A substitute teacher in Albemarle County had a very nice surprise in her bank account near the end of 2020 – a paycheck for $271,000 from the county.
The overpayment registered no alarm in the county’s finance department, but it did with the teacher, who not only noticed the error, but pointed it out 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 computer system controls to thwart such errors do not work. They are overhauling the compensation system to prevent similar payments in the future.
“One of the things this team knows now is that the system doesn’t stop it – they thought it would stop a high payout. It doesn’t,” Albemarle’s chief financial officer said. , Nelsie Birch.
After discovering the overpayment, Birch and the county engaged BDO, a tax and financial advisory services firm, to conduct a review to better understand the risks in the county’s accounts payable and payroll processes.
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The review resulted in a 21-page summary delivered to the county in May. Private meetings were then held with the supervisory board and members of the school board to explain the changes to the payroll.
BDO reviewed vendor, accounts payable, and county payroll data, and said Albemarle’s systems do not capture and transmit data in a way that allows county managers and chief executives to department to use data effectively to “stay abreast of activities under oversight” or enable the county to “identify errors, trends, or issues in a timely manner.”
“I believe that if someone were to set up a bogus vendor, falsify payroll information, or engage in other common vendor, accounts payable, or payroll fraud schemes, such activities could easily go undetected in reasonable time, if at all,” John Hanson, managing director of BDO’s Forensic Investigation and Litigation Services firm, wrote in the summary obtained via a Freedom of Information Act request.
“Overall, the lack of knowledge about data and systems really limits the amount of analysis that can take place without meaningful human interaction, creating the possibility of errors and/or abuses occurring and remaining undetected for long periods of time. “, said Hanson in the summary.
The county has made many changes to better track payments to employees, contractors and vendors. On January 1, the county began outsourcing payroll processing to a third party, ADP, a national provider of human resource management software and services.
Starting Friday, Albemarle shifted from paying its employees once a 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 fraudulent behavior has occurred in the past.
“Quite frankly, I’m not responsible for what happened before I came into the role I’m in, but I’m very responsible now,” said Birch, who was hired in mid-2020. “So we do all of these things to make sure our internal controls are strong, and then we test those controls.”
After a review of data from county payroll systems, Hanson said there was “insufficient information” in the data to distinguish between hourly wage and salaried employees; job title and department information was not stored for pay types other than the regular pay code; and payroll corrections were made without clearly stating the reason for the corrections.
Birch said that under the old system, if a change was made to someone’s base salary or time and attendance, payroll wouldn’t know about it because that was the responsibility of the human resources department at ensure that the information is correct.
“So unless and until HR, the employee, or their supervisor notices that something doesn’t seem right, payroll wouldn’t know if it was wrong,” Birch said.
Hanson also reviewed county 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 segregating duties, so the person who writes the payroll remittance file to go to the bank can’t also send the payroll. ‘silver.
The county has also started running reports to see who is making a lot of money each pay period so staff can find discrepancies, which they previously did not. Birch said the county’s new systems now allow him to do the data analysis himself without having to pay a company like BDO.
But, the biggest change and the most 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 cycles of remuneration, to a system of “positive remuneration”, where it will pay the hours worked every two weeks to the employees.
“The biggest problem 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 much corrective pay, so much corrective time, all of those things – that it’s very hard to miss the big deal. , and we missed it.”
Birch said staff will be able to better detect errors and problems during normal data analysis.
“It’s very difficult to determine where there might be challenges in the approval process when we have a pay-per-exception model,” Birch said. “If everyone is an exception, it’s really hard to know where the real exceptions really are.”
The change is not without controversy. The Albemarle Education Association criticized the change and the timing of the change as well as the perceived lack of transparency in the process. In an open letter, he said changing the paycheck schedule means inconsistent compensation for the lowest-paid hourly workers in the school system. Pay for these employees is based on the number of school days that occur in a two-week pay period rather than a fixed base salary in each check.
In 2019, the county began moving employees to a countywide online time and attendance system after primarily using spreadsheets and paper-based timing. Processes for tracking attendance and leave varied from department to department.
The change was the first recommendation for improvement in a 2014 report after a review of the county’s maintenance and management of employee information related to payroll and compensation.
County spokeswoman Emily Kilroy said the move to an online time and attendance system — the county uses Kronos — and changes to payroll are just some of the additional changes that will help resolve ongoing issues.
“We don’t think Kronos will solve all the problems,” she said. “We know that transitioning to positive compensation and at the same time transitioning to ADP will not solve all the problems – [but] these are all really important steps towards solving all the problems.
As part of the upcoming budget process, the County Finance and Budget Department is requesting to hire an internal auditor who will be responsible for ensuring that internal controls are maintained.
The ministry is also requesting 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 it all — it’s not possible, it’s just not possible — but we have to put the structure in place to be able to catch it,” Birch said. “That’s what I’m working towards right now is to have that structure so that we can be really sure that if there were any fun deals going on we would catch them.”
