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HomeMy WebLinkAbout1819-6 Road Department - Cash Handling (Final 4-8-2019)Road Department – Cash handling report #1819-6 April 2019 Road Department – 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 County Internal Auditor 1300 NW Wall St Bend, OR 97703 Audit committee: Daryl Parrish, Chair - Public member Tom Linhares - Public member Lindsey Lombard – Public member Wayne Yeatman - Public member Patti Adair, County Commissioner Nancy Blankenship, County Clerk James Lewis, Property Manager Click here to take a survey on this report Road Department – Cash handling report #1819-6 April 2019 TABLE OF CONTENTS: HIGHLIGHTS 1. INTRODUCTION 1.1. Background on Audit …………..……………..……………………………………………. 1 1.2. Objectives and Scope ……………….……..…………….…………….…………………… 1 1.3. Methodology …………………………………….………….…………………………..…… 1-2 1.4. Background on Road Department ……………….……….………….…………… 2-3 2. FINDINGS and OBSERVATIONS 2.1. Fiscal and efficiency observations ……....………………………..…………….… 4-8 2.2. County actions required …………………………………………………………..………. 8 3. MANAGEMENT RESPONSE 3.1. Road Department ……………….…………………………..…………………...... 9-10 3.2. Finance Department ……………………………………………………………..…... 11 Road Department – Cash handling report #1819-6 April 2019 HIGHLIGHTS Why this audit was performed: A periodic review of internal controls over revenues. What was recommended: Recommendations include: • developing additional safeguarding procedures over change monies; • securing prepared deposits in tamperproof bags; • depositing Clerk’s Office monies and transferring those monies to the Clerk’s Office; • updating written procedures over handling of monies; and • closing out the checking account. Road Department– Cash Handling The focus of the review was on internal control over handling of external customer payments. What was found Overall, the Department performed well in providing fiscal controls over collected revenues. Recommendations were developed to assist the Road Department comply with County policy or prudent business practices for cash handling. The audit identified the following areas for further improvement, including • additional controls to safeguard and provide accountability for change monies; • methods to provide greater safekeeping of monies through to deposit; • providing greater safekeeping over monies received for another department; and • improving and updating written policies over handling of monies. In addition, the departments has been evaluating whether they still need a checking account. The department has now been able to use procurement cards and a quicker county disbursement process to more effectively handle their immediate purchase needs. They have decided they will no longer need the checking account. Removing the checking account eliminates some administrative burdens and custodianship. Deschutes County Internal Audit Road Department – Cash handling report #1819-6 April 2019 Page 1 1. Introduction 1.1 BACKGROUND ON AUDIT Audit Authority: The Deschutes County Audit Committee authorized the review of cash handling practices of the Road Department in the Internal Audit Program Work Plan for 2017-2019. Internal audits of cash handling are routinely performed for identified County departments. 1.2 OBJECTIVES and SCOPE “Audit objectives” define the goals of the audit. Objectives included: 1) Review of internal controls for cash handling with the Department as outlined in County Finance policy for cash handling (F-11). Identify areas for improvement. 2) Review management of any checking accounts, change cash, and billings. 3) Be aware of any issues with compliance with federal and state regulations and requirements, as may be applicable. Scope and timing: The audit commenced in February 2019 and extended through March 2019. Included in review of cash handling of the Road Department are accounting funds handled which include Funds 325, 326, 327, 328, 329, and 336. The focus of the review was on internal control over handling of third party customer payments. Road does not have a petty cash fund. 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, Road Department – Cash handling report #1819-6 April 2019 Page 2 “Audit procedures are created to address the audit objectives” • Reviewing and analyzing receipt transaction data for the identified funds, • Reviewing and analyzing revenue data for the identified funds, • Reviewing for the number of days between receipt and deposit of payments, • Interviewed and observed staff on practices and procedures regarding receipting and billing activities, and • Reviewed user accounting system roles and security over cash handling and billings. 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 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.) 