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HomeMy WebLinkAbout2122-10 Admin_Risk - Cash Handling report (Final 5-25-22)Administrative Services and Risk Management – Cash handling report #2122-10 May 2022 Administrative Services & Risk Management – Cash Handling To request this information in an alternate format, please call (541) 330-4674 or send email to internal.audit@deschutescounty.gov Deschutes County, Oregon The Office of County Internal Audit David Givans, CPA, CIA – County Internal Auditor Aaron Kay – Performance Auditor internal.audit@deschutescounty.gov Audit committee: Daryl Parrish, Chair - Public Member Jodi Burch – Public Member Tom Linhares - Public Member Scott Reich - Public Member Summer Sears – Public Member Stan Turel - Public Member Patti Adair, County Commissioner Charles Fadeley, Justice of the Peace Lee Randall, Facilities Director Take a survey by clicking HERE Administrative Services and Risk Management – Cash handling report #2122-10 May 2022 TABLE OF CONTENTS: HIGHLIGHTS 1. BACKGROUND ON ADMINISTRATIVE SERVICES AND RISK MANAGEMENT 1.1. Background on the Audit .……………………………….……….………….…………… 1 1.2. Background on the Departments ……………………………………………..….. 1-2 2. FINDINGS and OBSERVATIONS 2.1. Observations ……….………………………..……………………………………………… 3-5 2.2. Other Considerations ……………………………………………………………………. 5-6 3. MANAGEMENT RESPONSE 3.1. Administrative Services, Risk Management, and Community Development Department ………………………………….…………………..…….. 7-8 A. APPENDIX A: OBJECTIVES, SCOPE, AND METHODOLOGY i. Objectives and Scope ….……..………….…………………………….………………….. 9 ii. Methodology …………………………………….………….…………………………….. 9-10 Administrative Services and Risk Management – Cash handling report #2122-10 May 2022 HIGHLIGHTS Why this audit was performed: A periodic review of internal controls over cash handling of receipts. What was recommended: Recommendations include:  centralizing check processing within Risk Management;  raising liquor license fees;  including liquor license fees on the County fee schedule; and  utilizing electronic systems to benefit OLCC applicants. Administrative Services & Risk Management– Cash Handling The focus of the review was on internal control over the handling of external customer payments. What was found Overall, the Administrative Services department and Risk Management performed well in providing fiscal control over receipts. Each currently handles limited customer payments. Recommendations were developed to assist the Administrative Services department and Risk Management comply with County policy or prudent business practices for cash handling. Also, identify areas of improvement such as fees being collected and how best to collect them. The audit identified the following areas for further improvement:  Risk Management’s handling of checks received by mail can be improved. Due to staff schedules, some checks are left unsecured and deposits are not made timely.  Current OLCC liquor license fee charges are insufficient to cover County costs. Fees are limited by Statute, but can be increased due to the complex application review process.  Restructuring the OLCC application review process to use existing electronic systems for workflow and payment to better serve the public. Workflow can be coordinated by the offices that perform the reviews and removed from departments with no review role. Deschutes County Internal Audit Administrative Services and Risk Management – Cash handling report #2122-10 May 2022 Page 1 1.1 BACKGROUND ON THE AUDIT 1. Introduction Audit Authority: The Deschutes County Audit Committee authorized the review of cash handling practices of Administrative Services and Risk Management in the Internal Audit Program Work Plan for 2022- 2023. Internal audits of cash handling are routinely performed for identified County departments. Audit objectives, scope, and methodology can be found in Appendix A. 1.2 BACKGROUND ON ADMINISTRATIVE SERVICES AND RISK MANAGEMENT Graph I Revenue composition for Administrative Services Fund 625 (FY 22 budget) The Administrative Services department provides general oversight and direction, both in terms of planning for the County’s long-term financial and organizational health and managing the day-to- day operations of one of Central Oregon’s largest employers. Administrative Services also provides oversight of the video lottery, economic development, Humane Society of Redmond, special transportation fund and Taylor grazing funds. The majority of revenues are from internal service fund charges due to the nature and scope of administrative functions for all county departments. Payments, from external customers, fall into the other categories and accounts for less than 1% of the overall budget. They are mainly from OLCC liquor license application fees and notary fees. Administrative Services and Risk Management – Cash handling report #2122-10 May 2022 Page 2 Graph II Revenue composition for Risk Management Fund 670 (FY 22 Budget) Risk Management administers the County’s self-insurance program for workers’ compensation, unemployment, general liability (for claims up to $1 million), and vehicle liability. Additionally, administration of insurance programs relative to property, building, volunteers, public officials’ bonds, and excess workers’ compensation is also handled by this department. Risk Management revenues are from internal service charges paid by departments. Payments, from external customers, fall into the claim reimbursement and event fees accounting for 1% of the overall budget. The skidcar program was not in operation due to the COVID-19 pandemic. 