Hon. George Hoff, Mayor
Borough of Keansburg
George E. Kauffmann Municipal Building
29 Church Street
Keansburg, NJ 07734

Re: Follow-Up Report – A Performance Audit of the Borough of Keansburg

Dear Mayor Hoff:

On May 5, 2021, we issued an audit report, A Performance Audit of Selected Fiscal and Operating Practices of the Borough of Keansburg (2021 Audit)^[1], in which we made recommendations to address identified weaknesses. Pursuant to N.J.S.A. 52:15C-11, we have conducted a follow-up review of the corrective action plan of the Borough of Keansburg (Borough) to assess the implementation of the recommendations contained in the 2021 Audit. Our findings and conclusions are set forth below.

Background, Scope, and Objective

Our audit of the Borough identified internal control weaknesses that resulted in noncompliance with statutory requirements and internal policies and procedures related to the administration of health insurance benefits, employee payroll, and personnel matters. These internal control deficiencies resulted in the improper use of Borough assets and improper payments totaling approximately $125,000. Additionally, our audit identified excessive employee benefits, including 55 annual vacation days for one employee and untaxed employee fringe benefits.

The objective of our follow-up review was to determine if the Borough implemented the 13 recommendations contained in our 2021 Audit report.

Summary Conclusion

We found that the Borough has made limited progress in implementing the recommendations set forth in our 2021 Audit and that substantial work remains. Of the 13 audit recommendations, 2 were implemented, 3 were partially implemented, and 8 were not implemented. We urge the Borough to continue its efforts to comply with the recommendations not yet fully implemented.

Status of Initial Audit Recommendations

Recommendation 1

Develop policies and procedures for the administration of health benefit opt-out payments that include controls that verify employee eligibility, ensure payment calculations are accurate and in compliance with state law limitations, and require supporting documentation of an employee’s alternate health insurance coverage that complies with the appropriate records retention requirement for such documentation.

Status: Partially Implemented

Our 2021 Audit found that the Borough issued health benefit opt-out (waiver) payments to five employees totaling $21,333 in 2017 and to seven employees totaling $31,250 in 2018. We also found that the Borough did not have adequate controls in place to ensure that its processing of waiver payments complied with state law. These deficiencies resulted in improper payments of approximately $22,000. Our 2021 Audit also found that the Borough did not obtain proof of alternate health coverage as required by the Division of Pensions and Benefits. The Borough advised in its corrective action plan that employees would be required to submit proof of existing health insurance prior to being considered eligible for a waiver payment. In addition, the Borough stated that each waiver payment would be reviewed and signed-off on by the Chief Financial Officer (CFO) prior to approval and payment being made.

During our review, we found that the Borough had not established formal written policies and procedures for the administration of waiver payments. However, we note that the Borough drafted a memorandum establishing its policies and procedures for the administration of waiver payments during the course of our follow-up review. We determined that the Borough issued waiver payments to four employees totaling approximately $8,200 in 2022 and to five employees totaling approximately $11,700 in 2023. We found that the Borough obtained employees’ proof of alternate health insurance coverage prior to being considered eligible for a waiver payment. Testing also confirmed the Borough considered the lesser of $5,000 or 25 percent of the amount saved by the Borough in its calculation of waiver payments. We found that the Borough made inaccurate payments for seven of the nine employees tested. We found that five of the inaccurate payments were due to miscalculations, which resulted in $48 in overpayments and $2,748 in underpayments. The remaining inaccurate payments were due to improper payments of $1,069 made to two employees who were not eligible for waiver payments.

We consider this recommendation partially implemented due to the actions taken. We urge the Borough to finalize the memorandum establishing its policies and procedures for the administration of waiver payments and to ensure the newly adopted policies and procedures are applied appropriately in the future administration of waiver payments. We further recommend that the Borough review improper payments, issue leave payments owed to underpaid employees, and recover the excess leave payments made.

In its response to a draft of this report, the Borough wrote that it has corrected minor clerical errors and implemented improved controls, warranting a status of “Implemented” rather than “Partially Implemented.” We disagree that this recommendation was fully implemented in view of the lack of formal policies and procedures and the multiple errors identified above.

