City Employees’ Expense Reports Need Stronger Scrutiny

Published on November 23, 2021

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DENVER – City managers need to strengthen safeguards to ensure employees aren’t getting reimbursed for inappropriate expenses, according to an audit report this month from Denver Auditor Timothy M. O’Brien, CPA.

“When taxpayer dollars go into employees’ pockets, city processes should require strict scrutiny, transparency, and accountability,” Auditor O’Brien said. “Most expenses are likely appropriate, but nobody is above question.”

Our team did not find evidence of fraud but they did identify opportunities for employees to abuse or misuse city resources, either intentionally or accidentally, because of failures in the expense report approval process.

We found a high percentage of approved expense reports since 2018 lacked adequate documentation in the system of record, Workday, to support the dollar amounts listed. Employees also often did not include sufficient explanation for how a purchase benefited the City of Denver.

The expense report approval process is created by the Controller’s Office, within the Department of Finance. Using this approval process, the city might reimburse city employees for out-of-pocket purchases they make on behalf of the city. Expense reports are one of several ways employees might procure goods and services for city business.

We found between 12% and 39% of nontravel expense reports from January 2018 through December 2020 were approved even though they had incomplete documentation in Workday, insufficient explanation, or inaccurate expense categorization.

The expense report approval process involves multiple levels of review and approval, culminating in final approval by the Controller’s Office. The manager-level approval step is considered one of the most important safeguards. Unfortunately, the audit team found staff tasked with approving expense reports are not clear on their roles and responsibilities.

The expense report approval process fails because of poorly defined staff approval roles, inconsistent training, and review steps done outside the city’s accounting system of record.

Potentially questionable purchases we identified included home office supplies and information technology assets sent to home addresses during the pandemic.

“If someone purchases a computer for city business and sends it to their home address, that’s a risk of financial abuse, as well as a cybersecurity risk,” Auditor O’Brien said. “These purchases must be thoroughly tracked, documented, and explained."

We also found the existing process requires the City Council president to approve their own expense reports at the manager-level approval step — something not similarly structured with any other agency head or elected official, including independent agencies. The Council president believed they were following the appropriate steps in the system, but the direction from the Controller’s Office was also weak.

The annual budget ordinance designates the City Council president as the expending authority for the council, which appears to explain why their ability to self-approve expenses was set up that way in the city’s accounting system. At the meeting of the independent Audit Committee, the Controller's Office said they have resolved this conflict, which we will confirm at the tie of follow-up.

In contrast, when other agency heads and elected officials seek reimbursement, the city’s system designates another individual to sign off on their expense. That’s because no one person should have control over an entire process or financial activity. Allowing one person to approve their own expenses does not align with the city’s Fiscal Accountability Rules. While there are other levels of approval in the expense report process, any self-approval erodes these rules and safeguards.

The Controller’s Office needs to formally review the expense report review process to make sure it is working as intended. Because of the failures in the approval process, the city risks misappropriating taxpayer funds, approving potentially inappropriate expenses, and approving expenses best made through other procurement processes.

The Controller’s Office agreed to all our recommendations.

 


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AUDITOR TIMOTHY O'BRIEN, CPA
Denver's Auditor


Denver Auditor's Office
201 W. Colfax Ave. #705 Denver, CO 80202
Email: auditor@denvergov.org 
Call: 720-913-5000
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