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OFFICE OF THE AUDITOR

DEPARTMENT OF PARKS AND RECREATION PARKS DIVISION

INTERNAL CONTROLS AND COMPLIANCE AUDIT JULY 2008

Dennis J. Gallagher Auditor

To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and

the people. We will monitor and report on recommendations and progress towards their implementation. 1

City and County of Denver 201 West Colfax Ave., Dept. 705 • Denver, Colorado 80202 • 720-913-5000, FAX 720-913-5247

www.denvergov.org/auditor Dennis J. Gallagher

Auditor

July 17, 2008 Mr. Scott Robson, Acting Manager Department of Parks and Recreation City and County of Denver Dear Mr. Robson: Attached is the Auditor’s Office Audit Services Division’s audit report of the Parks and Recreation Department’s Parks Division for the period January 1, 2006 through December 31, 2006. The purpose of the audit was to determine whether the Parks Division correctly reported its financial information, is in compliance with applicable rules and regulations, and whether internal controls in place were adequate. The audit revealed reportable internal control weaknesses related to expenditures, fixed assets, and cash handling as disclosed within the accompanying report. If you have any questions, please call Kip Memmott, Director of Audit Services, at 720-913-5029.

Sincerely,

Dennis J. Gallagher Auditor

DJG/kh cc: Honorable John W. Hickenlooper, Mayor

Honorable Members of City Council Members of Audit Committee Kelly Brough, Chief of Staff Claude Pumilia, Chief Financial Officer Chris Henderson, Chief Operating Officer David Fine, City Attorney Lauri Dannemiller, City Council Executive Staff Director Beth Machann, Controller Doug Woods, Director of Parks Jude O’Conner, Director of Natural Resources Barb Gibson, Executive Director of Four Mile Historic Park Fred Weiss, Director of Finance & Administration

TABLE OF CONTENTS

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Transmittal Letter 1

Table of Contents 2

Auditor’s Report 3

Executive Summary 4

Background, Scope, Objective, and Methodology 5

Findings and Recommendations 8

Exhibit A – Parks Division Responses 12

To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and

the people. We will monitor and report on recommendations and progress towards their implementation. 3

City and County of Denver 201 West Colfax Ave., Dept. 705 • Denver, Colorado 80202 • 720-913-5000, FAX 720-913-5247

www.denvergov.org/auditor Dennis J. Gallagher Auditor

AUDITOR’S REPORT We have completed an internal controls and compliance audit of the Department of Parks and Recreation’s Parks Division for the period January 1, 2006 through December 31, 2006. The purpose of the audit was to determine whether adequate internal controls were in place regarding revenue and cash handling, expenditures, fixed assets, and to make appropriate recommendations to strengthen the internal control environment. We also verified whether the agency followed applicable City rules and regulations. This audit was included in the Auditor’s Office Audit Services Division’s 2006 Annual Audit Plan and is authorized pursuant to the City and County of Denver Charter, Article V, Section 1, General Powers and Duties of Auditor. We conducted our audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that internal accounting and administrative controls are adequate under the circumstances. An audit includes examining, on a test basis, evidence supporting revenue and cash handling, expenditures, fixed assets, along with relevant compliance issues. Our audit did not include review or testing of payroll leave due to the centralization of all Parks’ payroll functions to the Controller’s Office. Our objectives were met in all areas except as noted in the findings contained in this report. The audit revealed reportable internal control weaknesses related to expenditures, fixed assets, and cash handling as disclosed within the accompanying report. We commend Parks and Recreation for taking the initiative to develop and implement standard operating procedures throughout the Department, to govern financial operations. These new policies will enhance controls and efficiencies related to the Department’s financial operating environment. We extend our appreciation to the personnel who assisted and cooperated with us during the audit. Audit Services Division

Kip R. Memmott, CGAP, CICA Director of Audit Services Date: July 17, 2008 Staff: Dick Wibbens, CPA, Audit Manager John Finamore, CPA, Internal Audit Supervisor Jake Claeys, CICA, Lead Internal Auditor Anna Hansen, Senior Internal Auditor

PARKS DIVISION EXECUTIVE SUMMARY

FOR THE PERIOD JANUARY 1, 2006 THROUGH DECEMBER 31, 2006

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This summary highlights the audit findings of the Department of Parks and Recreation’s Parks Division, which focused on determining proper internal controls and accounting processes were adequate regarding revenue and cash handling, expenditures and fixed assets, and assessing the Division’s compliance with applicable City rules and regulations. The Findings and Recommendations section of the report beginning on page 8 further describes these issues in detail. The Agency’s response is contained in Exhibit A beginning on page 12.

