HomeMy WebLinkAboutRisk Management - Cash handling over revenuesRisk Management - Cash handling over revenues report #11/12-3 December 2011
Risk Management - Cash handling over revenues
Deschutes County,
Oregon
David Givans, CPA, CIA
Deschutes County Internal Auditor
PO Box 6005
1300 NW Wall St, Suite 200
Bend, OR 97708-6005
(541) 330-4674
David.Givans@deschutes.org
Audit committee:
Michael Shadrach, Chair - Public member
Chris Earnest - Public member
Gayle McConnell - Public member
Jean Pedelty - Public member
Greg Quesnel - Public member
Jennifer Welander - Public member
Anthony DeBone, County Commissioner
Tom Anderson, Community Development Director
Scot Langton, County Assessor
Risk Management - Cash handling over revenues report #11/12-3 December 2011
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Risk Management - Cash handling over revenues report #11/12-3 December 2011
TABLE OF
CONTENTS:
1. INTRODUCTION
1.1. Background on Audit …………..………………………………………...…… 1
1.2. Objectives and Scope ………………….……………………………..……… 1
1.3. Methodology …………………………………….……………………...…...… 1
2. FINANCIAL BACKGROUND ………………………………………….………… 2
3. FINDINGS …………………………………………………..………………….... 3-8
4. Items to be considered in future audits …..…………………………........… 8
5. MANAGEMENT RESPONSE – Risk Management ………………...….… 9-11
Risk Management - Cash handling over revenues report #11/12-3 December 2011
HIGHLIGHTS
Why this audit was
performed:
The Risk Management
had not yet received an
internal audit of its cash
handling practices.
What is recommended
Recommendations
include:
• Developing processes
to supervise revenue
transactions through
to deposit.
• Centralizing receipts
with front desk staff.
• Requiring skid car
instructor to provide
receipts to customers
and deposit monies
within 24 hours.
• Reconciling gift
certificate inventory
and set up log.
• Reviewing rate for skid
car training.
• Documenting in
policies and
procedures their
handling of revenues
and deposits.
• Eliminating the petty
cash fund.
Risk Management – Cash handling over revenues
What was found
As with many departments undergoing cash handling reviews, a number of recommendations were
developed to assist the Risk Management comply with County policy or prudent business practices.
Cash, in the context of this department, primarily means cash, money orders, and checks. The
department does not handle high dollar amounts of money and most significant monies are paid by
check.
The department does not have a formal process for reconciling deposits to the amount expected. Nor
does anyone check that deposits are occurring as indicated. Monies come from a number of sources
and do not appear to be handled in a centralized manner.
The current spreadsheets used to track revenue activity, skid car program activity and gift certificates
(skid car) are not efficient and effective. Spreadsheets did not appear to be complete and some of the
information was being repeated.
Skid car fee collection process results in delays in deposits and some customers are not getting receipts.
Skid car fees of $70 have gone unchanged since 2001 when inflation over the period was around 28%.
The department has been able to hold costs down with contributions of tires and parts from the Sheriff’s
Office. Nearly two-thirds of the training is performed for private pay customers.
Written policies exist but do not adequately describe and detail procedures for handling various sources
of revenues.
Petty cash is not used frequently and is not being operated in accordance with associated county policies.
Deschutes County Internal Audit
Risk Management - Cash handling over revenues report #11/12-3 December 2011
Page 1 of 11
1.
Introduction
1.1 BACKGROUND ON AUDIT
Audit Authority:
The Deschutes County Audit Committee authorized the review of cash handling practices of the County in
the Internal Audit Program Work Plan for 11/13. The Risk Management has not yet had an internal audit of
their cash handling practices. Other identified departments have been receiving these internal audits of
cash handling.
1.2 OBJECTIVES and SCOPE
Objectives:
Review the Risk Management’s practices and policies for cash handling over revenues.
Scope:
The focus of the review was on aspects of internal control over handling customer payments for services at
Risk Management. Risk Management collects a number of fees primarily for public events, skid car training,
and monetary transaction related to insurance claim processing. Observations were performed in November
2011. Risk Management has some petty cash funds and no imprest checking accounts. The department
accounts for all of its activity in fund 670.
The scope of the audit did not include all aspects of internal controls employed.
1.3 METHODOLOGY
Audit procedures included:
Observing and interviewing staff on their cash handling procedures,
Reviewing written procedures and documents provided,
Reviewing and analyzing receipt transaction data for the identified funds,
Reviewing and analyzing revenue and expenditure data for the identified funds,
Assessing days to deposit for selected cash receipts, and
Analyzing costs for skid car training services
We conducted this performance audit in accordance with generally accepted government auditing
standards. Those standards require 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. (2007 Revision of Government Auditing Standards, issued by the Comptroller General of the United States.)
