Overview
In our prior audit, we found that the Department of Conservation and Recreation (DCR) did not maintain an accurate official record, or register, of all its use agreements and—because of an inadequate billing and accounts-receivable system and a lack of written policies, procedures, and internal controls—did not collect delinquent use agreement fees owed the Commonwealth. As of our current audit period, this issue had not been fully resolved.
In April 2014, DCR hired a contractor that works with the agency to maintain a register to track use agreements, issue monthly invoices, and process the associated payments. However, DCR does not always refer overdue use agreement fees for collection within the prescribed time period and does not record the total accounts receivable and total (“summary”) amount of use agreement fees it collects in the Massachusetts Management Accounting and Reporting System (MMARS). DCR could use that information to identify and track overdue fees. Specifically, when we reviewed 89 accounts receivable that had been outstanding for 120 or more days, we found that DCR had not referred any of them to the Office of the State Comptroller (OSC) for intercept or to a debt collection agency. Our audit identified approximately $600,000 in current and past unpaid fees that DCR had not collected as of June 30, 2017 as a result of these problems. In fact, the amount of unpaid fees owed to the Commonwealth increased from approximately $168,000 at the time of our last audit to approximately $600,000 as of the end of fiscal year 2017. The fees owed during the current audit period are shown below.
|
DCR Program |
Number of Unpaid Fee Instances |
Unpaid Fees Due in Fiscal Year 2016 |
Unpaid Fees Due in Fiscal Year 2017 |
Unpaid Fees Due in Prior Fiscal Years |
Total Unpaid Fees |
|---|---|---|---|---|---|
|
High Ground |
15 |
$45,472 |
$69,347 |
$360 |
$115,180* |
|
Concessions |
11 |
48,400 |
2,251 |
181,975 |
232,626 |
|
Skating Rinks |
2 |
(778) |
6,001 |
0 |
5,223 |
|
Utility Provider |
35 |
12,767 |
13,791 |
0 |
26,559* |
|
Memorandum of Understanding |
7 |
35,135 |
2,743 |
12,750 |
50,628 |
|
Cottages |
14 |
43,100 |
900 |
72,900 |
116,900 |
|
Boat and Yacht Club |
5 |
0 |
55,848 |
0 |
55,848 |
|
Total |
89 |
$184,097* |
$ 150,882* |
$267,985 |
$602,964 |
* Discrepancies in totals are due to rounding.
Authoritative Guidance
According to Section 9.03(1) of Title 815 of the Code of Massachusetts Regulations (CMR), “State Department Billing Entities are responsible for making diligent efforts to collect legislatively and legally authorized Accounts Receivables and Debts.” Specifically, 815 CMR 9.05(2) establishes departmental internal debt collection procedures, according to which each agency must demonstrate diligent efforts to collect debt. Diligent efforts are defined to include, at a minimum, the initial billing, payable in 30 days; three written billing and dunning notices 1, 30, and 60 days after the payable date; and a final notice 120 days after the payable date.
According to 815 CMR 9.04, once the proper notice has been given to the debtor, state agencies such as DCR are required to refer debt that is 120 days past due for intercept:
State Department Billing Entities processing Debts through the MMARS State Accounting System will automatically assign Debts systemically to Intercept when the Debt is 120 days past due, unless the Debt has been flagged as exempt from Intercept.
They can also simultaneously submit the debt to a debt collection agency.
OSC’s Receivable Recognition and Reconciliation Policy states,
MMARS is the official record of the Commonwealth for receivable and customer information. Departments must take special care to ensure that the information that is entered into MMARS for any receivable is accurate and complete.
Further, this policy requires departments such as DCR that are authorized to post summary transactions in MMARS to update transaction records at least monthly to ensure that MMARS accurately reflects outstanding accounts-receivable balances.
Reasons for Issues
DCR management attributed problems with fee administration to a lack of adequate staffing, stating that since 2009, the agency’s staff has decreased by approximately 300 individuals. However, DCR has also not established written policies and procedures over these activities to ensure that all user fees due the Commonwealth are properly and accurately billed, paid in a timely manner, and properly recorded and that all delinquent user fees are promptly identified and resolved.
Recommendations
- DCR should refer all delinquent accounts receivable that are more than 120 days overdue to an agency for collection.
- DCR should establish written policies and procedures for the collection and recording of its user fees and also establish monitoring controls to ensure that these policies and procedures are adhered to.
Auditee's Response
In response to issues identified in the first audit, in 2014, DCR contracted with TR Advisors (“TRA”) for real estate advisory services, and that contract, as amended, terminated in June 2016. DCR then entered into a new contract with TRA for the period July 2016 through June 30, 2019, with two additional option years.
DCR notes the following with respect to the information shown in the [table in Finding 1]:
- the source of this information in the draft audit report chart primarily was TRA’s rent roll (i.e., a list of the user agreements in the TRA database and associated data relating to those agreements, information which is continually being updated) and TRA’s aged delinquencies list.
