Audit and Consulting Services - Payroll Operations

PROPOSAL # RFP18-13-14

AUDIT AND CONSULTING SERVICES - PAYROLL OPERATIONS

SANTA CLARA COUNTY OFFICE OF EDUCATION

ADDENDUM #3

For

Audit and Consulting Services

Payroll Cycle (HR, Payroll, Accounting, and IT)

AT

Santa Clara County Office of Education

This Addendum forms a part of the Proposal Documents for above subject project and modifies the original project specifications as noted below. Acknowledge receipt of this Addendum in your proposal response. Failure to do so may subject your response to disqualification.

The following additions have been made to the above referenced proposal document:

PROPOSAL MEETING

A Pre-Proposal Conference was held on Tuesday, March 11, 2014, at 10am for PAYROLL AUDIT SERVICES for the SCCOE. The following are the pertinent questions and answers from that conference:

Andy Bursch, Purchasing Manager, opened the meeting, providing general directions that Q&A’s about the RFP be directed to him while Q&A’s about technical aspects of the RFP be covered by Judy Kershaw, Internal Auditor, then had the group introduce themselves. Two firms identified themselves as participating via the call-in number and four firms participated in person.

Judy Kershaw, Internal Auditor, continued the meeting with an overview, highlighting some of the information provided in the RFP and taking questions as she reviewed the material. The following items were included in this discussion.

Questions and Answers

1.Question: How many employees does the SCCOE have?

Answer: Currently, there are approximately 1800 employees that are covered by the monthly and 10th of the month payrolls. We know that for calendar year 2013, just under 200 employees separated from the SCCOE, so there were just under 2000 employee accounts active in that year.

2.Question: How often does the SCCOE prepare a payroll?

Answer: The SCCOE is exempt from California Law requiring employers pay their employees at least twice per calendar month. We pay our employees once per month. There are usually three payrolls processed in a calendar month, the regular payroll which covers salaried employees, the 10th of the month payroll which covers hourly employees and the special payroll which covers pay adjustments due to late time sheets and other payments that were not included in the regular or 10th of month payrolls because an employee or their manager missed a processing cut-off date. In recent months, the special payroll has been run as often as each week.

3.Question: Does the SCCOE periodically conduct an audit of the payroll operations and if so, how often; and what kinds of issues have you found in the past? Can we get a copy of past reports?

Answer: Beyond the work performed by our external financial auditors, the SCCOE does not usually engage an audit firm to perform an audit of our payroll operations. Last year, the new SCCOE administration embarked on some reorganization to achieve efficiencies and cost reductions and the payroll operations was included in this activity. In February 2013, a couple of months after the payroll manger retired, the remaining six payroll technicians who prepare the SCCOE payroll (known as District 90) was moved into the District Business Advisory Services (DBAS) department of Business Services. However, this transition did not go well and some of the payroll staff retired or went on leave, so some of their workload was absorbed by the staff of the District Business Advisory Services department. By April 2013, the number of employees who were reporting errors on their pay or experienced a loss of medical benefits were increasing. By October 25th, 2013 the remaining payroll technicians were moved back to the Internal Business Services department who rebuilt the team back to the regular six positions, now reporting to the Controller.

Like many service organizations, the payroll is a significant portion of the SCCOE budget (about 70% of the SCCOE budget) and thus is material to our financial statements. For this reason and other issues such as User ID and password sharing by the DBAS staff who performed payroll technician work during the reorganization, the SCCOE wanted to provide the financial auditors with more specific information about the various breakdowns in controls and the magnitude of errors. Therefore, in late October 2013, the SCCOE engaged a consulting firm who completed a preliminary survey in mid-November 2013, just in time for the financial auditors who must complete their opinion report before December 15, 2013 for our regulatory submission.

The RFP states that we will only provide the preliminary survey report to the finalists. However, for those who are interested, we will be posting that report to the Internal Audit webpage that is under construction at the moment. The field work took about two and a half weeks and we paid $23,000 for this work.

4.Question: Has the User ID and password sharing issue been resolved, and if so, when?

Answer: If we had to put a stake in the ground on a specific date of when the User ID sharing was resolved, I would use October 25th 2013, as this was the date that the payroll technicians who works on the SCCOE payroll were moved from DBAS back to Internal Business Services, reporting to the Controller.

5.Question: Who are your financial auditors and can we get a copy of the most recent financial audit and management letter?

Answer: After using the services of VTD for more than 15 years, we went out for bid last year, as we do about every 5 years, and selected Nigro&Nigro who performed the audit for Fiscal Year 2012-13. The financial audit and management letter can be found at this link:

6.Question: Is there a management letter item about the payroll issue? Are the corrective action plans for the management letter items also available for our review?

Answer: Yes, both the financial audit and the management letter are posted to our internet site and can be found in the link provided in the answer to Question #5. The corrective actions plans are being developed and we will post them to the Internal Audit website which is currently under construction. I will send a link in a separate communication.

7.Question: What is the status and results of the work of the team of professional payroll experts who were brought back to review the transactions of 2013? What types of errors did they find, including the frequency and magnitude? How much work have they completed and when do they expect to be finished with their full review of payroll transactions and records for 2013? Are there plans to expand the work any further? If so, what other areas and time period?