Risk Management - Cash handling over revenues report #11/12-3 December 2011
Page 2 of 11
2. Financial
Background
Figure I –
Risk Management
Revenues by
Element by
Fiscal Year with
percent
composition
Figure II –
Risk Management
Expenditures by
Element by
Fiscal Year with
percent
composition
Revenues
The Risk Management oversees the various self-insurance programs of the County. The fund receives most
of their revenues from departmental insurance charges.
Fund 670 - Risk Management
Revenues by Element $%$%$%
Departmental insurance charges
Workers' Compenstation 1,001,405$ 45%861,712$ 41%905,974$ 46%
General Liability 401,911 18%456,964 22%335,833 17%
Property Insurance 286,294 13%286,079 13%294,019 15%
Vehicle Insurance 178,843 8%184,195 9%182,710 9%
Unemployment Insurance 158,109 7%161,683 8%172,348 9%
Claims Reimbursement 131,410 6%121,666 6%28,481 1%
Interest on Pooled Investments 69,823 3%32,539 2%15,685 1%
Skid Car Training 16,170 1%17,660 1%15,608 1%
Process Fee-Events/Parades 1,225 0%1,830 0%2,115 0%
Other - 0%28 0%- 0%
Total 2,245,190$ 100%2,124,355$ 100%1,952,773$ 100%
Fiscal Year
08/09 09/10 10/11
Source: County financial systems (HTE), excludes beginning working capital
Expenditures:
Risk management’s expenditures are primarily related to insurance costs related to providing insurance
coverage for workers’ compensation, general liability, property, vehicle and unemployment claims.
Fund 670 - Risk Management
Expenditures by Element $%$%$%
Insurance costs 1,686,327$ 79%1,954,601$ 81%1,811,996$ 79%
Salaries and Wages 181,116 9%184,871 8%201,202 9%
Internal Svc Fund Charges 122,628 6%159,897 7%144,888 6%
Employee Benefits 114,355 5%87,277 4%89,825 4%
Other 21,181 1%32,459 1%39,675 2%
Total 2,125,607$ 100%2,419,105$ 100%2,287,586$ 100%
Fiscal Year
08/09 09/10 10/11
Source: County financial systems (HTE)
In the last two years, costs have outpaced revenues, which have resulted in reductions to working capital.
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3. Findings The audit included procedures to assess the extent of internal controls in place and the general risks
associated with cash handling operations. 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.
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 not considered significant deficiencies.
Additional controls are needed over revenues.
During observation of Risk Management cash handling processes, a number of areas were noted for
improvement.
• Staff do not develop an expectation for anticipated revenues for which to reconcile receipts. It is not
clear an effective reconciliation is performed between revenues and receipts. A couple of receipts
were noted that were handed off to other departments without notation.
• Staff not involved with the deposit are not confirming the receipt of monies by Finance.
• Staff responsible for certain programs are also handling some checks and it is not likely that other
staff could monitor or mitigate their handling of those monies.
• Funds are moved between staff without any tracking
In order for the internal controls to work effectively, they need to be monitored periodically and designed to
handle the types of transactions encountered. The County has issued cash handling practices policy (F-11)
and cash over-short reporting policy (F-9) to assist departments in addressing their cash handling practices
and procedures. Staff duties should be sufficiently segregated so no one-person is responsible for
receiving, reconciling, depositing money and posting payments. An employee’s responsibility for more than
two of the following functions is considered mutually incompatible: record keeping, authorization, and
custody.
In the absence of sufficient cash controls, monies not accounted for might be difficult to locate or identify
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where the problem occurred.
It is not clear that Risk Management has been aware of these issues. They do perform a number of cross
checks such as comparing instructor invoices to registrants to make sure they tracking the right people and
their receipts.
It is recommended the department develop a process to supervise transactions in the various
collection systems and address the other weaknesses noted above. This should include:
• comparing deposit records to Finance records to ensure that all monies logged or receipted
are deposited (with Finance);
• identify expected receipts and reconcile to deposits on a periodic basis. This would include
timing of receipts for prepaid services, gift certificates, customer billings and receivable
collections;
• indicating where receipts go that are not deposited. Communicating with those responsible
for overseeing those deposits the receipts being handed over.
• identify accounting for outstanding receivables and handling of billings;
• depositing monies should be segregated from those responsible for accounting, billing, and
monitoring insurance and program fees;
• Policies should be developed for the write-off of non-paid services or services comped which
include a secondary approval process.
