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SOLID WASTE DEPARTMENT-
Evaluation of Internal Controls
Over Service Fees
Presented to the
Deschutes County Audit Committee
by the
Internal Audit Program
David Givans, CPA – County Internal Auditor
Report# 03/04 - 1 Dated August 26, 2003
Deschutes Count y,
Oregon
Report# 03/04 - 1 (Dated August 26, 2003)
SOLID WASTE DEPARTMENT
Evaluation of Internal Controls
Over Service Fees
TABLE OF CONTENTS:
EXECUTIVE SUMMARY
1. INTRODUCTION
1.1. BACKGROUND ………………………………………………………………….1-4
1.2. OBJECTIVES & SCOPE……………………………………....................................4
1.3. METHODOLOGY ………………………………………………………………..4-5
2. FINDINGS - Administration and supervision
2.1. Fo llow-up on prior recommendat ions …………………………………………… 5-7
2.2. Office administration and supervisio n…………………………………………...7-12
3. FINDINGS - Attendant Operations
3.1. General …..……………………………………………………………………. 12-13
3.2. Knott Landfill ….……………………………………………………………… 13-14
3.3. Transfer sites ……..…………………………………………………………… 14-15
4. FINDINGS - Software systems ……………………………………………….. 15-18
5. ISSUES REQUIREING ADDITIONAL STUDY …………………………… 18-19
6. RESPONSE FROM MANAGEMENT ………………………………………. 19-21
Report# 03/04 - 1 (Dated August 26, 2003)
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Report# 03/04 - 1 (Dated August 26, 2003) i
SOLID WASTE DEPARTMENT –
Evaluation of Internal Controls Over Service Fees
Report# 03/04 - 1 (Dated August 26, 2003)
EXECUTIVE SUMMARY
Purpose
As approved by Deschutes County’s Audit Committee, an evaluat ion was conducted of the
internal controls over service fees at the Solid Waste Department. The purpose of the noted
findings is to assist management and staff in improving its internal control system.
Service fees are collected at various locations and include the fo llowing:
· Knott Landfill – scalehouse and administrative offices
· Negus (Redmond transfer site)
· Northwest (Sisters transfer site)
· Southwest (LaPine transfer site)
· Alfalfa (Alfalfa transfer site)
Results in brief
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 results of the audit indicate the Department’s overall control environment and specific
procedures over attendant operations are generally sound and working as intended but
compliance wit h procedures is not always achieved. Addit ional procedures for better
mo nitoring and segregat ion of duties are necessary in administration of operations to assure
that operations are properly controlled and accounted for.
The fo llowing highlights some of the findings presented to management for consideration in
a summarized format. The findings and an excerpt of the associated recommendation
include:
ADMINISTRATION AND MANAGEMENT
· Reports on accounts receivable are of limited usefulness since management cannot
control cutoff o f informat ion by date
Management should request improvements to its accounts receivable reports so they can
be ran as of a specific date. In addition, the software for aging of the reports should be
reviewed since it appears amounts are being improperly aged.
· There are insufficient written accounting po licies and procedures over the duties of
office staff
Report# 03/04 - 1 (Dated August 26, 2003) ii
Office staff should document in writing all accounting policies and procedures.
· Emplo yee duties over customer accounts receivable require addit io nal segregat ion and
supervisio n
The office accountant should not directly receive customer payments. … The supervisor
should approve (in writing) all new, changed, or deleted customer accounts. … The
supervisor should review all adjustments, credits, and write-offs to credit customer
accounts.
· Manual cash receipts cannot be sufficient ly controlled
Management should remove and destroy all un-numbered receipts and order new pre-
numbered receipts. … Management should monitor the sequence and use of these
receipts. It is typical for there to be a log of all receipts on hand, in use, and voided.
· Improvements in data collect ion methods could improve reporting internally and
externally
Management should consider improving the underlying data collection methods used for
material and financial information. … . When possible systems used to collect the data
should be utilized to develop the reports. Reports or charting should be developed to
support management of operations, as well as external reporting requirements.
· Securit y deposit policies and practices expose Department to risk
Management should ensure that all customers sign the latest version of the credit
application form… Office staff should routinely reconcile internal records of security
deposits retained with those held in the County trust account.
· County depart ments should pay un-waived disposal fees
Solid waste management should bill other County departments for all waste disposal
fees not subject to waiver. Additional controls should be considered to make sure that
use of the landfill by County employees is tracked by employee and purpose to comply
with County resolution.
ATTENDANT OPERATIONS
· Weights used to calculate charges are overridden without sufficient documentation
Management should enforce the current policy. The computerized system should require
the attendant’s initials and password on entering manual overrides. The system should
also collect the explanation for the override. The system should track whether the
override occurred on the inbound and/or outbound weight.
Report# 03/04 - 1 (Dated August 26, 2003) iii
· Addit io nal controls might improve securit y over service fees collected at the transfer
sites
Management should consider a bulletin board alerting customers of the form and type of
receipt they should be receiving. … Management should periodically do surprise cash
counts at the various transfer sites. … Management should perform certain analytical
review procedures.
SOFTWARE SYSTEMS
· Software system does not track individual attendants
The County’s Information Technology Department should work with management to see
if they can develop a system to capture all inputted information by attendant.
· Customer transact ions can be shifted between accounts without creating an audit trail
Information Technology personnel should work with management to implement
exception reports for management’s routine review and approval of overrides and
adjustments entered by office staff.
