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HomeMy WebLinkAbout2122-13 Assessor - Cash Handling report (Final 6-30-22)Assessor’s Office – Cash handling report #2122-13 June 2022 Assessor’s Office 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 Assessor’s Office – Cash handling report #2122-13 June 2022 TABLE OF CONTENTS: HIGHLIGHTS 1. BACKGROUND ON ASSESSOR’S OFFICE 1.1. Background on the Audit .……………………………….……….………….…………… 1 1.2. Background on the Assessor’s Office ……………………………………………….. 1 2. FINDINGS and OBSERVATIONS 2.1. Observations ……….………………………..……………………………………………... 2-8 2.2. Additional Considerations …………………………………………………………... 8-10 3. MANAGEMENT RESPONSES Assessor’s Office ……….………………………………………………..……………..…….10-13 Finance ………………….………………………………………………………………………………13 A. APPENDIX A: OBJECTIVES, SCOPE, AND METHODOLOGY i. Objectives and Scope ………………….……..………….…………….………….…….. 14 ii. Methodology …………………………………….………….…………………………… 14-15 Assessor’s Office – Cash handling report #2122-13 June 2022 HIGHLIGHTS Why this audit was performed: A periodic review of internal controls over cash handling of receipts. What was recommended: Recommendations include:  consolidating cash handling to a single staff member;  receipting all payments when received;  consolidating reconciliation of revenues;  turning over revenues to Finance daily;  reviewing periodically receipts compared to amounts recorded by Finance; and  coordinating with Finance to reconcile and balance funds held in the fiduciary account. Assessor’s Office – Cash Handling The focus of the review was on internal control over the handling of external customer payments. What was found Overall, the Assessor’s Office performed well in providing fiscal controls over receipts. Recommendations were developed to assist the Assessor’s Office comply with County policy or prudent business practices for cash handling. The following areas were identified for further improvement, including:  Inconsistent system of controls over received monies for o Receipting payments o Reconciling revenues o Timing of revenue turnover to Finance o Segregation of duties o Duplicate cash drawer access  The Assessor’s Office did not recover funds held in a fiduciary account prior to issuing refunds. The fiduciary account has a balance of less than $1,000 and has not been reconciled.  Follow-up needed for the system of processing accounting adjustments for certain refunds. There is no timely follow-up process for requested journal entries. Deschutes County Internal Audit Assessor’s Office – Cash handling report #2122-13 June 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 the Assessor’s Office in the Internal Audit Program Work Plan for 2022-2023. Internal audits of cash handling are routinely performed for identified County offices/ departments. Audit objectives, scope, and methodology can be found in Appendix A. 1.2 BACKGROUND ON ASSESSOR’S OFFICE Graph I 3 yr. trend for funding sources other than General Fund (FY19-21 Actual) The Assessor’s Office, working under the direction of the Deschutes County Assessor, an elected official, is responsible for determining the real market and assessed value of all property in Deschutes County. The Assessor’s Office is also responsible for calculating property taxes on behalf of over 60 separate districts and entities. FY 2021 funding for the Assessor’s Office comes primarily from the County’s General Fund (approx. 64%); State grant (34%); and the sale of maps, transfer of titles, and moving permits for manufactured homes, and miscellaneous fees (2%). The State funds are a matching grant from Oregon Department of Revenue. As County resources that are appropriated to the Assessor’s Office increase or decrease, state grant funds adjust proportionately. Assessor’s Office – Cash handling report #2122-13 June 2022 Page 2 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. 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. 2.1 OBSERVATIONS Overall, the Assessor’s Office performed well in providing fiscal controls over collected revenues. Each office/department in the County has unique work environments. The following observations and recommendations are tailored to the Assessor’s Office with consideration to staffing levels, business demands, and operational challenges and are intended to further improve the procedures put into place. Assessor’s Office – Cash handling report #2122-13 June 2022 Page 3 Diagram I Independent cash handling processes identified Inconsistent system of controls over received monies. The Assessor’s Office handles monies from the sale of maps, sketches, copies, or miscellaneous fees (counter payments), and transfer of titles and moving permits for manufactured homes (manufactured home payments). Received monies are turned over to the Finance Department in lieu of a bank deposit. During review and discussion of the Office’s cash handling processes, inconsistent controls were noted in a few areas.  The Assessor’s Office provides inconsistent receipting of monies There are three separate approaches used to receipt monies between two staff members, staff A and staff B, for our purposes. 