Improving the Payroll Reporting Process and Ensuring Continued Tax Season Support Finance Departmen

IT Governance Business Case

Improving

the Payroll Reporting Process and Ensuring Continued Tax Season Support

Finance Department

Background

The City of Durham’s current Enterprise Resource Planning (ERP) system Munis, is currently operating on version 2019, which is now a retired version. Munis has been requiring customers of their system to upgrade to version 2021 to continue to receive support. As a courtesy, Munis has been providing code to support the current version to allow customers the ability to process 2023 W2s and 1099s in the tax season. Munis has indicated that all customers will no longer receive code to support the tax season for 2024.

Technology Solutions Director, Kerry Goode, negotiated with the City of Durham’s Munis vendor, Tyler Technologies, to which they agreed to support the needs of the City of Durham through a custom development project negating the need to upgrade to Munis 2021 and allowing for the City to proceed as planned with the Next Generation ERP implementation.

Finance Director, Tim Flora, concurrently identified gaps in operational efficiency in Finance's payroll reporting process and upon learning of the potential of not upgrading Munis, had Finance staff engage potential vendors for support.

Current Business Problem

Business Problem 1: The current version of Munis is no longer supported and will not facilitate the City of Durham production of W2s and 1099s in 2025 for tax year 2024. Munis is requiring customers to upgrade to version 2021.

Completing the Munis upgrade would come at a high opportunity cost and financial cost to the City of Durham considering the human capital required to complete the upgrade. This is a cost that the City of Durham should not take on considering the current project for implementing the Next Generation ERP system.

Business Problem 2: Finance has several manual processes relative to payroll and Internal Revenue Service (IRS) reporting which are inefficient and need streamlining.

Current Pain Points

•The current version of Munis is retired and will not support W2s and 1099s for 2024 payroll tax season in 2025

•Upgrading Munis to version 2021 will interfere with Next Generation ERP deployment and come at a very high opportunity cost to the City of Durham

•Current monthly and quarterly reporting to the IRS are time-inefficient manual processes

•Current biweekly payroll withholding liabilities are manually keyed with multiple Treasury approvals and payments made

•Manual uploads to the IRS require personal employee credentials (names, SSN, etc), and are dependent upon account holders for business continuity, creating risk in the event of employee turnover or employee absence

•If support and custom code is required from Tyler Technologies to produce W2s

Strategic Alignment

City of Durham's Strategic Plan Goal:

Goal 4: Innovative & High Performing Organization

TS Objective 1: Plan and allocate IT investments in accordance with the City's IT Governance model to ensure sustainable growth

TS Objective 3: Maintain and modernize all the City's assets to align to the evolving and emerging technologies in the marketplace for City business units

Future State Benefits

• Supported 2024 payroll tax season for producing W2s and 1099s in January 2025

• No interference with Next Generation ERP deployment schedule

• Improved and streamlined IRS reporting

• Seamless W2, 1099, 941 production with reporting via a secure portal

• Transferrable service and operational improvements to the Next Generation ERP

• No support required from Tyler Technologies or Technology Solutions to produce W2s and 1099s

• Exploring not renewing Tyler Technologies support contract for FY26

Analysis and Recommended Solution

Analysis of Option 1: Munis Custom Development

• Munis has retired the 2019 version of their ERP

• Upgrading Munis from 2019 to 2021 would come at a very high opportunity cost to the City of Durham, interfering with the Next Generation ERP, Oracle

• Tyler Technologies has agreed to develop custom tax package code to support the needs of the City of Durham, negating the need for upgrading and providing needed functionality amid the Next Generation ERP project, at a cost of 15% the annual support agreement ($78,000)

• Further conversations with Tyler Tech revealed that the tax package to be developed is only relative to tax form creation based on changes made by the State of North Carolina and the IRS

• Tyler Tech also indicated that the payroll data without upgrade will remain available and extractable, and that there are no barriers for the City of Durham to extract the data and work with a 3rd party

Alternative Option Analysis: ADP

• ADP is the provider of a cloud-based human capital management solution that unites HR, payroll, talent, time, tax, and benefits administration, and is also a leader in business outsourcing services, analytics, and compliance expertise.

• ADP has a well-established, secure relationship with the IRS, and is the de-facto standard for outsourced HR, payroll and tax services

• ADP has confirmed they could handle the outsourcing of the W2 and 1099 production for the 2025 tax season. They will provide employment tax and W2 management, biweekly payroll tax reporting to the IRS and quarterly reporting

• This would require an import and export of files meeting ADP's file requirements, as ADP cannot integrate with the retired version of Munis.

• The file import and export may introduce levels of risk from human error, data security, and file corruption.

• Current setup would be a "fees for service" model and would not require integration with the current Munis ERP

• ADP services can be utilized in the future with Oracle integration, and is a recommended vendor by Oracle

• Comes at substantially lower financial cost than engaging Munis in custom development project

Security Review

The recommended solution meets the cyber security standards for the City of Durham.

The City of Durham vCISO recommends requesting and reviewing ADPs SOC reports annually.

Architecture Review - ADP

The recommended solution meets the architectural standards for the City of Durham.

1. Governance – Technology Solutions has worked together with Finance to vet this proposal and ensure ADP will provide the necessary services to support current, transitional and target enterprise architecture.

2. Interoperability - While the interim process will involve manual data transformation, the ADP data platform and service offerings provided strong system to system integration options which support our future enterprise technology capabilities.

3. Strategy – Our agreed approach to payroll tax and W2 processing engaging ADP as the partner meets our IT and business strategy goals. The partnership will bridge our current system and business process with the new Oracle Cloud based platform and enable business continuity through the transition and into the future.

4. Performance – ADP processing is based on IBM Z Series mainframe resources which provide worldclass processing capability and security controls. The agreed approach will be performant both on the City’s side and ADP’s.

5. System Readiness – System backups are conducted on all systems in the solution mix including Munis, Access and ADP.

6. Stewardship - Overall the solution worked out between Finance and Technology Solutions shows great commitment to providing an extensible solution to the business problem, which will support our target enterprise architecture at a controlled cost to the City while minimizing the risk inherent with the current application landscape.