· History of pre-weighed vehicle and roll-off weights should be retained for analysis and
mo nitoring
The County’s Information Technology Department should create an archive for the
weights of each vehicle and roll-off over time. Management should establish criteria for
reports to identify any problems in the tare weight system. These reports might include:
o Variances in tare weights by pounds and percentage ordered by highest
percentage change
o Tare weight changes before an anniversary date
ISSUES REQUIREING ADDITIONAL STUDY
· Trucks transporting transfer site waste might exceed legal weight limit s
Management should evaluate whether these trucks (carrying transfer site waste) are
overweight. … The County might face some exposure to fines arising from the
contracted hauling of these loads. …
· Alfalfa transfer site activit y is significantly lower than other transfer sites
Management should evaluate the need for this transfer site considering its plan for
providing overall Countywide services.
Report# 03/04 - 1 (Dated August 26, 2003) iv
RESPONSE FROM MANAGEMENT
The Solid Waste Department was pleased to participate in this evaluat ion and believed the
process and informat ion result ing from this effort will improve the stabilit y and strength of
the department. They concur with most of the findings and recommendations provided.
Their full response is included at the end of the report.
Management’s responses indicate that efficient staffing levels make it difficult to fully
implement some of the recommendat ions. They also believe customer account issues are
better handled on a case-by-case basis and that long-standing customer relat ionships come
before compliance with newer legal requirements. Recommendat ions for software systems
will provide an opportunity to efficient ly address these issues as systems are revisited for the
upcoming facilit y improvements.
Report# 03/04 - 1 (Dated August 26, 2003) Page 1
1. INTRODUCTION
1.1 BACKGROUND
Audit Authorit y:
An audit of service fees was conducted at the Solid Waste Department pursuant to the
direct ion of the County’s Audit Committee. The Deschutes County Audit Committee
authorized the audit by its approval o f the County’s internal audit workplan for fiscal year
2002/2003.
Purpose of Audit:
This audit was init iated in response to the County’s desire to review the internal controls
over its cash handling. The Solid Waste Department is the second department scheduled for
this t ype of audit. This report also includes managements’ response to these
recommendat ions.
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
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 of 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 llo wed.
7. Reviewing revenues and expenditures to budget and/or expectation for
reasonableness.
Report# 03/04 - 1 (Dated August 26, 2003) Page 2
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 should prove innocence in the event errors and/or
irregularit ies do occur.
Brief History of Operat ions
The Deschutes County So lid Waste Department manages the solid waste system for the
County. In cooperation with Count y residents; four private collect ion companies (garbage
haulers); and regulatory agencies, solid waste is collected, recyclables diverted, and
appropriate materials deposited into the landfill. Fees collected recover the cost of
providing services, which includes post closure costs.
SOLID WASTE
The landfill receives over 120 thousand tons of solid waste per year. Solid waste collected
has grown by about 6% per year.
Tons of Garbage by Calendar Year
105,000
110,000
115,000
120,000
125,000
130,000
2000 2001 2002
Sum of Tons
Year
REVENUES
The County co llects fees from garbage haulers, established credit customers and cash
customers. The fee schedule established provides an effect ive system charge of at least $42
per ton. Solid waste fees are set by the County fee schedule. From the 2002/2003 fee
schedule, franchise garbage haulers are charged $40 per ton and others $41 per ton.
The effect ive system revenue earned per ton over the twelve-month period ending March 31,
2003 was $44.30. This effect ive rate fluctuates significant ly each month. Management
indicates the higher effect ive fee rate collected is used to maintain lower rates into the
future. Higher effect ive rates are due to transactions occurring in the first rate bracket.
Since the init ial fee is $9 for the first four hundred pounds, the effect ive rate at this level is
$45 per ton. More than half of the cash customers are paying at this effect ive rate or higher.
Report# 03/04 - 1 (Dated August 26, 2003) Page 3
Cumulat ively, cash customers who do not exceed the four hundred pound thresho ld are
paying an effect ive rate of over $80 per ton. Management has indicated these higher
effect ive garbage rates for cash customers offset the increased costs for handling cash
customers with small loads.
Total revenues collected exceed $5.8 millio n per year. Average growth in revenues over the
last two years has been around 4%. There is quite a bit of seasonalit y to the recognition o f
revenues with more revenues co ming in during the summer months.
COMPOSITION OF REVENUES
The composit ion o f revenues is primarily fro m garbage haulers and credit customers. Cash
customers, however, represent some 76% of the transact ions handled at the various sites.
REVENUES by Calendar Year
5,000,000
5,100,000
5,200,000
5,300,000
5,400,000
5,500,000
5,600,000
5,700,000
5,800,000
2000 2001 2002
Sum of Revenues
Year
Composition of revenues by customer type
(4/02 - 3/03)
Cash customers
28%
Credit customers
14%
Garbage Haulers
58%
Report# 03/04 - 1 (Dated August 26, 2003) Page 4
REVENUES BY LOCATION
The fo llowing is a presentation of the average monthly service fees from each of the solid
waste collection sites (April 2002 through March 2003).
Location
Days a
week
open
Avg. Monthly
Revenues
Alfalfa transfer site 1 600$
Southwest transfer site (LaPine)4 23,000$
Northwest transfer site (Sisters)4 25,000$
Negus transfer site (Redmond)4 66,000$
Knott Landfill (Bend)7 370,000$
1.2 OBJECTIVES and SCOPE
Audit objectives:
The object ives of the audit were:
1. To evaluate the internal control structure and internal procedures to handle service
fees.
