HomeMy WebLinkAboutCODE
Deschutes Count y,
SHERIFF’S OFFICE -
CENTRAL OREGON DRUG
ENFORCEMENT (C.O.D.E)-
Evaluation of Internal Controls
Over Cash
Presented to the
Deschutes County Audit Committee
by the
Internal Audit Program
David Givans, CPA – County Internal Auditor
Report# 2003-5 Dated March 31, 2003 (Issued June 10, 2003)
Deschutes Count y,
Oregon
Report #2003-5 (Dated March 31, 2003)
SHERIFF’S OFFICE -
CENTRAL OREGON DRUG ENFORCEMENT
(C.O.D.E)-
Evaluation of Internal Controls Over Cash
TABLE OF CONTENTS:
EXECUTIVE SUMMARY ……………………………………………………………………1
INTRODUCTION & BACKGROUND……………..………………………………………2-3
OBJECTIVES, SCOPE, AND METHODS ………………………………………………...3-4
AUDIT RESULTS ………..…………………………………………………………………4-7
RESPONSE FROM MANAGEMENT………………………………………………………..8
Page 1
Report # 2003-5 (Dated March 31, 2003)
EXECUTIVE SUMMARY
Purpose
As requested by Count y management and Sheriff (and as approved by Deschutes County’s
Audit Co mmittee), an evaluat ion was conducted of the internal controls over cash, checking
and other assets at the Sheriff’s Office. This report covers Central Oregon Drug Enforcement
(CODE) and reflects a review of internal controls over invest igat ive funds (cash) only. The
purpose of the noted findings is to assist management and staff in improving its internal
control system.
Deschutes County and other regional law enforcement agencies have emplo yees direct ly
assigned to CODE. The CODE program ut ilizes investigative funds for buying drugs and
informat ion.
Results in brief
The evaluation indicated a positive control environment. Staff were very acco mmodating and
have already implemented some suggested changes.
These findings are provided to assist management in improving its system of internal control.
Audit findings result from incidents of non-co mpliance with stated procedures and/or
departures from prudent operation. The findings are, by nature, subject ive. The observat ion
did not review a sufficient number of items to project the findings over the ent ire populat ion.
The fo llowing findings are presented for management’s considerat ion.
The findings and an excerpt of the associated recommendation for CODE include:
· Invest igat ive funds on hand and the related accounting information are not routinely
reconciled
The safe custodian and a witness should reconcile monthly the accounting information
with the amount of investigative funds on hand.
· Controls lack supervisio n and segregat ion of duties
Management should implement a routine (quarterly) review of the accounting for
investigative funds. The secretary should be responsible for recording activity and
organizing receipts.
· Current accounting system is inadequate
CODE should consider replacing its accounting software (Quicken) with a business
accounting software like QuickBooks (basic).
· Wit hdrawals o f CODE invest igat ive funds from the County are not matched to monies
deposited with the CODE safe custodian
County Finance should notify the CODE safe custodian via e-mail when a check is
issued from CODE investigative funds.
· Invest igat ive funds are disbursed wit hout proper wit nessing and support (limited incidents
noted)
Management should monitor compliance with the documentation and witnessing
requirements for these receipts.
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Report # 2003-5 (Dated March 31, 2003)
· Supporting receipts are not remitted in a timely fashio n (limited incidents noted)
Officers should routinely verify that receipts for expenditures plus investigative funds
on hand total the authorized amount. Transaction receipts should be submitted
monthly.
Response from management (summarized)
Management concurs with the observed findings and recommendations. Implementation is in
process.
INTRODUCTION
Audit Authorit y:
The audit of CODE’s internal controls over cash was conducted pursuant to the direction o f
County management and the Sheriff. Deschutes County Audit Co mmittee authorized the
audit by its approval o f the County’s internal audit workplan for fiscal year 2002/2003.