Answer: The team of professional experts consists of three recently retired payroll technicians who each have worked at the SCCOE for over 20 years. Because of their retirement status, not all three retirees were available to begin working at the same time, nor work the same or full daily schedule. The team focused their initial efforts on the payroll transactions of employees who terminated in calendar year 2013 and this work is still in progress. I have requested an update from the payroll management team on the status of the work to review the payroll on an employee by employee account basis for calendar year 2013. I’m told that they will need a little time to tally up the information requested so we will be providing this information in a separate correspondence and addendum to the RFP posted to our website.

8.Question: Does the requested scope of work include the payroll of the districts or just the SCCOE payroll, known as District 90?

Answer: The requested scope of the audit is the calendar year 2013 payroll for the employees of the SCCOE, known as District 90. Although the requested scope does not include the payroll prepared by the school districts and processed by the SCCOE, it is understood that some centralized service practices used by the SCCOE, such as those performed by the District Business Advisory Services may impact the payroll prepared by the districts. In summary, the scope of the audit is limited to the SCCOE payroll operations and generally cover these major areas of activity:

• initial set-up of an employee in the system by HR,
• approvals and management sign off of changes impacting payroll,
• monthly preparation of payroll transactions by the payroll technicians for the monthly payroll of salaried employees, 10th of the month payroll for hourly employees, and the periodic “special payroll” for adjustments or employee/management submissions which did not meet the deadlines for the monthly regular and 10th of month payrolls,
• monthly processing of payroll warrants, reports and remittances by the District Business Advisory Services Department,
• monthly reconciliations of payroll transactions by Accounting Services, along with
• supporting functions provided by the IT and budget departments.

The purpose of this audit is to take a deep dive into the payroll operations on an organization-wide basis to address issues determined to be wide-spread per the results of a preliminary survey. We are seeking recommendations to help us improve the overall payroll operations by addressing any issues stemming from any department within the SCCOE related to payroll activity. We are requesting services that is beyond the scope and testing that is performed for a financial audit opinion.

9.Question: The RFP indicated a draft report due date of May 30, 2014, but with the extended proposal response due date of March 26, 2014, what is the new draft audit report due date?

Answer: With the extension of the proposal response due date to March 26, 2014, we have not specified a new due date for the draft report and ask that you determine that target date in your proposal. Keep in mind that our financial audit for FY 2013-14 is due December 15, 2014 and that the interim field work is scheduled for early May, with the year-end work occurring in October after the SCCOE completes the year end close that is expected to be mid-September.

10.Question: What kinds of complaints about pay warrant information did the SCCOE receive?

Answer: Initially, employees were complaining about incorrect pay and leave balances, but we also heard complaints about loss of medical benefits due to incorrect remittances to health care providers. Some of the corrections which took place were also done incorrectly, leading to other errors such as over deductions for regulatory or benefits premium deductions.

11.Question: What ERP does the SCCOE and the Districts use?

Answer: The SCCOE as well as the Districts use QSS/QCC as described in the RFP. Also in this description, included as Appendix A in the RFP, is a discussion of an in-house developed application to enhance some of the functionality of QSS/QCC. This in-house application, TEAM, does not have an interface to QSS/QCC and in fact, we are in the midst of evaluating our payroll-related systems to see how to optimize the offerings.

12.Question: Has there been any major changes to your computer system in the past year?

Answer: We have been using QSS for over 8 years and over the past two years worked on fully migrating to the GUI version of this application, called QCC. That effort was completed in the past year. Thus, QSS/QCC is not a new application for us and the in-house developed application called TEAM, as described in the RFP, has been in use for about 2 years.

13.Question: What professional standards would you require for this audit since you indicate that the financial auditors will be relying on the work?

Answer: For SCCOE management purposes, we are seeking an evaluation of our operating processes and controls as well as the accuracy and completeness of payroll transactions including any regulatory and payroll-related agency remittances and reports, so for the purposes of an engagement letter, it would be in the category of an agreed upon procedures work, with the firms proposing the parameters meeting our audit objectives.

As for the auditing standards to be applied, it will be at SCCOE management discretion. We have cleared it with our financial auditors who perform their work under GAGAS, that they do not require the selected audit firm to perform their work under their preferred GAGAS standards. The financial auditors will be performing certain procedures in order to rely on the internal control evaluation of the selected firm. Since this is an audit of payroll operations, and not requiring specific GAGAS standards, I recommend that IIA standards be applied with an awareness of S404 and financial auditing standards. With this understanding of internal controls incorporated into the evaluation of SCCOE operations, we expect that you will be able to serve our needs.

The scope of work is of the payroll operations, HR, IT, Accounting, and centralized payroll services, as well as the work of the professional payroll experts performing the review of all 2013 payrolls , employee records, remittances and related reports. Your firm’s demonstrated understanding of COSO, S404, and basic financial auditing related to internal control evaluation will make you a strong candidate for this RFP.

14.Question: Are you expecting the selected audit firm to perform a review of each employee account?

Answer: No, the audit firm is not expected to perform an evaluation of each employee account as we have hired the professional payroll experts to do this work. It will be the audit firm’s responsibility to evaluate and test the work of the payroll experts who are performing a clean-up of employee records for the payrolls of calendar year 2013.

15.Question: Does the SCCOE use a standard contract for professional services?

Answer: Yes, the SCCOE uses a standard contracting format for professional service consultants and requires proof of workers’ compensation insurance and professional liability insurance.

++ END OF ADDENDUM THREE ++

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A. D. Bursch CPM

Purchasing Manager