2. To evaluate compliance wit h Federal, State or Count y regulat ions and requirements.
Opportunities for increased efficiency and effect iveness were included in the
recommendat ions when applicable.
Scope:
The audit was limit ed to reviewing co llect ion and deposit of service fee revenues during the
period July 1, 2002 through March 31, 2003. Analyt ical review procedures were performed
for various periods based on the analyses and the availabilit y o f data.
The scope did not include the review of the fee schedule and/or expenses. Change and petty
cash funds were not specifically reviewed since Count y policies should be sufficient and
management indicated no problems.
1.3 METHODOLOGY
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, interviews and testing. This evaluat ion is, by nature, subject ive.
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.
Report# 03/04 - 1 (Dated August 26, 2003) Page 5
Audit procedures included:
· Developing an understanding of Solid Waste Department issues through review o f
audit reports and associated recommendations issued by other local governments
· Interviews with attendants and management staff
· Assessment of key internal controls
· Walk-throughs with actual transact ions to see how these systems were being
performed
· Observations of routine operations at attendant locations and with o ffice
administration
· Testing for compliance with stated procedures with rando mly selected samples.
· Assessment of reliabilit y of co mputerized systems to properly co llect data
· Analyt ical and computerized procedures including
o Charting
o Reconciliat ion
o Comparat ive and trend analysis
The audit was conducted in accordance with Government Auditing Standards issued by the
Comptroller General of the United States.
2. FINDINGS – Administration and supervision
The Solid Waste Department’s account ing information was very well supported and
organized. Office staff should be co mmended for their time and effort in keeping pace wit h
the volumes of data coming fro m these operations. During the review of specific
transactions, the accounting records were found to be well organized and co mplete.
Personnel were open and professio nal during interviews and provided a true descript ion of
the business practices in place.
The results of the audit indicate the Department’s overall control environment and specific
procedures over attendant operations are generally sound and working as intended but
compliance wit h procedures is not always achieved. Addit ional procedures for better
mo nitoring and segregat ion of duties are necessary in administration of operations to assure
that operations are properly controlled and accounted for. Recommendat ions that follow
should improve control procedures and reduce risks in the Department.
These findings are intended to assist management in evaluat ing its systems of internal
control. These recommendat ions and findings do not replace efforts to design an effect ive
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.
The audit findings result fro m observat ions, incidents of non-co mpliance with stated
procedures and/or departures from prudent operation. The findings are by nature,
subjective. The purpose of these findings is to identify procedural recommendat ions.
Report# 03/04 - 1 (Dated August 26, 2003) Page 6
The fo llowing findings are for management’s considerat ion.
2.1 Follow-up on prior recommendations
The fo llowing recommendat ions were made to the Solid Waste Department in September
2000 by the prior financial auditors – Donaca Battleson & Co., LLP:
· “… remote site should have a better system for their reconciliat ions’. … If the
reconciliat ions’ include a line for over (short), this may reduce the need for the
operator to balance the reports to zero each time. “
· “… should develop a program to age the accounts receivable. “
Based on observations at the various transfer sites, the daily cash reconciliat ion form has
been changed as suggested. Many of these sites cont inue to balance wit h few or no overages
and/or shortages.
The following recommendation clarifies the prior accounts receivable recommendation
made:
Reports on accounts receivable are of limited usefulness since
management cannot control cutoff of information by date
The account ing system’s accounts receivable reports present all informat ion up to that point
in t ime. Consequent ly, if management wants a June 30 report, it must be run on June 30. If
staff want to run a June 30 report on July 15, the report will not be the same due to
addit ional act ivit y for the first 15 days o f July. Staff manually adjusted the June 30, 2002
accounts receivable report provided for financial statement purposes since a report with the
proper cutoff could not be generated. In addit ion, a review of the aged accounts receivable
report indicated the aging calculat ion might include one extra day.
The prior management recommendat ion indicated an aged receivable report would be useful
to management. It is customary for accounting so ftware to provide reports on any given
date. This funct ionalit y allows a better cutoff o f financial informat ion and improved
workflow. Office staff can then enter informat ion through the normal course of operations,
irrespect ive of the cutoff date and st ill be able to run an accurate report as of a given date.
Since the accounts receivable reports cannot be created on a given date, their usefulness to
staff and management is limited. Sufficient informat ion resides in the system to prepare
dated customer accounts receivable reports.
Significant addit ional staff time is required to modify or adjust the current customer
accounts receivable reports to a given date and can result in errors. Recalculat ion of
customer accounts receivable balances on June 30, 2002 indicated an understatement by
about 1% or around $5,000.
Management should request improvements to its accounts receivable reports so they can
be ran for a specific date. In addition, the software for aging of the reports should be
reviewed since it appears amounts are being improperly aged. Other reports and queries
Report# 03/04 - 1 (Dated August 26, 2003) Page 7
might benefit from being date sensitive. Staff should work with the County’s Information
Technology Department to make improvements to the reports and test their accuracy.
As of the date of this report, Information Technology personnel have worked with staff to
fix the aged accounts receivable report and test its accuracy.
2.2 Office Administration and Supervision
There are insufficient written accounting policies and procedures over the
duties of office staff
There were no written accounting policies and procedures over the accounting po licies and
procedures used in the administrative office.