1. Staff A manually receipts counter payments and funds are held in a locked cash drawer. 2. Staff B turns cash manufactured home payments over to Finance immediately and monies are receipted by Finance. 3. Manufactured home payments made by check are not receipted when received, but are held in the cash drawer for safekeeping. They are turned over by staff B after the paperwork has been internally processed and are receipted by Finance. Staff A is not involved in this process. Assessor’s Office – Cash handling report #2122-13 June 2022 Page 4 Diagram II Receipting observations with identified control deviation Internal controls must be applied consistently in order to be effective. Internal controls must be applied consistently in order to be effective and designed to handle the types of transactions encountered. Receipts should be provided in all cases that monies are received. The County’s cash handling policy (F-11) indicates receipting controls should be in place over the amount of funds received over the course of the day. The independent processes occurring for each type of transaction create difficulty in tracing daily revenues collected. This provides an opportunity to conceal theft/fraud, although no indication of fraudulent acts was detected. It is recommended cash handling duties be consolidated to a single custodian staff member to improve tracing of revenues collected. It is recommended the Assessor’s Office issue receipts for each type of payment received.  The Assessor’s Office provides an inconsistent reconciliation of revenues The Office’s cash handling procedures for counter payments requires a secondary staff person to have a key to the cash drawer, independently access the drawer, reconcile monies received, then separate all revenue monies to prepare for being turned over to Finance. They exclude any manufactured home payments held in the cash drawer from the above procedures due to being handled by separate staff without similar oversight. Assessor’s Office – Cash handling report #2122-13 June 2022 Page 5 Diagram III Reconciliation observation with identified control deviation Monies, as they move from one staff person to another, should be jointly recounted. This assures the monies are agreed to and there is no disagreement. The County’s cash handling policy (F-11) indicates that there should be adequate accountability for the movement of funds between people. In the absence of this accountability, if a discrepancy occurred, it would be a matter of each staff person’s opinion. It is recommended to consolidate current revenue reconciliation activities under the custodian staff member and reflect the change in the procedures.  The Assessor’s Office provides inconsistent timing of turnover to Finance Counter payments are prepared and turned over weekly to Finance unless monies exceed $25, then turnover is initiated earlier. As noted earlier, cash manufactured home payments are turned over immediately. Check payments are turned over after the paperwork has been internally processed. The County allocates a portion of the revenue from manufactured home payment to the State. State payments are reconciled and made each week. These timing constraints for processing and payment may create additional delays in turnover to Finance. Assessor’s Office – Cash handling report #2122-13 June 2022 Page 6 Diagram IV Timing of turnover observation with identified control deviation Funds carried over daily increases the potential for errors or irregularities to occur. Diagram V Segregation of duties observation with identified control deviation The County’s cash handling policy (F-11) requires turnover of checks, drafts, cash and other types of payments to the Finance Department within 24 hours of receipt. Funds carried over daily increases the potential for errors or irregularities to occur. It is recommended the custodian staff member turnover funds daily. The Assessor’s Office could seek exemption from Finance for delayed turnover to complete application processing.  The Assessor’s Office provides inconsistent segregation of duties For the counter payments described above, independent reconciliation is in place, but no oversight occurs after monies are turned over to Finance. The current process does not provide a comparison of monies turned over to the monies received by staff. Assessor’s Office – Cash handling report #2122-13 June 2022 Page 7 Diagram VI Cash drawer access observation with identified control deviation Staff duties should be sufficiently segregated so no one-person is responsible for authorizing transactions, processing and recording them, reviewing the transactions, and handling any related assets. An employee’s responsibility for more than two of the following functions is considered mutually incompatible: record keeping, authorization, and custody. Segregation of duties reduces the chance of fraud by segregating duties that would allow someone to conceal irregularities. It is recommended a separate staff member, with no custodial responsibilities, periodically review and verify turnover activity between the receipt book and amounts recorded by Finance.  