Memorandum

City of Lawrence

Finance Department

 

TO:

Thomas M. Markus, City Manager

FROM:

Bryan Kidney, Director of Finance

DATE:

December 14, 2017

RE:

Receive Report of Miscellaneous Billing Process Review Project Update

 

Summary

A review of Miscellaneous Accounts Receivables revealed approximately $690,045 of revenues had not been billed and/or collected.  As of December 12, 2017, $689,108, or 99.86% has been recovered.  The remaining $937, or 0.14%, is still in the process of being collected from an airport hangar lease holder.  In response to the review, the Finance Department has started implementing improvements to the accounts receivable processes and procedures to ensure that all money owed to the City is collected. 

 

Background

In April of 2017, the Finance Department became aware of land lease agreements held by the City that were not being billed. Finance reviewed prior and current billing systems compared with a list of leases provided by the City Attorney’s Office and notified the City Manager that there appeared to be a deficiency in the accounts receivable billing process. The City Manager directed staff to engage an auditor to determine the extent of problem.

 

Rapid Assessment

The Finance Director engaged RSM for Rapid Assessment services on April 24. The auditors began their two-day on-site review on April 25. During this time RSM reviewed policies, procedures, processes and workflows related to Billing & Cash Applications for Non-Utility billings. They also interviewed staff to understand performance metrics, work processes, procedures and related policies. They observed daily activities, use of technology, and average workload of City staff. The Auditors found deficiencies in multiple areas of the receivable operations. RSM presented these in a report to the Governing Body on Tuesday, June 6.

 

Accounts Receivable Further Review

Based on the finding of the Rapid Assessment, staff entered into an agreement to have RSM assist with verifying that all City properties were billed appropriately through a deeper dive into the data and the development of a comprehensive list of properties, contracts and billing records to be updated based upon City employee input and records. 

 

In June, a survey was issued to 47 staff members, requesting assistance in gathering information related to any non-utility related billing.  All departments responded to the survey. The following steps were also taken.

1.    The master list of all received contracts was finalized including: term, billing amounts, renewal options and expiration dates.

2.    The City’s billing team compared the data to the Miscellaneous Accounts Receivable (MAR) billing systems, all variances were reviewed and verified with the appropriate Department Directors.

3.    Any changes to the billing terms, annual increases etc. were noted in the master list, if variances existed MAR was updated appropriately.

4.    The compiled list was sent to the survey participants for review and comments to collect any remaining items.

5.    All survey participants/departments reviewed and confirmed the listing was complete as of this date.

 

Summary of Findings

As shown below, 23 customer accounts were discovered to have billing errors. The total billing variance for those accounts was $690,045, of which all but $937 has been collected as of December 13, 2017.  More information on each category of receivable is provided below.   

 

Type of Receivable

Number

Variance Amount

Amount Collected

Amount

Outstanding

Douglas County

1

$427,935

$427,935

-

Land lease

1

256,096

256,096

-

Building leases

2

2,006

2,006

-

Hangar rents

19

4,008

3,071

$937

Total

23

$690,045

$689,108

$937

 

Douglas County Payments

As previously reported, staff discovered through a monthly review of 2017 budgets versus actuals that $207,526 (2015 share of the County’s planning expenses) and $220,409 (2016 share of the County’s planning expenses) had not billed or collected. The $427,935 was billed and collected from Douglas County.

 

Land Leases

As previously reported, $256,096 was billed and has been collected from Riverfront, L.L.C. For more detail on this revenue recovery, please see City Commission Agenda from October 3, 2017.

 

Building Leases

Lawrence Arts Center.  In 2000, the City and the Lawrence Arts Center entered into an agreement whereby the Lawrence Arts Center agreed to repay the City for a portion of the cost plus interest and financing costs for construction of their new facility.  Through the accounts receivable review, it was discovered that an automatic charge in the billing software stopped before it reached the correct collection amount.  The annual charge of $2,000 has been reinstated and the 2017 bill has been paid.  The annual charge will continue until the balance is paid in full.   

 

Senior Resource Center for Douglas County.  Pursuant to an agreement entered into in 2012 with the City, the Senior Resource Center for Douglas County is to remit annual rent payments of $1.  Due to the cost of processing bills and payments, the City does not issue bills for amounts less than $10.  However, upon reading of the Account Receivable collections issue in the news, Senior Resource Center for Douglas County graciously remitted $6 for the 6 years since the agreement was signed.     

 

Hangar Leases

The review discovered that the contract manager for the airport hangars had not notified the billing department to increase monthly billing amounts as specified in the lease agreements. A total of $4,008 was billed and as of December 13Th, all but $937 has been collected.  This uncollected portion of hangar rents is the only outstanding amount left to be collected from the Account Receivable review.

 

Property Tax Reimbursements

Earlier this month, Finance Staff was in the process of reviewing property tax bills for City owned properties with private uses located on them. The City bills tenants for reimbursement for some of the real estate taxes. The Finance Director asked the City Attorney’s office to review the real estate tax reimbursement billings and confirm their accuracy. The review revealed there were some property tax reimbursements that were not set up to be billed correctly. 

 

The City Attorney’s office is now reviewing all land lease agreements to determine what, if any, other property tax reimbursements have not been billed correctly. More information will be provided to the City Commission as more details become available. 

  

Changes in Processes and Procedures

Due to limitations with the City’s existing Miscellaneous Accounts Receivable (MAR) system, the City is not able to implement all of the suggestions from the initial rapid assessment (workflows, reminders, approval automation and automated reconciliations). However, Finance has been making improvements to the Accounts Receivables process over the last year. Staff is also working to implement controls and training for staff as recommended by RSM.  Highlights include:

·         A vacant administrative position has been repurposed from accounts payable to accounts receivable to provide increased monitoring and reporting. 

·         Finance has drafted a set of accounts receivable policies and procedures, including revisions to the form departments submit to Finance to set up receivables.

·         The City Manager’s Office is working on process and procedure improvements to ensure that agreements and other agenda items with Miscellaneous Accounts Receivables are properly routed to Finance to ensure they are set up as accounts receivable. 

·         Since learning that not all County receivables were originally reported as part of the Accounts Receivable audit, staff reviewed the Master List of Receivables to ensure all funding arrangements with the County are now included.  A thorough review of the accounting of County revenues was conducted and modifications were made making it easier to identify missing payments throughout the year.  Reporting on County revenues will also be more detailed beginning in 2018.

·         The City’s Executive Team reviews all agenda items following Commission meetings, assigning follow up actions required, including if accounts receivable items are created.   

 

Financial Impact

The cost of the assessment services project to date is $48,213 and the final costs are estimated to be $54,313. The review was included in the 2017 revised budget in the General Fund Overhead department. The cost of the assessment service is offset by the $689,108 in past revenue that has been collected so far through this review.  The recovered revenue from the Airport leases will be deposited in the Airport Fund 201 and rest of the recovered revenue will be deposited in the General Fund 001.