An update of the performance audit was presented to the Joint Committee on Government Operations in February of 1997. The purpose of this update was to determine the level of compliance of the recommendations in the performance audit. The "surplus balance" issue that we focused on required Legislative action and therefore, the level of compliance was not applicable.
ISSUE 1: Follow-up on $2 Million Reserve.
The Legislative Auditor's Office is conducting this update of the Division of Personnel as a result of West Virginia Code §4-10-10A, which states, "...no agency may be terminated under this section unless a compliance monitoring and further inquiry update has been completed on the agency subsequent to the prior completion of a full performance evaluation."
West Virginia Code §29-6-23 authorizes the Division of Personnel "to charge each agency, department, division, or unit of state or local government served by the DOP... for personnel services rendered." The DOP's budget is established by assessing fees based on the number of FTEs in each state agency. The DOP is charging agencies a flat $155 per FTE annually whether the position needs DOP's full services or limited services.
The Legislative Auditor reported in December of 1995 that the DOP had accumulated a surplus balance of approximately $2 million, as of June 30, 1995. The DOP had a cash balance of $1.3 million and had $787,475 in accounts receivable, which is money owed to DOP by other agencies that has not been collected. The DOP surplus was a result of agencies paying for classified-exempt positions, vacant positions and the DOP's failure to evaluate its fiscal operations to determine how much of a fee reduction could have been given to state agencies.
Two-Year Analysis of the Accounts Receivable
The DOP began fiscal year 1996 with an accounts receivable balance of $787,475.
Adjustments were made to the accounts receivable ledger for deferred or write-offs of
balances that exceeded the 180 days and are deemed uncollectible or errors in the
billings. The adjustments and write-offs for fiscal year 1996 and fiscal year 1997
totaled $758,874. As indicated in TABLE ONE, $533,232 was deferred during Fiscal
Year 1996 and $225,642 was deferred during fiscal year 1997.
Major Reasons for Adjustments
According to the Division of Personnel, the Department of Education's (DOE) account was deferred in the amount of $507,809 because DOP deemed it to be uncollectible. During FY 1996, DOP deferred accounts receivable in the amount of $304,376 which had been billed to the Department of Education through FY 1994. An additional $203,433 was credited to Education's account because appropriations were not made to DOE beginning in FY 1995 to pay these fees. DOP considered this amount uncollectible as the Department of Education contended it was a "constitutional" office and thus it was exempt from DOP's fee.
DOP also wrote off $125,589 which had been billed to the Division of Tourism during the period fiscal year 1991 through fiscal year 1994 for temporary employees. An internal dispute between the Division of Tourism and the Division of the State Parks system existed as to who employed the temporaries and who was responsible for the fees. This was considered uncollectible due to lack of funds in the Division of Tourism. The cabinet secretary recommended the amount be deferred because DOP could not resolve the dispute and the Division of Tourism and the Division of Parks were to split their operations. In December 1994 the state parks were transferred to the Division of Natural Resources.
An additional $59,020 was deferred for several county health departments mainly due to reductions in Full-time Equivalents, the basis for DOP's fee. Table One depicts an analysis of the accounts receivable ledger beginning July 1, 1995 through June 30, 1997.
Analysis of Division of Personnel's Accounts Receivable
|Fiscal Year 1997||Fiscal Year 1996|
|Beginning Balance as of July 1||$269,329||$787,475|
|Additions: Fees Billed to Agencies||3,514,910||3,515,063|
|Total Accounts Receivables To Account For||3,784,239||4,302,538|
|Deductions: Fees Collected from Agencies||3,425,966||3,499,977|
|Deferred Accounts or Write-Offs:|
|Department of Education||203,433||304,376|
|Division of Tourism||0||125,589|
|County Public Health Departments||0||59,020|
|Other (Various Agencies)||22,209||44,247|
|Total Fees Collected and Write-Offs||3,651,608||4,033,209|
|Ending Balance as of June 30||132,631||269,329|
|Total Accounts Receivable Accounted For||$3,784,239||$4,302,538|
DOP's Plans $650,000 of the Reserve for an Automated HRIS
DOP's cash balance as of June 30, 1997 is $1,102,472 and has $132,631 in accounts receivables for a total of $1,235,103. DOP has allocated $650,000 of the cash balance for the purpose of purchasing a Human Resource Information System as part of a coordinated effort with the State Auditor's Office. This is a basic system with minimum modifications for collecting, analyzing and disseminating data required to support the various human resource management functions. DOP has allocated funds annually for the HRIS and the money has remained in the account. The DOP's Director states that, "...the Division of Personnel is firmly committed to the implementation of an automated human resource information system (HRIS). At this time, we are coordinating our efforts with the Auditor's efforts to upgrade his payroll system."
The cost of a HRIS can vary tremendously. As reported in the December 1995 performance evaluation, the anticipated cost for the system was to cost anywhere from $5 million to $8.7 million. DOP spent $160,500 of the reserve for this system that was discontinued by the Secretary of Administration. The DOP's current Director believes that the Division can purchase a basic system with a minimum of modifications for approximately $650,000 in initial costs. Beyond the initial costs, there would be annual maintenance fees for the software which would include any standard upgrades. The Director also anticipates that enhancements would be made to the basic system on an ongoing basis which would be a cost beyond the annual maintenance fees.
DOP also retains a cash reserve adequate to meet payroll and benefits costs for
two months. The cost, as projected by DOP, is approximately $460,000. The cost of the
two months of budget combined with the HRIS initial cost totals $1,110,000 leaving a
remaining balance of $125,103. TABLE TWO indicates the analysis of the beginning
reserve as of July 1, 1995 through June 30, 1997.
|Beginning Balance as of July 1, 1995||$1,294,001||$787,475|
|Add: Fees Assessed (7/1/95 - 6/30/97)||6,925,943||7,029,973|
|Less: Fees Collected (7/1/95 - 6/30/97)||(6,925,943)|
|Receivables Deferred\Written-off |
(7/1/95 - 6/30/97)
|Less: Expenditures (7/1/95 - 6/30/97)||7,117,471||0|
|Two-Month Budget Cash Reserve||(460,000)|
|Balance of Reserve as of June 30, 1997||($7,527)||$132,631|
The Division of Personnel has written-off\deferred approximately $759,000 of the $787,475 in accounts receivable as reported in the December 1995 performance evaluation. The cash balance reported in 1995 was $1.3 million of which $1.1 million remains in DOP's special revenue account as of June 30, 1997. Approximately $160,000 of the $200,000 difference was used to pay for services rendered on the contract that was canceled by the Secretary of Administration for the $5 million HRIS.
DOP should continue to develop a Human Resource Information System as required by Chapter 29, Article 6, Section 7(b)(2) of the West Virginia Code which states the Director of DOP "Maintain a personnel management information system necessary to carry out the provisions of this article." The efforts by DOP should be coordinated with the efforts of the State Auditor's Office.