Refund Check Issuance

Refund Check Issuance

Audit Report 201718-27

Executive Summary

September 27, 2018

The Department of Highway Safety and Motor Vehicles (Department) issues refunds for the various services it provides. During the 2016-17 Fiscal Year, the Department issued 28,668 refunds totaling nearly $6 million. One of the objectives of the Division of Administrative Services, Bureau of Accounting, Audit and Refund Section is to ensure that refunds are processed in accordance with Florida Statutes and Department policies and procedures.

Section 215.26, Florida Statutes (F.S.), authorizes state agencies to issue refunds for overpayments, payments where none was due, and payments made in error. The statute also provides for individuals to submit an application for a refund with supporting documentation for state agencies to review and determine if the customer is due a refund. If an application for a refund is denied, in whole or in part, the state agency must notify the applicant stating the reason for the denial.

The purpose of this audit was to review and evaluate the Department's check refund issuance process for compliance with applicable laws, Department policy, and procedure.

The Audit and Refund Section is primarily responsible for approving and processing driver license, motor vehicle, title, and vendor refund transactions. All other refunds are processed by the program areas responsible for the services provided. The Audit and Refund Section also prints all refund checks processed by the Department, including the refunds it is responsible for approving. Based on our review we determined further segregation of duties could strengthen the refund process. We recommended the Bureau of Accounting in conjunction with the Division of Motorist Services evaluate the structure and responsibilities for approving refunds currently handled by the Audit and Refund Section and develop a formal process for the approval of title refunds including defining the roles and responsibilities.

The Department's procedure for blank checks, revised in April 2018, states the control clerk of the blank check control record cannot also be the storage custodian of blank check stock, and an audit of unissued checks should be performed by the control clerk every quarter. Our review noted an Audit and Refund Section member is performing the duties of both the storage custodian and the control clerk, and a quarterly audit of unissued checks for the third quarter of the 2017-18 Fiscal Year was not performed by the control clerk. To strengthen controls over blank check stock, we recommended the Audit and Refund Section continue its efforts to enhance the refund process by ensuring

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the duties of the storage custodian and control clerk are separated and quarterly audits of unissued check stock are conducted.

During the review of driver license refunds and refund rejections, we noted the documentation already uploaded to the Motorist Maintenance driver license database was illegible. To ensure compliance with Florida Public Records Law we recommended the Audit and Refund Section maintain driver license refund documentation in an alternate location until the system issue is resolved.

We learned Audit and Refund Section staff noticed refunds were being requested by dealerships on behalf of customers and the addresses listed on refund requests for customers were being changed to the dealership's address. Further review by the Division of Motorist Services, Bureau of Dealer Services noted some dealers had not provided refunds to customers until the review began, up to a year after the Department had issued the refund. To strengthen the refund process, we recommended the Bureau of Accounting seek clarification if the Department has the legal authority to mail refunds to dealers on a customer's behalf and implement a process to verify refunds issued to dealers on a customer's behalf are returned to customers timely.

Management generally agreed with the findings and recommendations and has begun implementing corrective action.

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Background and Introduction

Section 215.26, F.S., authorizes state agencies to issue refunds for overpayments, payments where none was due, and payments made in error. The statute allows for individuals to submit an application for a refund with supporting documentation for state agencies to review and determine if the customer is due a refund. If an application for a refund is denied, in whole or in part, the state agency must notify the applicant of the reason for the denial. Refunds less than $1 are permitted only if an individual has submitted an application.

Department Policy 11.11, Refunds, states the Bureau of Accounting Audit and Refund Section will process refunds in excess of $10 when the requested service cannot be provided, the customer completed a driver license or motor vehicle transaction online and completed the same transaction in an office, the amount the customer paid for the service exceeded the established fee, or a refund is otherwise due according to applicable laws or rules. Refunds under $10 will be approved if a refund is specifically requested and any of the prior criteria is met. Customers may request a refund using form HSMV 73644 for driver license refunds and form HSMV 83363 for license plate and decal refunds; however, an application is not required for every refund the Department processes.

During the 2016-17 Fiscal Year, the Department issued 28,668 refunds totaling nearly $6 million. For the period under review, February 2018 through April 2018, the Department issued 8,174 refunds totaling over $1.5 million.

Refund Process

The Audit and Refund Section receives refund applications for driver license, motor vehicle (license plate, decal, mobile home, vessel, and title), and vendor transactions. Refund applications and required supporting documentation are reviewed to determine if a refund is due. If the request is approved, the application and supporting documentation is scanned for records retention and the refund information is processed in the Florida Real-time Vehicle Information System (FRVIS). FRVIS also automatically determines the amount from the specific transaction that can be refunded to the customer. Once the approved refund is processed in FRVIS, it will appear on a daily refund report provided to the Audit and Refund Section member responsible for printing refund checks. A refund reason is automatically printed on the check based on the refund reason codes entered into FRVIS during processing. If the request is rejected, the customer is mailed a rejection letter. If the rejection is due to a required piece of information not being submitted with the application, the Department will request additional documentation.