Recommendation 2

Eliminate the provisions for health benefit waiver payments from future collective bargaining agreements in accordance with N.J.S.A. 40A:10-17.1.

Status: Not Implemented

Our 2021 Audit found that waiver payment provisions were improperly included in collective bargaining agreements (CBAs). Such provisions are statutorily prohibited from being subject to the collective bargaining process. N.J.S.A 40A:10-17.1 provides that “[t]he decision of a county, municipality or contracting unit to allow its employees to waive coverage and the amount of consideration to be paid therefor shall not be subject to the collective bargaining process.” The Borough advised in its corrective action plan that the waiver payment provisions would be removed from future CBAs.

During our review, we found that the Borough did not eliminate the waiver payment provisions from three CBAs that were executed in January 2022. These contracts were executed after the release of our May 2021 Audit report and thus remained in violation of N.J.S.A 40A:10-17.1. At the time the CBAs were executed, the Borough had been on notice for eight months that its CBAs violated state law but proceeded to enter into them anyway. On March 11, 2024, we received an email indicating a tentative agreement for one collective bargaining unit to remove the waiver payment provisions from future agreements.

We consider this recommendation not implemented. We recognize the steps the Borough has taken but note further actions are required to address the recommendation. We urge the Borough to eliminate waiver payment provisions from the remaining CBAs to be in compliance with N.J.S.A 40A:10-17.1.

In its response to a draft of this report, the Borough wrote that its “recent labor agreements have excluded the waiver payment provision and reflect policies to ensure correct payments. . . . In the most recent collective negotiations agreements entered into with majority representatives of employees of the Borough, the waiver payment provision has been stricken with the unions’ consent. Additionally, policies and procedures have been put in place to ensure that waiver payments are being made correctly.” We determined that during the scope of our review no action was taken to address this recommendation. Additionally, we requested the recently finalized agreements but the Borough to date has not provided them.

Recommendation 3

Implement procedures that enhance the administration and oversight of employee benefits, including appropriate approvals and authorization. At a minimum, the procedures should address the issues identified in this report, and ensure that employee benefits are clearly defined and administered in compliance with relevant policies and procedures, collective bargaining agreements, employment contracts, and state law.

Status: Not Implemented

Our 2021 Audit found that the Borough did not have formal policies or an employee manual that addressed employee benefits. Instead, the Borough relied on individual employment contracts and CBAs to dictate which benefits it provided. We also found that in some instances the Borough disregarded the terms of the CBAs and individual employment contracts. Additionally, we found that the Borough lacked oversight of the administration of unused vacation leave payments and did not provide evidence of its approval and authorization process for all of these payments. We also found internal control deficiencies and excessive benefits that appeared wasteful. The Borough advised in its corrective action plan that the payroll clerk would be required to review all contracts involving compensation for retiring employees to determine the amount of time/money lawfully and contractually owed. The amount would be verified with the department head and employee before being presented to the CFO for authorization. Upon authorization from the CFO, the expenditure would be reviewed by the Borough Manager and then presented for payment and approval by the governing body.

During our review, we found that the Borough issued a memorandum on May 7, 2021, regarding the administration and oversight of employee benefits. Specifically, the memorandum required the payroll clerk to review all contracts involving compensation for retiring employees and to confirm with the department head and the employee before presenting them to the CFO for authorization. We tested documentation for nine employees who received an accumulated leave payment for sick, vacation, personal, administrative leave, or compensatory time during calendar years (CYs) 2022 and 2023. Our review revealed improper payments for accumulated leave time. Additionally, we found that the Borough’s policies and procedures for employee benefits administration and oversight were inadequate.

