Audit Report on Controls Over the Processing and Collection of Permit Fees by the Department of Environmental Protection

Audit Report In Brief

This audit determined whether the New York City Department of Environmental Protection’s (DEP) Bureau of Water and Sewer Operations (Water and Sewer) and Bureau of Customer Service (Customer Service) have adequate controls over the processing of permit applications and the collecting of permit fees and certain permit-related fees. In Fiscal Year 2003, these two bureaus approved 40,656 permit applications. The combined permit fees and permit-related fees collected totaled $6.7 million.

DEP’s controls over the processing of permit applications and the collection of permit fees at the Bureaus of Customer Service and Water and Sewer are inadequate, ineffective, and, in some cases, nonexistent. Controls over permits issued and fees collected were so deficient that we were unable to determine with reasonable assurance the actual amount of revenue that should have been collected for Fiscal Year 2003. There is little or no oversight by management to ensure that the controls are adequate or that the controls are even applied. Water and Sewer is still using a manual system to record applications. Daily reconciliation of permits issued to fees collected are not performed. The permit fees collected are not deposited in the bank on a timely basis. Monthly bank reconciliations are not performed. Water meter permits are issued to plumbers who have outstanding balances caused by returned checks. There is a lack of tracking and follow up of outstanding permits.

These and other internal control weaknesses must be addressed by DEP management. Without reexamining and strengthening existing controls and creating new controls where none exist, there is a high risk that fraudulent activities will occur and that DEP will not be aware of them.

To address these issues, we make 26 recommendations. The major recommendations are that DEP should:

• Complete the policies and procedures manual, addressing all processes and functions involved in processing permit applications and collecting permit fees at both Water and Sewer and Customer Service offices. DEP should disseminate the completed manual to all offices and follow up with appropriate staff training.
• Require a supervisory review and a daily reconciliation of all permits issued and fees collected and deposited.
• Ensure that deposits are made on a daily basis.
• Coordinate its efforts with the Water Board Treasury Department to ensure that monthly bank reconciliations of permit fees are performed.
• Establish procedures for tracking and collecting checks that were returned by the bank for insufficient funds.
• Establish procedures that prohibit new permits to be issued to plumbers who have unpaid balances in their accounts or who have had uncollectible balances written-off.
• Send out inspectors to spot-check premises after a permit has expired to determine whether a water meter was installed. If the meter was installed, ensure that CIS is updated and customers are billed for water use.
• Develop written procedures for processing permit-related revenue generated by the Bureau of Water and Sewer. These procedures should include the recording, handling, depositing, and reconciling of permit-related revenue fees by several employees.
• Look into the feasibility of modifying the Customer Information System (CIS) to include the recording of permit-related revenue collected by the Bureau of Water and Sewer. If it is not possible to modify CIS, track these fees through a different computer system so that these fees are no longer recorded in FMS.
• Perform a brief preliminary review of the SD1 & 2 and Site Connection Proposal forms at the beginning of the review process. If at that time, the application package is found to be complete, then the accompanying check should be deposited without any further delay.
• Program CIS so as to prevent one individual from entering the permit application information as well as the fee payment for a permit. If this is not possible, implement a compensating control to prevent the possibility of the misappropriation of funds.