DENVER – Denver Auditor Timothy M. O’Brien, CPA, called on the Risk Management Office to follow better accounting practices when it comes to workers’ compensation, but the city still hasn’t adjusted how it tracks some long-term costs.
“Financial accountability is not subject to convenience,” Auditor O’Brien said. “I’m disappointed to see the Department of Finance making so little progress toward the goal of reporting costs as required by accounting standards.”
The Auditor’s Office released two follow-up reports this month: one on workers’ compensation and one on data centers.
In the first report, the Department of Finance’s Risk Management Office failed to implement nine of 16 recommendations from our October 2018 “Workers’ Compensation” audit. The audit team looked at whether the self-insured workers’ compensation program delivered services to employees cost effectively and efficiently, as well as whether financial reporting was in line with national accounting standards.
State law requires employers to provide medical care and treatment for injuries and occupational diseases arising out of and during a worker’s employment.
The workers’ compensation activity is accounted for primarily in a dedicated fund. However, our team found not all costs and liabilities related to workers’ compensation are accounted for in that fund. Salary continuation costs are paid directly by the agency.
Salary continuation is when the city provides paid disability leave to eligible employees if the employee has a disability due to an on-the-job injury and is unable to perform the duties of the position or any other position. Salary continuation begins after an employee misses three days and files a workers’ compensation claim.
We recommended that these costs all be accounted for in the dedicated fund to ensure proper reporting in the city’s Comprehensive Annual Financial Report. However, the director of the Risk Management Office decided instead to report the aggregate cost in the city’s budget and note it in the report. The Controller’s Office says management believes the current method of accounting for salary continuation is compliant with government accounting standards.
“Our interpretation of financial reporting requirements is different from the Controller’s Office,” Auditor O’Brien said. “The city needs to be in compliance with national standards so the people we serve can rest assured that we are using their money responsibly.”
The Risk Management Office also still lacks a complete strategic plan, it still hasn’t developed key performance indicators to help track success or areas in need of improvement, and it still hasn’t reported the total cost of the workers’ compensation program.
“Reducing unwarranted costs is a primary goal,” Auditor O’Brien said. “The only way to know where cuts can be made or where needs exist is to track a strategic plan and performance goals.”
Risk Management also failed to implement recommendations to improve reporting and contract monitoring. The agency did implement five other recommendations.
Auditor O’Brien also released a second follow-up report for September on the first part of the January 2019 “Data Centers” audit. The city’s Technology Services agency fully implemented three of 11 recommendations but only partially implemented seven others. One was not implemented.
Technology Services is now doing a better job of ensuring the city’s data centers are collaborating with other agencies. However, risks remain regarding geographic diversity, inventory management, cost analysis, and operational policies and procedures.
Despite the efforts of the agencies involved, auditors determined the risks associated with the audit team’s initial findings have not been fully mitigated. As a result, we may revisit these risk areas in the future to ensure the city takes appropriate corrective action.