INTERNALAIJDIT REPORT

201,4-02

AccountsPayable

FinanceDepartment

April 3,2014

MIJNICIPALITYOF ANCHORAGE TNTERNAL AUDIT DEPARTMENT InternalAudit Department PeterRaiskums, Ch, CFE,CGFM 632W 6th Avenue,Suite 600 Director P.O.Box 196650 Phone:(907) 343438 Anchorage,Alaska 995 I 9-6650 Fax (907\ 3434370 www.muni.org/deparffients/internal-audit E-Maik [email protected] M u NICIPALITYOF AIVCHORAGE

-4438 InternalAudit Department Phone:907-343 -$74 632W. 6tnAve., Suite 600 Fax:907-343 MayorDan Sullivan

April 3,2014

Honorable Mayor and Members of the Assembly:

I am pleasedto presentfor your review Internal Audit Report 2014-02rAccountsPayable, Finance Department. A brief summalyof the report is presentedbelow.

In accordancewith the 2013 Audit Plan, we have completedan audit of accountspayable. The objectiveof this audit was to determinewhether vendor payments were properly approved, adequately supportedwith proper documentation,and made timely to legitimate, approvedvendors.

Based on our observation, it is our opinion that all tested payments were properly approved, adequately supported with proper documentation, and made to legitimate, approved vendors. However,payments to vendorswere not alwaysmade timely, invoicesreceived by depafirnentswere not always enteredinto PeopleSoftin a timely manner,and invoices were not always forwarded to departmentsin a timely maruler.

There were three findings in connectionwith this audit. Managementwas responsiveto the findings and recommendations. /-] n I \t lbl//]/ 1c*.(=- PeterRaislcums, CIA, CFEPGFM Director,Internal Audit M u NIGIPALITYOF AruCHORAGE

AuditDePartment Phone:907-343-4438 Internal -4370 632W.6t^ Ave., Suite 600 Fax:907-343 MayorDan Sullivan April3,2014

Internal Audit Report 2014-02 Accounts Payable Finance Department

Introduction. The Municipality of Anchorage(Municipality) has a decentraltzedaccounts payable function. The Municipality requiresthe procurementof a large volume of goods and servicesin a timely manner. The payment process involves the ordering agency, the receiving agency, the Controller Division's Accounts PayableSection (Accounts Payable), and the TreasuryDivision. The receiving agencyperforms the receiving processand processesthe receiving documentation.The receiving agency may be the sameas the ordering agency.The ordering agencyretains sufficient supportingdocumentation, enters the invoices into the PeopleSoftfinancial system,and ensuresthat invoices areapproved for paynent. The AccountsPayable Section is responsiblefor functionssuch as training accounts payable personnel, maintaining the vendor databasein PeopleSoft, issuing information returns,voiding accountspayable checks, running pay cycles,and creatingchecks based on paymentinformation enteredby orderingagencies. The TreasuryDivision prints anddisburses the checks.Accounts payable is governedby Policy andProcedure (P&P) 24-19,Processing Accounts Payable Documentsin PeopleSoft.

Obiective and Scope.The objective of this audit was to determinewhether vendor paymentswere properly approved,adequately supported with proper documentation,and made timely to legitimate, approved vendors. We judgmentally selecteda sample of 2ll invoices at various Municipal departmentsand examinedthe supportingdocumentation.

The audit was conducted in accordancewith generally acceptedgovemment auditing standards, except for the requirementof an externalquality control review, and accordingly,included testsof accounting records and such other auditing procedures as we considered necessary in the circumstances.The audit was performedduring the period of Septemberthrough October2013. The audit was requestedby the Administration. InternalAudit Report2014-02 AccountsPayable FinanceDepartment April3,2014

Overall Evaluation.A1l tested payments were properly approved, adequately supported with proper documentation,and made to legitimate,approved vendors. However, payments to vendorswere not alwaysmade timely, invoices received by departmentswere not alwaysentered into PeopleSoftin a timely manner,and invoices were not alwaysforwarded to deparbmentsin a timelymanner.

FTNDINGSAND RECOMMENDATIONS

1. PavmentsNot Always Made Timely.

a. Findine. Paymentsto vendorswere not alwaysmade timely. Specifically,23of 100 (23%)judgmentallyselected invoices we testedwere paid between34 and 98 days after the invoices were received.Policy and Procedure24-19 statesthat bills from vendors should be paid within thirry calendar days of receipt of the invoice by AccountsPayable or the orderingagency unless certain extenuating conditions exist.

Becausewe found so many invoices that were not paid timely, we expandedour sampleand judgmentally selectedan additional1 I I invoiceswith prolongedtime lags for payment to determine why it took longer than 30 days to pay the vendor. We found 28 (25%) of thesepaynent delayswere dueto normal businesspractices such as ensuring that ordered goods or serviceswere properly received and obtaining completebilling details.However, we foundS3 (75%) ofthesepayment delays were causedby factors such as staffing shortages,human error, misdirectedor misplaced invoices,routing delays,additional paperworkrequirements, ffid addressproblems. Late payments may result in penalty payments and loss of discounts for the Municipality.

b. Recommendation. The Controller should remind deparlmentheads that invoices shouldbe paid within 30 calendardays ofreceipt ofthe invoicebyAccourts Payable or the ordering agency.