Finding I: Opportunities Exist to Enhance Parks Division Internal Controls

The audit revealed the Parks Division was not in compliance with Fiscal Accountability Rules related to Internal Controls, Cash Management and Fixed Assets. These weaknesses result in increased risks of asset misappropriation, theft and inaccurate financial records. The following are specific risk areas identified by audit work where controls can be improved.

Cash Handling Weaknesses at Four Mile Historic Park - Cash receipts are not issued to customers during off-site events as a means for efficient tracking and reconciliation of revenue received.

Fixed Asset Management Issues - The Parks Division is not always properly accounting

for, identifying, and safeguarding fixed assets.

Lack of Proper Segregation of Duties - The Forestry Division’s accounts receivable process is managed by one individual. Responsibilities for fiscal functions should generally be separated between multiple personnel so that no one person has control over an entire process or fiscal activity.

Petty Cash Issues - Several Parks Division petty cash accounts are not being used to the

required optimal turnover rate of 8 – 12 times per year. Additionally, audit work determined that in the case of one fund, petty cash funds and personal funds were being commingled.

PARKS DIVISION BACKGROUND, SCOPE, OBJECTIVE, AND METHODOLOGY


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Background The Parks Division is responsible for the daily operations and management of the City’s parks, parkways, trails, natural areas, and other land and water assets, as well as the CSU Cooperative Extension office and the Buffalo Bill Museum. The Parks Division consists of five divisions as follows:1

General Parks – landscapes and maintains over 5,000 acres of parkland, including over 300 parks and 146 playgrounds; maintains 125 miles of parkway and 145 miles of trails systems; operates the City Greenhouse, mower shop, and tree nursery; and cares for the City’s trees. General Parks is made up of:

• Administration: plans, implements, coordinates, and manages the City’s

park programs and operations. • District Operations: maintains developed City parkland through

geographically-based six districts. The unit provides park maintenance for turf grass and athletic fields, irrigation systems, floral plantings, shrub and perennial plantings, playgrounds, restrooms, roads, trails, picnic facilities, parking lots, lakes, gulches and waterways. The unit also performs trash, graffiti, debris and snow removal, and performs routine safety and general park inspections and response to citizens.

• Natural Resources: comprised of the following three sections: (1) the Forestry Section provides a comprehensive tree care program encompassing all aspects of community forestry including basic care for trees on City property, ordinance enforcement, nursery operations, and plan review; (2) the Natural Areas Section restores and manages natural naturalized areas and involves the community in better land stewardship; and (3) the Water Conservation Section plans and coordinates the installation of automated irrigation controls in the park districts, monitors and projects water and sewer costs, and implements measures to conserve water.

• Headquarters: provides heavy equipment support to the other sections of park operations and operates the City-wide mower maintenance repair shop. The unit also mows undeveloped areas, trains equipment operators, assists District Operations with snow and trash removal, maintains the City’s bikeway and trailway systems, removes graffiti, hauls waste, and provides other support as needed to District staff. Additionally, the Headquarters unit houses the newly formed City-wide inspection unit responsible for utilities notification, construction and access permits, inspection, park surveys and traffic control plans.

1 Source: Mayor’s 2006 Budget.

BACKGROUND, SCOPE, OBJECTIVE, AND METHODOLOGY PARKS DIVISION

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• Greenhouse: provides plants to all parts of the City through plant propagation, flower potting, flowerbed preparation and maintenance, and pest and disease control. The 65,000 square-foot greenhouse supplies over six acres of flowers in beds throughout the City Park system.