Communicat ion is an essent ial co mponent of internal controls. Written policies and
procedures are particularly effect ive for controls over account ing 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
personnel.
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.
Office staff should document in writing all accounting policies and procedures. The
procedures should emphasize the areas of revenue and deposit handling, monitoring,
supervision and segregation of duties. These policies and procedures should be available
to all employees and should detail the responsibilities of each employee.
Employee duties over customer accounts receivables require additional
segregation and supervision
The office accountant has current responsibilit y fo r receiving and posting receivable
payments, establishing customer accounts, writing off and closing customer accounts, and
accounting and for all transact ions. Management does not evidence the extent of their
review in the account ing documentation.
Certain duties are inco mpat ible and should be segregated. Those duties are ones that could
allow an individual to commit an irregularit y and conceal it. Three types of funct ions are
considered mutually inco mpat ible: record keeping, authorizat ion, and custody. For
accounts receivable - custody would include handling of receipts fro m customers,
authorizat ion would include authorizing new customer accounts or write-offs; and recording
would include preparation of billings.
Report# 03/04 - 1 (Dated August 26, 2003) Page 8
Insufficient segregation o f duties may lead to theft. When too many dut ies are concentrated
with any one person it may be difficult to sufficiently safeguard assets and assure proper
accounting.
Due to the extensive nature of procedures performed by the office accountant, the following
recommendat ions suggest some shift ing of dut ies and/or improvements in procedures.
Accounts receivable collections -
The office accountant should not directly receive credit customer payments. The office
assistant should open the mail and restrictively endorse all checks received. It would be
advisable to make a photocopy of all credit customer checks received. The checks can then
be given to the accountant for posting and deposit preparation. An accounts receivable
report should be developed to indicate the application of each payment by customer.
Ideally, the photocopies of the checks could be attached to this report for filing.
Credit customer maintenance and setup -
The supervisor should approve (in writing) all new, changed, or deleted customer credit
accounts. The supervisor’s initials should evidence approval. A new report should be
developed to identify all new, modified or closed credit customers between certain dates.
The report can be approved and retained for support.
Credit customer adjustments and write-offs -
The supervisor should review all adjustments, credits and write-offs to credit customer
accounts. A new report should be developed to identify all credits, adjustments, and write-
offs posted to credit customers between certain dates. The report can be approved and
retained for support.
Manual cash receipts cannot be sufficiently controlled
Knott Landfill attendants utilize loose un-numbered duplicate receipts during computerized
system failures. There is no way to monitor the quant it y of cash receipts issued or the
amounts receipted.
County po licy (P-1999-075) requires all invo icing to be recorded using pre-numbered forms.
In addit ion, management should have sufficient controls over the receipt logs to ident ify
missing or voided receipts.
During days where manual cash receipts are used, attendants or office staff could remove
cash receipt tickets and divert monies without any mit igat ing control.
Management should remove and destroy all un-numbered receipts and order new pre-
numbered receipts. They should have sufficient numbering so that there are no
duplicates. Management should monitor the sequence and use of these receipts. It is
typical for there to be a log of all receipts on hand, in use, and voided. As of the date of
this report, management indicates that they have destroyed all un-numbered receipts and
have circulated new pre-numbered receipts for use.
Report# 03/04 - 1 (Dated August 26, 2003) Page 9
Improvements in data collection methods could improve reporting
internally and externally
Significant financial and so lid waste material data is co mpiled manually. Staff current ly use
a combinat ion of the solid waste accounting systems and excel spreadsheets to develop
reports and analyses. These analyses are used for DEQ reporting as well as internal
management.
The usefulness o f accounting systems is greatly improved when all of the data is being input
into one system. The accounting and material data can then be co mpiled and used for
reporting and or analysis. This greatly improves the efficiency and effectiveness of data
collect ion efforts. The system should be capable of developing reports for DEQ as well as
internal management purposes.
Wit h the current system, addit ional effort is required to compile informat ion. This can result
in errors fro m data entry or in its assembly.
Staff manually accumulates informat ion to prepare DEQ reports when the internal
accounting system should be able to complete reports. This can lead to errors in the
preparation of reports. The fo llowing analysis o f accrual revenues vs. DEQ tons reported
indicated an over-reporting of tons in December 2002 of 1206 tons (a 12% over-reporting).
Fo llow-up on the preparation of the report indicated that an incorrect figure was added into
the tons reported.
Revenues by month to tons of solid waste reported to DEQ
-
100,000
200,000
300,000
400,000
500,000
600,000
Apr-02 May-
02
Jun-02 Jul-02 Aug-
02
Sep-02 Oct-02 Nov-
02
Dec-
02
Jan-03 Feb-03 Mar-
03
R e v e n u e s b y m o n t h
-
2,000
4,000
6,000
8,000
10,000
12,000
Revenues
Tons -
Provided
Tons-
Recalculated
Management should consider improving the underlying data collection methods used for
material and financial information. When possible, the systems used to collect the data
Report# 03/04 - 1 (Dated August 26, 2003) Page 10
should be utilized to develop the reports. Utilization of Microsoft Access and Excel Pivot
tables might streamline efforts to collect and analyze data for routine reporting.
Additional reports or charting should be developed to support management of operations,
as well as external reporting requirements.
Security deposit policies and practices expose Department to risk
The Solid Waste Department has numerous credit customers who have no security deposit.
