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SHERIFF’S OFFICE -
CIVIL SERVICES -
Evaluation of Internal Controls
Over Cash and Other Assets
Presented to the
Deschutes County Audit Committee
by the
Internal Audit Program
David Givans, CPA – County Internal Auditor
Report# 2003-2 Dated March 31, 2003 (Issued June 10, 2003)
Deschutes Count y,
Oregon
Report# 2003-2 (Dated March 31, 2003)
SHERIFF’S OFFICE - CIVIL SERVICES
Evaluation of Internal Controls
Over Cash and Other Assets
TABLE OF CONTENTS:
EXECUTIVE SUMMARY …………………………………………………………………1-2
INTRODUCTION & BACKGROUND …………………………………………………….2-3
OBJECTIVES, SCOPE, AND METHODS ………………………………………………...3-4
AUDIT RESULTS
General findings …………………………………………………………………….........4-5
Civil fees ………………………………………………………………………………....5-7
Sheriff sales ……………………………………………………………………………...7-8
RESPONSE FROM MANAGEMENT ………………………………………………….........8
Report# 2003-2 (Dated March 31, 2003) Page 1
EXECUTIVE SUMMARY
Purpose
As requested by Count y management and Sheriff (and as approved by Deschutes County’s
Audit Co mmittee), an evaluat ion was conducted of the internal controls for cash, checking and
other assets at the Sheriff’s Office. This report covers civil services provided. The purpose of
the noted findings is to assist management and staff in improving its internal control system.
Civil services provided by the Sheriff’s Office include the fo llowing:
· Civil fees
· Sheriff sales
Results in brief
The evaluation indicated a positive control environment. Staff were very acco mmodating and
have already implemented some suggested changes.
These findings are provided to assist management in improving its internal control systems.
Audit findings result from incidents of non-co mpliance with stated procedures and/or
departures from prudent operation. The findings are, by nature, subject ive. The inspect ion did
not review a sufficient number of items to project the findings over the ent ire populat ion.
The fo llowing findings are presented for management’s considerat ion.
The findings and an excerpt of the associated recommendation for civil services include:
GENERAL
· Lack of sufficient written accounting po licies and procedures
Staff should document in writing all accounting policies and procedures.
CIVIL FEES
· Fees collected by emplo yees and locat ions are commingled
Each employee collecting fees should be responsible for their own monies until the
monies are counted for deposit and reconciled to the day’s activity.
· Negotiable instruments received are not immediately endorsed for deposit
Staff should restrictively endorse all negotiable instruments as received.
· Civil fees invo iced to customers are not followed up on in a timely manner
An aged accounts receivable report should be developed for the internal accounting
system.
· The internal account ing system allows emplo yees to override entries
Safeguards should be implemented in the internal accounting software to prevent
employees from adjusting inputs without supervision.
Report# 2003-2 (Dated March 31, 2003) Page 2
SHERIFF SALES
· Technician does not provide immediate receipt on sale
The technician should provide a written manual receipt (pre-numbered) from a
duplicate receipt book to verify monies received by the Sheriff’s Office on these sales.
· Original source documents are not provided to support disbursement requests
Employees responsible for processing disbursement requests should routinely verify the
presented information to the original source documentation and make a note of this in
the file.
· Addit io nal segregat ion of duties needed (if separate checking account is authorized)
If the Sheriff’s Office obtains a checking account for sales, it is recommended that an
employee who does not issue checks or handle cash be the one to prepare the bank
reconciliation.
Response from management
Management concurs with the observed findings and associated recommendations.
Implementation is in process.
INTRODUCTION
Audit Authorit y:
The audit of civil services at the Sheriff’s Office was conducted pursuant to the direction o f
County management and the Sheriff. The Deschutes County Audit Committee authorized the
audit by its approval o f the County’s internal audit workplan for fiscal year 2002/2003.
Introduction:
This audit was init iated in response to the County’s desire to review the internal controls over
its cash handling. The Sheriff’s Office is the first department scheduled for this type of audit.
The reports for the Sheriff’s Office are expected to be the first in a series of reports covering
County depart ments and their handling of cash. This report also includes Sheriff’s Office
management responses to these recommendations.
County government is responsible for using public assets and public funds in a prudent and
responsible manner. County managers in turn are responsible for developing and maintaining
procedures to protect public assets and promote efficient and effect ive services. These
procedures and the environment promoted by management are called internal controls.
Management is ult imately responsible for implement ing appropriate internal control systems.
