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HomeMy WebLinkAbout1617-5 Legal Counsel Cash Handling (Final 6-2-17)County Legal Counsel – Cash handling report #16/17-5 June 2017 County Legal Counsel – Cash handling To request this information in an alternate format, please call (541) 330-4674 or send email to David.Givans@Deschutes.org Deschutes County, Oregon David Givans, CPA, CIA, CGMA Deschutes County Internal Auditor PO Box 6005 1300 NW Wall St, Suite 200 Bend, OR 97708-6005 (541) 330-4674 David.Givans@Deschutes.org Audit committee: Lindsey Lombard, Chair - Public member John Barnett - Public member Tom Linhares - Public member Daryl Parrish - Public member Michael Shadrach - Public member Wayne Yeatman - Public member Anthony DeBone, County Commissioner Nancy Blankenship, County Clerk Dan Despotopulos, Fair & Expo Director County Legal Counsel – Cash handling report #16/17-5 June 2017 {This page left blank} County Legal Counsel – Cash handling report #16/17-5 June 2017 TABLE OF CONTENTS: EXECUTIVE SUMMARY 1. INTRODUCTION 1.1. Background on Audit …………..………………………………………...…… 1 1.2. Objectives and Scope ………………….………………………………..…… 1 1.3. Methodology ………………………………………………………………….1-2 2. BACKGROUND …………………………………………………………………... 2 3. FINDINGS 3.1. Fiscal observations ………………………..…………………………..…… 3-6 4. MANAGEMENT RESPONSE 4.1. County Legal Counsel ………………………………………………….. 6-8 County Legal Counsel – Cash handling report #16/17-5 June 2017 Executive Summary Recommendations include  documenting the reimbursement process handled by Finance for the legal imprest checking account;  establishing a clearing account process for outstanding checks;  sharing bank account information and reconciliation;  utilizing new County accounting system to bill and record collection of fees, services and reimbursements;  obtaining a proper receipt book if they will receipt monies manually;  having a supervisor periodically compare receipts to deposit activity and reviewing for any billing adjustments;  eliminating its petty cash fund; and  immediately receipting and depositing monies received in 24 hours. County Legal Counsel– Cash handling As with many departments undergoing cash handling reviews, a number of recommendations were developed to assist County Legal Counsel comply with County policy or prudent business practices. The focus of the review was on internal control over handling of external customer payments, petty cash and imprest checking. There is not very much activity in the imprest accounts and virtually all monies received are paid by check. What was found Legal Counsel and Finance have identified some improvements to streamline the current checking account reconciliation, balance and reimbursement status. Legal counsel periodically invoices for fees, services and reimbursement of costs. However, they do not have an accounting system to track what has been billed, what payments have been received, and what is outstanding. They could benefit from the County’s new accounting system, which will support centralized record keeping and oversight. Legal Counsel has $50 in petty cash that is used infrequently, since they have an imprest checking account and a credit card. Observations indicated they did not comply with County policy and prudent practices. Some cash collections had been retained with petty cash and not deposited. Legal counsel decided, after this audit was started, to close out their petty cash fund. Deschutes County Internal Audit County Legal Counsel – Cash handling report #16/17-5 June 2017 Page 1 of 8 1. Introduction 1.1 BACKGROUND ON AUDIT Audit Authority: The Deschutes County Audit Committee authorized the review of cash handling practices of Legal Counsel in the Internal Audit Program Work Plan for 16/17. Internal audits of cash handling are routinely performed for identified departments. 1.2 OBJECTIVES and SCOPE Objectives: The audit objectives include: 1) Review of internal controls for cash handling with County Legal Counsel as outlined in Finance policy for cash handling (F-11). 2) Review management of checking accounts, petty cash, and billings. 3) Be aware of any issues with compliance with federal and state regulations and requirements, as may be applicable. Scope: The focus of the review was on internal control over handlin g of third party customer payments, petty cash and imprest checking at County Legal Counsel in effect for March/April 2017. County Legal Counsel receives fees/costs from third parties. A majority of Legal’s revenues are internal service charges. Audit work was completed primarily in the March through April 2017 period. County Legal Counsel has petty cash and an imprest checking account. Legal Counsel accounts for its activity in Fund 640; however, they do receive payment on behalf of County departments. The scope of the audit did not include all aspects of internal controls employed. 1.3 METHODOLOGY Audit procedures included:  Observing and interviewing staff related to cash handling procedures,  Reviewing written procedures and documents provided,  Reviewing and analyzing receipt transaction data for the identified fund,  Reviewing and analyzing revenue and expenditure data for the identified fund, and  Reviewing for the number of days between receipt and deposit of payments. We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide DESCHUTES COUNTY INTERNAL AUDIT REPORT DESCHUTES COUNTY INTERNAL AUDIT REPORT DESCHUTES COUNTY INTERNAL AUDIT REPORT County Legal Counsel – Cash handling report #16/17-5 June 2017 Page 2 of 8 a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. (2011 Revision of Government Auditing Standards, issued by the Comptroller General of the United States.) 