Only 24% of the credit customers wit h accounts receivable balances as of March 31, 2003
had securit y deposits. A review o f credit customer files indicates a number of long-t ime
customers do not currently have a securit y deposit, have not personally guaranteed the
account, and/or have not signed newer forms. A relat ively new customer had no securit y
deposit. The Department has not maintained an accurate internal reconciliat ion of securit y
deposits to those deposited with County Finance.
The current County ordinance 13.28.100(B)(2) requires a $500 securit y deposit on receipt of
an applicat ion for credit form from most credit customers (the only exceptions stated are for
garbage haulers and public ent ities). This ordinance has been substant ially in place since
1996. County Finance posts security deposit amounts in a trust account specifically
established for these deposits. All credit customers should sign current credit applicat ion
forms. The newer applicat ion forms include updated legal language and require personal
guarantees from the business owners.
In reviewing average credit customer act ivit y over nine months (7/02 – 3/03), we noted the
fo llo wing:
Average
monthly revenues
(7/02 – 3/03)
Total
credit customers
identified1
Credit customers
with security
deposits1
% of total
All records 180 43 24%
> $500 40 13 33%
> $1,000 19 2 11%
1Identified credit accounts not excluded by ordinance
The table above indicates the increased absence of securit y deposits as customer charges
increase and the potential risk beco mes greater.
Management has indicated an older County ordinance allowed discret ion in obtaining
securit y deposits if customers proved their credit worthiness. Management indicates they
have not retroactively applied the current ordinance due to advice fro m Count y Legal
Counsel and their active mo nitoring of client accounts. Any problem customers are asked to
comply with the latest ordinance. Problem customers lose their credit and must pay cash. In
recent years, management has not had a significant problem with overdue or uncollect ible
accounts.
Report# 03/04 - 1 (Dated August 26, 2003) Page 11
Management should review their customer list periodically to make sure security deposits
are obtained from new customers.
Management should ensure that all customers sign the latest version of the credit
application form. The form might be improved by indicating late payment penalties of
9% apply. This could aide in collection of these statute required charges.
Office staff should routinely reconcile internal records of security deposits retained with
those held in the County trust account.
Management should evaluate whether additional security deposits should be required
when credit customers carry higher balances. Some solid waste departments review
customer activity to establish security deposits. In addition, the County software system
could be utilized to limit activity to a pre-established level to limit credit risk. Currently,
customer credit is not limited.
County departments should pay un-waived disposal fees
Analysis of transact ions wit h County depart ments indicates so me departments are not being
billed and consequent ly are not paying disposal fees for solid waste materials not exempted
by Count y resolut ion. The Solid Waste Department is writ ing-off these fees.
Departmental charges - written off
January 1, 2002 through March 31, 2003
Material Type
Property
Management Juvenile
Building
Services Sheriff Road
State/County
Capital Project
*TOTAL
Demo $ 40$ 9$ 21$ 237$ 14,734$ 15,041$
Household *1,629 31 62 1,722
Non-household 153 424 9,034 9,034 8,515 27,160
Stumps 1,882 1,882
Appliances 432 432
Yard debris 4,065 4,065
TOTAL 153$ 2,093$ 9,074$ 9,117$ 15,131$ 14,734$ 50,302$
* Board of County Commissioners specifically waived these fees
County reso lut ion provides a waiver to County departments for disposal of household t ype
materials. In addit ion, all material generated by the Road Department’s “Adopt-A-Road”
program is specifically waived. The Board of Count y Co mmissio ners specifically waived
the landfill fees on the State/County building. Other than those specific except ions, County
departments should be paying their disposal costs.
Fees, not direct ly excluded by waiver, for the fifteen mo nths ended March 31, 2003
amounted to nearly $34,000. The Solid Waste Department incurs costs for all so lid waste
deposited at the landfill. The system tipping fee of $42 is premised on the collect ion of
revenues on all solid waste collections.
Report# 03/04 - 1 (Dated August 26, 2003) Page 12
Solid waste management should bill other County departments for all waste disposal fees
not subject to waiver. Additional controls should be considered to make sure that use of
the landfill by County employees is tracked by employee and purpose to comply with
County resolution.
Access to safe cash not properly limited
Safe cash is accessible by numerous office personnel including account ing and operations
staff. The safe cash is used for change. Four employees have unrestricted access to these
mo nies. Monies are usually re-counted after the weekend.
Access to safe cash should be limited and closely supervised.
If mo nies were missing, it would be very difficult to assess how the problem occurred.
Management has not had a problem with the current arrangement.
Based on discussions with office staff, there should be a written log of all transactions
with safe cash. The person opening the safe should record and initial the entry. This
control is still insufficient to identify a specific employee should monies be missing.
3. FINDINGS – Attendant Operations
The Solid Waste Department has four transfer sites and the landfill for which attendants
handle transact ions with customers. A great number of the transactions represent cash type
transactions.
During our audit work, we made surprise visits to the sites and observed attendants handling
customer transact ions and performing their financial duties. Staff were courteous and
provided receipts to all customers observed.
3.1 General
Site attendant failed to follow Department procedures and count opening
cash
During an observat ion, an attendant did not count their opening cash. This particular
attendant had not been responsible for the count of cash during the prior shift.
Attendants, regardless of who counted the cash in the prior day, should re-count all mo nies
held in their safe at the beginning and end o f their shift. Other attendants and personnel
have access to safe cash. Counting the cash is the only sure way to determine that the
amounts being safeguarded are as expected.