1.4 BACKGROUND ON ROAD DEPARTMENT Deschutes County Road Department is responsible for the development, operation, and maintenance of the County road system, consisting of 900 miles of roadway, of which 700 miles are paved. The department also handles some administrative tasks for the County Forester (natural resources department). The Road Department includes fifty-six (56) full time equivalent employees as of their most recent budget (18/19). A majority of the Department’s revenues (90%) are derived from intergovernmental resources (see Chart I). These resources are primarily motor vehicle revenue. Road Department – Cash handling report #1819-6 April 2019 Page 3 CHART I – Composition of 2018 resources for the Road Department CHART II – Trend in primary resources by FY for the Road Department Source: County CAFR audited financial statements (Road) The overall resources of the Department have been trending upward with increased funding for the transportation system. Source: County CAFR audited financial statements (Road) Road Department – Cash handling report #1819-6 April 2019 Page 4 2. Findings and Observations The audit included limited procedures to understand the systems of internal control around revenues. 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 financial 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 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. 2.1 FISCAL AND EFFICIENCY OBSERVATIONS Overall, the Road Department performed well in providing fiscal controls over collected revenues. The following observations are noted to help further improve the procedures put into place. Overall, the Road Department performed well in providing fiscal controls over collected revenues. Additional controls could improve oversight over revenues. The Road Department processes for collecting monies are handled by two staff and are supervised by an administrative supervisor. During observations, a couple of areas were noted where additional controls or efficiencies could be achieved. • Security over change monies could be improved. The change box does not a have a working lock, other staff have access to make change, change is counted out monthly, and there is no specified custodian. Road Department – Cash handling report #1819-6 April 2019 Page 5 The department by resolution is approved to have change monies. Change is used to help customers pay the exact amount of fees. The department’s use of change funds parallels that of a cash register, except that they do not place more funds into the cash box. Change monies are supposed to remain the same amount regardless of receipts. All monies receipted are held separately for the deposit. The change monies are not always used daily. County Policy F-11 indicates for change funds that are held or are accessible by others that staff responsible should recount the monies at the beginning and ending of their shift. This would also include providing reasonable security and safekeeping of monies while they are unattended. Generally, other staff should not have unsupervised access to these monies as that puts the custodian’s responsibility at risk. Staff need to have access to change, but since the amounts do not change, they do not exercise the same level of safekeeping control as a cash register environment. If monies were not all present, staff would not know where and when the monies changed. It would also be problematic identifying with whom they changed. It is recommended change monies be used as when opening a cash register with a specified custodian; monies counted out at the beginning of the day; and monies recounted at the closing of the day. It is recommended the department have a locking change box with a specified custodian. • Safekeeping of deposits could be improved. Staff sometimes uses a plain unlocked bank bag for holding deposits. This provides only Road Department – Cash handling report #1819-6 April 2019 Page 6 limited accountability and security until deposited. These deposits are sometimes taken by other staff for deposit with the bank. Prepared deposits should be held in custody or protected from alteration if the custodian doesn't directly deposit the monies. Staff trust each other with sharing these banking duties. If there were differences identified in the bank deposit when duties are shared, it wouldn't be clear where any changes may have occurred. It is recommended for the safekeeping of prepared deposits that they be placed in a tamperproof bag overnight or if they will be handled by another person. • Handling of other department monies could be improved. Some transactions involve recording surveys and customers provide separate monies (at the time fees are collected) for also paying required recording fees with the County Clerk's Office. This is an efficient process for the customer and assures that the surveyor approved documents are recorded. However, the separate monies collected for the recording fees are often held beyond a day. These checks were not endorsed and were not provided sufficient safekeeping. County policy F-11 requires that monies be deposited with 24 hours. In discussing this with the Clerk's Office, they identified an efficient solution through use of an interfund transfer form that would provide a method to communicate and transfer fees collected and deposited to the Clerk’s Office. Road Department – Cash handling report #1819-6 April 2019 Page 7 Road had collected these monies for a different department but was reluctant to deposit until their services were performed and the documents were ready to be recorded. Monies received (primarily checks) for the Clerk’s Office are frequently held