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The processing for all other types of refunds (Financial Responsibility, International Fuel Tax Agreement, International Registration Plan, Commercial Vehicle Enforcement) is handled by the corresponding program areas. The corresponding program areas review the refund applications, and the approved refunds are sent to the Audit and Refund Section for payment.

Cash Receipt System Refunds

Program areas also process refunds for customers through the Department's Cash Receipt System (CRS), a system used to record the receipt and processing of money received by the Department, during the performance of their regular operations. Customers do not submit an application for CRS refunds. Refunds processed in the CRS account for roughly half of all refunds distributed by the Department. Examples of CRS refunds include records requests, mail-in driver license renewals, title printing and lien services, and Financial Responsibility cases.

Access to the CRS is limited; Department members can only be added to the CRS through an application process which requires their supervisor to request access for the member. Each user has their own unique account for accessing the CRS. Transactions entered into the CRS will be given a unique identification number; this number is used to track transactions from the receipt of money to the service being provided or a refund being approved. When refunds are processed within the CRS, the specific transaction is given a "REF" code status on the customer's transaction record. Program areas also have the ability to assign a refund reason code to CRS refunds that will print a refund reason description on the refund check.

Program areas with access to the CRS are responsible for determining when a refund is due. The program areas also determine if a customer is due a partial or full refund based on the services requested. Program areas requesting a refund are required to submit a supervisor-signed refund report to the Audit and Refund Section for review before a check will be printed.

The Audit and Refund Section reviews the information provided in the refund reports against FRVIS or CRS to determine if the request agrees to the information in the systems. Once the review is completed, all checks are printed in FRVIS in the order listed on the refund reports. A final review of the printed checks is conducted to ensure the information on the checks is consistent with the refund reports. The printed checks are placed into envelopes and stored in a locked safe until they are mailed. Typically, refund checks are mailed the same day they are printed; however, license plate refund checks are mailed five days after printing and CRS refund checks are mailed ten days after printing to ensure enough time for the customer payment to clear the bank.

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Findings and Recommendations

Overall, the Department appears to be issuing refund checks in compliance with applicable laws, policies, and procedures; however, we noted the following key areas in which the Department could implement improvements:

Refund Responsibilities

Finding No. 1: Segregation of duties in the refund process could be strengthened.

The role of the accounting function in an organization is to collect and pay bills and prepare financial information for use by the organization's executive leadership and management. The accounting function should not be responsible for making determinations that affect the operations of an organization, but should be responsible for providing information for decisions to be made by executives and management.

The Audit and Refund Section within the Bureau of Accounting is primarily responsible for approving and processing driver license, motor vehicle, title, and vendor refund transactions. All other refunds are processed by the program areas responsible for the services provided. The Refund Section also prints all refund checks processed by the Department, including the refunds it is responsible for approving.

During the audit, Bureau of Accounting staff noted that they do not have the knowledge to make determinations for title refunds and consult with the Bureau of Issuance Oversight to determine if a title refund is due. The Bureau of Accounting approves or rejects title refunds based solely on the informal recommendation made by the Division of Motorist Services, Bureau of Issuance Oversight.

Recommendations

We recommend the Bureau of Accounting in conjunction with the Division of Motorist Services evaluate the structure and responsibilities for approving refunds that are currently handled by the Audit and Refund Section.

We also recommend the Bureau of Accounting in conjunction with the Division of Motorist Services develop a formalized process for the approval of title refunds including defining the roles and responsibilities.

Management Response

We agree with the above recommendations. The Bureau of Accounting will work with the Division of Motorist Services (and other divisions, as applicable) to ensure that all refund requests submitted to Bureau of Accounting by or related-to the division have

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been approved via a division-structured approval process or procedure. Although development of the procedure will be the responsibility of the respective division, the Bureau of Accounting will work with the division to develop such procedures. Requests that are then received by the Audit and Refund Section that have not been approved in accordance with the division-developed process/procedure will not be processed by the Bureau of Accounting and will be referred to the division for handling and resubmission, as appropriate.

During the audit period, the Bureau of Accounting began working with the Division of Motorist Services on a process for input and approval of title refund requests. The Bureau of Accounting now submits the refund request to the responsible section within the division for review, input and approval. As indicated above, we support the development of refund-approval procedures by all divisions for which refunds are processed and will work with these divisions to develop such procedures.