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 Administrative Services and Risk Management – Cash handling report #2122-10 May 2022 Page 3 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. Management has responsibility for the system of internal controls, including monitoring internal controls on an ongoing basis to ensure that any weaknesses or non-compliance are promptly identified and corrected. Internal controls provide reasonable but not absolute assurance that an organization’s goals and objectives will be achieved. Administrative Services and Risk Management don’t frequently receive customer payments. 2.1 OBSERVATIONS Overall, the Administrative Services department and Risk Management performed well in providing fiscal controls over collected revenues. The following observations are noted to help further improve the procedures put into place. Additional controls could improve oversight over mailed in checks. Risk Management receives claim reimbursement checks in the mail. A couple of areas were noted where additional procedures could be beneficial.  Mailed in checks are left unsecured and deposits delayed. The Risk Management staff person’s schedule does not allow for daily deposits. They make their deposits when they are in the office. Checks assigned to that person come infrequently, but may be up to several thousand dollars. Undeposited checks, in the meantime, are not secured. The County’s cash handling policy (F-11) indicates that all cash, including checks, is safe and secure at all times and that cash be deposited within 24 hours of receipt. Administrative Services and Risk Management – Cash handling report #2122-10 May 2022 Page 4 Example Endorsement  Department not endorsing checks on receipt. Reimbursement checks were not endorsed by the staff when received, but by the Finance department when received from Risk Management staff for deposit. Check endorsement identifies the County as owner and where the monies will be deposited. County policy (F-11) directs staff to immediately endorse checks received with a county bank depository stamp. It is recommended Risk Management centralize the process for receiving checks by mail to ensure security of funds, daily deposits, and immediate endorsement. As of the issuance of this report, Risk Management has implemented procedures to improve oversight over mailed in checks. County costs exceed County OLCC liquor license fees. The County currently collects a $25 fee for a basic review of initial or change in ownership OLCC application at the Administrative Services office. County staff (in various departments/offices) spend, on average, 2 hours per liquor license application review, with an approximate cost in the $150-200 range. Temporary and renewal applications have no fee. The OLCC fee has not been included in the County fee schedule since Fiscal Year 2011. The Oregon Liquor and Cannabis Commission (OLCC) requires all initial, temporary, renewing, or change in ownership liquor license applicants to obtain the recommendation of their local governing body. Initial, temporary, and change in ownership application reviews are done through the Sheriff’s Office, Environmental Health, and the Community Development Department (CDD). License renewals are only done at the Sheriff’s Office. OLCC uses these recommendations for consideration of the licensing decision. Administrative Services and Risk Management – Cash handling report #2122-10 May 2022 Page 5 Due to the complex application review process already in place, the statutory regulation ORS 471.166 (8) does allow the County to adopt a staggered fee schedule based on the type of application. The statute allows for a maximum of $100 for a new application, $75 for a change in ownership, and $35 for renewal or temporary applications. The statute outlines the process to seek higher fees. The County annually reviews all items on the fee schedule to verify inflation, cost increases, and competitive rates are evaluated. The OLCC fee has not received an evaluation due to its exclusion. It is recommended the County raise OLCC application fees to the maximum levels allowable in accordance with ORS 471.166 (8). Currently, the $25 fee is allocated to departments providing the services. CDD has included the fee in the proposed 2023 fee schedule. 2.2 OTHER CONSIDERATIONS County OLCC liquor license application review process can be restructured for public benefit. OLCC initial and change of ownership applications are coordinated through the Administrative Services office. The office currently administers the process, but does not review or make determinations on the application. The County does not use a centralized system to manage the application review process. All County OLCC liquor license application reviews occur at the Sheriff’s Office, Environmental Health, and/or CDD. Administrative Services staff are involved in routing applications to the Administrative Services and Risk Management – Cash handling report #2122-10 May 2022 Page 6 office/departments, collecting the fee, and allocating the revenue across the involved parties. OLCC initial and change of ownership applicants are currently required to pay by check or cash in person when they bring in their application. CDD, who provides four of the six review functions, indicated the importance of ensuring businesses are operating within County requirements