An effect ive system o f internal controls:
· Safeguards assets fro m waste, fraud and inefficient use
· Promotes accuracy and reliabilit y in the account ing records
· Encourages and measures co mpliance wit h established practices
· Evaluates the efficiency of operations
Report# 2003-2 (Dated March 31, 2003) Page 3
Effect ive internal controls minimize the potential for errors and/or irregularit ies to occur. If
they do occur, effect ive internal controls detect such errors and/or irregularit ies in a t imely
manner during the normal course of business. For cash processes, effect ive internal controls
include:
1. Segregation of cash handling from record keeping duties.
2. Centralizat ion of cash receiving and account ing for all receipts of cash and checks
utilizing pre-numbered invo ices.
3. Depositing cash on a timely basis.
4. Recording expenditures, in a timely manner, supported by original receipts and the
proper approval authorit y.
5. Preparation of monthly bank reconciliat ion by an emplo yee not responsible for issuing
checks or having custody of cash. Review o f bank reconciliat ion by an appropriate
supervisor.
6. Document ing internal control procedures and conducting rando m reviews of deposit,
reconciliat ions, and other documentation to determine if procedures are being fo llowed.
7. Reviewing revenues and expenditures to budget and/or expectation for reasonableness.
8. Promoting an attitude and environment that perpetuates effect ive internal controls.
Honest emplo yees deserve to work in an organizat ion that implements an effect ive internal
control system. Effective controls can prove innocence in the event errors and/or irregularit ies
do occur.
OBJECTIVES, SCOPE and METHODS
Audit objectives:
The object ives of the audit were:
1. To evaluate the Sheriff‘s Office internal controls and procedures for cash, checking
accounts and other assets.
2. To evaluate compliance wit h Federal or State regulations and requirements.
If exist ing procedures were not documented in writing, the interview process ident ified the
procedures and practices.
Audit procedures addressed key internal control issues. Opportunit ies for increased efficiency
were identified. Suggestions for improving internal control included eliminat ing duplicated
accounting efforts and segregat ion of duties.
Scope:
This report focuses on civil services provided by the Sheriff’s Office. Procedures for handling
checking, cash or other assets were reviewed. Comprehensive written accounting procedures
were not available for all operations; therefore, specific compliance with written procedures
was not evaluated. There are currently no checking accounts for handling civil fees. The
Sheriff’s Office is considering a checking account for handling Sheriff sales. The following
areas were reviewed:
· Civil fees
· Sheriff sales
Report# 2003-2 (Dated March 31, 2003) Page 4
Change and petty cash funds were not reviewed since Count y policies should be sufficient and
no problems have been noted.
Methods:
The audit involved gaining an understanding o f the control environment as described by
management and staff during interviews. Relevant evidence was obtained through observat ion
and interviews. This evaluat ion is, by nature, subjective.
Effect ive internal control provides reasonable assurance of achieving the fo llowing object ives:
1. Effect iveness and efficiency of operations.
2. Reliabilit y of reporting information
3. Compliance with applicable laws and regulat ions.
Audit procedures included:
· Interviews with appropriate personnel
· Walk-throughs with actual transact ions to see how these systems were being performed
· Review of similar audit reports performed by other jurisdict ions
· Discussions with personnel responsible for these areas
Internal control consists of five interrelated components:
· Control environment
· Risk assessment
· Control activit ies
· Informat ion and co mmunicat ion, and
· Monitoring
The audit was conducted in accordance with Government Auditing Standards issued by the
Comptroller General of the United States.
AUDIT RESULTS
Emplo yees of the Sheriff’s Office take their duties seriously. The high securit y invo lved in the
Sheriff’s facilit ies results in a high level o f safeguarding of assets.
Management and staff appear diligent in their efforts to develop an environment supporting
internal controls. Sheriff personnel were open and professio nal during interviews.
These findings are intended to assist management in evaluat ing its systems of internal control.
These reco mmendat ions and findings do not replace efforts to design an effective system of
internal control. The audit, by its nature, cannot discover all possible weaknesses. As such,
management should be vigilant for other improvements that can be made.
Audit findings result from incidents of non-co mpliance with stated procedures and/or
departures from prudent operation. The findings are by nature, subject ive. The purpose of
these findings is to ident ify procedural recommendations. The observation did not review a
sufficient number of items to project the findings over the ent ire populat ion.
Report# 2003-2 (Dated March 31, 2003) Page 5
The fo llowing findings are presented for management’s considerat ion.
GENERAL FINDINGS
Lack of sufficient written accounting policies and procedures
There were insufficient or non-existent written accounting policies and procedures over areas
of operation.
Communicat ion is an essent ial co mponent of internal controls. Written policies and procedures
are particularly effect ive for controls over accounting and financial matters. A well designed
and maintained set of policies and procedures enhances accountabilit y and consistency. The
result ing documentation is also useful for training and cross-training emplo yees.
The lack o f comprehensive written accounting procedures can lead to inadequately planned
controls, inadequate supervisio n, poor and inadequate training, and lack of adherence to stated
control procedures.
