City payouts for employees are often delayed and lack clear processes

City payouts for employees are often delayed and lack clear processes

Published on September 19, 2024

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DENVER - City payroll leaders need to keep a closer eye on payouts when individuals leave employment to make sure the right amount is paid and workers get their pay in a timely manner, according to a new audit from Denver Auditor Timothy M. O'Brien, CPA.

"When an employee leaves the city, they are entitled to the pay they earned," Auditor O'Brien said. "Both employees and the taxpayers deserve assurances that the payouts are neither more nor less than what is owed."

When an employee leaves their job with the city, or "separates," they are paid for unused leave and compensatory time. Once separated, former employees must return all city-owned equipment including laptops and related items.

We found the Department of Finance needs to strengthen processes to ensure former employees are paid promptly and accurately for all unused leave. Without necessary formal processes in place, the Payroll Division cannot ensure former employees are paid for all the unused leave they are owed in a timely manner when separating from their jobs.

From 2021 through 2023, more than 10,000 people left their jobs with the City and County of Denver. This number includes resignations, retirements, dismissals, and - in some cases - loss of life.

During this period, more than 5,000 former employees were eligible to receive separation payouts for unused benefits like paid time off, sick leave, and vacation. The average payout for more than 4,000 of the 5,000 eligible employees that we reviewed was about $10,300 before any deductions. That adds up to more than $41 million in employee payouts over three years.

"Employee separation payouts are no small amount of the city's personnel budget," Auditor O'Brien said. "That alone justifies a much closer look at processes, timelines, and accuracy."

Staff told us they try to complete employee payouts in two to three weeks, while the Office of Human Resources informally says payouts could take up to 60 days. But when we looked at the numbers, we found it often took longer than that. Out of 4,441 records, we found nearly a quarter of people were paid more than 60 days after their last day of work.

Delayed payments happened because the city lacks formal, documented policies with clear timelines for how long the separation process and leave payouts to former city employees should take.

Excessive amounts of time between separation and payout can harm employees who involuntarily leave their jobs with the City and County of Denver or who are between jobs.

Additionally, lacking formal processes for payouts and payout reviews mean the city remains at risk of paying out the wrong amount - especially if a system outage leads to inaccessible leave balance updates. We did not find any instances of employees being paid out incorrectly, however the risk remains. For example, in December 2021 through early 2022 when the timekeeping system Kronos was hit by a global ransomware attack. City employees were unable to access their leave balances for months. The city did not review all supporting documentation to ensure payouts for separations that happened during this time were correct.

The Payroll Division says it is working on a continuity-of-operations plan to avoid this problem in the future - but that plan is not expected to be finished until the end of the year.

Record keeping issues also extend to agencies with collective bargaining agreements, including the Denver Police and Fire departments. These uniformed employees use a different timekeeping system from the city's system of record, and we found discrepancies between the two systems regarding sick and vacation time accrued. For example, one Fire Department employee had a difference of 590 hours of sick leave accrued between the two systems. Another Police Department employee had a difference of 448 hours of vacation accrued.

Without accurately tracked records for time off, the city risks not paying out everything an employee earned or paying out too much in a lump sum.

Underlying this issue is inconsistent training and payroll audits by Payroll Division staff. Without adequate policies and procedures to guide payroll staff when conducting separation payout audits for both career service and uniformed employees, the division risks inconsistently processing payout audits or making errors that negatively impact the employee or the city.

We recommend clear timelines for employee separation, accurate data tracking, and consistent payroll audits to ensure timely and accurate payouts in the future.

Finally, we also recommend improvements to how the city recovers computers and other equipment from employees when they separate from the city. Recently, the city's Technology Services Department took over collecting computers from employees, rather than leaving it up to individual agencies. This could help track inventory in the future. However, the city still needs a clear policy for getting computers back or charging employees for unreturned equipment.

"Old computers still have value to the city - both due to the cost of replacing the equipment and because old computers could still be used in limited capacity or donated to those in need," Auditor O'Brien said. "When an employee leaves the city, they shouldn't be able to walk off with a computer and all the accessories that go with it."

The Department of Finance agreed to all 17 of our recommendations for improvement in this audit.

AUDITOR TIMOTHY O'BRIEN, CPA
Denver Auditor

Denver Auditor´s Office

201 W. Colfax Ave. #705 Denver, CO 80202
Email: [email protected]
Call: 720-913-5000
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