Specifically,

• One employee received a payment for accumulated sick leave in excess of what the CBA allowed. The employee was incorrectly paid for 100 percent of unused sick days instead of 50 percent of unused sick days, for an overpayment of approximately $3,000. The same employee received improper payroll payments of approximately $3,200 after separation of employment.
• Six of nine employees had improper accumulated leave payments for personal and vacation time totaling approximately $16,000.
  • All six employees were improperly compensated for personal time valued at approximately $13,300 regardless of the fact that their CBAs did not include any such provision allowing for unused personal hours to be payable at separation.
  • In addition, two employees were improperly compensated approximately $2,600 for additional accumulated vacation time when such compensation was not required by the CBA.
• Eight of nine employees had accumulated leave time that was not properly recorded, tracked, or supported.
  • There were seven instances in which the accumulated leave time recorded on the Attendance Calendar did not correspond to the accumulated leave time recorded in the Absence Information Log that the Borough used to track employees’ accumulated leave time.
  • There were two instances when the employees’ attendance records indicated they used more leave time than was earned, valued at approximately $1,200.
  • Three individuals were paid for approximately 144 hours, or $9,900, in unsupported compensatory time.

These errors indicate that the Borough has not meaningfully improved its administration and oversight of employee benefits, including appropriate approvals and authorization. Therefore, we find this recommendation not implemented.

In response to our findings the Borough issued an addendum on February 6, 2024 in an attempt to have additional controls put in place to ensure the accuracy of payments made at separation of employment. Specifically, the addendum requires a control sheet for each employee receiving payments at separation in which the Department Head, Human Resources Officer, Payroll Clerk, CFO, and Borough Manager must sign off on the calculated hours and payment the employee will receive. Although these added controls appear to be a step forward by the Borough, the timing of the issuance of the addendum prevented its timely review.

We urge the Borough to comply with this recommendation to ensure employee benefits are administered in compliance with relevant policies and procedures, CBAs, individual employment contracts, and state law.

In its response to a draft of this report, the Borough contended that its policies and procedures demonstrated an improved effort. Although the Borough provided a document supporting approvals of one recent payment of accumulated leave time, as required by the addendum issued on February 6, 2024, insufficient time had passed after the addendum to fully test the implementation of revised procedures. Additionally, during the scope of our review we identified improper payments and accounting of accumulated leave time as well as insufficient policies and procedures pertaining to the administration and oversight of employee benefits, similar to the results of our 2021 Audit.

Recommendation 4

Seek recoupment of the improper leave payments identified in this report.

Status: Partially Implemented

Our 2021 Audit found that the Borough paid a total of $39,184 in 2017 and $56,124 in 2018 to the Police Chief and the Municipal Clerk for unused vacation and unused sick days. These payments, totaling approximately $95,000, were gratuitous and inconsistent with the terms of the individual employment contracts entered into by the Borough. The Borough advised in its corrective action plan that Legal Counsel opined that it may be “infeasible” to seek to recoup already paid monies because doing so would require “litigation that could be defended under breach of contract and estoppel theories.”

During our review, we confirmed that the Borough did not seek to recoup the $95,000 mentioned above. We were provided a memorandum from the Borough’s Labor Counsel that stated, “As counsel for the Borough, I have advised my client that it is not feasible to seek recoupment of previously paid benefits. To do so would likely result in litigation against employees, which, of necessity, would result in the Borough’s expenditure of legal fees.”

We consider this recommendation partially implemented because the Borough sought advice from its Labor Counsel regarding the recoupment of the gratuitous payments. However, because the benefits in question were paid even though contractual provisions did not exist requiring such payments, we again recommend that the Borough recoup the improper payments identified in our 2021 Audit.

In its response to a draft of this report, the Borough reiterated its position, namely that it is not feasible to seek recoupment of previously paid benefits. We disagree with the guidance provided for multiple reasons. First, when the 2021 Audit was released the Clerk was employed by the Borough and remained employed by the Borough through our follow-up review testing. The Borough could have withheld other funds owed to the Clerk to recoup the full amount of funds improperly paid to the Clerk. Second, the Borough could have at least demanded recoupment which may have avoided the need for litigation, but did not do so. Issuing such a demand would have cost little to nothing. Third, the concern regarding the costs of litigation or any defenses do not preclude the Borough from accepting reduced recovery, as regularly happens prior to or during litigation. The Borough took none of these steps to recover taxpayer funds that were improperly paid to the Police Chief and Clerk, but instead simply allowed them to keep the money. Lastly, although the Borough contends that “litigation that could be defended under breach of contract and estoppel theories,” there are no facts we are aware of that would support those defenses.