Report# 03/04 - 1 (Dated August 26, 2003) Page 13
Not counting the money can create difficult y in diagnosing the problem. On this particular
day, the register came up short $10.
The attendant assumed the count done in the prior day by their immediate co-worker was
correct.
Attendants must count all cash at the open and close of the day. Attendants should report
all differences to management.
3.2 Knott Landfill
Weights used to calculate charges are overridden without sufficient
documentation
The system identifies when attendants override the scale weights on the inbound or
outbound scales. For many overrides, attendants fail to explain the override. For a random
sample selected, nearly 31% of the tickets expected to have explanat ions failed to have
them. There is insufficient informat ion in the software system to monitor which attendant
performed the override.
Department policy requires an explanation wit h all manual overrides. Policy except ions
include pre-opening tickets and oversize semi trucks.
Management has no way o f knowing the reasonableness of the override without sufficient
explanat ion. Poor controls over these manual weights can lead to altered charges.
Management should enforce the current policy. The computerized system should require
the attendant’s initials and password on entering manual overrides. The system should
also collect the explanation for the override. The system should track whether the
override occurred on the inbound and/or outbound weight. These improvements in the
system should allow proper enforcement of the policy and allow for better monitoring of
attendants entries.
Attendants closed-out of accounting system before last customer had paid
A transact ion was not completed at the time of closing for the day and was co mpleted the
next day. The closing reports for that day ran “day of” and “day after” differed.
Attendants should perform all closing procedures once all customers have departed. Reports
should be printed after all transactions have been closed. Current Department procedures
cover this situation.
It was not clear if the attendant had collected the monies the fo llowing day or the night of
the transact ion.
Report# 03/04 - 1 (Dated August 26, 2003) Page 14
Attendants should closeout their system only after all customers have departed the site and
their payment has been input into the system. If the transaction is unpaid, the attendants
should follow Department procedures for handling any unpaid amounts.
Cash register till drawer is broken
The register till drawer is broken, is kept open during daily operations, and is never closed.
The cash drawer is an important security device to safeguard cash between transact ions.
Ideally, the drawer is released for each transact ion. A register bell usually signals
emplo yees that some one is accessing the drawer.
Having the register left open could lead to theft.
Management should replace or repair the drawer so that staff can close it between
transactions.
3.3 Transfer sites
The County ut ilizes transfer sites to aide in the co llection of so lid waste fro m significant
collect ion points within the County. These sites generally occupy previously closed landfill
sites operated by the County. The following sites are operated by one attendant and are not
open every day.
· Negus transfer site - Redmond
· Northwest transfer site - Sisters
· Southwest transfer site - LaPine
· Alfalfa transfer site
Additional controls might improve security over service fees collected at
the transfer sites
Transfer sites have limited controls due to their remote locat ions, lack of co mputerized
systems, and lack of immediate supervisio n. Reconciliat ion of revenues to expected
amounts relies on receipts generated form the register. Most deposits are prepared and put
into zip lock bags for deposit with Knott Landfill administration.
The strongest control for these sites is for customers to receive a receipt from a controlled
register.
The reconciliat ions performed on site assume all customers obtain receipts. Controls should
be considered based on the limited techno logy and supervisio n.
Report# 03/04 - 1 (Dated August 26, 2003) Page 15
Management should consider a bulletin board alerting customers of the form and type of
receipt they should be receiving. The notice should include a phone number to call if
customers are not provided an appropriate receipt.
Management should perform surprise cash counts at the transfer sites on an ongoing
basis. Management has developed count sheets for this procedure, but has only done a
couple of counts as of yet.
Management should consider performing certain analytical review procedures over time
such as
o revenue per cubic yard reported and
o tons collected versus the monies receipted.
Anomalies should be investigated.
If management has specific concerns over the handling of transactions and the reporting
of revenues they might consider some form of surveillance camera system.
4. FINDINGS – Software Systems
Deschutes County Solid Waste Department has a software system developed by the
County’s Informat ion Techno logy Department. The co mputerized system handles the
fo llo wing:
· data gathering on all transactions at Knott Landfill
· provides receipts and controls over customer transactions at Knott landfill
· handles accounts receivable funct ions for all credit customers, and
· provides management reports on landfill activit ies.
Software system does not track individual attendants
Transact ion data is not sufficient to ident ify the attendant who input the data. Often one
attendant will log-on both inbound and outbound computer terminals. In addit ion,
attendants frequent ly change terminals throughout the day.
Collect ing transact ion data that ident ifies the attendant allows better supervision and
mo nitoring.
Management has had so me difficult y establishing which attendant made a particular
transaction entry. Attendants do not always recall if they made the entry or not. This makes
it difficult to supervise, train and correct attendant use of the system.
Information Technology personnel should work with management to see if they can
develop a system to capture the input information inputted by attendant. Potential
solutions might include “on-the-fly” logins, card keys, and/or password verifications for
certain entries. The impact of extra entries significantly affects the attendants’ workload
and should, therefore, be carefully thought out.
Report# 03/04 - 1 (Dated August 26, 2003) Page 16
Customer transactions can be shifted between accounts without creating
an audit trail
Office staff have the abilit y to re-code transact ions, moving a charge fro m one customer
account to another, without any exception report being generated by the system.
A sufficient audit trail provides reporting of any modificat ions or changes made by o ffice
staff to transact ions.
Wit hout sufficient management supervisio n over these changes in transact ions, it would be
difficult to detect misappropriation that might occur by office staff.
