HomeMy WebLinkAboutProperty and Facilities-Cash HandlingProperty & Facilities - Cash handling over revenues report #11/12-12 September 2012
Property & Facilities –
Cash handling over revenues
To request this information in an alternate format, please call (541) 330-4674 or send email to David.Givans@Deschutes.org .
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:
Gayle McConnell, Chair - Public member
Chris Earnest - Public member
Jean Pedelty - Public member
Greg Quesnel - Public member
Michael Shadrach - Public member
Jennifer Welander - Public member
Anthony DeBone, County Commissioner
Dan Despotopulos, Fair & Expo Director
Scot Langton, County Assessor
Property & Facilities - Cash handling over revenues report #11/12-12 September2012
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Property & Facilities - Cash handling over revenues report #11/12-12 September2012
TABLE OF
CONTENTS:
1. INTRODUCTION
1.1. Background on Audit …………..………………………………………...…… 1
1.2. Objectives and Scope ………………….……………………………..……… 1
1.3. Methodology …………………………………….……………………...…… 1-2
2. FINDINGS
Internal control observations …………………..…………………................... 2-4
Additional study on building rents …………………………………………..… 4-7
3. MANAGEMENT RESPONSE
Property & Facilities ……......…..……………….………………………..……. 7-9
Property & Facilities - Cash handling over revenues report #11/12-12 September2012
HIGHLIGHTS
Why this audit was
performed:
The Property & Facilities
Department has 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;
developing
documentation of
accounting policies
and procedures over
their rents and other
collections;
developing a policy for
use of County facilities
and how rents should
be developed for
internal and external
tenants; and
considering whether
the benefits derived
from the daycare
facility balance with
the associated costs.
Property & Facilities – Cash handling over revenues
What was found
As with many departments undergoing cash handling reviews, a number of recommendations were
developed to assist the Property & Facilities Department comply with County policy or prudent business
practices. Cash, in the context of this department, primarily means checks. The department does
handle some higher dollar amounts of money and virtually all monies are paid by check. Some rent
monies are even received directly through County Finance.
The Property & Facilities Department’s accounting responsibilities occur with a staff position overseen by
the Director. Additional controls could improve oversight over revenues including: segregation of duties,
comparison of monies received to monies deposited, and the current system makes it difficult to ascertain
that all monies received have been deposited though there appears to be sufficient mitigating controls.
Staff had a clear understanding of their process but there are insufficient written accounting policies and
procedures over revenues.
Use of facilities by non-County tenants comes with a cost to the County. An analysis performed
highlighted an estimated cost ($45 thousand) to the County for some of the non-County tenants
occupying one of the buildings.
A majority of the identified cost subsidy is funded by General Fund.
Rents do not provide any return on building value. The inherent rental value of the space is worth
another $81 thousand. The County currently does not have a policy on how to develop rents and how
to handle non-County tenants.
County departments are looking for space.
The County Budget Committee has raised the question of equity of rents in County buildings and how
best to charge departments for the space they utilize in order to assure monies are available to pay
debt and make significant repairs.
Daycare subsidy per child exceeds benefit received. The estimated value of the subsidy for daycare is
approximately $201 per child per month and exceeds the estimated $50-$75 per month value
received by users of the daycare.
Deschutes County Internal Audit
Property & Facilities - Cash handling over revenues report #11/12-12 September2012
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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 Property & Facilities 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 Property & Facilities’ practices and policies for cash handling over revenues. Additionally, review
building rents for non-County tenants.
Scope:
The focus of the review was on internal control over handling of external customer payments for services at
Property & Facilities. Property & Facilities collects a number of fees primarily for maintenance and
reimbursement of utilities by external customers. In addition, some outside tenants occupy County buildings
and pay rents and these are collected primarily by Prop erty & Facilities. A majority of the revenues are
handled through internal service charges developed during the County budget. Audit work was completed
primarily in the May through July 2012 period. Property & Facilities does not have any imprest cash funds or
checking account. The department accounts for some of its activity in fund 620; however, a number of
receipts are also collected and deposited to other funds.