Recommendation 5

Implement procedures that require employee benefit payments to be properly coded to enhance the transparency and Borough Council oversight of such payments.

Status: Implemented

Our 2021 Audit identified unused vacation leave payments and improper sick leave payments that were made part of regular payroll payments and coded as vacation payments. The Borough advised in its corrective action plan that the payroll clerk would identify any such payments and bring them to the attention of the purchasing clerk and CFO before being voted on by the governing body.

Our review found that the Borough properly coded employee leave payments within its payroll software for CYs 2022 and 2023. In addition, the Borough created a new stipend code to identify health benefit waiver payments to employees during our review.

We consider this recommendation to be implemented because the Borough properly coded leave payments and created a code to track stipends.

Recommendation 6

Develop standard employment contract templates with consistent and relevant contract terms and conditions, and details of employee benefits.

Status: Not Implemented

Our 2021 Audit found that the Borough used multiple employment contract templates that did not include consistent terms and conditions or details of the employee benefit provisions. The Borough’s use of multiple templates without consistent terms and details regarding employee benefits makes it difficult for Borough officials to ensure that they are properly administering and complying with all of the provisions of CBAs and individual employment contracts. These inconsistencies also limit transparency with regard to employee benefits. The Borough advised in its corrective action plan that the Borough Manager would review individual employment contract templates for uniformity of contractual provisions.

During our review, we found that the Borough had not adopted standard contract templates with consistent terms and conditions or provisions. Inconsistent terms and conditions and a lack of detail defining employee benefits can lead to confusion and mistakes when, for example, establishing and accounting for accumulated leave time benefits or making payments for leave time at separation of employment. As stated in Recommendation 3, we noted similar errors pertaining to accumulated leave time in our follow-up audit as we did in the 2021 Audit.

Our review confirmed that the Borough addressed the provision involving a payment for sick leave at retirement for one individual employment contract to align it with all other individual employment contracts. We also found that the two individual employment contracts with the Police Chief, both of which were executed after the release of the 2021 Audit, contained provisions allowing for unlawful accrual of vacation time beyond the two-year cap imposed by N.J.S.A. 11A:6-3, which permits employees of the Borough to accrue no more than two years’ worth of vacation.^[2] We note that the accrual provision was not present in the Police Chief contract during the initial audit. None of the other individual employment contracts executed after the release of our 2021 Audit included this provision. We further note that the Borough’s Labor Counsel asserted in a February 13, 2024 memorandum to us that “the nature of collective negotiations with union employees and individual negotiations with non-aligned employees, especially ones of high value in the municipal marketplace, inherently result in different benefits afforded to distinguishable classes of employees.”

Nothing we recommended prevents the Borough from negotiating lawful terms with its employees. However, standard templates can assist with implementing consistent terms and identifying when the Borough is being asked to agree to or is proposing unlawful and otherwise inappropriate terms.

We consider this recommendation not implemented based on the lack of development of standard contract templates, unlawful changes to a contract that failed to limit the accrual of vacation leave, and the continued errors pertaining to the administration and oversight of employee benefits.

In its response to a draft of this report, the Borough reiterated its position that “in order to retain high level employees who have individual contracts, the Borough would be hard pressed to compel such employees to enter into ‘contract templates’ which differ from the previously negotiated contracts.” As noted above, the status of this recommendation considers the actions taken by the Borough. The Borough did not create standard contract templates, aligned one individual employment contract with others to permit sick leave payments at retirement, and improperly included provisions allowing for unlawful accrual of vacation time in two individual employment contracts. The lack of substantial progress in standardization combined with unlawful provisions resulted in a “Not Implemented” status for this recommendation. Additionally, we note that contract templates are different from executed contracts and that our recommendation did not require uniformity for all benefits included in all contracts. A standard template that includes details of employee benefits can assist in contract negotiations and improve transparency.

