DIVISION OF LOCAL GOVERNMENT& SCHOOL ACCOUNTABILITYO FFICE O F THE N E W YO R KST A T E C OMPTROLLER Repo rt of Examination Period Covered: January 1, 2008 — December 1, 2009 2010M-24 Town of NeversinkInternal Controls Over Payroll and J ustice Cour t Operations Thomas P. DiNapoli
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New York State Comptroller Audit of the Town of NeverSink
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8/8/2019 New York State Comptroller Audit of the Town of NeverSink
33DIVISION OF LOCAL GOVERNMENT AND SCHOOLACCOUNTABILITY
Of fice of the State ComptrollerState of New York
EXECUTIVE SUMMARY
The Town of Neversink (Town) is located in Sullivan County and is governed by an elected Town
Board (Board), which consists of the Town Supervisor (Supervisor) and four Board members. The
Board is responsible for the general management and control of Town operations. The Supervisor
is the Town’s chief executive of ficer and chief fiscal of ficer and is responsible for the Town’s daily
operations, including maintaining accounting records and preparing and distributing various financial
reports to the Board. The Town employs a bookkeeper who is responsible for processing the Town’s
computerized payroll.
The Town Justice Court (Court) operates with two Town Justices (Justices) and one part-time Court
clerk. The Justices’ principal duties involve adjudicating legal matters within the Court’s jurisdiction
and administering moneys collected from bails, fines, surcharges, civil fees and restitutions, with
assistance of the Court clerk. The Board is charged with overseeing the Court’s financial activity.
Scope and Objective
The objective of this audit was to determine if Town of ficials properly managed Town operations for
the period January 1, 2008 to December 1, 2009. Our audit addressed the following related questions:
• Did Town of ficials ensure that internal controls over payroll were adequately designed?
• Did the Board and Justices provide adequate oversight of the Court’s financial activity?
Audit Results
Town of ficials did not ensure that internal controls over payroll were adequately designed. During our
audit period, the bookkeeper was responsible for all aspects of the payroll process with no oversight.
The Supervisor did not review the completed payrolls or certify that they were accurate. There was
only one collective bargaining agreement in the Town, which covered highway employees. There werelimited guidelines regarding the benefits of employees not covered by this agreement. In addition,
these non-highway employees were responsible for tracking their own leave time. As a result, there
was an increased risk that employees could receive wages, salaries and benefits to which they are not
entitled.
The Board and Justices did not provide adequate oversight of the Court’s financial activity. For
instance, the Justices did not ensure that the Court clerk prepared monthly bank reconciliations and
accountability analyses. In addition, the Board did not provide for an annual audit of the Court. As a
8/8/2019 New York State Comptroller Audit of the Town of NeverSink
77DIVISION OF LOCAL GOVERNMENT AND SCHOOLACCOUNTABILITY
Payroll
The primary objective of internal controls over payroll is to ensure
that employees are only paid wages and salaries, and provided fringe
benefits, to which they are entitled. The Board is responsible for
approving written policies and procedures to delineate employeeresponsibilities for preparing and disbursing payroll checks, reviewing
and certifying payrolls, and providing guidance for employee
entitlements, including the accrual and use of leave time.
Town of ficials did not ensure that internal controls over payroll
were adequately designed. For the fiscal year ended December 31,
2009, the Town spent approximately $1.4 million on salaries. The
Town’s bookkeeper was responsible for all aspects of the payroll
process during our audit period with no oversight, and the Supervisor
did not review the completed payrolls or certify that they wereaccurate. Town of ficials entered into a six-year collective bargaining
agreement (agreement) with its highway employees on January 1,
2007. However, Town of ficials provided limited guidance regarding
the fringe benefits to be provided to Town employees who were not
covered by this agreement. In addition, employees not covered by the
collective bargaining agreement were responsible for tracking their
own leave time. As a result, there was an increased risk that these
employees could receive wages, salaries and fringe benefits to which
they were not entitled.
The Board is responsible for establishing policies and proceduresover the payroll process, and the Supervisor is responsible for
ensuring the proper implementation of these established controls.These policies and procedures should ensure that no one individualcontrols most or all phases of a transaction. In addition, each user’saccess rights to the payroll software must be restricted based on hisor her job function to prevent unauthorized changes from occurring.For example, the same person should not be capable of, or beresponsible for, creating, updating and deleting employee records;activating new employees after their information is initially entered;inputting all payroll changes; collecting timesheets; entering hours
worked or salaries paid, and printing and distributing paychecks. If itis not feasible to segregate duties, the Supervisor should implement
compensating controls, such as having someone independent of the
payroll process review completed payrolls. Further, the Supervisor
is required to certify completed payrolls. This certification should
include verifying that payrolls are based on actual hours/days
worked or authorized leave time, employees are paid in accordance
with Board-authorized rates, and net payrolls agree with the payroll
journals.
Segregation of Duties
8/8/2019 New York State Comptroller Audit of the Town of NeverSink
The Board did not establish policies and procedures to ensure that
internal controls over the payroll process were appropriately
designed. We found that the bookkeeper was responsible for virtually
all aspects of the payroll process, such as creating, updating and
deleting employee records; activating new employees after their
information is initially entered; inputting all payroll changes;
collecting timesheets; entering hours worked or salaries paid;
and printing and distributing payroll checks. Furthermore, Town
of ficials did not restrict users’ access rights to only those areas of the
payroll software needed to complete their job duties. For example,
the Supervisor’s assistant had access to all areas of the payroll
process, including the ability to make changes to salary rates and
add employees, even though it was not her responsibility to do so.
In addition, the Supervisor did not implement compensating controls
to minimize the risk associated with the lack of segregation of duties
and did not certify completed payrolls.
The Supervisor told us that the bookkeeper had always performedall phases of the payroll process without oversight, and that he was
unaware that completed payrolls required certification. Prior to our
audit, Town of ficials were unaware that the payroll software was
capable of limiting user access rights; as a result, the Supervisor’s
assistant was granted full user access rights to the payroll software in
order to prepare payrolls in the bookkeeper’s absence.
Due to the lack of segregation of duties, we reviewed payroll
reports and personnel files2 and the payroll records of 27 employees
to determine if wages paid in 2008 and 2009 were in accordance
with Board-authorized rates. Our review did not identify anysignificant deficiencies; however, there is an increased risk that
errors or irregularities could occur and go undetected without proper
segregation of duties.
The Board must clearly define and authorize compensation toensure that employees receive only the salary and fringe benefitsthat the Board intends for them to receive. The Board may establishpolicies or pass annual resolutions for employees that are not coveredby individual employment contracts or collective bargainingagreements. Specifics regarding fringe benefits, such as a detailedleave accrual system,3 should be included in these policies. A goodleave accrual system must have supervisory oversight to ensurethat the accrual and use of leave is authorized and approved. Anemployee’s leave time accumulation and use should be stipulated byhis or her employment contract, collective bargaining agreement, orpolicy.
Personnel Policies
2 We compared the names and Social Security numbers of all active employees
from the Town’s payroll software to the Federal Social Security database.3 Leave accruals represent time-off earned by employees.
8/8/2019 New York State Comptroller Audit of the Town of NeverSink