Check Handling Procedures

Finding No. 2: The Audit and Refund Section should improve the controls over blank check stock.

Department procedure RA-024, Procedure for Blank Checks (effective April 4, 2018), section (C)(a) states the control clerk of the blank check control record cannot also be the storage custodian of blank check stock. Additionally, section (F)(a) states that an audit of unissued checks should be performed by the control clerk every quarter.

Currently, one Audit and Refund Section member is performing the duties of both the storage custodian in charge of blank check stock, and the control clerk in charge of the recording the receipt and use of blank check stock on the control record. Also, a quarterly audit of unissued checks for the fourth quarter of the 2017-18 Fiscal Year was not performed by the control clerk at the time of the audit.

Recommendations

We recommend the Audit and Refund Section continue its efforts to enhance the refund process by ensuring the duties of the storage custodian and control clerk are separated.

We also recommend the Audit and Refund Section conduct quarterly audits of unissued check stock.

Management Response

We agree with the above recommendations. The Bureau of Accounting will continue to enhance its check-handling processes to further ensure that the duties of the storage

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custodian and control clerk are, and remain, separated. Physical separation of the positions will also occur: the control clerk will be housed in the Reconciliation Section within the Bureau of Accounting, separate from the Audit and Refund Section. This staff member will be responsible for maintaining a control record of the receipt and use of blank check stock and assisting with the quarterly audits of unissued check stock.

The preliminary audit of unissued check stock was conducted on June 28,2018, and the first-scheduled quarterly audit of unissued check stock is scheduled for October 2018.

Driver License Refund Documentation

Finding No. 3: The quality of documentation retained to support driver license refunds should be improved to ensure compliance with Florida Public Records Law.

General Records Schedule GS1-SL, State and Local Government Agencies, Item #340, includes a listing of records relating to expenditures of agency moneys must be retained for 5 fiscal years after the transaction is completed. The listing specifically includes refund records. Chapter 1B-26.003(12), Florida Administrative Code, states that each agency is responsible for ensuring the continued accessibility and readability of public records throughout the entire lifecycle regardless of the format or media in which the records are maintained.

During the review of driver license refunds and refund request rejections, we noted that the driver license refund and refund rejection documentation uploaded to the Motorist Maintenance driver license database was illegible.

We observed Audit and Refund staff upload driver license refund and refund rejection documentation into the Motorist Maintenance driver license database. Through this process the document is scanned to the computer and then uploaded into the database using a built-in screen capture tool. The initial scanned image is clear and legible; however, when the image is captured for upload into the Motorist Maintenance driver license database, the quality of the image is compressed and it subsequently becomes illegible.

After audit inquiry, Audit and Refund staff notified system evaluation staff regarding the loss of image quality upon upload into the Motorist Maintenance driver license database. System evaluation staff and the Bureau of Accounting are currently working to resolve the legibility of refund documentation in Department systems.

Recommendations

We recommend the Audit and Refund Section maintain driver license refund documentation in an alternate location until the system issue is resolved.

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We also recommend the Bureau of Issuance Oversight in coordination with the Information Systems Administration evaluate if the system issue is limited to the Audit and Refund Section.

Management Response

The Bureau of Accounting submitted a TAC ticket on August 20, 2018, requesting the Information Systems Administration review the setting configurations on the built-in screen capture tool. The software configurations were updated, which resulted in an increase in document quality. The poor-quality image was an isolated incident, and as a result, system wide notification to users is not necessary.

Dealer Refunds

Finding No. 4: The process of issuing refunds on someone's behalf should be evaluated.

Motorist Services management previously requested two legal opinions from the Department's General Counsel addressing refunds to third parties. The opinion from 1992 states that a refund should be issued to a person other than the registered or titled vehicle owner only when such person is an heir, personal representative, or assign of the owner and presents documentation to prove this. The opinion from 1994 states the Department is authorized to refund moneys paid into the state treasury "...to the person who paid the same...". Thus, where someone pays money on behalf of another, the refund may be made to the payor.

During interviews with the Bureau of Accounting, we learned Audit and Refund Section staff noticed refunds were being requested by dealerships on behalf of customers and the addresses listed on refund requests for customers were being changed to the dealership's address. The Bureau of Accounting provided a listing of dealers who have recently received refunds in a customer's name to the Bureau of Dealer Services for further review.

The Bureau of Dealer Services' review noted some dealers were providing the refunds to customers when received and some dealers had not provided refunds to customers until the review began, up to a year after the Department had issued the refund. Additionally, some dealers provided proof that the dealership paid on the customer's behalf and no money was due to the customer.

Recommendations

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