• Planning, Design and Construction: provides strategic planning, project management, long-range planning, development review, trails oversight, and the creation and development of the capital improvement program for the department.

CSU Cooperative Extension – provides community-based educational programs.

The Extension programs are supported by local, state, and federal governments. The Denver County Office provides individual residents and industry/commercial operators with landscape skills training and information on horticulture, waste management and the proper use of pesticides; brokers educational programs in science and technology through the Denver Public Schools Youth Program; and provides a broad, multi-disciplinary nutrition program through the Consumer Resources Department.

Mountain Parks – jurisdiction consists of approximately 14,130 acres of

parkland in Jefferson, Douglas, Clear Creek, and Grand counties. The Division prepares, constructs, and maintains picnic areas within the parks, including 11 permitted sites; maintains 28 miles of roadway and 16.4 miles of marked hiking trails; provides food and care for two Bison herds, conducts annual buffalo auctions; repairs and maintains historic shelter houses and parking areas and 15 miles of emergency access forest roads; provides emergency forest assistance; maintains water and septic systems; and provides trash collection and graffiti removal in the parks.

Four Mile Historic Park – maintains and operates the Four Mile Historic

Museum and grounds located at 715 South Forest Street in Denver. The Park collects, displays, and interprets the history of Denver and the region through the Four Mile Historic House, its reproduced outbuildings, and the surrounding land. Park staff provides regular public tours as well as special activities including tours for school children, a summer Living History Camp for children, and various special events throughout the year.

Buffalo Bill Museum – preserves and interprets the life and times of “Buffalo

Bill” Cody for the benefit of the people of Denver and the many visitors to Denver. The Museum collects and displays western art and artifacts, historical documents, and memorabilia relating to the life of “Buffalo Bill” Cody and provides security for the Museum facility. The Museum is located on Lookout Mountain and maintains the Cody gravesite and related structures in Lookout Mountain Park.

BACKGROUND, SCOPE, OBJECTIVE, AND METHODOLOGY PARKS DIVISION

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Scope Our audit scope included a review of agency internal controls and an assessment of compliance with rules and regulations as they apply to the financial information reported for the period. The audit period was January 1, 2006 through December 31, 2006. Objective The objective of the audit was to determine whether Parks Division was in compliance with applicable rules and regulations and whether internal accounting and administrative controls were adequate and effective. Methodology In order to accomplish scope objectives, audit work included but was not limited to:

Reviewing policies and procedures from the Parks Division; Reviewing the City’s rules and regulations pertaining to Park’s operations; Interviewing personnel involved in the various functions of the Division; Analyzing and testing source documentation related to revenue and cash handling,

expenditures, contracts, fixed assets and determined if they were in compliance with rules and regulations of the City; and

Assessing management controls over various Division functions and processes.

PARKS DIVISION FINDINGS AND RECOMMENDATIONS


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Finding I: Opportunities Exist to Enhance Parks Division Internal Controls

The audit revealed the Parks Division was not in compliance with Fiscal Accountability Rules related to Internal Controls, Cash Management and Fixed Assets. These weaknesses result in increased risks of asset misappropriation, theft and inaccurate financial records. The following are specific risk areas identified by audit work where controls can be improved. Cash Handling Weaknesses at Four Mile Historic Park - Audit work revealed that for certain off-site events at Four Mile Historic Park, a cash box is used for collecting admission fees. Amounts collected for 2006 admissions amounted to approximately $15,000. The personnel responsible for collecting admission fees do not provide customers with a receipt upon payment. As a result, the Division cannot verify the completeness and accuracy of money collected and, therefore, cannot adequately track and reconcile revenue received. The inability to track and reconcile these revenues results in increased risks of misappropriation, theft, and inaccurate financial statements. In order to reduce such risks, Fiscal Management Rule 2.6 – Cash, Receipts and Deposits states, “All agencies receiving payment ‘in person’ must provide their customers a receipt for all monies, either directly from an automated cash register, or a manual control numbered receipt.” Fixed Asset Management Issues - Audit work identified several issues regarding the Division’s management of fixed assets. These include:

Of the 36 assets sampled, 4 (11%) were no longer in Park’s control and should have been removed from the asset inventory list. Three of these items were park picnic shelters with values ranging from $14,100 to $25,900 that were properly salvaged when the parks were remodeled. The other asset was a radio with a value of $2,404 that was reported missing, but never removed. Two out of the 36 assets sampled (6%) could not be located. These assets were both radios used at Parks each with a value of over $2,000.