{Note: To remedy some of these recommendations, the department’s spreadsheet of information could
be enhanced to better capture transaction information needed for reconciliation. Otherwise, a light
accounting software package might be worthwhile, as it would provide for reports and an audit trail.}
Receipting of monies should be centralized (preferably by the department secretary) and a receipt
provided to the customer (unless the monies were received by mail). A log would probably suffice of
receipts received by mail and information retained with deposit prepared for Finance.
Skid car training fee collection process could be improved.
A review of activity for the skid car program indicated that several days can elapse between monies being
dropped off for deposit with risk management. In addition, customers who have paid during the class do not
appear to be receiving receipts for their monies. The department is generating a pre-numbered receipt when
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the instructor brings in the monies, but they are not given to the customers. The instructor does not have
and endorsement stamp to endorse checks on initial receipt. The department has precluded the instructor
from collecting cash in payment of the fees. The department does not currently have a way to process credit
cards.
County cash handling practices (F-11) require all monies received to be deposited within 24 hours with the
Treasurer’s Office or the Bank, for monetary instruments to be restrictively endorsed, and for customers to
receive a receipt. There is no reason cash cannot be collected if sufficient internal controls are established.
Monies not deposited in a timely manner could be misappropriated.
It is recommended for the skid car instructor to receive a receipt book and endorsement stamp, so
that all checks received can be properly endorsed and all monies receipted.
It is recommended the department consider having the skid car instructor deposit monies at the
bank within 24 hours as that will be more convenient for the instructor. A deposit book would be
required and a deposit form would need to be sent to Finance. A copy of the receipts provided can
be attached to the roster for the class and used to reconcile.
It is recommended for the department to consider allowing cash be collected since those monies will
be the sole responsibility of the instructor until dropped off at the bank.
It is recommended for the department to consider accepting credit cards for skid car fees if it can be
accomplished in a cost effective manner.
Skid car program lacks effective accounting system.
Risk management utilizes a number of spreadsheets to capture activity from the skid car program. At the
time of the audit, some of the spreadsheets were not up to date. The spreadsheets fail to provide
information that can be efficiently translated into accounting of the daily receipts, current balances owed, and
with sufficient control over changes.
A simple accounting program would likely fix these issues.
In the absence of sufficient accounting controls, monies not accounted for might be difficult to locate or
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identify where the problem occurred.
The department has utilized various spreadsheets, calendars and other communications to make sure staff
could follow-up on receivables and activities.
It is recommended for the department to investigate and implement an accounting solution that will
meet their needs. It might be possible given their limited activity to develop a more comprehensive
spreadsheet for these purposes.
Skid car gift certificates require additional controls.
Currently, several staff issue gift certificates and put information into a spreadsheet. It was not clear from
the spreadsheet what certificates were outstanding and which ones had not been issued. Certificates were
also issued out of sequence.
Gift certificates should be tracked and reconciled into the anticipated daily receipts. At any given time, it
should be clear what certificates are outstanding and the non-issued certificates should be safeguarded.
There have been no issues noted with their current practices since staff keep each other informed. The
cross-referencing of issued gift certificates to training sessions mitigates potential misuse.
It is recommended for them to create an inventory of the current non-issued gift certificates and
work the gift certificate issuance into their accounting for daily receipts. It is recommended for the
gift certificates placed in custody of staff be logged out and non-issued gift certificates locked up
when not in use.
Fees set for skid car fails to keep up with costs.
A limited analysis of selected costs for running the skid car program for the approximately three hundred
participants in fiscal year 2010/2011 indicates costs exceed the fee by some 30%. Even at that, these costs
do not include any of the original capital costs for the equipment and ongoing tire costs, which the Sheriff’s
Office has helped with. The $70 fee for the training has not been changed since 2001. Inflationary
pressures alone would constitute an about 28% rise in costs.
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County fees are supposed to mirror underlying costs. In the absence of proper fee setting, the costs will be
borne by other Risk management programs. With nearly two thirds of the clients being non-county
customers, it is important that they pay a fair fee for the services being received.
If we use $20 as a starting point for additional costs times an estimated 200 private pay customers, the
impact to the program could be as much as four thousand dollars.
It is recommended for Risk Management to review their fee rate for skid car training to more properly
reflect costs being incurred as well as potential costs for replacement of capital equipment.
There are insufficient written accounting policies and procedures over revenues.
There were some written policies and procedures but they do not adequately described and detail the extent
of procedures over the various streams of monies that may come into the department.
Communication is an essential component of internal controls. Written policies and procedures are
particularly effective for controls over accounting and financial matters. A well-designed and maintained set
of policies and procedures enhances accountability and consistency. The resulting documentation is also
useful for training and cross-training personnel.
The lack of comprehensive written accounting procedures can lead to inadequately planned controls,
inadequate supervision, poor and inadequate training, and lack of adherence to stated control procedures.