Staff should document in writ ing all account ing policies and procedures. The procedures
should emphasize the areas of monitoring, supervision and segregat ion of duties. These
policies and procedures should be available to emplo yees and should be in sufficient detail so
each emplo yee knows which procedures they are to perform.
CIVIL FEES
Fees are collected in the civil divisio n for services provided by the Sheriff’s Office. These
services include impound fees, concealed weapons fees, civil execut ion and fingerprint ing
deposits. Deposits are monies collected on behalf of other agencies or parties. The fee
schedule is set by the Count y and/or through state statute. Some services are billed.
All fees and deposits collected by the Sheriff’s Office are deposited with Count y Finance. The
Sheriff’s Office does not have an independent checking account for these operations.
Fees collected by employees and locations are commingled
Emplo yees place all mo nies received in an unlocked file cabinet by t ype of fee. This includes
fees co llected from other locations. Most civil division emplo yees have access to these monies
and utilize these monies for change.
Typically, each emplo yee handling receipts is responsible to balance their sales and their
mo nies.
Having emplo yees co mmingle their fees may confuse the audit trail for those monies.
Emplo yees responsible for reconciling act ivit y have not had significant problems wit h tracking
collect ions received in this manner.
Report# 2003-2 (Dated March 31, 2003) Page 6
Each emplo yee collecting fees should be responsible for their own monies unt il the mo nies are
counted for deposit and reconciled to the day’s act ivit y. This might be assisted with the use of a
register and associated controls. There were a number of options for implementation discussed
with management and staff. Management may consider, at some po int, centralizing fee
collect ions.
Negotiable instruments received are not immediately endorsed for deposit
Negotiable instruments received are not restrict ively endorsed on receipt.
All negotiable instruments should be restrict ively endorsed to avoid their theft.
Delay in endorsement can potentially lead to misappropriat ion.
Staff should restrict ively endorse all negotiable instruments as received.
Civil fees invoiced to customers are not followed up on in a timely manner
There were a number of o ld accounts receivable balances that have not been fo llo wed up on.
The internal account ing system was not programmed to provide a report on all outstanding
accounts receivables. Since the interview, staff have made efforts to collect on some of the
outstanding accounts receivable balances. Numerous balances will probably need to be written
off.
Staff need a sufficient accounts receivable system to allow them to monitor and fo llow-up on
the collect ion of outstanding accounts receivable balances.
Wit hout sufficient collect ion systems in place, it is hard to collect for all services rendered.
An aged accounts receivable report should be developed for the internal accounting system.
Emplo yees should be actively fo llowing up on these outstanding accounts receivable balances.
The write-off of old and unco llect ible accounts receivable should be supervised.
The internal accounting system allows employees to override entries
Emplo yees have the abilit y to edit many of the transact ions input into the internal account ing
system. An entry for a zero cash receipt was noticed for a concealed weapons permit. The
entry into the system lacked sufficient informat ion to explain why this occurred. There were
no procedures for supervisio n over these adjust ments.
Adjust ments to zero out and enter zero entries should result from adequate supervisio n. The
programming of the internal account ing systems should include appropriate access rights and
authorities.
Lack of appropriate supervisio n in adjusting inputs could result in undetected
misappropriat ions.
Report# 2003-2 (Dated March 31, 2003) Page 7
Safeguards should be implemented in the internal accounting so ftware to prevent emplo yees
fro m adjust ing inputs without supervisio n. In addition, supervisors should not authorize their
own entry adjust ments. Some restrict ions have been put in place for zeroing out receipts. It is
important that original documentation on any vo ided or overridden transact ions be retained.
All vo ided transact ions should be supervised during or subsequent to emplo yee act ion.
SHERIFF SALES
The Sheriff’s Office carries out sales of property pursuant to writs executed by the courts.
Monies are received, deposited, any expenses paid, and the balance remitted to the sellers. An
accounting of the sale is provided to the parties involved. The sales monies are held for a very
short time.
These reco mmendat ions also reflect discussio ns on establishing a separate checking account for
handling Sheriff sales.
Sheriff sales occur for the following:
Real property rights
Personal property
Till Taps (enforcement on civil execut ion)
Technician does not provide immediate receipt on sale
The technician rarely prepares a receipt for the purchaser at the complet ion of the Sheriff sale.
A duplicate manual receipt prepared at the sale and init ialed by the technician and the purchaser
validates the amount received. This duplicate receipt can be independent ly matched to the
mo nies received. County policy (P-1999-075) requires use of receipt forms imprinted with the
County’s name and department.
The receipt substantiates the sale amount and reduces the chances that misappropriat ions might
go undetected.
No receipt is generally provided because the office assistant can do this at the office. The party
to receive the proceeds of the sale is usually present and monitoring the amount received.
The technician should provide a written manual receipt (pre-numbered) fro m a duplicate receipt
book to verify mo nies received by the Sheriff’s Office on these sales. This provides a method
for monitoring sales receipts within the Sheriff’s Office.