It is also noteworthy that the Borough’s approach to case-by-case contract negotiation appears to have contributed to further waste. The Borough has both continued its prior wasteful practice of providing up to 55 days of vacation to the Police Chief, which we had previously criticized in our 2021 Audit. In new contracts awarded in June 2021 and June 2022, the Borough again provided a new Police Chief with 55 days of vacation each year, which in combination with the accrual provision, means that the Police Chief could be owed a payment amounting to his full salary for approximately four years of work as Police Chief at the rate of pay he is earning when the payment is requested. This exposes the Borough to excessive payments which is precisely what state law prohibits.^[3] The Borough may have still chosen to violate state law in its contract with the Police Chief, but a template would have assisted the Borough in complying with the law by making it clear when it has deviated and has been asked to agree to unlawful terms.

Recommendation 7

Conduct an analysis of employee stipends, including the stipends for the superintendent’s license renewals, to ensure that stipend payments are reasonable in relation to the action or activities compensated by the stipend. As appropriate based on the analysis, terminate the practice of providing stipend payments and utilize a practice of reimbursing employees for actual costs incurred and only when such costs cannot be expensed by the Borough directly.

Status: Not Implemented

Our 2021 Audit identified an individual employment contract with provisions allowing for a stipend of $1,000 per year for each of the four Department of Environmental Protection licenses required to perform the employee’s duties. The employee received a $4,000 annual stipend for licenses that had total annual renewal fees of $200. Our audit found these stipends to be excessive compared to the cost of renewal. The Borough advised in its corrective action plan that an analysis of the identified stipends would be conducted to ensure that stipends are commensurate with job responsibilities and requirements.

During our review, we were informed that the Borough Manager performed an informal analysis of the surrounding towns and deemed the stipends commensurate with the job responsibilities and requirements of the employee’s position. Additionally, during our review we were provided with a memorandum from the Borough’s Labor Counsel explaining that the stipends are necessary to entice employees to remain employed with the Borough and are frequently provided to employees as an incentive to obtain and maintain a certain level of education and certification that is worth more to the Borough and its taxpayers than the cost of the stipend.

Although the Borough indicated that an informal analysis of surrounding towns was conducted, the analysis did not sufficiently address the recommendation. Specifically, the analysis was not documented and did not consider whether the stipends were reasonable in relation to the action or activities compensated by the stipend. We also contend that the purpose of salary is to compensate employees for work performed. Salary should consider and compensate for the requirements of a position including but not limited to experience, education, and certifications. Supplementing an employee’s salary by means of a stipend removes a layer of transparency and public accountability.

We urge the Borough to conduct a formal analysis of its stipends to ensure the payments are reasonable in relation to the action or activities compensated by the stipend.

In its response to a draft of this report, the Borough maintained its position that “the demand for licensed water professionals, and other qualified municipal officials, is at a premium.” The Borough included another municipality’s CBA to justify its own stipends. However, the recommendation did not call for a comparison to another municipality; it requested an analysis of the Borough’s stipends in relation to the cost of the licenses to ensure that stipend payments were reasonable, which the Borough still has not done.

Recommendation 8

Seek to negotiate future collective bargaining agreements that align employee benefits with those of state employees, including the reduction or elimination of longevity payments.

Status: Implemented

Our 2021 Audit identified CBAs that allowed for employee benefits in excess of state employee levels, including vacation, personal, and bereavement days and paid holidays. Specifically, the audit identified Borough contracts that allowed for excessive vacation day allowance limits between 28 to 50 days. We also identified that CBAs allowed for longevity payments ranging between $500 and $3,000 for non-police employees and between two and ten percent of base pay for police officers depending on the years of service with the Borough. In 2017 and 2018, the Borough paid approximately $451,000 in longevity payments to 62 employees. Approximately $341,000, or almost 76 percent, was paid to police officers including four police officers who received more than $10,000 each in 2017. Three of these officers received more than $10,000 in both 2017 and 2018. Non-police employees were paid a total of approximately $110,000 in 2017 and 2018. The Borough advised in its corrective action plan that it would propose with “new/successor labor contracts the elimination and/or reduction of longevity payments” and that implementation must “be effectuated through collective negotiations and cannot be unilaterally imposed.”

