New Fort Smith accounting system uncovers $320,000 ’employee benefit credits’ glitch

Fort Smith Finance Director Jennifer Walker presented an accounting anomaly to the city’s Board of Directors at a Tuesday (July 17) study session that will cost the city approximately $320,000 for 2018, and it’s a problem likely dating back to “the pre-2000s,” Walker said in response to a question from At-Large Director Kevin Settle.

The anomaly was “programmed in” to the old system and came to light with the implementation of the city’s new Enterprise Resource Planning (ERP) software, particularly the payroll module which goes live Oct. 1.

Walker said “employee benefit credits” are assigned to each employee on the basis of whether they participate in the city’s voluntary life insurance program. Employees receive a basic life insurance amount paid for by the city, but they have the option to elect “up to five times their salary” in additional coverage at a special rate. If the employee chose the full available amount, they wouldn’t have any credits remaining. But if the employee chose anywhere from the four-times option to no voluntary life insurance, credits would then be applied to one of their other elections.

To illustrate, Walker used her own situation.

“I have elected, currently, three times my salary for additional life coverage. So I get $50,000 of basic life insurance covered by the city. I’ve elected three times. I could have elected up to five times. The credits that have been applied to my account are $116 per month — that’s if I would have elected five times my coverage. The deduction coming back out of my paycheck (for the three-times election) is $75 a month. So that’s a difference of approximately $40 a month on my paycheck that is being applied to — most likely my medical insurance because it’s expensive — that I would not see in the new system.”

For Walker, it’s an annual variance of $500 per year, but if, all things equal, an employee elected no voluntary life insurance benefit, the full $116 would be applied to another election as a benefit the city never intended to give. In that scenario, the annual variance would be $1,300.

“That’s the impact to me personally, but it ranges all across the board depending on employee salaries and employee elections,” Walker said.

She continued: “Based on current elections, the total difference is $320,000 a year. The maximum amount of exposure, if every employee elected zero and the city gave them the full credits, would be somewhere between $600,000 and $700,000. We currently have 268 employees who’ve elected zero coverage, and we have 285 employees who’ve elected full coverage.”

For employees with no other benefit deductions who have elected no voluntary life insurance, they would not receive the credit. But most employees do have other benefits selected, so, as Walker puts it, “you get some additional benefit that you have not earned or that was not intended according to our policies.”

The new ERP system will not allow the practice to continue, so the city will have to make a change moving forward. No decision has been made about what to do about it, with Tuesday being the first explanation the Board has received about the issue. The likely result, Walker confirmed, is that some employees may see the cost of their medical insurance go up since that’s the most likely application unused credits would go toward.

Between Oct. 1 and Dec. 31, Walker proposed going into the new system and manually overriding every employee deduction to avoid open enrollment periods in October and January.

“It will take some work, and we will do that, to keep the employees whole the way things currently are through the end of the year. We have a responsibility to the employees to do that, but we also want to explain to each employee what the impact is to them so that they know that going into open enrollment when they are electing their benefits for the coming year.”

After the study session, Fort Smith City Administrator Carl Geffken told Talk Business & Politics no one at the city knew when it was implemented.

“We think it was prior to 2000. We don’t know the reasoning behind it. But as we implement our new Tyler (ERP) system — which is not only our financials but our human resources system, our payroll system, our community development system, utility billing system — there are certain practices or policies that are coming to light that we need to address and bring to the Board of Directors, especially if I feel it’s of a certain nature that they need to be aware of it. This issue with employee credits raises to the Board level, given all the hard work and decisions they made back in 2015 to right the financial ship.”