The Assessor’s Office provides duplicate cash drawer access The Office’s cash handling procedures identify two customer service staff members having keys to the locked cash drawer. The County’s cash handling policy (F-11) restricts access to cash to only the custodian. Assignment of a secondary custodian to provide adequate coverage in the primary’s absence is acceptable, however, they should only possess the duplicate key for the duration of the absence. Assessor’s Office – Cash handling report #2122-13 June 2022 Page 8 In the absence of this control, it is possible if monies are missing, there could be disagreement on the cause. It is recommended the procedures be revised and the duplicate cash drawer keys be secured sufficiently by a supervisor until needed. 2.2 ADDITIONAL CONSIDERATIONS Fiduciary accounts hold funds until they are transferred to another account when you cannot move the money directly. Accounting procedures for refunds could be improved. The Assessor’s Office rarely issues refunds. They issued the following noted refunds from accounts other than originally recorded. As described below, this affected the proper accounting for certain accounts.  The Assessor’s Office did not recover funds held in a fiduciary account prior to refund There were two refunds issued in November 2021 totaling $240 for manufactured home title transfer fees. Refunds are issued when the transfer documents are incomplete/incorrect. Refunds occur infrequently, with approximately 4 per year out of over 300 transactions. When mobile structure ownership transfer fees are received, they are split between the County and the State of Oregon Department of Consumer and Business Services. Funds allocated to the State are placed in a fiduciary account to hold monies until they can be disbursed. The noted refunds did not recover the monies from the fiduciary account. This account has a balance of less than $1,000 and due to lack of timely reconciliation of the account balance, these amounts no longer reflect the amounts owing to the State. Fiduciary accounts are established to separately account for activities that do not belong to the County. The monies collected on behalf of the state are safeguarded and separately accounted Assessor’s Office – Cash handling report #2122-13 June 2022 Page 9 for here until they are disbursed. The Assessor’s Office accounts payable clerk was instructed to use an alternate account to process refunds and was unaware that ownership transfer fees were dispersed to multiple accounts. Accounts payable is not their primary job duty, and they were not trained thoroughly to understand the accounting system. It is recommended proper training on refunds is provided to employees tasked with these duties. It is recommended the Assessor’s Office coordinate with Finance in reconciling and balancing funds held in the fiduciary account. It is recommended for a supervisor or designee periodically review the fiduciary balance to see if the accounts are clearing as designed and identify adjustments required.  Follow-up needed for the system of processing accounting adjustments for certain refunds Refunds were issued in February 2021 and March 2022 for non-profit late filing fees from a revenue account different from the original transaction. Non-profit late filing fees are applied to property taxpayers wishing to apply for certain exemptions after April 1st under ORS 307.162. Those fees go directly to the General Fund. The Assessor’s office does not have accounting system access to revenue accounts directly tied to the General Fund. Due to the access restrictions, the Assessor’s office must contact Finance, who has access, to move these refund transactions to the correct revenue account. Finance currently has no timely follow-up process for requested journal entries. Refund payments should be adjusted back to the revenue account they were originally recorded. Assessor’s Office – Cash handling report #2122-13 June 2022 Page 10 Adjusting journal entries is commonplace in accounting. Minimal effects were noted in this case because of the limited occurrence of these refunds. The total of these refunds was around $2,300. The accounting system setup precludes the Assessor’s Office from directly accessing funds from the General Fund. General Fund had over $40M in revenues for FY2022, so restrictions are reasonable. It is recommended the Finance Department establish processes to ensure completion of refund account move requests. At the time of this report, the Finance Department is in the process of implementing an online ticketing system to track accounting requests through to completion. 