During our review, the Borough provided documentation showing negotiations took place between the Borough and labor unions. There is evidence of negotiations related to longevity payments, vacation days, and paid holidays. However, the Borough was unsuccessful in negotiating these benefits down to the state employee level. Furthermore, a legal memorandum provided by the Borough’s Labor Counsel confirms that employee benefits currently afforded by contracts are subject to negotiation and further insisted that employee benefits also serve as a recruitment tool for the Borough.

As stated in our 2021 Audit, we have criticized longevity payments in prior reports as being wasteful. State employees do not receive longevity payments. We recognize the efforts made by the Borough, however the excessive and wasteful benefits pointed out in the 2021 Audit still exist. We again recommend the Borough continue to negotiate said benefits in future CBAs and individual employment contracts.

Recommendation 9

Implement a procedure to document employee salary records, including modifications and pay rate adjustments using an automated process to ensure accuracy in the wage calculation and to reduce the potential for human error that could result in improper payments.

Status: Not Implemented

Our 2021 Audit found that the Borough’s manual recordkeeping process did not ensure the accuracy of wage history and pay rate calculations. The Borough advised in its corrective action plan that it would engage in consultations with third-party providers to obtain the specified services “relative to enhanced technological/automated documentation and elimination of human error.”

During our review, we found that the Borough continues to utilize index cards to maintain employee wage history and calculate rates of pay. We also received a memorandum from the Borough’s Labor Counsel stating that the Finance Office has tried to retain IT services to better document employee records, but initial requests led to quotes that the Borough found to be too expensive. The Borough, however, provided no evidence showing it consulted with third-party providers or obtained any quotes of the cost of a computerized system. In response to this review, the Borough has requested funding through the County Improvement Authority to modernize its payroll and personnel record keeping.

We continue to urge the Borough to modernize its record keeping for employee wage history and pay rate calculations. The current manual system is inefficient and lacks automatic controls, such as user permissions and change history, which increase the potential risk of fraud, waste, and abuse.

In its response to a draft of this report, the Borough stated that it “utilizes a payroll system and timekeeping methods that are dependable and designed to circumvent human error.” The Borough continues manual tracking of wage history via index cards. The Borough failed to implement a process to minimize human error and did not provide documentation for consultations with third-party providers or quotes for the cost of a computerized system. The fact that the Borough is currently seeking funds to modernize its payroll system demonstrates that it has yet to meet this requirement.

Recommendation 10

Develop policies and procedures to document the management and administration of the Length of Service Award Program. The policies and procedures should include the necessary corrective actions to address the audit findings and to ensure compliance with state law and the Borough’s ordinance. At a minimum, the procedures should establish the required supporting documentation, records retention process, and the appropriate controls to verify evidence that volunteers have earned allowable points for completed activities.

Status: Implemented

Our 2021 Audit found weaknesses in internal controls that resulted in miscalculated Length of Service Award Program (LOSAP) contributions in 2018 for 12 volunteers, including 10 volunteers whose contributions were overfunded by $7,650 and 2 volunteers whose contributions were underfunded by $500. The Borough advised in its corrective action plan that it would adopt policies and procedures set forth in a Borough ordinance that requires compliance with state law, record retention, and appropriate controls. The Borough committed that the Borough Manager, in consultation with affected parties, would codify a policy and procedure consistent with the Borough’s ordinance.

During our review, we were provided with the Borough’s LOSAP ordinance. We also received a document containing the responsibilities and actions of the LOSAP Coordinator, including addressing when reports must be signed and submitted and by whom, and the appeal process for individual LOSAP points. These documents, however, were not formal policies and procedures and did not provide sufficient guidance for record retention, appropriate controls, monitoring activities, and other LOSAP point-reporting procedures.

We urge the Borough to draft and implement policies and procedures pertaining to the Borough oversight of the LOSAP and verification of the points reported.