It is recommended for Risk Management to complete documentation of their accounting policies and
procedures. The procedures should emphasize the areas of revenue and deposit handling,
monitoring, supervision and segregation of duties. These policies and procedures should be
available to all employees and should detail the responsibilities of each employee.
Petty cash fund not frequently used.
During the observation, it was noted that one receipt from September 2011 was still present for the usage of
petty cash to reimburse an employee for a $13.96 disbursement. The cash did not appear to be advanced
to make the purchase. This kind of petty cash usage could have been handled through employee
reimbursement. The last petty cash reimbursement made was in August 2011 for around thirty dollars.
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County Finance policy on petty cash (F-8) in coordination with County Finance policy on reimbursement for
miscellaneous expenses (F-1) allows an employee reimbursement from petty cash when amounts are less
than ten dollars.
County Finance would like to limit petty cash funds. Many of the purchases can be handled through vendor
accounts and/or employee reimbursements. The preference is directly paying the vendor. This improves
the transparency and the ability to better account for purchases by vendor.
The department has the ability to establish accounts with vendors for payment or reimburse employees for
many of the disbursements now made through petty cash. It was not clear they knew of the ten dollar limit on
reimbursement of employee disbursements.
It is recommended for the department to consider eliminating the petty cash fund. If use continues,
it is recommended for staff to review policy F-8 for handling of the funds and the use of “Petty Cash
Reimbursement Forms”.
4. Item to be
considered in
future audits
In the future, it may be worthwhile reviewing the controls over the workers' compensation insurance fund. A
contracted third party administrator handles most of the disbursements.
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5.
MANAGEMENT
RESPONSE –
Risk
Management
December 6, 2011
Risk Management Audit – Cash handling over revenues
Recommendations and Responses:
1. Develop processes to supervise revenue transaction through to deposit.
Staff concurs with the recommendation. Procedures will be developed to improve the current collection
systems and tracking ability. Those will include:
• Regular comparisons of deposit records to Finance records to verify monies are logged or
receipted and deposits are made
• Identifying expected sources of revenue and reconciling to deposits on a periodic basis
• Segregation of deposit duties from those who are responsible for accounting, billing, and
monitoring insurance and program fees
• Creating a more efficient spreadsheet of transactions or exploring the possibility of using a light
accounting software program
• Implementing written policies or procedures that will identify write-off’s of non-paid services or
comped services, to include a secondary approval process
2. Centralize receipts with front desk staff.
Staff concurs with the recommendation. Receipts for incoming revenue will be managed by the front desk
staff. In the event of illness or vacation, incoming receipts and deposits will be handled by staff persons
other than those involved in the transaction.
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MANAGEMENT
RESPONSE
(continued)
3. Require SkidCar instructor to provide receipts to customers and deposit monies within 24
hours.
Staff concurs with the recommendation. Staff will take steps to improve the timeliness of deposits and will
suggest to the instructor that he make direct bank deposits within 24 hours of the completion of each
class. Receipt books will be provided to the instructor to be given to customers for the receipt of cash
and checks.
Multiple Excel spreadsheets are currently being used to track class attendees, payments, and gift
certificates. Staff will research using a spreadsheet or an accounting system that will more efficiently
meet our needs. Data will be recorded in a timely manner.
As with other sources of revenue, staff not directly involved in transactions will compare SkidCar deposit
records to Finance records to ensure that all monies have been logged or receipted and received by
Finance.
4. Reconcile gift certificate inventory and set up log.
Staff concurs with the recommendation. A more efficient tracking system will be developed to account for
outstanding and unused gift certificates. Staff will reduce the number of outstanding gift certificate books
to one, which will be stored and used at the front desk. Gift certificates are kept in a secure (locked) area
when not in use.
5. Review rate for SkidCar program.
Staff concurs. Since the program was opened up to the general public in 2001, fees were set at $70 per
person and have not increased. A limited analysis of selected costs covering a one year period indicates
costs exceed fees by some 30%. Staff agrees that a rate increase of $20, or $90 per person, is
reasonable. It is our goal to implement the fee increase in the upcoming budget year.
6. Documenting in policies and procedures the handling of revenues and deposits.
Staff concurs with the recommendation. The risk management manual does not cover the handling of
revenues and deposits. Staff will incorporate into the manual procedures that will emphasize the areas of
revenue and deposit handling, monitoring, supervision and segregation of duties, and will detail the
responsibilities of each employee.
7. Eliminate the petty cash fund.
Staff concurs with the recommendation. The petty cash fund of $50 is used infrequently. Staff is
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agreeable to using or setting up vendor accounts or utilizing employee reimbursements. The fund will be
eliminated this month.
{End of Report}