2. Background Graph I Trend in Legal Counsel Internal Service Charges (in thousands) County Legal Counsel provides legal services to the Board of County Commissioners, Administration and County departments. Their fees for services based upon the historical level of services provided. County Legal Counsel internal service charges to departments have been consistent over the past three years. County Legal Counsel has six staff members comprised of four attorneys and two paralegals. Legal Counsel has petty cash of $50 and an imprest checking account of $2,500 that are used primarily to pay for subpoenas and other court costs for County departments. Legal Counsel is reimbursed for the services it provides to County departments. 3. Findings No significant deficiencies were found in this audit. A significant deficiency is defined as an internal control deficiency that could adversely affect the entity’s ability to initiate, record, process, and report fi nancial data consistent with the assertions of management in the financial statements. The findings noted were primarily compliance and efficiency matters. Audit findings result from incidents of non-compliance with stated procedures and/or departures from prudent operation. The findings are, by nature, subjective. The audit disclosed certain policies, procedures and practices that could be improved. The audit was neither designed nor intended to be a detailed study of every County Legal Counsel – Cash handling report #16/17-5 June 2017 Page 3 of 8 relevant system, procedure or transaction. Accordingly, the opportunities for improvement presented in the report may not be all-inclusive of areas where improvement may be needed and does not replace efforts needed to design an effective system of internal control. 3.1 FISCAL OBSERVATIONS Table I Legal Counsel imprest check payment activity trends. (by calendar year) Improvements for imprest checking account handling identified. Legal Counsel and Finance have identified some improvements regarding the current checking account reconciliation, balance and reimbursement status. The imprest checking account is authorized by County resolution to have a balance of $2,500. The current register balance was this amount less uncleared checks. improvements identified include:  Legal Counsel will communicate to Finance, in a timely manner, any checks voided.  Legal Counsel will copy Finance on all invoices submitted to departments for reimbursement.  Finance will process a reimbursement when checks clear the account. Legal Counsel provides Finance an accounting of checks as listed in its check register. Departments are invoiced in the fiscal period incurred. Finance provides to Legal Counsel the monthly bank reconciliation showing current checking account balance, list of all outstanding checks, and a copy of the bank statement. Finance processes a reimbursement when checks clear the account. Finance can more efficiently comply with IRS requirements than departments on disbursement activity. They discourage larger disbursements (> $600) as those may trigger tax information reporting. The checking account is primarily used to pay litigation costs on behalf of other County departments. 2013 2014 2015 2016 Amount of checks $ 2,149 $ 1,163 $ 1,729 $ 1,026 Number of checks issued 63 23 26 13 Average check amount $ 33 $ 51 $ 66 $ 79 Use of the checking account has declined over the last four years. Legal Counsel also uses a department credit card to pay certain expenses. County Legal Counsel – Cash handling report #16/17-5 June 2017 Page 4 of 8 A lack of continuity in handling this account and the process for communicating the clearing of checks has resulted in some difficulty in reconciling the account. Finance is responsible for IRS tax information reporting requirement for payments it makes to vendors. Legal Counsel is responsible for IRS tax information reporting requirements for pa yments made from its imprest checking account. Payments to a payer over $600 may trigger issuance of IRS Form 1099. A Form W -9 is used to collect relevant information data for the reporting and is to be collected before issuance of a check. It is recommended for Finance and Legal Counsel  to document the reimbursement process handled by Finance for the legal imprest checking account;  to work through the details of establishing a clearing account for outstanding checks;  to identify and track those checks that are outstanding; and  to share a copy of the monthly bank statement and checking account reconciliation, current book balance of the checking account, and listing of all outstanding checks. It is recommended Legal Counsel not use the imprest checking account for disbursements in excess of $600. Legal Counsel should collect W-9’s for all payers consistent with the County’s policies and practices in case they will have to perform tax information reporting. Billing improvements identified. Legal counsel periodically invoices for fees, services and reimbursement of costs. However, they do not have an accounting system to track what has been billed, what payments have been received, and what is outstanding. The billing invoices are currently filed by case, which makes it difficult to aggregate or monitor the activity. There is no current oversight by a supervisor of monies received and deposited. Legal’s current receipt book does not comply with County policy (P-1999-075). The receipts are not imprinted with the County’s name and department. The County is currently implementing a new accounting system (Tyler Munis) that can be used to invoice fees, services and reimbursable costs. This will also provide information on the nature and amount of those fees and will allow payments to be receipted into the County’s financial system in Finance. This will eliminate the need for small departments (such as Legal Counsel) to develop procedures for handling payments. Someone separate from the billing and collection process (usually a supervisor) should periodically reconcile activity to records of deposit and any billing adjustments. County Legal Counsel – Cash handling report #16/17-5 June 2017 Page 5 of 8 County policy (P-1999-075) for invoicing, recording, collection and turnovers indicates that a pre-numbered receipt book should be imprinted with the County’s name and department. In the absence of an accounting system and segregation of duties, it is difficult to know whether all items have been properly billed and collected. It is recommended for County Legal Counsel to utilize the new County accounting system to bill and record collection of fees, services and reimbursements. It is recommended for County Legal Counsel to have a receipt book that complies with County policy if they will receipt monies manually. {Tyler Munis eliminates the need for a receipt book.