In its response to a draft of this report, the Borough contended that this recommendation should be fully implemented. During our review, we made multiple requests for policies and procedures for the management and administration of the LOSAP but nothing was provided. We note that the Borough explained the LOSAP procedures verbally during our preliminary findings meeting but failed to provide a written policy.

Recommendation 11

Implement timely and appropriate monitoring activities to ensure oversight of the Length of Service Award Program, including the retention of supporting documentation of completed activities and verification that points are awarded based on completed and approved activities in compliance with state law and the Borough’s ordinance.

Status: Partially Implemented

Our 2021 Audit found that the Borough did not verify the data received from the emergency services organization (ESO) coordinators by, for instance, tracking and reporting the lists of active volunteer members, completed activities, earned points, and annual LOSAP contributions before the report was submitted to the Borough Council. The Borough advised in its corrective action plan that it would schedule a meeting between the Borough Manager, Board of Fire Commissioners, and financial advisor to discuss mandatory compliance and procedures. In addition, the Borough would ensure point schedules were posted in each firehouse and would provide quarterly reports to the governing body to ensure transparency and compliance.

During our review, the Borough provided LOSAP member and emergency activity point lists for CYs 2022 and 2023. In CY 2023, the Borough transitioned to a computerized system to report and track LOSAP activities and points. The system contains appropriate controls on user access and permissions as well as mandatory electronic certifications by senior level staff prior to approving and reporting on an incident or call. We note that Borough staff does not have access to the new system and therefore cannot easily verify the data received from the ESOs. In addition, the Borough did not provide any documentation for monitoring of the LOSAP.

We urge the Borough to provide staff with access to the newly implemented computer program and leverage its capabilities to perform monitoring activities and oversight of the LOSAP.

In its response to a draft of this report, the Borough stated that the implementation status of this recommendation should be “Implemented” despite it being only partially implemented. The Borough also stated that “Since approximately 2019, the Borough has had in place an extremely reliable and state-of-the-art electronic system” for monitoring LOSAP contributions on behalf of volunteer firefighters. In both our initial audit and our review, we determined that the referenced system was not accessible to the Borough itself. Only the Fire Department and EMS had access to the system. We were also informed by a LOSAP coordinator that no one verifies the final LOSAP report for accuracy and that it is based on the honor system. Without such oversight, the Borough failed to fully implement monitoring activities for the LOSAP.

Recommendation 12

Develop policies and procedures to require employees to account for their actual vehicle mileage, including details of all trips, such as the date, start and end time, trip location, purpose, and actual mileage. The procedures should include appropriate Borough review and monitoring of the employee mileage reports to identify any personal or commuting use. Any unusual or inappropriate vehicle use should be documented and addressed appropriately, including, but not limited to, through employee discipline.

Status: Not Implemented

Our 2021 Audit found that the Borough did not maintain any policies and procedures addressing vehicle use, reporting of mileage, oversight of usage, or the Borough’s responsibilities to report the taxable fringe benefits. In its corrective action plan, the Borough advised that it would provide civilian employees with the option of terminating use of Borough-owned vehicles or paying taxes at the established rate and that affected employees would be provided a consultation with the Borough Manager and/or CFO to discuss the options in order to make an informed decision.

During our review, the Borough provided a copy of its Directive 41 and 41(A) (Directive) for vehicle usage that only contains some of the elements we had recommended. Specifically, the Borough’s Directive does not require employees to account for the trip’s start and end times, location, or purpose. The Directive also fails to address appropriate Borough review and monitoring of employee mileage reports to identify any personal or commuting use. Furthermore, the Directive does not address personal use of assigned vehicles. Overall, the Borough failed to provide a sufficient vehicle usage policy designed in coordination with the CFO as well as documentation of employees signing off on the policy.

We found documentation for each employee assigned a vehicle for CYs 2022 and 2023 was insufficient. Specifically, one vehicle’s log book did not list the name of the employee assigned the vehicle and the vehicle number. Furthermore, the log books did not contain information regarding the start and end time, location, and purpose of trips. We were advised that employees are to submit their log books monthly to the Borough Manager for review. However, the limited information within the log books does not allow the Borough to sufficiently track and monitor vehicle usage.