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,
Reviewing days to deposit for selected cash receipts, and
Analyzing, to a limited extent, the non-County tenant rents versus value received for a selected
location.
DESCHUTES COUNTY
INTERNAL AUDIT
REPORT
DESCHUTES COUNTY
INTERNAL AUDIT
REPORT
DESCHUTES COUNTY
INTERNAL AUDIT
REPORT
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Page 2 of 9
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. (2011 Revision of Government Auditing Standards, issued by the Comptroller General of the United States.)
2. 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.
INTERNAL CONTROL OBSERVATIONS
Additional controls could improve oversight over revenues.
The Property & Facilities Department’s accounting responsibilities occur with one office staff position
overseen by the Director. During observation of Property & Facilities cash handling processes, a couple of
areas were noted for improvement.
Segregation of duties could be improved. Monies received in the mail are not logged by the “mail-
opener”. These funds received are moved between staff without any tracking or control. The one
office staff person has significant control over the collection process from billing to deposit.
There is no comparison of monies received for deposit to monies deposited with Finance.
Current system makes it difficult to ascertain that all monies received have been deposited. This can
occur with other types of infrequent collections (non-rental payments).
Office staff are currently responsible for receiving and posting receivable payments, managing customer
Property & Facilities - Cash handling over revenues report #11/12-12 September2012
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accounts, and accounting for all transactions. Due to the extensive nature of procedures performed by the
office staff, the following recommendations suggest some shifting of duties and/or improvements in
procedures.
Segregation of duties focusses on splitting up some incompatible accounting duties. No individual should
authorize a transaction, record the transaction in the accounting records, and maintain custody of the assets
resulting from the transaction. When these functions cannot be separated, due to limited personnel, a
detailed supervisory review of related activities may be used as a compensating control activity.
One typical control is to develop an expectation for anticipated revenues for which to reconcile receipts.
Some receipts are not typical. The lack of a reconciliation process to the amounts expected and the nature
of the rent collection process makes it difficult to assess what the deposit should be for the day. The
department does prepare billings for rental agreements based on written contract; however, the person
developing the billings and contracts is not associated with the deposits. A supervisor may not be aware of
discrepancies in a timely manner. Office staff log all rent monies into a spreadsheet but not other types of
payments.
In the absence of sufficient cash controls, it may be difficult to locate or identify in a timely manner whether
all monies have been collected and deposited. The diverse number of accounts utilized makes it more
difficult to pick up inconsistencies.
Property & Facilities’ staff perform some mitigating controls such as comparing on a test basis amounts
coming in and the associated accounting. No missing or incorrectly handled receipts were identified. The
Finance department also has performs some oversight.
It is recommended the department develop a process to better oversee all of the types of payments
they may receive through to deposit with Finance.
Implementation could be assisted by:
establishing a log for mailed-in checks that is prepared by a separate person from office staff;
improving the log of monies received to include the non-recurring transactions; and
a person not responsible for deposits should periodically reconcile Finance receipts to the log
prepared.
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There are insufficient written accounting policies and procedures over revenues.
Staff had a clear understanding of their process but lacked written policies and procedures to describe how
they exercise control 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 Property & Facilities to develop documentation of their accounting policies
and procedures over their rents and other collections. 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.
ADDITIONAL STUDY ON BUILDING RENTS
Use of facilities by non-County tenants comes with a cost to County.
When reviewing how rents from non-County tenants were accounted for, it became clear that many of these
rents were posted to cover costs within the Building Maintenance internal service fund. This raised some
questions:
1. Are rents charged to non-County tenants sufficient to cover the associated costs and provide a
reasonable return for the value of the rented space? If the rents had been in excess of the costs, the
accounting would have indicated parts of these rents posted to a property management fund.
An analysis was prepared that included the rental value, associated costs and the amounts received for
occupying the space. Reimbursed costs were excluded from the analysis. One County property with a
number of non-County tenants (the Mike Maier building) was the focus of this analysis. Many of the non-
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Table I
Estimate of
subsidy for non-
County tenants
for a selected
building.