} It is recommended for a supervisor to periodically compare receipts to deposit activity and review for any billing adjustments. Current petty cash operation out of compliance with County policy. Legal Counsel has petty cash that is used infrequently, since they have an imprest checking account and a credit card. Issues identified with the handling of these monies include:  Petty cash has not been reconciled in several years and was short by 61 cents. Staff did not know the authorized amount and the authorizing County resolution could not be located. The $50 was identified in the written procedures.  Un-reimbursed expenses dated back to 2011.  Some cash collections were being kept with petty cash that had not been receipted. Legal Counsel does not have a pre-numbered receipt book that follows policy. The cash collections appeared to have been short by $5 dollars.  Access to petty cash was not limited to one custodian.  The limited written procedures lacked much detail and did not reference County policy F -8. In order for the internal controls to work effectively, they need to be monitored periodically and designed to handle the types of transactions encountered. County policy No F-8 (Petty Cash) indicates safeguarding practices as well as replenishing petty cash should not be completed less frequently than quarterly. County policy No F-11 Cash Handling Practices policy states that monies received should be deposited within 24 hours of receipt. Pre-numbered receipts are to be provided. County Legal Counsel – Cash handling report #16/17-5 June 2017 Page 6 of 8 Legal Counsel has since closed out its petty cash account by depositing the balance with Finance to the County’s general account. It is recommended Legal Counsel eliminate its petty cash fund. {Completed} It is recommended for all monies received by Legal Counsel be immediately receipted (with a county approved pre-numbered receipt book or through Tyler Munis) and deposited in 24 hours in accordance with County policy. 4. Management Response – David Doyle, County Legal Counsel To: David Givans, County Internal Auditor From: David Doyle, Legal Counsel Date: 5/31/2017 Re: Management’s response to Legal audit report 16/17-5 Dear Mr. Givans, We appreciate the work performed in auditing Legal’s cash handling. W e are in agreement with all of the recommendations. It is recommended for Finance and Legal Counsel • to document the reimbursement process handled by Finance for the legal imprest checking account; County Legal Counsel – Cash handling report #16/17-5 June 2017 Page 7 of 8 Management response – continued • to work through the details of establishing a clearing account for outstanding checks; • to identify and track those checks that are outstanding; and • to share a copy of the monthly bank statement and checking account reconciliation, current book balance of the checking account, and listing of all outstanding checks. a) Management position concerning recommendation: Concurs b) Comments: None c) Estimated date of corrective action: Expect completion by July 2017 It is recommended Legal Counsel not use the imprest checking account for disbursements in excess of $600. Legal Counsel should collect W-9’s for all payers consistent with the County’s policies and practices in case they will have to perform tax information reporting. a) Management position concerning recommendation: Concurs b) Comments: None c) Estimated date of corrective action: Expect completion by July 2017 It is recommended for County Legal Counsel to utilize the new County accounting system to bill and record collection of fees, services and reimbursements. a) Management position concerning recommendation: Concurs b) Comments: Legal will utilize Tyler Munis processes as soon as available. c) Estimated date of corrective action: Expect completion by July 2017 It is recommended for County Legal Counsel to have a receipt book that complies with County policy if they will receipt monies manually. {Tyler Munis eliminates the need for a receipt book.} a) Management position concerning recommendation: Concurs b) Comments: Legal will utilize Tyler Munis processes as soon as available. c) Estimated date of corrective action: Expect completion by July 2017 It is recommended for a supervisor to periodically compare receipts to deposit activity and review for any billing adjustments. a) Management position concerning recommendation: Concurs b) Comments: None County Legal Counsel – Cash handling report #16/17-5 June 2017 Page 8 of 8 Management response - continued c) Estimated date of corrective action: Expect completion by July 2017 It is recommended Legal Counsel eliminate its petty cash fund. a) Management position concerning recommendation: Concurs b) Comments: As you have noted, the petty cash fund has been closed. c) Estimated date of corrective action: Completed It is recommended for all monies received by Legal Counsel be immediately receipted (with a county approved pre-numbered receipt book or through Tyler Munis) and deposited in 24 hours in accordance with County policy. a) Management position concerning recommendation: Concurs b) Comments: None c) Estimated date of corrective action: Expect completion by July 2017 {End of Report} Please take a survey on this report by clicking on the attached link: https://www.surveymonkey.com/r/County_Counsel_Cash_1617-5