Audit Report on the Controls of the New York City Department of Finance Over Its Neighborhood Payment Center Program

EXECUTIVE SUMMARY

In September 1997, the Department of Finance (DOF) entered into a contract with Cashpoint Inc. (Cashpoint) to provide Neighborhood Payment Centers (NPCs) to accept cash, checks, or money orders in payment of funds that customers owe the City of New York. DOF does not pay Cashpoint for this service. The program started with 12 NPCs, and by June 1999 there were 200 NPCs, the contract minimum. As of July 2001, there were 415 NPCs. DOF and Cashpoint meet monthly to discuss the program and to ensure that it is working in accordance with DOF goals and objectives.

In Fiscal Year 1998, DOF authorized the NPCs to accept payments for parking summonses. In Fiscal Year 1999, DOF added payment of real estate taxes to the NPC program. In Fiscal Year 2000, the Department of Environmental Protection (DEP) authorized NPCs to collect payments for water and sewer bills. In Fiscal Year 2001, NPCs collected total payments of $37.2 million in 383,814 transactions for parking summonses, real estate taxes, and water bills.

When a customer pays a bill at an NPC, the customer also pays a $1.00 convenience fee for each transaction. The NPC cashier collects the bill payment and the convenience fee, and then enters the payment details in Cashpoint’s computer system, which automatically generates a receipt. At the close of each business day, a manager at each NPC deposits the check payments directly into DOF’s bank account. The manager deposits the cash payments in the NPC’s own bank account. Cashpoint "sweeps" all the NPC bank accounts for the daily cash collections into its own Cashpoint account. It then electronically transfers the cash payments and collection data for parking violations and real estate taxes to the DOF bank account. The NPC manager deposits water and sewer bill payments in a separate City account for the Department of Environmental Protection.

Cashpoint oversees all the NPCs in this program and is ultimately responsible for transmitting the money that is collected at all the NPCs to the City’s bank accounts by noon the next business day. Cashpoint’s accounting department reconciles all NPC collections to Cashpoint’s computer system daily.

Our objectives were to determine: 1) whether payments collected at the Neighborhood Payment Centers are accurately recorded and promptly deposited in DOF accounts; 2) whether DOF maintains adequate internal controls over payments accepted and remitted by Neighborhood Payment Centers; 3) whether DOF monitors the individual Neighborhood Payment Centers to ensure that the program provides adequate and effective services to its customers; and 4) whether Cashpoint complies with certain provisions of its contract with the city.

The scope of our audit was Fiscal Year 2001. We interviewed various DOF officials and the President of Cashpoint, Inc. We visited 50 randomly selected NPC sites and posed basic questions regarding the NPC program to site employees. To determine whether employees were aware of their site’s participation in the NPC program, we telephoned an additional 92 randomly selected NPCs and spoke with site employees. We analyzed transaction dataand the results of our telephone inquirieso determine whether there was a correlation between the employee response to our questions and sites with a low number of transactions. In addition, we reviewed customer complaint report from Cashpoint’s Telephone Customer Service and interviewed various DOF Helpline staff.

To determine the accuracy of payments for parking violations recorded in the City Summons Tracking and Accounts Receivable System (STARS), we randomly selected five NPCs from the 150 NPCs with the most transactions and money collected and sampled 30 parking violation transactions from April 2001 at each of the five NPCs. We reviewed record-keeping procedures at the sites, DOF’s April 2001 reconciliation documents, and DOF’s reimbursement records relating to over-deposits made by Cashpoint.

To determine whether the program was easily accessible to customers throughout the City, we mapped the locations of the 415 NPCs that were active as of July 2001.

This audit was conducted in accordance with generally accepted government auditing standards (GAGAS) and included tests of the records and other auditing procedures considered necessary. This audit was performed in accordance with the City Comptroller’s audit responsibilities as set forth in Chapter 5, § 93, of the New York City Charter.

The audit determined that overall, DOF has effective controls over the NPC program. DOF has ensured that:

• The collection of payments for summonses are accurately recorded in the STARS database. Based on our review of 143 sampled parking summons transactions at five NPCs, we concluded that the data on Cashpoint’s system matched the data (the summons number and the dollar amount) on the original parking summons and in the STARS database.
• Moneys are promptly deposited. Our review of DOF’s Chase Transmission Report files found that Cashpoint transmitted the total daily collections within the specified time during Fiscal Year 2001. On two occasions, although the money was deposited on time, the collection data file was transmitted late.
• DOF performs daily reconciliations for the NPC program to ensure that the number of transactions and the dollar amount of parking summonses and real estate taxes collected and transmitted by Cashpoint match the number of transactions and the dollar amount deposited in the City’s bank account.
• DOF tested the software with sample data files at the first 100 NPCs to become part of the program to ensure that Cashpoint’s software controls were adequate at the beginning of the contract in 1997. Although DOF did not visit or test each of the remaining NPCs, the Director of MIS reported that DOF reviews internal control reports, discusses new software releases, and tests the changes.
• NPCs are accessible to customers throughout the five boroughs. We plotted the locations of the 415 NPCs throughout the five boroughs and found that most of the geographic areas are covered by an NPC site. The contract required a minimum of 200 NPCs by June 1999; Cashpoint provided 415 NPCs as of July 2001.
• Cashpoint is in compliance with contract requirements regarding timely deposits, record retention, submission of insurance certificates and fidelity bonds, receipt information, provision of technical assistance, and report delivery.