County tenants are valuable community partners. The value of the Mike Maier building (less land) was
estimated, for these purposes, to be worth approximately $1.5 million. Triple net lease rates (tenants are
supposed to pay taxes, insurance and maintenance) appear to currently range from .75 to $1.75 per square
foot. See Table I below for the analysis.
(A) (B) (A)-(B)=(C) (D)
(C)-
(D)=(E) (E)/12/22
Revenue Costs
Revenue
net of
costs
Inherent
Value Total
Non-County tenant
Annual
rent and
costs
received
Estimated
maintenance,
utility &
property tax*
costs
Contribution
(subsidy)
after costs
Approx.
building
rental
value
($.75 / ft.)
Estimated
total
subsidy
Estimated
value of
subsidy
per child
per month
Munchkin Manor
(daycare) * $ - $ 21,600 $ (21,600) $ 31,500 $ (53,100) $ (201)
Family Resource
Center 8,400 24,200 (15,800) 27,000 (42,800)
United Way * 6,000 13,400 (7,400) 13,000 (20,400)
CASA 2,600 3,100 (500) 5,000 (5,500)
Latino Community
Association 2,400 2,300 100 4,500 (4,400)
TOTAL $ 19,400 $ 64,600 $ (45,200) $ 81,000
$(126,200)
* Property taxes can be assessed to certain non-exempt entities.
A majority of the identified cost subsidy is funded by General Fund.
As compared to the rents received, the County general fund is currently subsidizing to the extent of $39
thousand dollars the direct costs for maintenance and utilities. An additional $7.7 thousand in property taxes
was identified by the audit as future additional costs because some of these entities will not meet the
requirements for property tax exemption.
Rents do not provide any return on building value.
Using a conservative market rate of $.75 per square foot for downtown office space indicates the inherent
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rental value of the space is worth another $81 thousand. These are monies not recovered that could provide
for the usage of the building and the ultimate improvements that will be required over its life.
The County currently does not have a policy on how to develop rents and how to handle non-County
tenants.
County departments are looking for space.
The Property & Facilities Director has indicated that
“It is becoming increasingly difficult to keep up with space needs for our own county operations.
When we first considered allowing non-county tenants to occupy our buildings, it was always with the
thought and understanding that these tenants would need to leave if we ourselves needed the space.”
Space occupied is in the core of the downtown complex has the benefits of centralizing County services and
providing more contiguous department operations. Some County departments looking for space are not
being given the option to takeover non-County tenant space. County departments should be able to look
internally before considering renting space or building additional space.
Budget Committee raises question of equity of rents in County buildings.
During this year’s budget discussions for building services, there was discussion over how best to charge
departments for the space they utilize in order to assure monies are available to pay debt and make
significant repairs. Staff was asked to develop in the coming year a plan.
It is recommended for the County to develop a policy for use of County facilities and how rents
should be developed for internal and external tenants.
This policy may consider community contributions, costs to the County and needs by County
departments when allowing for outside use of County building space.
A preference should be given for County departments to use available space, especially in
County buildings when it can be contiguous with their other operations.
External market rates should be used when considering rent levels, as well as costs for
depreciation, interest and other costs. Rents should be adequate to provide for significant
repairs and improvements over the life of the property.
The County should seek (with non-County tenants) a market rental agreement. Maintenance,
utilities and property taxes, if applicable, should be recovered or reimbursed.
Based on the discussions from this year’s budget committee, it is further recommended for the
County to consider an accounting and budgeting process for building usage costs to assure
transparency, equity and fairness in costs and sufficiency to meet debt and future repairs. The
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County may also need to address in the solution the rules under OMB A-87 for cost allocations.
Daycare subsidy per child exceeds benefit received.
The daycare was one of the conditions for the State lease on Wall street. Table I indicates the value of the
subsidy for daycare is approximately $201 per child per month. This significantly exceeds the estimated
$50-$75 per month value received by users of the daycare. Property and Facilities indicates some 22
children of employees of the State or County utilize the daycare services.
