletypesofpaymentstoemployees,aswellastheeligibilityoftheemployeesreceivingthem.Additionally,weusedCAATstotestwithholdingsandamountsreportedonW-2formsandtovariousagencies.WeusedmultipleCAATstoensurethatallpayrecipientswerebonafideTownemployees.

Ourauditstepsincludedthefollowing:

WeinterviewedandobservedTownofficialsandemployeestolearnaboutpayroll-processingprocedures and employee benefits and reviewedCBAs,Board-approved pay schedules fornon-unionemployees,personnelfiles, timeandattendancerecords, leaverecordsandotherpayroll source documents.

We performed various audit procedures to verify that employees paid were actual employees. These procedures included identifying and verifying employee Social Security numbers to the SocialSecuritydeathmasterfile;employeeaddressesoutsideofa45-mileradius;employeeaddresseswithpostofficeboxesornoaddress;employeeswith thesamename,addressorphone number; any payroll checks with the same check number; any duplicate employee Social Security numbers; and employees using the same bank.

Toverify the accuracyof compensationpaid to employees,weverified that all employeespaid the appropriate Social Security andMedicare taxes, that all payments made prior toofficialdatesofhirewereappropriatelypaidtovalidemployeesandthatallpaymentsmadetoemployeesthroughthecheckregisteragreedwithamountsreportedonW-2forms.

We performed various audit procedures to verify the appropriateness of certain payroll payments to employees.Theseprocedures included reviewingandverifying the following:compensation paid to certain employees and key officials; rounded payroll payments and

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balloonpayments; checkswritten toemployeeswho receivedmore than26duringafiscalyear; selected checks issued on dates that were not scheduled pay dates; payments made to employeesaftertheterminationdate;longevitypayments,sickleaveincentivesandeducationandcontinuingeducationbonuses;separationpayments,healthinsurancebuyoutsandvacationleavebuy-backpayments;andovertimecompensationpaidtoemployees.

Wecompared theemployees salary rateswithBoard-approvedsalaryschedules (includingstipends)andtracedtheamountstotheCBAs,TownpersonnelpolicyandBoardresolutions.We also reviewed the records of a judgmentally selected sample of employees with the 25 highest gross salaries to determine if the payments were paid in accordance with Board-approved contracts.

We recalculated reportable salary and withholdings for employee retirement benefits andverifiedthatsalariesreportedandcontributionswithheldwereaccurateandappropriate.Wealso verified the accuracy of health, dental and disability insurance withholdings and theeligibilityofemployeesreceivingsuchbenefits.

We reviewed time cards, time summaries and leave records for all employees for onejudgmentallyselectedpayrollperiodin2014.Further,wereviewedtimecards,timesummariesand leave records for five departments for another judgmentally selected payroll period in2014.

Weperformeddata reliability tests,which included looking formanualandvoidedchecks,verifyingemployeedirectdepositswiththebank,andfollowingupongapsinpayrollchecksequence numbers.

Wereviewedtimecards,timesummariesandleaverecordsforallgolfcourseemployeesforfiscalyear2014toverifytheaccuracyoftimeworkedandpaid.Weextendedourtestbacktofiscalyear2012fortwogolfcourseemployees.

WeconductedthisperformanceauditinaccordancewithGAGAS.Thosestandardsrequirethatweplanandperform theaudit toobtainsufficient,appropriateevidence toprovidea reasonablebasisforourfindingsandconclusionsbasedonourauditobjective.Webelievethattheevidenceobtainedprovidesareasonablebasisforourfindingsandconclusionsbasedonourauditobjective.