Original source documents are not provided to support disbursement requests
A co mprehensive and detailed summary as well as copies are made to support a check request.
Checks should be issued fro m original source documentation. The source documents bear
original signatures and this reduces the likelihood that any documents have been altered. On
payment, the original source documents should be cancelled.
Report# 2003-2 (Dated March 31, 2003) Page 8
Summarized and copied documents can be edited with fict it ious informat ion.
The Sheriff‘s Office maintains strict control over the original source documents since they are
utilized to issue legal documents. These original documents are available to be reviewed at any
time.
Emplo yees responsible for processing disbursement requests should routinely verify the
presented informat ion to the original source documentation and make a note of this in the file.
This should be done for check requests above a certain amount, as determined by management,
or any other check requests as determined. The documents retained fro m the disbursement
request should be init ialed by the emplo yee processing the request for mathemat ical accuracy
and should be cancelled on payment.
Additional segregation of duties needed (if separate checking account is authorized)
The office assistant’s duties include handling of cash for deposit, accounting for transact ions,
document ing overall process, and potentially reconciling bank activit y. Many of these dut ies
occur without direct supervisio n.
Cash handling and record keeping duties should be segregated. Emplo yees should not handle
all facets of a transact ion.
Emplo yees wit h cash handling, account ing and oversight duties could circumvent the normal
internal control systems and allow misappropriat ions to go undetected.
The office assistant provides a range of direct support for Sheriff sales. There are significant
mit igat ing controls over the Sheriff sale funct ion. Most notable is the immediate payout of
these monies to a wait ing seller. The process collects and then distributes substant ially all
mo nies transacted. In addit ion, other emplo yees are involved in the sale.
If the Sheriff’s Office obtains a checking account for this function, it is recommended that an
emplo yee who does not issue checks or handle cash be the one to prepare the monthly bank
reconciliat ion. The bank statement, prior to reconciliat ion, should be reviewed by a supervisor
for unusual items and handed over to the emplo yee for reconciliat ion. The completed bank
reconciliat ion should be reviewed by the supervisor and filed.
RESPONSE FROM MANAGEMENT
See comments provided at end of report provided by the Sheriff’s Office
Report# 2003-2 (Dated March 31, 2003) Page 9
To: Audit Co mmittee
CC: Mike Daly, Tom DeWolf
From: David Givans, Count y Internal Auditor
Subject: Internal Audit Reports on the Sheriff’s Office (2003-2 through 2003-6)
Date: June 10, 2003
The enclosed audit reports provide informat ion concerning the internal control structure of the
Sheriff’s Office as they relate to handling of cash and other significant items. These reports are
expected to be the first of a series o f reports addressing controls over cash handling within Deschutes
County. Informat ion contained in these reports is from interviews, observat ions and inspect ions.
Audit results have been discussed with the Sheriff’s Office and associated personnel. The Sheriff's
Office has addressed all o f the findings included in this report and their responses are at the end of this
report.
The cooperation and assistance received fro m the Sheriff’s Office in conduct ing and preparing this
report was appreciated.
Deschutes Count y,
Oregon
Internal Audit Program
David Givans, CPA
County Internal Auditor
Deschutes County-Administration building
1130 NW Harriman
Bend, OR 97701
Phone: 541-330-4674
Fax: 541-388-4752
davidg@co.deschutes.or.us
SHERIFF’S OFFICE -
Internal Audit Reports
Presented to the
Deschutes County Audit Committee
by the
Internal Audit Program
David Givans, CPA – County Internal Auditor
Report# 2003-2 through 2003-6
Deschutes Count y,
Oregon
To: Audit Co mmittee
CC: Mike Daly, Tom DeWolf
From: David Givans, Count y Internal Auditor
Subject: Internal Audit Reports on the Sheriff’s Office (Reports #2003-2 through #2003-6)
Date: June 10, 2003
The enclosed audit reports provide informat ion concerning the internal control structure of the
Sheriff’s Office as they relate to handling of cash and other significant items. These reports are
expected to be the first of a series o f reports addressing controls over cash handling within Deschutes
County. Informat ion contained in these reports is from interviews, observat ions and inspect ions.
Audit results have been discussed with the Sheriff’s Office and associated personnel. The Sheriff's
Office has addressed all o f the findings included in this report and their responses are at the end of this
report.
The cooperation and assistance received fro m the Sheriff’s Office in conduct ing and preparing this
report was appreciated.
Deschutes Count y,
Oregon
Internal Audit Program
David Givans, CPA
County Internal Auditor
Deschutes County-Administration building
1130 NW Harriman
Bend, OR 97701
Phone: 541-330-4674
Fax: 541-388-4752
davidg@co.deschutes.or.us