City losing command and control of its cash flow - New York, New York

A major portion of the City's cash flow income comes from real estate and water and sewer taxes paid by property owners. About $7.9 billion of real estate and Business Improvement District (BID) taxes and $700-million water and sewer taxes were billed by an old integrated computer system operated by the Department of Finance.

Through the years, city employees working for the Department of Finance learned how to patch into the computer system to modify it and make various debit and credit adjustments correcting errors in real estate and water and sewer bills, serving the needs of real estate taxpayers.

The computer generated bills and the cash flow were able to be balanced and controlled by the modifications to this antiquated computer system because of knowledge of experienced personnel operating to hold together a patchwork system more oriented towards the generation of reports than the rationalization of an accounting system that could balance and control cash flow.

During the past few years, financial pressures caused the City to cut-back personnel, reducing the number of knowledgeable people capable of understanding this old Department of Finance computer system.

Suddenly, without a proper "systems and procedures" thorough review of the entire work flow, encompassing the integrated, limited but workable computer system, the old system was turned off and two new systems put in its place at the end of 1994.

The first system to be put on-line was the Department of Environmental Protection's water and sewer billing system, purchased off-the-shelf from Price Waterhouse for $17 million. The second system to be put on-line was the beginnings of the new FairTax system operated by the Department of Finance.

Both systems were inadequately programmed to do the job. The old system should have been maintained and run in-parallel with the two new systems so that the cash flow could have been integrated with the computer systems and errors and discrepancies promptly corrected.

That was not done. The fundamental reason most probably was that the City did not have an adequate number of knowledgeable computer people to handle the job.

The result of this inadequately planned computer systems changeover has obviously been a complete collapse of both newly programmed on-line systems and a loss of command and control of cash flow.

The City does not have sufficiently trained, accounting-wise, computer personnel to resolve the thousands of billing errors affecting both computer systems. The City will never be able to reconcile individual cash payments with its erroneous bills and erroneous computer generated interest and penalty charges.

The accounting burden has unfairly fallen squarely on each individual real estate taxpayer to resolve errors discovered on a computer generated bill.

The truth is that the current computer systems cannot resolve these errors. They are incommensurate.

One of the main reasons computer errors will have to be manually washed-out by zero balancing accounts whose taxes have been paid but are showing various computer generated erroneous charges is due to City actions in 1994 before the new systems came on-line.

One change was the change in tax rate between the first half of 1994 and the second half of 1994, resulting in an average tax rate that the computers could not handle. Another was the fact that tax remission letters authorizing changes in tax assessments for 1994 were not processed until 1995. The computer could not handle these adjustments when they were processed in 1995.

In the case of the new water billing system, in addition to the inadequacy of the amount of "bit" spacing allocated for complex addresses including apartment numbers, the lack of the traditional lot and block numbers as a major integrating control on the "overall" tax collecting system for "audit trail" purposes will create future problems. Current problems relate to special situations such as double billing and erroneous billing by computer conversion input personnel and the inability by computer personnel to promptly correct debit errors and computer generated erroneous interest charges by input credits to the computer system to zero balance accounts.

The separation of water and sewer billing in the beginning of 1995, before the consolidation of all city financial records could be undertaken, including proper safeguards to maintain cash controls and audit trails on the entire system, has resulted in a complete collapse of command and control on the overall system.

By losing control, the City places its bond rating in jeopardy. It is time for the Mayor to exercise his command responsibility by appointing someone to straighten out the mess before class action suits by irate taxpayers do it for him. The job will not be easy and it will not be cheap. After a thorough manual systems evaluation of the tax collection process, a properly programmed integrated computer system should be put into place, complete with adequate accounting and audit controls in a manner that is "user friendly" to the taxpayer.

COPYRIGHT 1995 Hagedorn Publication
COPYRIGHT 2004 Gale Group