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HomeMy WebLinkAbout2122-15 Justice Court - Cash Handling report (Final 9-2-22)Justice Court – Cash handling report #2122-15 September 2022 Justice Court 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 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 survey by clicking HERE Recommendations 2 Justice Court – Cash handling report #2122-15 September 2022 TABLE OF CONTENTS: HIGHLIGHTS 1. BACKGROUND ON JUSTICE COURT 1.1. Background on the Audit .……………………………….……….………….…………… 1 1.2. Background on the Court ……………………..………………………………………. 1-4 2. FINDINGS and OBSERVATIONS 2.1. Observations ……….………………………..………………………………………….…… 4-7 3. MANAGEMENT RESPONSE 3.1. Justice Court …………………………………….…………………..……………..……….. 7-8 A. APPENDIX A: OBJECTIVES, SCOPE, AND METHODOLOGY i. Objectives and Scope ….……..………….…………….…………………………………… 9 ii. Methodology …………………………………….………….…………………………..…. 9-10 Justice Court – Cash handling report #2122-15 September 2022 HIGHLIGHTS Why this audit was performed: A periodic review of internal controls over cash handling of receipts. What was recommended: Recommendations include:  periodically reviewing the fiduciary balance to see if the accounts are clearing as designed and identifying adjustments required; and  identifying all accounts assigned to collections and periodically reconciling the collection activities. Justice Court – Cash Handling The focus of the review was on internal control over handling of external customer payments and collections. What was found Overall, the Justice Court performed well in providing fiscal controls over receipts. The Court has procedures that are documented, implemented, and periodically updated as regulations change. Physical security of cash was well documented and properly segregated. Recommendations were developed to assist the Justice Court comply with prudent business practices for cash handling. Periodic reconciliations of both the fiduciary account and the collections account could provide added controls over collected monies.  The Justice Court utilizes a fiduciary account at the County to clear fines, fees, and interest collected to the appropriate parties. It currently has an unpaid balance, which may indicate funds still need to be disbursed.  Also, the Justice Court uses a professional third party collection agency to recover delinquent accounts. Unreconciled differences exist between collections account cases within the Justice Court’s case management system and the collection agency’s records. Deschutes County Internal Audit Justice Court – Cash handling report #2122-15 September 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 Justice Court 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 JUSTICE COURT Graph I 6 yr. Trend of resources, including transfers and expenses (FY18-FY22 Actual, FY23 Budget) Source: County Financial Records The Justice Court is a State court administered by the County under the direction of an elected Justice of the Peace. Justice Court handles small claims and certain civil matters, as well as traffic and ordinance violations under contract with the City of Sisters and the City of Redmond. This system allowed these cities to close their municipal courts. Resources: Justice Court – Cash handling report #2122-15 September 2022 Page 2 Graph II 6 yr. Trend of percentage deficit between revenues and expenses (FY18-FY22 Actual, FY Budget) Source: County Financial Records “Violation cases in 2020 reduced 35% from 2019 levels due to the pandemic.” Revenues were affected by the COVID-19 pandemic grace period for expired driving credentials. Also in 2020, the Oregon Legislature passed HB4210 ending suspension of driver licenses for nonpayment of traffic tickets, limiting the remedial measures available to the court. Transfers from the General Fund and carryover of working capital covered the deficit in the years prior to 2022. In 2022 and budgeted for 2023, the deficit is covered through Transient Room Tax (TRT) funds. Caseloads: The COVID-19 pandemic reduced the volume of violation cases by 35% in 2020 and the Justice Court has yet to see the numbers return to prior volumes. Violation cases are generated from Deschutes County Sheriff’s Office, Redmond Police Department, Sunriver Police Department, Black Butte Police Department, and Oregon Department of Transportation Commerce Enforcement. Justice Court – Cash handling report #2122-15 September 2022 Page 3 Graph III 5 yr. Trend of violation cases (FY18-FY22) Source: Justice Court Stats Graph IV 5 yr. Trend of collected monies per violation case (FY18-FY22) Source: Justice Court Stats and County Financial Records Although overall caseload numbers declined, the Court was successful in collecting more per violation case than prior to the pandemic. Justice Court – Cash handling report #2122-15 September 2022 Page 4 Graph V Composition of Principal Collections for FY22 Source: Department provided information Collections: The Justice Court has a significant and growing collectible balance of approximately $10.8 million. The Court puts forth efforts to collect amounts owing before delinquent (over 90 days due) accounts are turned over to a third party collection agency. Amounts owing that are sent to collections are increased by 25% to cover costs of collection. The collections agency has been assigned over 98% of the collectible balance (approx. $10.65 million) and has a historical collection rate of just over 30% since inception. 