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APPENDIX C

HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT

OfficeoftheStateComptrollerPublicInformationOffice110StateStreet,15thFloorAlbany,NewYork12236(518)474-4015http://www.osc.state.ny.us/localgov/

Toobtaincopiesofthisreport,writeorvisitourwebpage:

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APPENDIX DOFFICE OF THE STATE COMPTROLLER

DIVISION OF LOCAL GOVERNMENTAND SCHOOL ACCOUNTABILITYAndrewA.SanFilippo,ExecutiveDeputyComptroller

GabrielF.Deyo,DeputyComptrollerTraceyHitchenBoyd,AssistantComptroller

LOCAL REGIONAL OFFICE LISTING

BINGHAMTON REGIONAL OFFICEH.ToddEames,ChiefExaminerOfficeoftheStateComptrollerStateOfficeBuilding,Suite170244 Hawley StreetBinghamton,NewYork13901-4417(607)721-8306Fax(607)721-8313Email:Muni-Binghamton@osc.state.ny.us

Serving:Broome,Chenango,Cortland,Delaware,Otsego,Schoharie,Sullivan,Tioga,TompkinsCounties

BUFFALO REGIONAL OFFICEJeffreyD.Mazula,ChiefExaminerOfficeoftheStateComptroller295MainStreet,Suite1032Buffalo,NewYork14203-2510(716)847-3647Fax(716)847-3643Email:Muni-Buffalo@osc.state.ny.us

Serving:Allegany,Cattaraugus,Chautauqua,Erie,Genesee,Niagara,Orleans,WyomingCounties

GLENS FALLS REGIONAL OFFICEJeffreyP.Leonard,ChiefExaminerOfficeoftheStateComptrollerOne Broad Street PlazaGlensFalls,NewYork12801-4396(518)793-0057Fax(518)793-5797Email:Muni-GlensFalls@osc.state.ny.us

Serving:Albany,Clinton,Essex,Franklin,Fulton,Hamilton,Montgomery,Rensselaer,Saratoga,Schenectady,Warren,WashingtonCounties

HAUPPAUGE REGIONAL OFFICEIraMcCracken,ChiefExaminerOfficeoftheStateComptrollerNYSOfficeBuilding,Room3A10250VeteransMemorialHighwayHauppauge,NewYork11788-5533(631)952-6534Fax(631)952-6530Email:Muni-Hauppauge@osc.state.ny.us

Serving:NassauandSuffolkCounties

NEWBURGH REGIONAL OFFICETennehBlamah,ChiefExaminerOfficeoftheStateComptroller33AirportCenterDrive,Suite103NewWindsor,NewYork12553-4725(845)567-0858Fax(845)567-0080Email:Muni-Newburgh@osc.state.ny.us

Serving:Columbia,Dutchess,Greene,Orange,Putnam,Rockland,Ulster,WestchesterCounties

ROCHESTER REGIONAL OFFICEEdwardV.Grant,Jr.,ChiefExaminerOfficeoftheStateComptrollerThe Powers Building16WestMainStreet,Suite522Rochester,NewYork14614-1608(585)454-2460Fax(585)454-3545Email:Muni-Rochester@osc.state.ny.us

Serving:Cayuga,Chemung,Livingston,Monroe,Ontario,Schuyler,Seneca,Steuben,Wayne,YatesCounties

SYRACUSE REGIONAL OFFICERebeccaWilcox,ChiefExaminerOfficeoftheStateComptrollerStateOfficeBuilding,Room409333E.WashingtonStreetSyracuse,NewYork13202-1428(315)428-4192Fax(315)426-2119Email:Muni-Syracuse@osc.state.ny.us

Serving:Herkimer,Jefferson,Lewis,Madison,Oneida,Onondaga,Oswego,St.LawrenceCounties

STATEWIDE AUDITSAnnC.Singer,ChiefExaminerStateOfficeBuilding,Suite170244 Hawley Street Binghamton,NewYork13901-4417(607)721-8306Fax(607)721-8313

Table of ContentsAuthority LetterIntroductionBackgroundObjectiveScope and MethodologyComments of Local Officials and Corrective Action

Employee Compensation and BenefitsUnsupported CompensationSegregation of DutiesRecommendations

AppendicesResponse From Local OfficialsAudit Methodology and StandardsHow to Obtain Additional Copies of the ReportLocal Regional Office Listing