- TRA began billing on behalf of DCR in October 2015, four months into the period covered by this Audit. As a result, the information obtained by the auditors from the TRA reports does not fully reflect FY16 billing and collection activity.
- TRA reports do not reflect all payments received by DCR—for example, payments made by wire transfer are not reflected in TRA’s reports.
- Certain permittees and lessees, such as rink operators, ski operators and some concessions, are not invoiced as they pay fees based on a percentage of revenues. Those payments are also not reflected in TRA’s reports.
- Boat and yacht club permits were significantly delayed during Calendar Year 2016 due to the time needed for the internal approval and implementation process for the decision to extend the term of those permits from one year to five years.
- Cottage permit applications and invoices are provided simultaneously, typically at the end of a calendar year for the upcoming calendar year. In Calendar Year 2017, cottage permittees were newly required to confirm that only authorized permittees were requesting cottage permit applications. Due to this new administrative requirement, the cottage permit process was substantially delayed that year, and the corresponding invoices likewise were delayed.
- In addition, several abatement/credit requests have been made and are in process, which will reduce the amount of monies owed as shown in the [table];
- Significant payments are often made after June 30 each year (the audit period encompassed FY16 and FY 17, ending on June 30, 2017).
- In addition, the chart includes amounts from 2010 from the prior audit. As we note below, some of these unpaid fees will be submitted for intercept and collection.
DCR has engaged in active efforts to reduce uncollected fees. As noted, the agency contracted with TRA to: send out timely billing statements; create on-line access in order to analyze reports in real time; and [produce] a hard-copy monthly report with the rent roll and a status of all accounts. DCR staff also coordinates and monitors payment on accounts by permit type. If payments are not received, DCR staff does not issue a renewal to that permit, until payment is made. In addition, once credits and fee corrections have been processed and approved, this amount will likely be less than $80,000, a substantial decrease from $600,000, the approximate amount identified as “unpaid fees” by the [Office of the State Auditor, or OSA] as of the end of the Audit Period. Staff will continue in their efforts to collect all monies owed, and we fully expect this amount to be further reduced.
DCR Administration & Finance received guidance from the Office of the State Comptroller (“OSC”) in regards to the process for posting summary receivable transactions into MMARS by revenue source code, and is now receiving financial detail from TRA by revenue source, for purposes of reconciling TRA totals to MMARS totals. As a result of these improvements, DCR is posting summary receivables transactions in MMARS, which will trigger the automatic intercept provisions set forth in 815 CMR 9.04 and 9.07.
DCR Administration & Finance and the DCR Long-Term Permits and Leases (“Permits and Leases”) unit are working with TRA to establish a procedure for identifying and monitoring unpaid accounts receivable which are over 120 days overdue, and we anticipate that this will be finalized in FY19. DCR also intends to procure a contract with an outside collections firm that is consistent with 815 CMR 9.05. Once finalized, these new processes will be included in DCR’s updated Internal Control Policies. DCR Administration & Finance and DCR Permits & Leases will meet on a monthly basis with TRA representatives to discuss outstanding issues and to coordinate the collection process.
The Permits and Leases unit has a Procedures Manual which contains detailed information on the work processes of the unit, including information pertaining to different types of agreements, the [Request for Proposals] process, file maintenance, insurance requirements, work flows, and the approval process. This Manual will include the process improvements identified above with respect to identifying and collecting unpaid accounts receivable. The Manual is in draft form, and we anticipate it will be finalized shortly. The final version will include relevant policies for the unit.
Auditor's Reply
Since TRA was the contractor DCR hired to issue monthly invoices and process the associated payments for use agreements, OSA reasonably relied on the data and records TRA provided to conduct our analysis in this area. Although DCR asserts in its response that the information in the TRA reports may not be accurate for a variety of reasons and can provide only an estimate rather than an accurate accounting of what DCR believes to be the actual outstanding balance, we believe these issues may not have had any significant effect on our reported outstanding balance of approximately $600,000 as of the end of our audit period. During our audit, to assess the accuracy of the information in the TRA reports, we reconciled the revenue collection information in the reports to the information in MMARS about the amount of DCR revenue collected and found the difference to be insignificant; the amount of TRA revenue collected for fiscal year 2017 was $5,774,460, and the amount collected according to MMARS was $5,802,991. This makes for a $28,531, or 0.5%, difference. During our audit, we asked DCR’s staff to reconcile the minor difference between these two amounts, but this was not done. Regardless of any discrepancy between the amount of our reported outstanding accounts-receivable balance and the actual balance, our concern is that during our current audit, OSA found that DCR did not always refer overdue use agreement fees for collection within the prescribed time period or record in MMARS the total accounts receivable and total amount of use agreement fees it collected.
Based on its response, DCR is taking measures to address our concerns in this area.
| Date published: | June 14, 2018 |
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