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 Justice Court – Cash handling report #2122-15 September 2022 Page 5 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 OBSERVATION Fiduciary accounts hold funds for the benefit of third parties. Overall, Justice Court performed well in providing fiscal controls over collected revenues. Cash handling procedures are well documented and updated as regulations change. Each office/department in the County has unique work environments. The following observations and recommendations are tailored to the Justice Court with consideration of staffing levels, business demands, and operational challenges and are intended to further improve the procedures put into place. Performance of periodic reconciliations could provide added control over collected monies. Fiduciary Account The fiduciary account used to hold fines and fees collected by the Justice Court had a balance at the close of Fiscal Year 2022 of nearly $30,000. These monies may reflect funds owed to partner law Justice Court – Cash handling report #2122-15 September 2022 Page 6 Third party debt collectors free up department resources otherwise spent trying to collect past due debts. enforcement agencies, the County, or interest earned. Monies are disbursed from the fiduciary account monthly. Having an unpaid balance indicates there are funds still to be disbursed and the resolution of those funds has not been identified by the department. Fiduciary accounts are established to separately account for activities that do not belong to the County. The monies collected are safeguarded and separately accounted for until they are disbursed. In the absence of regular reconciliation, funds held in fiduciary accounts can get out of balance. The balance in the fiduciary account may represent additional monies to disburse. The Justice Court was unaware the Finance Department was not reconciling the fiduciary account on their behalf. It is recommended for the Justice Court to periodically review the fiduciary balance to see if the accounts are clearing as designed and identify adjustments required. Collections Account As described above, The Justice Court uses a professional third party collection agency to recover delinquent accounts. Unreconciled differences exist between collections account cases within the Justice Court’s case management system and the collection agency’s records. The number of accounts assigned to collections and the total balance of those accounts did not match. There should be periodic oversight and monitoring of all collection activities. This should include reconciling the Justice Court accounts to accounts with the collection agency. Collection payments can then be posted to known accounts when received. Justice Court – Cash handling report #2122-15 September 2022 Page 7 In the absence of a routine reconciliation, it is not clear that the identified differences are not growing or changing in an unexpected manner. In 2015, the Justice Court transitioned to a new case management system and some account records could not be moved because the charges remaining on those accounts were interest only. Some loss of case information is unavoidable when transitioning between systems, the new system would not recognize cases without principal balances. The collection agency continues to collect and submit interest payments to the Court, which are recorded as they are received. It is recommended for the Justice Court to identify all accounts assigned to collections and periodically reconcile the collection activities. 3. Management response Justice Court Charles Fadeley, Justice of the Peace To: Aaron Kay, Performance Auditor From: Charles Fadeley, Justice of the Peace Subject: Management’s response to Audit Report Recommendation: It is recommended for the Justice Court to periodically review the fiduciary JUSTICE COURT Justice Court – Cash handling report #2122-15 September 2022 Page 8 Justice Court, continued balance to see if the accounts are clearing as designed and identify adjustments required. a) Management concurs reconciliation should occur. However, management is unable to reconcile the fiduciary account as management does not have access to the necessary reports and financial statements. b) Estimated date of corrective action and cost to implement is unknown. Management would need the proper training and access. Recommendation: It is recommended for the Justice Court to identify all accounts assigned to collections and periodically reconcile the collection activities. a) Management’s position concerning the recommendation is to concur. b) Justice Court software has never been capable of reconciling interest only collection accounts. Given the volume, reviewing each such account is impractical. Justice Court is open to suggestions. Justice Court – Cash handling report #2122-15 September 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 for cash handling (F-11). 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 took place between April and August 2022. Included in review of cash handling of the Justice Court are accounting funds primarily handled in Funds 220 and 895. The Court employs change funds, but does not use petty cash or a checking account. The focus of the review was on internal control over handling of third party client payments. The scope of the audit did not include all aspects of 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 Practices Policy F-11),  Reviewing written procedures and documents provided,  Reviewing statutory regulations and requirements for the department,  Reviewing and analyzing receipt transaction data for the identified funds,  Reviewing and analyzing resources and revenue data for the identified funds, and  Reviewing and analyzing collections data from the department. Justice Court – Cash handling report #2122-15 September 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/2122-15 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.