Introduction:
This audit was init iated in response to the County’s desire to review the internal controls over
its cash handling. The Sheriff’s Office is the first department scheduled for this type of audit.
The reports for the Sheriff’s Office are expected to be the first in a series of reports covering
County depart ments and their handling of cash. This report also includes Sheriff’s Office
management responses to these recommendations.
County government is responsible for using public assets and public funds in a prudent and
responsible manner. County managers in turn are responsible for developing and maintaining
procedures to protect public assets and promote efficient and effect ive services. These
procedures and the environment promoted by management are called internal controls.
Management is ult imately responsible for implement ing appropriate internal control systems.
An effect ive system o f internal controls:
Safeguards assets fro m waste, fraud and inefficient use
Promotes accuracy and reliabilit y in the account ing records
Encourages and measures co mpliance wit h established practices
Evaluates the efficiency of operations
Effect ive internal controls minimize the potential for errors and/or irregularit ies to occur. If
they do occur, effect ive internal controls detect such errors and/or irregularit ies in a t imely
manner during the normal course of business. For cash processes, effect ive internal controls
include:
1. Segregation of cash handling from record keeping duties.
2. Centralizat ion of cash receiving and account ing for all receipt of cash and checks by
utilizing pre-numbered invo ices.
3. Depositing cash on a timely basis.
4. Recording expenditures, in a timely manner, supported by original receipts and the
proper approval authorit y.
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Report # 2003-5 (Dated March 31, 2003)
5. Preparation of monthly bank reconciliat ion by an emplo yee not responsible for issuing
checks or having custody of cash. Review of such bank reconciliat ion by an
appropriate supervisor.
6. Document ing internal control procedures and conducting rando m reviews of deposit,
reconciliat ions, and other documentation to determine procedures are being fo llowed.
7. Reviewing revenues and expenditures to budget and/or expectation for reasonableness.
8. Promoting an attitude and environment that perpetuates effect ive internal controls.
Honest emplo yees deserve to work in an organizat ion that implements an effect ive internal
control system. Effective controls can prove innocence in the event errors and/or
irregularit ies do occur.
OBJECTIVES, SCOPE and METHODS
Audit objectives:
The object ives of the audit were:
1. To evaluate the Sheriff’s Office internal controls and procedures for cash, checking
accounts and other assets.
2. To evaluate compliance wit h Federal or State regulations and requirements.
If exist ing procedures were not documented in writing, the interview process ident ified the
procedures and practices.
Audit procedures addressed key internal control issues. Opportunit ies for increased efficiency
were identified. Suggestions for improving internal control included changes to accounting
procedures and personnel dut ies.
Scope:
This report focuses on the Central Oregon Drug Enforcement (C.OD.E.) operations. These
operations are budgeted and accounted for in the Sheriff’s Office, yet invo lve emplo yees and
resources from agencies throughout Central Oregon. General procedures and controls for the
handling of invest igat ive funds (cash) were reviewed. These operations utilize cash for
purchasing drugs and informat ion and paying informant expenses. Specific procedures for
handling controlled substances were not reviewed. Compliance with written procedures was
tested only through walk-throughs of the system.
Methods:
The audit involved gaining an understanding o f the control environment as described by
management and staff during interviews. Relevant evidence was obtained through
observat ion and interviews. This evaluat ion is, by nature, subjective.
Effect ive internal control provides reasonable assurance of achieving the fo llowing
object ives:
1. Effect iveness and efficiency of operations.
2. Reliabilit y of reporting information.
3. Compliance with applicable laws and regulat ions.
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Report # 2003-5 (Dated March 31, 2003)
Audit procedures included:
· Interviews with appropriate personnel
· Walk-throughs to see how these systems worked
· Review of similar audit reports performed by other jurisdict ions
Internal control consists of five interrelated components:
· Control environment
· Risk assessment
· Control activit ies
· Informat ion and co mmunicat ion
· Monitoring
The audit was conducted in accordance with Government Auditing Standards issued by the
Comptroller General of the United States.