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Management Comments.Management stated, "Concur. With the implementation of SAP, there will be updatedtraining on the entire accountspayable process. In addition, SAP should allow for better monitoring of the timelinessof payments."

d. Evaluation of Management Comments.Management comments were responsive to tt. t** and recommendation. "*t,

2. Invoices Not Always Timelv Entered into PeopleSoft.

a. Findine. hrvoicesreceived by departmentswere not alwaysentered into PeopleSoft in a timely manner. Specifically, our review of PeopleSoft data revealed that 34 percentof invoices were enteredinto PeopleSoftmore than l0 daysafter the invoice receipt date as shown below.

PeopleSoftAccounts Payable Time Lags BetweenInvoice Receipt Date and Invoice Entered into PeopleSoftDate 0u0u2013- 09/30t20r3

Percentof Time Lags Amount Transactions Transactions

0 - 10days $125,606,978 12,088 66.1% 11 - 20 days 19,661,,757 3,475 19.0% 2l - 30days 7,696,159 1,489 8.1% 31- 60days 7,782,670 1,050 5.7% 6l - 120days 605,755 177 1.0% Over120 days 180.153 25 .i% Totals: ySJJ33fl2 18Jgl 199%

Source:PeopleSoft Financial Query Note: This statisticalanalysis excludes Anchorage Water and WastewaterUtility and Municipal Light and Power.

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Policy and Procedure 24-19 statesthat invoices should be enteredinto PeopleSoft within 10 days after receipt of the invoice. As a result, paymentscould be made late and agng reportsused for managementpurposes could be distorted.Accurate agpng reports can help managementmonitor the statusof accountspayable to ensurethat paymentsare made timely.

b. Recommendation. The Controller should remind Municipal departmentsto enter invoices into PeopleSoftwithin 10 daysafter the receipt of the invoice accordingto P&P 24-19.

c. Management Comments.Management stated, "Concur. With the implementation of SAP, therewill be updatedtraining on the entire accountspayable process. All accountspayables employees will be told that invoicesneed to be enteredwithin 10 daysof original receipt of invoice unlessthere are extenuatingcircumstances."

d. Evaluation of Management Comments.Management comments were responsive to the audit finding and recommendation.

3. Invoices Not Alwavs Forwarded Timely to Departments.

il. Findine. Invoiceswere not alwaysforwarded to departmentsin a timely manner.Our review of 2l1 transactionsrevealed I I instanceswhere invoices were either delayed or misdirectedwhen traveling betweendepartnents. These delays sometimes resulted in late paymentsas well as late paymentpenalties. For example,one invoice went to four different departmentsbefore it was directedto the correct departmentand paid. Although the invoice was correctly addressedto Parks and Recreation,it was first deliveredto Treasuryas shown below.

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Routing of Utility Invoice

Invoice Received Invoice Date ReceivedBv Date Forwarded To Dete Paid Date Dne

t2ll8l20l2 Treasury l2l2ll20l2 AccormbPayable

AccountsPayable 1212412012hojectlvfanag€md & Engineering

ProjectManagenrent 12/2612012 Parls & Recreation & Engineering

Parls & Recreation Ut7l20t3 y2U20t3 ut4t20r3

In anothercase, an invoice we,nt to four differeNildepffinents before it wasdirected to the correctdeparEnent and paid. The invoice was corectly addressedto Accounts Payable,but neededto be directedto the correctdeparfinent for payme,nt. Routing of ContaminatedFilter Invoice

fnvoice Received Invoice Date ReceivedBv Date F'orwarded To Date Paid Date Due

Ll/3012012 AccountsPayable l2ll0/2012 PoliceDeparheif

Police Departnent 12/1312012Facility Maintenance

Facility 12/20/2012 Rrblic Worts Maintenance

Fublic Works v22/20t3 ll24l20l3 Duerryon receipt

Policy andProcedure 2+L9 statesthat Accounts Payable should provide a copyofthe invoice to the orderingagency within 5 work dala after receiptwhe,n the ordering agencydoes not receivea copyof the invoicefrom the vendor.

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b. Recommendation.The Conftollershould ensure that invoices received in Accormts Payableare forwarded to the appropriatedepartneirt within five working dap after receipt.

G. Management Comments. Managementstated, "Concur. As a decentralized department,it can be difficult to decipherwhere an invoice should be se,nt.The examplesin the audit report showthat the AccountsPayable deparment is not the only departmentthat hastrouble deciphering where to sendthe invoices- in most cases the vendor does not provide a clear indicator of who ordered the product/service.We will continueto monitor this issue.After SAPis imple,meirted, we will havemore system tools that will help identiff this problem."

d. Evaluation of ManagementComments. Managemeirt cornmeirts were responsive to the audit findittg andrecommendation.

DiscussionWith ResponsibleOfficials. The resultsof this audit were discussedwith appropriate Municipalofficials.

Audit Staff, RasaKazaitis CPA (CA License104276)

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