Information Technology personnel should work with management to implement exception
reports for management’s routine review and approval of overrides and adjustments
entered by office staff. Office staff should maintain and/or provide sufficient support for
all exceptions generated. Management should document their review on these exception
reports.
History of pre-weighed vehicle and roll-off weights should be retained for
analysis and monitoring
Weights are established by certain customers for vehicles and/or roll-offs. These pre-
weights expedite customer transact ions by eliminating the need to weigh-out on the
outbound scales. These weights are re-established on a yearly anniversary. The new
weights entered eliminate any previous weight used by the system. There is no record or
history of prior weights for vehicles and/or roll-offs.
It would be useful to management to review fluctuations in vehicle pre-weights to ident ify if
customers or staff are manipulat ing the weights or there are unusual fluctuations, which
would warrant an earlier re-weigh.
These pre-weights are used in calculat ing charges. It is crit ical they are reasonable and a fair
indicator of the vehicle or roll-o ffs weight.
Information Technology personnel should develop an archive for the pre-weights for each
vehicle and roll-off over time. Management should establish criteria for reports to
identify any problems in the pre-weight system. These reports might include:
o Variances in pre- weights by pounds and percentage ordered by highest
percentage change
o Pre- weight changes occurring before an anniversary date
Anomalies might result in those vehicles and or roll-offs being brought in for an earlier
re-weight.
Report# 03/04 - 1 (Dated August 26, 2003) Page 17
System does not establish a cash record on some dual payment collections
When the so lid waste accounting system sees a dual payment type fro m credit card and cash,
the system does not record a specific amount as cash received in the data file. On review of
data file records, it became apparent the system had no informat ion in the cash paid field
even though it properly displays the cash received amount.
The data record for this kind of transact ion should actually record a cash paid field as well as
a credit card paid field. The structure of this data should stand on its own. The data retained
can then be used more fully when accessed by various reporting so ftware.
This recommendation has very litt le impact on current operations. It is so lely to assist in the
development of the underlying data-file for use in reporting and audit activit ies.
Information Technology personnel should consider changes to the software system to
record this dual payment data in appropriate data fields.
Certain attendant inputs can push daily activity out-of-balance
A ticket entry was identified that threw out of balance the overall transact ion. The specific
situation goes as follows:
· An inbound t icket is established for a cash customer with a $10 rebate for a properly
covered vehicle.
· On leaving and after outbound weight entry, the customer identifies themselves as a
charge customer.
· The attendant will change the customer number from cash customer to the specific
credit customer account.
The ticket in these circumstances is showing a $10 refund to the customer. In actualit y, no
mo ney has changed hands.
Charge customers should not show any cash returned. The software should properly handle
this and limit its occurrence.
It appears the $10 refund shows up since the $10 rebate has been recorded already as a cash
transaction. In the specific situat ion, the attendant should have seen a cash overage by the
amount the computer thinks should have been returned to owner. An observant attendant or
office staff can correct this. The specific deposit observed indicated the attendants balanced.
However, the attendants were actually short by $10.
Information Technology personnel should review the software system to correct this
problem.
Report# 03/04 - 1 (Dated August 26, 2003) Page 18
Additional Software Improvements Suggested
Proposed recommendat ions included in prior sections of the report suggesting so ftware
improvements include:
Management should request improvements to its accounts receivable reports so they
can be ran as of a specific date. In addition, the software for aging of the reports
should be reviewed since it appears amounts are being improperly aged. Other reports
and queries might be improved by being date sensitive. Staff should work with the
County’s Information Technology Department to make improvements to the reports
and test their accuracy.
An accounts receivable report should be developed to indicate the application of each
payment by customer.
A new report should be developed to identify all new, modified or closed credit
customers between certain dates.
A new report should be developed to identify all credits, adjustments, and write-offs
posted to customers between certain dates.
Some solid waste departments review credit customer activity to establish security
deposits. In addition, the County software system could be utilized to limit activity to a
pre-established level to limit credit risk.
The system should require attendant initials and password on entering manual
overrides. The software could also collect the explanation on the override. The
software system should indicate whether the weight overridden is the inbound and/or
outbound weight.
5. ISSUES REQUIREING ADDITIONAL STUDY
Trucks transporting transfer site waste might exceed legal weight limits
Analysis of truck weights coming into the landfill indicated some weights exceeded the
standard 80,000-pound legal limit. Without knowing the specifics of each truck and trailer,
it is difficult to assess if the trucks did not fall into other categories with higher weight
limits. The majorit y of the excess weights ident ified over 80,000 pounds were fro m
transports from Count y transfer sites. Nearly one in four of the transfer site hauls were over
80,000 pounds.
Analysis and evaluation of truck weights to legal limits is outside the objectives of this
audit. Therefore, management should evaluate whether these trucks are overweight. The
State assesses fines to overweight loads. The fines are possibly the responsibility of the
contracted garbage hauler. The County might face some indirect exposure to fines
Report# 03/04 - 1 (Dated August 26, 2003) Page 19
arising from the contracted hauling of these loads. The County, however, should be
mindful of ways to reduce the number of potential overweight loads on State and County
roads. Management might want to have attendants notify customers who bring in heavy
loads.
Alfalfa transfer site activity is significantly lower than other transfer sites
Analyses of revenues indicates the Alfalfa site has significant ly less act ivit y than the next
largest transfer site. Garbage service for househo ld waste is available to residents in the
immediate area. Discussio n with the site attendant indicated they are seeing much less
househo ld waste at the site.