We urge the Borough to draft formal policies and procedures pertaining to the use of Borough vehicles as well as expand the requirements of the log books to include pertinent information including but not limited to the start and end time, location, and purpose of vehicle trips.

In its response to a draft of this report, the Borough considered our recommendation as a “suggestion to micromanage top-level staff by forcing them to account for each trip in their vehicle [which] undermines their status as managerial officials.” We disagree. The use of Borough vehicles for private use such as commutation constitutes a taxable fringe benefit to its employees that requires policies and procedures. We again note the Borough failed to develop such policies and procedures requiring employees to account for daily vehicle usage, thus preventing the Borough from being able to identify personal and commuting use of assigned vehicles.

Recommendation 13

Implement a process to assess taxable fringe benefits for employees’ personal and commutation use of the Borough-owned vehicles pursuant to Internal Revenue Service regulations.

Status: Not Implemented

Our 2021 Audit found that the Borough did not have a process to assess taxable fringe benefits for employees’ personal and commutation use of Borough-owned vehicles pursuant to Internal Revenue Service (IRS) regulations. 26 C.F.R. § 1.61-21(f). In its corrective action plan, the Borough advised that employees who elected to continue use of Borough-owned vehicles would be required to sign off on a policy regulating the use of said vehicle and the policy for continued use of these vehicles would be designed in coordination with the CFO to ensure legal compliance and transparency.

During our review, we found that the Borough did not implement a process to assess taxable fringe benefits for employees’ personal and commutation use of Borough-owned vehicles pursuant to IRS regulations. As mentioned above, our review found that the Borough did not prohibit personal use of vehicles by means of a formal written policy and also did not adequately monitor the employees’ vehicle usage to ensure compliance with IRS regulations.

We urge the Borough to develop a process to assess taxable fringe benefits for employees’ personal and commutation use of Borough-owned vehicles pursuant to IRS regulations.

In its response to a draft of this report, the Borough contended that “OSC has overstepped its authority with regard to take-home vehicles and entered into a field in which it lacks particularized knowledge or authority – the taxability of fringe benefits and IRS regulations.” We disagree. GAO Government Auditing Standard 9.35 requires that “auditors report a matter as a finding when they conclude, based on sufficient, appropriate evidence, that noncompliance with provisions of laws, [and] regulations . . . either has occurred or is likely to have occurred that is significant within the context of the audit objectives.” We again reiterate that the Borough failed to implement a process to assess taxable fringe benefits for employees’ personal and commutation use of Borough-owned vehicles pursuant to IRS regulations.

Reporting Requirements

We provided a draft copy of this report to the Borough for its review and comment. The Borough’s Labor Counsel drafted and signed the response to our report. The response disagreed with many of our conclusions and the manner in which they were made, improperly deemed a discussion draft of the report as the final report, and incorrectly stated that Recommendation 11 was changed from “Partially Implemented” to “Not Implemented.” The Borough was provided an opportunity to discuss the draft report and address any questions prior to finalization, but turned down that chance. The Borough’s response was considered in preparing our final report and is attached as Appendix A. We have addressed disagreements with the Borough’s responses throughout the report.

By statute, we are required to monitor the implementation of our recommendations. To meet this
requirement, within 90 days, the Borough shall report to our office regarding the actions that have been or will be taken to address the unresolved issues in this report.

We thank the management and staff of the Borough for the courtesies and cooperation extended to our auditors during this review.

Sincerely,

KEVIN D. WALSH
ACTING STATE COMPTROLLER

By: Christopher Jensen, CPA
Director, Audit Division

Attachment

c:Thomas Foley, Deputy Mayor
Raymond O’Hare, Borough Manager
Jacquelyn A. Suárez, Commissioner, Department of Community Affairs
Michele Meade, Deputy Director, Department of Community Affairs, Division of Local Government Services
Tina Zapicchi, Assistant Director, Financial Regulations, Department of Community Affairs, Division of Local Government Services
Jorge Carmona, Bureau Chief, Department of Community Affairs, Division of Local Government Services