LIHUE — An audit of Kauai County’s payroll system found a lack of proper documentation, overpayments, and process flaws that create the potential for fraud.
The performance audit, which was conducted by independent firm PKF Pacific Hawaii, examined the county’s payroll system for a five-year period from the beginning of 2009 through the end of 2013 to ensure compliance with the rules and identify areas for improvement.
The audit produced three main findings: Among them the county sometimes applied incorrect pay or benefit rates, resulting in overpayment.
“Our testing revealed a total of 43 instances in which pay and benefits were improperly applied to the 40 employees in our sample,” the report reads, adding that nine of the findings were due to incorrect application of rates for various types of pay, which affected five of the 40 employees tested and resulted in approximately $1,400 in overpayment by the county.
“Are we overpaying people? Are we paying people who should not be paid?” Council Chair Mel Rapozo said about the audit’s findings, which he frustratingly called “unbelievable” at a recent meeting. “My concern is, how many others are there?”
The report also showed that the Department of Personnel Services (DPS) failed to consistently maintain supporting documentation needed to justify payments; in fact, documentation for employee benefit elections were not kept at all prior to 2013.
“One of the most prevalent and pervasive issues during our testing was the lack of documentation maintained by DPS,” the report reads. Out of a sample size of 40 employees’ records that the audit tested, 38 had, “at least one benefit or pay item where DPS was unable to provide supporting documentation.”
Rapozo asked the auditors during last week’s council meeting whether it was possible to determine if past payments were justified, before answering his own question by saying that it is not possible due to the missing documentation.
Kauai County Director of Human Resources Janine Rapozo (no relation to Mel Rapozo) said that the county is in the process of looking back to find out where overpayments were made.
“Anytime we are missing documents or there are incorrect amounts, there is obviously concern no matter how small it is,” Janine Rapozo said. “We do want to ensure that if an employee was over or underpaid, we want to rectify that situation.”
According to the auditor’s report, overpayments were due to causes such as rates from the wrong bargaining unit or wrong plan being applied, or benefits being given to an employee who did not elect them.
Since the audit only looked at a sample, Janine Rapozo was unable to provide an estimate of how much the county may have overpaid. She also said that overpayments could have been corrected with adjustments that did not show up in the sample of records that were tested.
In a third finding, the audit exposed potential weaknesses in the payroll system that could lead to fraud due to a lack of proper segregation of duties that gives some county personnel the ability to make changes in both the hiring and payroll systems.
The report does not make any allegations of improper activity or embezzlement, but it does knock the county for not maintaining adequate safeguards against errors and abuse — a criticism that Janine Rapozo said she was surprised to see in the audit.
“In terms of access issues, we already had that separation,” the human resources director said.
The report makes several recommendations about how to improve the county’s payroll system, which county officials said they agree with.
“It’s a good thing that we know what direction we need to head,” Janine Rapozo said of the audit.
The auditor’s report is available at www.kauai.gov.