Auditor: Some state web fees not approved as required

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Auditor: Some state web fees not approved as required

Mon, 10/31/2016 - 10:39am -- tim

Figure 1 outlines the payment process cycle used to collect electronic payments for certain online services. The user accesses the online service (i.e., web application) using an internet browser. The user provides payment information via the web application to originate the payment. The web application contacts NIC’s payment management engine to request authorization for the payment. The payment management engine contacts the payment processor to request the authorization. The results of the authorization are passed back to NIC’s payment management engine and the web application from which the transaction originated. Merchant processors are used to facilitate the deposit of funds into an NIC source clearing bank account. The funds are disbursed by NIC to the state agency or State Treasurer bank accounts according to instructions provided by state agencies.

Vermont Business Magazine Vermont state Auditor of Accounts Doug Hoffer last week released the latest on a series of audits on how state government operates and the costs associated with it. As regards the funding of the state’s many websites, the audit concludes that there is neither clear oversight of the fees, nor is there clear legislation on how that oversight should take place and how the user fees should be determined. Not all the fees charged have been approved as required by legislation, he says in the report. However, the department heads involved believe not all fees need prior approval.

The auditor recommends that the Legislature determine whether statute should be amended to reflect which fees require review and which need approval of the governor and Legislature.

For their part, the departments involved have agreed to regular meetings and better notification of fees involved.

Since 2006, Vermont Information Consortium (VIC) has provided management services for the state’s self-funded web portal, including developing, hosting, and maintaining websites and online services. VIC is compensated for its services by charging fees for certain online transactions. The Department of Information and Innovation (DII) and the Web Portal Board (WPB) oversee the self-funded web portal and VIC.

In fiscal year 2015, VIC received $1.9 million from fees charged for 37 online services. VIC fees vary because development costs, transaction volume, and total dollars processed differ widely for the various online services.

In his report, dated October 26, Hoffer says the audit’s objective was to describe the state’s self-funded web portal, including the fee structure.

From 2013 to 2015, fees for 16 online services were not approved by the Governor and Legislature, as required by statute. DII and the WPB think that some VIC fees do not require approval. The Commissioner of DII and the Director of Web Services believe that the Legislature agrees.

“However,” Hoffer says in the report, “statute does not seem to allow for a process that excludes the WPB, Governor, and Legislature from determining fees for the self-funded web portal. A clarification to statute may be necessary to limit confusion or misinterpretation of what has been agreed to and to ensure that VIC fees are approved as required.”

Statute does not specify that all state agencies must use the self-funding model and DII believes agencies have the discretion to use vendors other than VIC to develop websites and online services. Some state agencies have used other vendors, but most of the 117 websites and 94 online services available via Vermont.gov as of July 2016, were developed under the self-funded web portal model using VIC as the service provider.

Hoffer also noted that the DII Director of Web Services has not communicated to state agencies the recommended controls related to payment processing contained in an Independent Service Auditor’s Report because he was not aware that the report contained these recommendations.

“To the extent that departments do not implement the recommended controls, there is a greater risk that errors in payments to the State or fees retained by VIC will go undetected,” Hoffer says.

During the course of the audit, Hoffer found that the WBP did not meet semiannually in 2014 and 2015, as required by statute, and did not approve the annual business plans submitted by VIC for these years. As a result, it’s not clear, he says, that the plans reflect the state’s desired strategies for the self-funded web portal.

“We also observed,” Hoffer says “that some internal controls over verification of payments processed for online services and VIC’s reporting of fees collected could be improved. The Director of Web Services has indicated that he will communicate with state agencies about performing a reconciliation of VIC-provided data for online service transactions to state agency records and that he plans to do a more detailed review of VIC fee reports going forward.”

The audit makes a variety of recommendations to the WPB, DII, and the Legislature, such as determining whether statute should be amended to reflect which VIC fees require review by the WPB and the approval of the Governor and Legislature.

Two online services - driver history records and criminal conviction records –are available as a subscriber service with a subscription-based fee. The payments for these services are not processed through NIC’s payment management engine. Rather, payments for these services are collected using NIC’s Customer Database Billing (CDB) system. CDB manages subscriber accounts and bills subscribers for the use of the services. The system invoices subscribers monthly, who pay by check or Automated Clearing House (ACH).

The following are two examples of VIC transaction-based fees that fall under the categories that DII and WPB believe do not require approval:

  • Teacher online licensing service – Allows teachers to pay online for their license. Teachers pay a $50 statutory fee. The VIC fee is paid from the statutory fee collected and is not incremental to the statutory fee paid by user of the online licensing service.
  • Motorcycle online training registration – DMV establishes the participant cost for the training. The user of the online registration pays the participant cost and DMV pays the VIC transaction-based fee.

Under the self-funded web portal, fees charged for 37 online services compensate VIC for the web portal management services it provides related to 87 websites and 68 online services. In FY 2015 VIC received $1.9 million in transaction-based or fixed fees, net of merchant service fees.11 VIC fees vary widely and are assessed either as a percentage of the total transaction amount, on a per transaction basis, or based on a fixed amount. According to the General Manager of VIC, this variability is due to development costs, transaction volume, and total dollars processed that differ widely among online services.

VIC fees for 16 online services initiated from 2013 to 2015 were negotiated between VIC and state agencies, rather than being set according to the process specified in statute. DII and the WPB have taken the position that these fees did not need to be approved by the Governor and the Legislature because the amount paid by the user of the online service did not exceed the statutory amount due or statute allowed the state agency to establish charges to cover costs. DII officials indicated that they believe the JFC and the House Ways and Means Committee agreed.

VIC is primarily compensated for its web portal manager services by charging transaction-based fees, known as enhanced access and subscription fees, for online financial services. A limited number of services have a fixed fee that is paid periodically by a state agency. As of August 2016, there are 37 online services that charge a VIC fee. These fees compensate VIC for developing, maintaining, and hosting 87 websites and 68 online services for the self-funded web portal.

Thirty-one of the online services that charge a VIC fee also collect a statutory fee or tax on behalf of the State. The VIC fee is paid by the user or state agency. These include services to process payments of taxes due, provide vital records, renew vehicle registrations, and apply and pay for educator licenses. The other six online services facilitate information being provided to the State, and VIC is paid a fixed amount on a periodic basis by the state agency. There is no statutory fee or tax associated with these services. They include services to collect data on driver education and break-open ticket14 sales. For example, the driver education service allows Vermont driver educators to report completion status of each student that was enrolled in an approved driver education program.

In FY 2015, total VIC fees were $2.6 million. After payments to credit card merchants and ACH processors, VIC received $1.9 million for its services. Of this, $1.1 million was generated from the Department of Motor Vehicles (DMV) motor vehicle records subscription services, which is primarily used by commercial companies.

VIC is a subsidiary of NIC USA, Inc (NIC) and uses NIC software, support, and other resources to provide services to the State. This includes software applications such as NIC’s payment management engine, which is used to collect statutory fees, taxes, and enhanced access fees10 for certain online services.

Source: State auditor. 10.26.2016