for more than 24 hours. It is recommended the Road department deposit the recording fees for the Clerk’s Office and then communicate the transfer of funds for the associated service using the Clerk’s Office provided transfer form. • Written policies need to be updated. The Road department has created written cash handling policy (2007-002) that has seen some changes in the way cash handling is performed. In addition, the procedures do not go into additional details relating to handling of billed customers. Communication is an essential component of internal controls. Accurate written policies and procedures are necessary for effective financial and accounting controls. The resulting documentation is also useful for training and cross-training staff. Billed customers have additional risks that should be explicitly addressed. The customer risk areas include creating new customers; making billing adjustments; and providing separation of duties for staff performing accounting and collections. The policy is mainly out of date for recent County financial software changes. Lack of current written procedures can lead to inadequately planned controls, inadequate supervision, poor and inadequate training and lack of adherence to stated control procedures. Road Department – Cash handling report #1819-6 April 2019 Page 8 It is recommended for the Road Department’s written procedures to be updated to reflect the current procedures and necessary controls. In addition, these procedures should include necessary safeguards over billed customers. {Finance has developed within the new financial system some additional workflow controls to provide greater visibility to billing activities and that provides greater oversight and control.} 2.2 COUNTY ACTIONS REQUIRED The department is now using procurement cards and no longer needs their own checking account. Checking account is no longer desired. The department has now been able to use procurement cards and a quicker county disbursement process to more effectively handle their immediate purchase needs. The department has discussed whether they will continue to need the checking account and has decided they will no longer need it. The Road Department’s checking account was authorized by the Board of County Commissioners and was last approved in 2004 (Resolution 2004-054) to increase the amount to $1,000. The Finance Departments through their responsibilities in Policy F-14 – General Financial policies has authority to manage and control all County bank accounts. Removing the checking account eliminates some administrative burdens and custodianship. It is recommended for the department and County Finance to close-out the Road Department checking account. Road Department – Cash handling report #1819-6 April 2019 Page 9 3. Management responses Road Department Chris Doty, Road Department Director and Kelli Candella, Administrative Supervisor Memorandum Date: April 5, 2019 To: David Givans, County Internal Auditor From: Kelli Candella, Administrative Supervisor Through: Chris Doty, Director Re: Subject Manager’s response to Audit report The following comments represent the Road Department’s management response to the above noted audit. Section 2.1: Additional Controls could improve oversight over revenues • We agree with the auditor’s comments and the following action will be initiated: o Locking cash box and locking box for checks received for deposit will be in place for cash handling. Road Department – Cash handling report #1819-6 April 2019 Page 10 o Updating the Cash Handling policy from 2007. • Currently department holds a check received payable to County Clerk, this may be held up to three days, until Plat is approved and ready for recording. We agree with the auditor’s comments and the following action will be taken: o Department will receive check, prepare a receipt for cash and deposit funds with the department’s daily deposit. Funds will be transferred to the Clerk’s Office through a transfer form provided by Clerk’s Office. • We agree with the auditor’s comments and the following action to improve the situation for cash handling procedures will take place: o Update the Cash Handling Practices Policy from 2007. Estimated date of corrective action: April 30, 2019. Section 2.2: Checking account no longer desired • We agree with the auditor’s comments and the following action will be taken: o The checking account closed, on April 4, 2019, all blank unused checks/deposit forms were destroyed by Beth Raguine and witnessed by Kelli Candella shred deposit slips. Notification sent to James Wood that all steps completed to close this account. Corrective action completed April 4, 2019. Road Department – Cash handling report #1819-6 April 2019 Page 11 County Finance Department Wayne Lowry, Finance Director Finance has received the request from the Road Department and has started the process of closing the account. {End of Report} Please take a survey on this report by clicking on the attached link: https://www.surveymonkey.com/r/Road_Dept_Cash_Handling_1819-6 If you would like to receive future reports and information from Internal Audit or know someone else who might like to receive our updates, sign up at http://bit.ly/DCInternalAudit.