Tag numbers could not be verified on 10 out of the 36 assets tested (28%).

Eighteen out of the 36 assets (50%) tested were in a location other than the one listed on

the Asset Inventory Report, which made it difficult to locate the assets.

Misstated assets, such as the aforementioned ones, cause fixed assets to reflect overstated balances. Additionally, the inability to effectively manage fixed assets results in increased risks of misappropriation and theft. The Department of Parks and Recreation is responsible for ensuring that fixed assets are properly accounted for when acquired, inventoried and safeguarded throughout its useful life, and properly accounted for at the time of disposal. In order to reduce such risks, the City has adopted the following fiscal rules governing the management of fixed assets.

FINDINGS AND RECOMMENDATIONS PARKS DIVISION

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Fiscal Management Rule 4.2 – Fixed Assets Procedure states “If no documentation can be found showing how and when an asset was acquired or discarded, a detailed memo with a complete explanation and listing of those assets must be submitted with the signature of the Expending Authority.”

Fiscal Management Rule 4.2 – Fixed Assets Procedure states “All personal property

assets must be assigned a unique identifying number or ‘Tag Number’ and this number must be affixed to the asset. Tag numbers should be assigned sequentially or logically to ensure that no number is duplicated. Missing or worn tags shall be replaced and can be obtained from Central Services (Form C-88).”

Fiscal Management Rule 4.2 – Fixed Assets Procedure states, “All assets must be

assigned a Location Code which identifies where the item is physically located.” Lack of Proper Segregation of Duties at Forestry Division - The Forestry Division provides a service to Denver City residents whereby they contract out basic tree care services for residents. Upon completion of work, the contractor submits an invoice to the Forestry Division for the service provided. The Forestry Division pays the invoice, then bills the resident for the work performed, allowing them the option of making monthly installment payments on 10% of the ending balance until paid in full. Audit work determined that one employee is responsible for the accounts receivable process. Specifically, the employee receives the invoice from the contractor, inputs the data into Forestry’s subsidiary accounts receivable system for tracking, and then forwards the invoice to Parks and Recreation Finance for payment in full. The employee then sends a statement requesting payment from the resident. When payment is received (usually within 30 days,) the employee endorses the check, places the cash/check in a deposit bag, updates the customer’s account information in the subsidiary accounts receivable system, and sends a revised statement to the customer showing remaining balance owed. The lack of segregation of duties results in increased risks of misappropriation, theft, and inaccurate financial statements. In order to reduce such risks, Fiscal Management Rule 2.4 – Separation and Rotation of Duties states “Separation and Rotation of Duties are basic premises of sound internal controls. This requires that functions should be divided so that no one person has control over an entire process or fiscal activity and the functions or job assignments should be changed periodically. Separation of duties acts as a deterrent to fraud or concealment since collusion with another individual is required to complete a fraudulent act. Rotation of duties among staff is also critical in that it facilitates cross-training and improves depth of personnel skill and succession.” Petty Cash Issues2 - We performed tests on all Park Division’s petty cash turnover rates for 2007. We noted that 4 out of the 7 petty cash fund turnover rates (57%) were not being used to the required optimal level of 8 to 12. The four funds are listed below:

2 The Audit Services Division issued a Citywide petty cash compliance audit for fiscal years ended December 31, 2005 and 2006 in December 2007. This report can be accessed on the Auditor’s web-site.


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Parks and Recreation Maintenance Fund ($100.00) had a turnover rate of 4.7; Parks and Recreation Combined Fund ($500.00) had a turnover rate of 4.6; County Agent (CSU Extension) Fund ($100.00) had a turnover rate of 3.9; Mountain Parks Fund ($200.00) had a turnover rate of 1.9.