AUDIT RESULTS
Emplo yees of the Sheriff’s Office take their duties seriously. The high securit y invo lved in
the Sheriff’s facilit ies (especially C.O.D.E.) results in a high level of safeguarding of assets.
Management and staff appear diligent in their efforts to develop an environment supporting
internal controls. Sheriff and CODE personnel were open and professio nal during interviews
and had a posit ive attitude towards making improvements in the control system.
These findings are intended to assist management in evaluat ing its system of internal control.
These reco mmendat ions and findings do not replace efforts to design an effective system of
internal control. The audit, by its nature, cannot discover all possible weaknesses. As such,
management should be vigilant for other improvements that can be made.
Audit findings result from incidents of non-co mpliance with stated procedures and/or
departures from prudent operation. The findings are, by nature, subject ive. The purpose of
these findings is to ident ify procedural recommendations. The observation did not review a
sufficient number of items to project the findings over the ent ire populat ion.
C.O.D.E. BACKGROUND
The Sheriff’s Office manages the budget for regional drug enforcement efforts. The CODE
program receives significant Federal and State grants that are used to fund drug invest igat ive
efforts. CODE is also administratively accountable to the Central Oregon Law Enforcements
board (COLE). Deschutes County and other regional law enforcement agencies have
emplo yees direct ly assigned to this effort. A significant amount of the monies and resources
of CODE are managed by the COLE’s board and do not represent direct assets or resources of
the County.
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Report # 2003-5 (Dated March 31, 2003)
The CODE office receives investigative funds (cash) from its invest igat ive budget for
purposes of buying drugs and informat ion. The CODE officers receive investigative funds
and are held accountable for these monies.
Officers are required to obtain signed receipts when invest igat ive funds are paid to an
informant (drug evidence or informat ion). These transactions must be witnessed by another
officer. Certain payments on behalf of informants do not require the informant’s signature but
do require support. All receipts are reviewed by the CODE supervisor for completeness,
accuracy, and reliabilit y o f information. The CODE secretary validates the informant
signature to a master file.
The fo llowing findings are presented for management’s considerat ion.
FINDINGS
Investigative funds on hand and the related accounting information are not routinely
reconciled
During a surprise count of invest igat ive funds, the amount of cash held in the safe did not
agree with the accounting records. The amount of investigat ive funds in the safe was greater
than shown in the account ing records. After a review of the accounting records, it was noted
that a couple o f entries had been miss-posted.
CODE invest igat ive funds should be treated like any other imprest cash fund. Periodically,
investigat ive funds and receipts should be reconciled with the accounting records.
Wit hout accurate accounting records, misappropriations can occur.
Internal procedures require matching the amount of cash with account ing records before new
mo nies are received. Since this was a surprise count, the accounting had not been completed.
It is reco mmended that the safe custodian and a witness reconcile mo nthly the account ing
informat ion with the amount of investigative funds on hand. This verificat ion should be
evidenced by two counters and evidenced wit h their signatures on an appropriate receipt. The
receipt should be retained in an appropriate file. Surprise counts should be conducted by
internal audit or the CODE coordinator.
Controls lack supervision and segregation of duties
The safe custodian controls the use of invest igat ive funds and maintains the account ing
system. The accounting for invest igative funds has not been reviewed on a timely basis by a
supervisor.
The safe custodian is an officer responsible for all investigat ive funds on hand, law
enforcement duties, and account ing responsibilit ies. These dut ies should be segregated for
better control.
Lack of appropriate segregation and oversight can allow misappropriat ions to go undetected.
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Report # 2003-5 (Dated March 31, 2003)
It is reco mmended that management implement a routine (quarterly) review of the accounting
for invest igat ive funds. The secretary should be responsible for recording activit y and
organizing receipts. The safe custodian can st ill review receipts other than his own.