3. Management responses Assessor’s Office Tana West, Deputy Director The last audit of the Assessor’s Office’s cash handling was in July of 2007 by David Givans which at which time we were not processing MHOD’s (manufactured home) payments. During this audit we worked with Mr. Givans to develop our current cash handing procedures in accordance with County policy and then acceptable standards in which all of the recommendations were implemented. We understand the acceptable standards change over time and we will once again implement the audit recommendations. ASSESSOR’S OFFICE Assessor’s Office – Cash handling report #2122-13 June 2022 Page 11 Assessor’s Office, continued Recommendation: It is recommended cash handling duties be consolidated to a single custodian staff member to improve tracing of revenues collected. It is recommended the Assessor's Office issue receipts for each type of payment received. We accept the recommendations  We have updated our procedures to reflect a single staff member making the deposit for all transactions.  We have implemented issuing receipts for MHOD’s transactions, so now all transactions will have a written receipt. Recommendation: It is recommended to consolidate current revenue reconciliation activities under the custodian staff member and reflect the change in the procedures. We accept the recommendation  We have updated our procedures to reflect this recommendation. Recommendation: It is recommended the custodian staff member turnover funds daily. The Assessor's Office could seek exemption from Finance for delayed turnover to complete application processing. We accept the recommendation  With the change to one staff member making the deposit for both the cash drawer and MHOD’s we will move to daily deposits of the cash drawer. MHOD’s deposits were already made daily but Assessor’s Office – Cash handling report #2122-13 June 2022 Page 12 Assessor’s Office, continued due to the small amount of deposit, often less than a dollar, the cash drawer was not always deposited daily. Recommendation: It is recommended a separate staff member, with no custodial responsibilities, periodically review and verify turnover activity between the receipt book and amounts recorded by Finance. We accept the recommendation  With the change from one staff member receiving the money and a second staff member making the deposit and balancing the cash drawer we will move to one staff member receiving the money and making the deposit and a second periodically reviewing and verifying the turnover activity. Recommendation: It is recommended the procedures be revised and the duplicate cash drawer keys be secured sufficiently by a supervisor until needed. We accept the recommendation  With the change from one staff member receiving the money and a second staff member making the deposit and balancing the cash drawer we will move to one staff member having a key. The second will remain in the supervisor’s office. Recommendation: It is recommended proper training on refunds is provided to employees tasked with these duties. It is recommended the Assessor's Office coordinate with Finance in reconciling and balancing funds held in the fiduciary account. It is recommended for a supervisor or designee periodically review the fiduciary balance to see if Assessor’s Office – Cash handling report #2122-13 June 2022 Page 13 Assessor’s Office, continued Finance Department Jana Cain, Accounting Manager the accounts are clearing as designed and identify adjustments required. We accept the recommendation  We will continue to work with Finance as need and follow the guidance of the Finance office. Recommendation (p.10) It is recommended the Finance Department establish processes to ensure completion of refund account move requests. Comments: We agree with the auditors that processes should be established to ensure completion of refund account move requests; however, we disagree that the responsibility belongs to Finance. Due to the significant number of requests flowing through Finance, departments need to develop internal processes to verify all their requests are completed timely and accurately. To help manage all the requests flowing through Finance, a new Munis ticketing system went live on May 23, 2022. These types of journal requests will be managed through the ticketing system and allow the departments to monitor the status of their requests easier. Finance still expects departments to verify their requests have been completed accurately. FINANCE Assessor’s Office – Cash handling report #2122-13 June 2022 Page 14 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 for cash handling (F-11). Identify areas for improvement, efficiency, or effectiveness. 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 began in April 2022 and extended through May 2022. Included in review of cash handling of the Assessor’s Office are accounting funds primarily handled in Fund 001-02. The Office employs change funds of $25. No petty cash or checking account are present. 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),  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,  Reconciliation of State manufactured home transaction reports to the identified funds. We conducted this performance audit in accordance with generally accepted government auditing Assessor’s Office – Cash handling report #2122-13 June 2022 Page 15 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/2122-13 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.