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City Agencies Fail to Implement Most Audit Recommendations

Published on November 04, 2021

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DENVER – City agencies failed to fully implement more audit recommendations than they successfully implemented from six different follow-up audit reports issued this month, according to Denver Auditor Timothy M. O’Brien, CPA.

Our office follows up on every audit to see the progress city agencies made on the recommendations they agreed to implement. This month, those follow-ups on audits issued in the first half of 2020 involved the Minority/Women and/or Disadvantaged Business Program, city real estate portfolio practices, marijuana taxation, open records request processes, the Denver Public Library’s financial processes, and asset management software in the Department of Transportation & Infrastructure.

Out of 87 accepted recommendations across the six reports, city agencies fully implemented only 30.

"Although some work was out of city leaders’ control because of the pandemic, I don’t want agency managers to think they can agree with us and then expect everyone to forget about the work that still needs to be done," Auditor O’Brien said.

November Follow-up Reports - 6 Total Reports

Minority/Women and/or Disadvantage Business Program

Of the 23 recommendations in this June 2020 audit report, 17 still have not been either fully implemented or acted upon by Denver Economic Development & Opportunity.

The original audit found the Division of Small Business Opportunity left some significant gaps in its program to certify businesses and set goals to ensure businesses owned by women and people of color participate in city projects. We found the division had sanctioning authority when a contractor fails to comply with program goals, but at the time it was not using that authority. The division also did not have enough staff to adequately monitor contractors’ compliance.

At the time of follow-up, we found the division did develop some new policies and procedures, but they were frequently lacking important provisions and remained insufficient. For example, the division created a procedure to use its sanctioning process, but that procedure does not ensure sanctions are applied consistently and it does not clarify what is considered a violation. Since the time of the audit, the division tells us they have not had cause to use their sanctioning authority. The division should still consider improving its procedure to allow for uniform treatment in the future.

Other concerns remain related to how the division is monitoring contractor and subcontractor compliance with participation goals, as well as ensuring companies are making good-faith efforts such as negotiating with women and people of color who own business enterprises.

Staffing levels were even lower than at the time of the original audit. Low staffing levels may be beyond the division’s control due to the pandemic and turnover, but we believe once staffing is increased, some of the issues from the original report will be resolved.

The Division of Small Business Opportunity needs to ensure consistent enforcement of inclusion goals on city projects so businesses owned by women and people of color can have improved opportunities with the City and County of Denver.

"City leaders need to implement all parts of these recommendations to ensure requirements to support disadvantaged businesses are more than just good intentions,” Auditor O’Brien said. “The city needs to follow through on goals and hold contractors accountable."

City Real Estate Portfolio Practices

The Real Estate Division of the Department of Finance fully implemented only one of 10 recommendations from the May 2020 audit report.

While we found the division took some important steps — including documenting transaction details to increase transparency and the ability to pass on institutional knowledge, the division is still not properly overseeing the city’s real estate portfolio.

“The COVID-19 pandemic is a good example of why this is important," Auditor O’Brien said. "As our city’s needs for land and office space change because of remote work and social distancing, knowing a complete picture of what resources the city has to work with could be valuable."

We learned the division took some action to develop and maintain a complete real estate portfolio document— a recommendation management originally disagreed with. The division developed a spreadsheet to serve as its portfolio, which it uses to track city property — including city-owned property, leased property, vacant land, and parks.

The division also added an interactive map on its website, but the information in the spreadsheet and online is still incomplete and Real Estate is not sharing it with partner agencies.

We recommended a centralized tool to monitor space planning, but the Real Estate Division says pandemic-related budget cuts delayed the implementation of new software. The division did standardize data entry and file-naming going forward for property files from real estate projects— making some information easier to retrieve— but it did not retroactively rename older files.

"I hope the new software can be implemented soon, to help make the city’s real estate portfolio more transparent," Auditor O’Brien said.

The division developed a documented strategic plan for the city’s real estate needs, but it lacks detailed information about property value assessments, annual operating costs, and capital and development costs.

"When agencies agree with our recommendations, we expect change to happen — and that constitutes audit success," Auditor O’Brien said. "If the city takes no action or incomplete action after they agree, it’s a disservice to the public."

Marijuana Taxation

The Treasury Division of the Department of Finance fully implemented four of our recommendations from April 2020, but seven others have yet to be fully implemented or acted upon.

The division still needs to develop a data-driven approach to audit selection, which should include monitoring and identifying marijuana businesses with a high risk of underreporting. Treasury officials said they are in the process of contracting for the software functionality to do this.

"The Treasury Division’s audit unit should ensure all marijuana businesses are compliant and paying their taxes in full," Auditor O’Brien said. "The voters approved legalizing marijuana with the expectation that taxes would support our community."

Staff did take steps to proactively identify unlicensed delivery businesses and implemented a verification process to check the accuracy of state marijuana payments. Treasury also developed a formal policy and procedure to validate data before staff uses it to select businesses for audit.

Open Records Request Process

The Mayor’s Office made progress in how it instructs city staff to respond to and manage open records requests from the public. However, only two out of 14 recommendations were fully implemented from the May 2020 audit report, and management needs to do more to centralize the process, increase transparency, and make it easier for the public to find the information they need.

The Mayor’s Office provided a template for agencies to use an online form for record requests, but not all agencies are using the form. Without clear rules, guidelines, or a section for frequently asked questions online, the public may continue to struggle with submitting open records requests.

Although the office followed many of our recommendations related to training, enhancing staff guidance, and consistently treating extenuating circumstances and timing requests, it did so about 10 months after the agreed-upon implementation dates and only after we started follow-up work. The lateness in addressing our recommendations resulted in the Mayor’s Office issuing guidance piecemeal, under different formats, and at different times.

“Agencies set their own deadlines for implementing our recommendations,” Auditor O’Brien said. “I would have liked to see more of these recommendations implemented in a timely manner.”

We also followed up on our June 2020 audit of the Denver Public Library’s financial processes and our January 2020 audit of asset management software in the Department of Transportation & Infrastructure, previously known as Public Works.