during application review. Liquor license application reviews mitigate threats to public health, including food handling, unpermitted commercial sites, and exceeded occupancy limits for buildings. Additional payment methods are accepted at both the CDD and Sheriff’s Office. CDD has an existing system with the capability of accepting permit applications and payment online through Oregon ePermitting. The CDD system also manages the application review process with internal sign offs after review determinations. This ensures consistency in the review process before a recommendation is made, lowering the possibility of incomplete reviews. It is recommended the County revise the liquor license review process to utilize electronic systems for workflow and payment. It is suggested that CDD be the initial contact and utilize their electronic systems to coordinate with other departments. Administrative Services can be removed from the process entirely. Administrative Services and Risk Management – Cash handling report #2122-10 May 2022 Page 7 3. Management response Administrative Services and Risk Management Erik Kropp, Deputy County Administrator Community Development Department Peter Gutowsky, Director Date: May 20, 2022 To: Aaron Kay, Performance Auditor From: Erik Kropp, Deputy County Administrator Peter Gutowsky, CDD Director Re: Management Response to Cash Handling Audit Thank you for completing the “Administrative Services and Risk Management – Cash Handling” audit, report #2122-10. We appreciated your professionalism and approach to the audit. We concur with the findings and recommendations. Listed below is a response to each recommendation. 1. Risk Management’s handling of checks received by mail can be improved. Due to staff schedules, some checks are left unsecured and deposits are not made timely. Agree - recommendation has been implemented. Administrative Services and Risk Management – Cash handling report #2122-10 May 2022 Page 8 Management Responses (continued) 2. Current OLCC liquor license fee charges are insufficient to cover County costs. Fees are limited by Statute, but can be increased due to the complex review process. It is recommended the County raise OLCC application fees to the maximum levels allowable in accordance with ORS 471.166(8). The last recommendation is revised recommendation communicated via memo. Agree - the fees will be managed by CDD. The ORS requires two-separate steps to change liquor license fees (a public hearing to address licensing guidelines for OLCC application review by a local entity, then, separately adopting the associated processing fees). After step one, the fee will become part of the County’s annual fee schedule review. CDD will complete the first step before the next annual fee schedule review. Increased fees will be proposed no later than the next County annual fee schedule review (around May 2023). 3. Restructuring the OLCC application review process to use electronic systems for workflow and payment to better serve the public. Workflow can be coordinated by the offices that perform the reviews and removed from departments with no review role. Agree – CDD has already started working with departments on moving the OLCC application review process into CDD’s electronic workflow and payment system. Administrative Services and Risk Management – Cash handling report #2122-10 May 2022 Page 9 i. OBJECTIVES and SCOPE Appendix A: Objective, Scope, and Methodology “Audit objectives” define the goals of the audit. Objectives included: 1) Review of internal controls for cash handling as outlined in County Finance policy (F-11) for cash handling. Identify areas for improvement. Additionally, review management of any change, petty cash, checking accounts, and billings, as applicable. 2) 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 March 2022 and extended into April 2022. Included in review of cash handling of the Administrative Services and Risk Management departments are accounting funds primarily handled in Funds 625 and 670, respectively. Neither department employs change or petty cash, nor checking accounts. The focus of the review was on internal control over handling of third party customer payments. The scope of the audit did not include all aspects of the internal controls employed. ii. METHODOLOGY “Audit procedures are created to address the audit objectives” Audit procedures included:  Interviewing staff related to cash handling, receipting, and billing procedures (staff reviewed and answered the County’s cash handling checklist provided in the cash handling policy F-11),  Surveyed process owners to establish process significance and time to review applications,  Reviewing written procedures and documents provided,  Reviewing and analyzing receipt transaction data for the identified funds, and  Reviewing and analyzing revenue data for the identified funds. Administrative Services and Risk Management – Cash handling report #2122-10 May 2022 Page 10 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. (2018 Revision of Government Auditing Standards, issued by the Comptroller General of the United States.) The County Internal Auditor was created by the Deschutes County Code as an independent office conducting performance audits to provide information and recommendations for improvement. {End of Report} Please take a survey on this report by clicking on the attached link: https://www.surveymonkey.com/r/2122-10 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.