The County should consider whether the benefits derived from the daycare facility balance with
the associated costs of occupying a core County facility. A modest paid incentive to eligible
staff desiring to use the daycare services (which would be compensable) may be more cost
effective and provide greater value to the affected employees.
3.
MANAGEMENT
RESPONSE
Property &
Facilities –
Susan Ross,
Director
September 5, 2012
TO: David Givans, County Internal Auditor
FROM: Susan Ross, Property & Facilities Director
RE: RESPONSE TO CASH HANDLING AUDIT REPORT
Recommendation #1: It is recommended the department develop a process to better oversee all of the types of
payments they may receive through to deposit with Finance.
Implementation could be assisted by:
establishing a log for mailed-in checks that is prepared by a separate person from office staff;
improving the log of monies received to include the non-recurring transactions; and
a person not responsible for deposits should periodica lly reconcile Finance receipts to the log prepared.
We agree with this recommendation. The department will establish a log of all monies received. So that there
is a separation of duties from our general office staff person, our property manager will be responsible for
keeping this log and will present to department director once a week. Upon receipt of this log, department
director will verify that all monies received have been deposited. Verification will consist of reviewing deposit
slips as well as checking the financial software program. This practice will be implemented immediately.
Property & Facilities - Cash handling over revenues report #11/12-12 September2012
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Recommendation #2: It is recommended for Property & Facilities to develop documentation of their accounting
policies and procedures over their rents and other collections. 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 employ ee.
This recommendation is appropriate and department director will work with staff to develop written policies and
document the cash handling procedures. This policy will be developed within one month.
Recommendation #3: It is recommended for the County to develop a policy for use of County facilities and how
rents should be developed for internal and external tenants.
This policy may consider community contributions, costs to the County and needs by County
departments when allowing for outside use of County building space.
A preference should be given for County departments to use available space , especially in County
buildings when it can be contiguous with their other operations.
External market rates should be used when considering rent levels, as well as costs for depreciation,
interest and other costs. Rents should be adequate to provide for significant repairs and improvements
over the life of the property.
The County should seek (with non-County tenants) a market rental agreement. Maintenance, utilities and
property taxes, if applicable, should be recovered or reimbursed.
Department agrees that a policy should be developed, however, the content of the policies will be determined by
the Board of County Commissioners. The Board has intentionally made the decision to subsidize rent for some
non-county tenants for a variety of reasons, but generally because th e service provided by the nonprofit
organization complements the efforts/services of the County. Staff has had concerns about equity and how we
determine which organization should be subsidized and at what level. Staff also feels strongly that space
needed for our own operations should be vacated, but this can become somewhat of a political issue. Once a
tenant is permitted to occupy space, they rarely want to leave.
Recommendation #4: Based on the discussions from this year’s budget committee, it is further recommended
for the County to consider an accounting and budgeting process for building usage costs to assure
transparency, equity and fairness in costs and sufficiency to meet debt and future repairs. The County may also
need to address in the solution the rules under OMB A-87 for cost allocations.
Staff agrees with this recommendation, and will try to set up work sessions with the Board to discuss
Property & Facilities - Cash handling over revenues report #11/12-12 September2012
Page 9 of 9
establishment of these policies.
Recommendation #5: The County should consider whether the benefits derived from the daycare facility
balance with the associated costs of occupying a core County facility. A modest paid incentive to eligible staff
desiring to use the daycare services (which would be compensable) may be more cost effective and pr ovide
greater value to the affected employees.
This policy will need to be established by the Board. The primary intent of the daycare was not to provide a
financial incentive. The primary purpose was for an on -site center that was close to the workplaces of County
and State employees. A secondary purpose was to provide daycare slots to the general public because there
was an overall shortage of daycare openings. One of the selling points to the State DHS to occupy space in our
downtown facility was that there would be an on-site daycare.
{End of Report}