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A $271,000 paycheck pushes Albemarle's payroll changes

An Albemarle County substitute teacher got a very nice surprise in her bank account near the end of 2020 — a $271,000 paycheck from the county.

The overpayment registered no alarms in the county finance department, but it did with the teacher, who not only noticed the error but reported it and returned the money to the county.

County officials said the overpayment was the result of a typo by a timekeeper and proved the hard way that controls in the computer system to thwart such errors do not work. They are now overhauling the pay system to prevent similar payments in the future.

“One of the things that that team now knows is that the system doesn’t stop it — they thought that it would stop a high payment. It didn’t,” said Albemarle’s chief financial officer, Nelsie Birch.

After discovering the overpayment, Birch and the county contracted with BDO, a tax and financial advisory services firm, to complete a review to better understand risks around the county’s accounts payable and payroll processes.

The review resulted in a 21-page executive summary given to the county in May. Private meetings were then held with the Board of Supervisors and School Board members to explain the payroll changes.

BDO reviewed county vendor, accounts payable and payroll data, and said that Albemarle’s systems do not capture and convey data in a way that allows county managers and department heads to use the data efficiently to “remain on top of activities subject to supervision” or allow the county to “timely identify errors, trends or issues.”

“I believe that if someone were to setup a false vendor, falsify payroll information, or engage in other common vendor, accounts payable or payroll fraud schemes, such activities could easily not be detected in a reasonable period of time, if at all,” John Hanson, a managing director in BDO’s Forensic Investigation and Litigation Services practice wrote in the executive summary obtained via a Freedom of Information Act request.

“Overall, the lack of data and systems knowledge really limits the amount of analysis that can take place without significant human interaction, creating the ability for errors and/or abuse to occur and remain undetected for lengthy periods of time,” Hanson said in the summary.

The county has made numerous changes to better track payments to employees, contractors and vendors. On Jan. 1, the county began outsourcing payroll processing to a third party, ADP, a national provider of human resources management software and services.

Starting on Friday, Albemarle switched from paying its employees once each month to once every two weeks, paying for hours worked rather than dividing a base salary into 12 equal payments.

The changes are designed to limit potential fraud, but Albemarle officials say they don’t know if any fraudulent behavior occurred in the past.

“Quite frankly, I’m not responsible for what happened before I got into the role that I’m in, but I’m very much responsible now,” said Birch, who was hired in mid-2020. “So we are doing all of these things to make sure that our internal controls are sound, and then we test against those controls.”

After a review of the county’s payroll systems data, Hanson said there was “insufficient information” in the data to distinguish between hourly pay and salaried employees; job title and department information was not stored for pay types other than regular pay code; and payroll corrections were made without a clear way to identify the reason for the corrections.

Birch said in the previous system, if a modification was made to a person’s base pay or their time and attendance, payroll wouldn’t know because that was the human resources department’s responsibility to make sure the information is correct.

“So unless and until HR, the employee or their supervisor would notice that something doesn’t seem right, payroll would not know if it was incorrect,” Birch said.

Hanson also reviewed the county’s vendor data, and noted that “it did not appear that vendors were being actively kept up to date in the system,” among other issues.

After the overpayment, Birch said the county made some initial changes, including separating duties, so the person who writes the payroll disbursement file to go to the bank cannot also send the money.

The county also began running reports to see who is a high earner for each pay period so that staff could find anomalies, which it had not been doing previously. Birch said the county’s new systems now allow it run data analytics itself without having to pay a firm like BDO.

But, the most significant change and obvious change for the county and its employees is moving from a “pay by exception” system, where the county paid employees monthly for annual hours divided equally into 12 pay cycles to a “positive pay” system, where it will pay employees for hours worked bi-weekly.

“The biggest issue we had, the biggest risk, is missing the forest for the trees,” Birch said. “There are so many trees — meaning so many exceptions, so many changes, so many corrective pay, so many corrective time, all of these things — it’s very difficult to miss the big thing, and we missed it.”

Birch said staff will be able to better catch mistakes and issues while running normal data analysis.

“It’s very hard to figure out where there might be challenges in the approval process when we have a pay by exception model,” Birch said. “If everybody is an exception, it’s really hard to know where the true exceptions actually lie.”

The change is not without controversy. The Albemarle Education Association has criticized the change and timing of the switch along with the perceived lack of transparency in the process. In an open letter it said that changing the timing of paychecks means inconsistent pay for the school system’s lowest paid hourly employees. Those employees’ pay depends on how many school days occur during a two-week pay period rather than a set base pay in each check.

In 2019, the county started moving employees onto a county-wide, online time and attendance system after using mainly spreadsheets and paper-based timekeeping. Attendance and leave-tracking processes varied from department to department.

The change was the first recommendation for improvement out of a 2014 report after a review of the county’s maintenance and management of employee information related to payroll and compensation.

County spokesperson Emily Kilroy said the change to an online time and attendance system — the county is using Kronos — and changes to payroll are only part of additional changes that will help address ongoing issues.

“We think Kronos is not going to solve all the problems,” she said. “We know that the transition to positive pay and at the same time the transition to ADP is not going to solve all the problems — [but] they’re all really important steps forward towards solving all the problems.”

As part of the upcoming budget process, the county’s Department of Finance and Budget is asking to hire an internal auditor who will be responsible for ensuring maintenance of internal controls.

The department is also asking for funding to create a fraud, waste and abuse hotline and to develop a process that supports the proper investigation of any reported fraud, waste or abuse.

“No organization is going to catch everything — it’s not possible, it just isn’t — but we need to set up the structure so that we can catch it,” Birch said. “That is what I’m working towards right now is having that structure so that we can be really confident that if there was some funny business going on that we would catch it.”

Source: www.dailyprogress.com

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