Transfer sites were established to collect househo ld waste and yard debris as well as provide
recycling opportunit ies.
Twelve-month revenues are around $8,000 whereas direct operating expenses are around
$16,500. These expenses do not include the addit ional costs of land-filling the waste.
Revenues exceed operating expenses for all other transfer sites.
Evaluation of the performance and/or usefulness of specific transfer sites is outside the
scope of this audit. Management should evaluate the need for this transfer site as it
relates to providing overall Countywide services.
6. REPONSE FROM MANAGEMENT
SOLID WASTE DEPARTMENT
RESPONSE TO EVALUATION OF INTERNAL CONTROLS OVER SERVICE FEES
The Solid Waste Department is pleased to participate in this evaluat ion. We feel that the
process and informat ion result ing from this effort will improve the stabilit y and strength of
the department. As reflected in the report, this department processes a large amount of
transactions and data, and we do so with a minimal staff. We are pleased that the audit
showed no serious problems associated with our streamlined efforts.
This department is constant ly scrut inized for efficiency and cost. Many co mpanies in the
private sector would like to provide disposal services to the County. Most recently, Idaho
Waste Systems submitted a proposal to the Board of County Co mmissio ners for such
services. Other proposals have been made in the past, and others will be made in the future.
The Solid Waste Department must provide a high level of service to our customers as well
as be as cost conscious and efficient as possible in order to remain co mpet itive. While we
generally agree with all the reco mmendat ions made in the report, implementation and its
timing must be done with this in mind.
Report# 03/04 - 1 (Dated August 26, 2003) Page 20
6. REPONSE FROM MANAGEMENT - continued
There are a number of reco mmendat ions regarding the software system. Over the next year,
we will be constructing new facilit ies at the landfill including scales, scale house, and
computer hardware and so ftware. Some of the software recommendat ions have been
implemented, others will be implemented on the exist ing system, and others will be
addressed with the installat ion of the new equipment. We are excited about the opportunit y
to structure our new system to efficient ly address all the concerns of this t ype in the report.
I offer the fo llowing comments on specific reco mmendat ions. We are in agreement with
any reco mmendat ions or portion of reco mmendat ions that are not specifically addressed.
Reco mmendat ion:
The office accountant should not direct ly receive customer payments. The office
assistant should open the mail and restrict ively endorse all checks received.
Comment:
Minimal staffing makes total separat ion of this duty difficult. During times o f illness
or vacation for the office assistant, we have litt le cho ice other than having the
accountant receiving those payments. Conversely, this is a very small period of time
over the course of a year that this happens.
Reco mmendat ion:
Management should remove and destroy all un-numbered receipts and use pre-
numbered receipts. Management should mo nitor the sequence and use of these
receipts.
Comment:
Pre-numbered receipts are now in use. It should be noted that the use of these
receipts at the landfill only happens during times when the computer system is down.
Normally, this is a relat ively small period of time. We expect the reliabilit y of our
system to be much improved with the construction of new facilit ies further reducing
the use of manual receipts.
Reco mmendat ion:
Management should ensure that all customers sign the latest version of the credit
applicat ion form.
Comment:
All new customers will sign the latest agreement and provide the specified securit y
deposit. Any o ld customers who are in default, have their accounts closed, and must
meet new requirements to reopen. The department will at times require more that the
minimum deposit, or at times will deny account status completely. We have even
restricted access to the landfill co mpletely in so me cases. These decisio ns are made
on a case by case basis. We feel it would be poor customer service to require long
standing customers who are always current to enter into a new agreement.
Report# 03/04 - 1 (Dated August 26, 2003) Page 21
6. REPONSE FROM MANAGEMENT - continued
It should be noted that we have an extremely low amount of bad debt for the amount
of accounts receivable that we carry.
Reco mmendat ion:
The computerized system should require the attendant’s init ials and password on
entering manual overrides. The system should also collect the explanat ion for the
overrides.
Comment:
We have found that it is relat ively easy for an attendant to come up with a plausible
reason for manual overrides whether it is legit imate or not. Forcing them to take the
time to enter init ials, password, and a meaningless reason will not provide the
securit y sought by this reco mmendat ion, but only slow the flow of traffic leading to
other problems. As an alternat ive, management reviews overrides regularly looking
for patterns and other indicators that might suggest an impropriet y. For instance if
we see a repeat of overrides for a specific customer, especially if occurs on one
attendants shift but not on another, we invest igate. We hope that our new system
will allows us to address this concern efficient ly such as hardware/so ftware that will
allow us to easily track activit ies of individual attendants.
Again, we appreciate the opportunit y to participate in this review, and to comment on the
findings.
Report# 03/04 - 1 (Dated August 26, 2003)
To: Audit Co mmittee
CC: Mike Daly, Tom DeWolf
From: David Givans, Count y Internal Auditor
Subject: Internal Audit Report on the Solid Waste Department (Report #03/04-1)
Date: August 26, 2003
The enclosed audit reports provide informat ion concerning the internal control structure of the
Solid Waste Department as they relate to handling of service fees. Informat ion contained in this
reports is from interviews, observations and analyt ical work performed.
Audit results have been discussed with the management personnel o f the Solid Waste
Department. Management’s full response is included at the end of this report and addresses
some of the findings.
The cooperation and assistance received fro m the Solid Waste Department in conducting 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