We also discovered the petty cash custodian at Parks and Recreation Maintenance was advancing personal funds to maintenance crew members requesting reimbursements because, according to the custodian, the petty cash fund amount was insufficient to make timely reimbursement payments resulting in complaints from maintenance crew members. Once the petty cash was replenished, the custodian would use petty cash to reimburse personal funds. Commingling personal funds with City funds is not a good practice due to the increased risks associated with tracking and monitoring which could be the cause for the petty cash shortage. In order to reduce petty cash inefficiencies and related risks, Fiscal Management Rule 3.2 – Petty Cash and Imprest Funds states, “The optimal turnover rate is between eight (8) and twelve (12.) A turnover rate of seven (7) and under reflects a low usage and funds may need to be decreased” Fiscal Management Rule 3.2 – Petty Cash and Imprest Funds states, “Petty cash shall not be advanced in anticipation of an approved amount.” Recommendations Cash Handling Weaknesses at Four Mile Historic Park

1. We recommend that Four Mile Historic Park use a manual control-numbered receipt book or a two part, sequentially pre-numbered raffle ticket (when separated, each part has the same number) for all off-site events. Keeping in mind the number of customers attending events, the raffle tickets may be the best alternative as a way to efficiently track revenue received from customers. This allows personnel responsible with collecting admissions to also give customers one part of the ticket and retain the other half will ensure that cash received and counted can be accurately reconciled to the tickets issued for completeness and ultimately deposited with assurance.

Fixed Asset Management Issues

2. We recommend the inventory custodian identify all assets that are no longer in Park’s control and have them removed from the asset inventory list.

3. We recommend the inventory custodian verify that tag numbers are affixed to all assets

for identification purposes and tracking. If the tag numbers are missing or look worn they should be immediately replaced.

4. We recommend the inventory custodian update all asset location codes, which identify

where the asset is physically located, and maintain up-to-date records of this for efficient, Department-wide tracking purposes.


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5. Due to multiple locations of operations throughout the Department, we recommend the agency head delegate responsibility to personnel at the various locations to report accurate information to the inventory custodian in a timely manner.

6. To accurately monitor the inventory of radios, we recommend the inventory custodian

develop a plan to either (1) assign specific radios to individual Park’s employees, who will then be responsible for that radio; or (2) implement a sign out sheet which lists the serial number of the radio that corresponds to the employee that signs out the specific radio for a period of time. Such procedures will greatly improve internal controls involving the tracking and locating of all radios.

7. Due to the high mobility of assets, we recommend the Division explore the cost-benefits

of obtaining an asset tracking software or barcode scan system which would allow for improved asset tracking and inventory controls.

Lack of Proper Segregation of Duties at Forestry Division

8. We recommend the Division ensure duties are properly segregated between personnel for processing, authorizing and reconciling transactions. If separation is difficult to achieve due to lack of personnel, we recommend a greater level of management oversight of the financial related activities as a compensating control activity. Periodically verifying entries and work performed will provide this means of oversight.

9. We recommend that, where possible, the Division develop a plan to periodically rotate

staff between jobs to ensure that employees are cross-trained to provide effective backup for these activities.

Petty Cash Issues

10. We recommend the Division evaluate the need for multiple petty cash funds, including the Parks and Recreation Combined Fund, within the Webb Building for use throughout the Department of Parks and Recreation. Consolidating petty cash funds within the Webb Building would help to safeguard City assets by reducing the amount of cash on hand at various locations.

11. We recommend the Division evaluate the petty cash amounts of the Parks and Recreation

Maintenance Fund, County Agent (CSU Extension) Fund, and Mountain Parks Fund due to low turnover rates. We suggest looking at the possibility of obtaining purchasing cards (p-cards) for use at these various locations, or increasing petty cash amounts at some locations, such as Parks and Recreation Maintenance Fund, due to the time it takes to replenish the fund.

12. We recommend the Division provide improved oversight and instruction to petty cash

custodians as to prevent future occurrences of commingling of petty cash funds with personal funds.

EXHIBIT A – PARKS DIVISION RESPONSES PARKS DIVISION

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