However, there were several weaknesses that should be addressed, as follows:

• DOF’s monitoring of the NPC program does not reach the level of the individual NPC. Although DOF receives monthly reports from Cashpoint that show the number of transactions and dollars collected by individual NPCs, these reports do not list NPCs with no transactions in the month, nor do they list monthly comparisons for each NPC throughout the year. As a result, DOF has no means to analyze individual NPC business volume (transactions and dollars) over time. Moreover, DOF staff does not visit or call the NPCs to verify whether services required in the contract are provided.

Our site visits or telephone calls to 142 randomly selected active NPCs revealed that employees at eight NPCs (5.6 %) were unaware that their sites accepted payments for parking summonses. Projecting this finding to the 415 active NPCs resulted in the possibility that up to 24 NPCs may have turned away prospective customers because employees at the sites gave out incorrect information.

In addition, to determine whether there was a correlation between underutilized NPCs (i.e., those with few transactions) and employees who were unaware that their site accepted payments for parking summonses, we telephoned 28 active NPCs with the lowest number of transactions in Fiscal Year 2001. Employees at 14 (50%) of the 28 NPCs told us that they did not accept parking summons payments. This is a much higher error rate than that for the 142 randomly sampled NPCs we contacted (discussed immediately above) and may explain why there are so few transactions at these NPCs.

It is in the City’s interest to monitor the NPCs with low volumes of business to determine whether there are reasons for the low volume that can be remedied.

• DOF did not comply with PPB rules when it approved, in August 2000, a $.25 convenience fee increase (from $.75 to $1.00) for the first renewal option period. Although Section 4-02(b)(1)(ii) of the PPB Rules permits increases in a contract amount because of additional authorized work, it appears that Cashpoint may not have supplied the additional work necessary under the PPB Rules to warrant a 33 percent increase.

In addition, that PPB Rule states that any changes to the contract amount "require appropriate price and cost analysis to determine reasonableness." It appears that DOF did not perform the requisite analysis for a fee increase of $.25 per transaction that increased the value of the contract by almost $100,000 per year,based on Fiscal Year 2001 calculations.

In a letter dated August 1, 2000, Cashpoint attempted to justify its request to increase the convenience fee. Many of these justifications were, on their face, without merit and could have been easily dismissed by DOF by simply reading the contract.

• Cashpoint’s Disaster Recovery Plan for its information systems did not include some items, such as: a priority list for reinstating each component of Cashpoint’s information systems; a documentation list that describes the back-up documents that should be at the off-site facility used to store back-up data files in case the originals are destroyed; and procedures to test the Disaster Recovery Plan.
• There is no mechanism at DOF that quantifies and categorizes the customer complaints it receives with regard to the NPC sites. DOF does not maintain records of customer complaints, and therefore, we could not determine how often customers complained about NPCs or the nature of the complaints. Customers can also call Cashpoint’s Customer Service line. According to Cashpoint, only nine customers called about the NPC program between September 2000 and October 2001. We could not verify the accuracy of this report since Cashpoint did not provide the back-up documentation we requested.
• Individual NPCs transmitted 240 (0.3%) late batches of deposits out of an estimated 81,075 batches transmitted in Fiscal Year 2001. Most of these batches were no more than five days late. However, the reports provided to DOF do not record the dollar amount of the late batches. Therefore, DOF cannot assess whether the total monetary value of late NPC deposits for the fiscal year is significant.

• Record-keeping procedures varied across the five sampled NPCs we visited. Some of the sampled NPCs kept original summonses in an unorganized fashion and did not frank them, as required by the contract.
• There were several minor areas of non-compliance with contract requirements that may affect the controls over the program. These items include: original summonses that NPCs did not always stamp with the processing date and receipt number (franking); the adequacy of insurance coverage amounts required by the contract; and a missing DOF evaluation in the City Vendor Information Exchange System (VENDEX) for Fiscal Year 2001.
• Over-deposits in DOF’s bank account occurred when staff at various NPCs mistakenly used the City’s deposit slip instead of NPC’s slip when depositing checks from their check-cashing activities. This resulted in a total of $1.63 million over-deposited in DOF’s bank account. However, a further review showed that the frequency of over-depositing is minor, representing only .06 percent of the total estimated deposits made by 415 NPCs in a year. DOF reviews the reconciliation documents to verify the amount of reimbursement requested by Cashpoint, authorizes the reimbursement, and issues a check to Cashpoint for redistribution, thereby correcting the error.

The audit resulted in eight recommendations. The following are the major recommendations. DOF should:

• Obtain from Cashpoint a listing of all NPCs that shows their six-month or yearly dollar volume of transactions, and canvass those with the lowest number of transactions (including NPCs with no transactions) to determine whether employees of those NPCs are aware that they should accept payments for parking summonses and real estate tax bills.
• Consider logging complaint calls regarding NPCs and the nature of the complaints on a trial basis to determine whether there are trends requiring specific remedies.
• Follow PPB rules when renewing or re-bidding the contract. The value of the contract to the contractor should be taken into consideration.

The matters covered in this report were discussed with officials from DOF during and at the conclusion of this audit. A preliminary draft report was sent to DOF officials and discussed at an exit conference held on May 20, 2002. On May 23, 2002, we submitted a draft report to DOF officials with a request for comments. We received a written response from DOF on June 7, 2002. DOF agreed with all eight recommendations made in this audit. However, it disagreed with the audit’s finding that DOF did not comply with Procurement Policy Board rules when it approved a fee increase from $.75 to $1.00.