Current accounting software is inadequate
The account ing software (Quicken) being used by CODE is not entirely adequate for the
needs of CODE and could be simplified. Many manually derived accounting reports could be
pulled direct ly fro m the accounting system.
C.O.D.E.’s accounting so ftware should provide appropriate reports and funct ionalit y to
mo nitor and report on its activit ies.
The lack o f adequate and relevant accounting informat ion can lead to loss of control over
assets.
Law enforcement emplo yees have not received sufficient training on the current accounting
software package, which has been in use for several years.
It is reco mmended that CODE consider replacing its accounting so ftware (Quicken) with a
business account ing so ftware like QuickBooks (basic). The accounting so ftware should
support transfer of the current accounting informatio n. The accounting so ftware should o ffer
the required funct ionalit y and reporting. The account ing software should be properly setup to
obtain relevant reports.
Law enforcement emplo yees using the software should receive adequate training on its use.
Some of the routine account ing problems being posted in the Quicken account ing system have
been reso lved wit h some training on the software.
Withdrawals of CODE investigative funds from the County are not matched to monies
deposited with the CODE safe custodian
The CODE coordinator is responsible for obtaining cash fro m the investigative funds
budgeted by the Sheriff’s Office. There are adequate controls over the issuance; however, the
safe custodian accept ing investigative funds is not direct ly aware of the monies released by
the County. The COLE’s board monitors much of this process but it is not clear that they
reconcile invest igat ive mo nies spent fro m the Count y budget with invest igat ive funds spent
by the CODE team.
County Finance does not receive any supporting documentation for the ult imate use of
investigat ive funds. County Finance and the CODE safe custodian should verify mo nies are
received as were released.
Wit hout monitoring this release o f investigative funds by the County, the misappropriation of
investigat ive funds delivered to CODE could go undetected.
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Report # 2003-5 (Dated March 31, 2003)
It is reco mmended that County Finance notify the Code safe custodian via e-mail when a
check is issued fro m CODE invest igat ive funds. The CODE safe custodian can verify when
the monies are received. Variances should be fo llo wed up by Count y Finance and/or the
County Internal Auditor. Alternat ively, an audit of these transfers can occur annually to match
investigat ive funds paid out by the Count y to those received by CODE.
Investigative funds are disbursed without proper witnessing and support
A few cash transact ions by the safe custodian lacked the init ials of a wit ness. In addit ion, the
associated use of invest igative funds wit h an informant occurred without a witness. A
transaction receipt for phone services paid for an informant did not include the phone service
receipt.
Appropriate controls over an imprest cash fund require that all transactions be appropriately
supported. Due to the nature of CODE activit ies, it is prudent to have all transactions be
witnessed. CODE requires all mo ney transfers to officers be signed by two officers. When
mo ney is expended, it is to be signed by the officer, a witness and by the informant, if
applicable.
Wit hout proper documentation and control, it is difficult to assure assets are safeguarded and
spent as intended.
Management should monitor compliance with the documentation and witnessing requirements
for these receipts.
Supporting receipts are not remitted in a timely fashion
Some disbursements had been made more than six mo nths prior to request for
reimbursements.
Officers should prepare a monthly account ing of investigative fund usage. Transact ion
receipts should be remitted on a timely basis. Periodically, officers’ invest igat ive funds and
receipts should be verified in total to the authorized amount.
Monthly reimbursement and reconciliat ion improves internal control by making officers
submit timely documents which will more quickly ident ify problems.
It is reco mmended officers routinely verify that receipts for expenditures plus invest igat ive
funds on hand total the authorized amount. Transaction receipts should be submitted
mo nthly. This will improve the accountabilit y for investigat ive funds and reduce the
likelihood of misappropriat ion.
Page 8
Report # 2003-5 (Dated March 31, 2003)
RESPONSE FROM MANAGEMENT
See comments provided at end of report provided by the Sheriff’s Office
DISCUSSION DRAFT
Date & Time: 6/22/2004 1:01 PM