HomeMy WebLinkAbout2324-2 Facilities and Property Cash Handling (Final 10-18-23)Facilities and Property Cash Handling – 22/23-2 October 2023
Facilities and Property Management
Departments– Cash Handling
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Deschutes County,
Oregon
The Office of County Internal Audit
Elizabeth Pape, CIA, CFE – County Internal Auditor
Aaron Kay – Performance Auditor
internal.audit@deschutes.org
Audit committee:
Daryl Parrish, Chair - Public member
Jodi Burch – Public member
Joe Healy - 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
4
Facilities and Property Cash Handling – 22/23-2 October 2023
Table of Contents:
1. Introduction ............................................................................................................................................ 1
Background on the Departments .................................................................................................................................................. 1
2. Findings and Observations .................................................................................................................... 4
Facilities Fiscal Observations .......................................................................................................................................................... 4
Property Managament Fiscal Observations ................................................................................................................................. 5
3. Management Response ........................................................................................................................ 10
Facilities Department .................................................................................................................................................................... 10
Property Management Department ............................................................................................................................................ 11
Human Resources ......................................................................................................................................................................... 13
Appendix A: Objective, Scope, and Methodology ................................................................................... 14
Objectives and Scope .................................................................................................................................................................... 15
Methodology .................................................................................................................................................................................. 16
Facilities and Property Cash Handling – 22/23-2 October 2023
HIGHLIGHTS
Why this audit was
performed:
A periodic review of
internal controls over
cash handling of receipts.
What was
recommended:
Facilities should complete
documentation of its
accounting procedures.
Property Management
should update its
accounting procedures
and document the
process for charging
certain fees.
Human Resources should
update its policy on conflict
of interests and the
disclosure procedure.
Facilities and Property Management Cash Handling
The focus of the review was on fiscal controls over handling of external customer payments
and collections.
What was found
Overall, the Facilities and Property Management departments performed well in
providing fiscal controls over receipts given the limited volume of payments coming into
departments. Recommendations were developed to help both departments comply with
County policy and follow prudent business practices for cash handling.
The following areas were identified for further improvement, including:
• Additional controls within the Facilities department accounting procedures could
improve oversight over receipts.
• The Property Management department’s accounting procedures are outdated.
• The Property Management department does not have a process for when to
charge filing and recording fees.
Additionally, a routine disclosure of a potential conflict of interest in a land sale
prompted a review of the County’s conflict of interest policy. This policy, in contrast to
Oregon State law, restricts the organization's flexibility and its ability to openly
acknowledge such conflicts when they arise.
Deschutes County Internal Audit
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 1
1. Introduction
Audit Authority:
The Deschutes County Audit Committee authorized the review of cash handling practices for the
Facilities and Property Management Departments in the Internal Audit Program Work Plan for 2022-
2023. Internal audits of fiscal controls are routinely performed for identified County departments or
functions. Audit objectives, scope, and methodology can be found in Appendix A.
Background on the Departments
Diagram I
Timeline of
administrative
separation of the
two departments
Source: County Budget
Information
Before 2017, there was a single Property and Facilities Department that included both Facilities and
Property Management functions. In July 2017, the Property Management function was separated
from the Facilities Department and placed under the Administrative Services Department. Now,
Property Management stands as its own independent department. The Property Management
manager reports to the County Administrator, while the Facilities Department director reports to the
Deputy County Administrator.
Facilities Department
The Facilities Department (Facilities) oversees County-owned buildings and facilities. Facilities
programs include1:
1 FY2024 Deschutes County Proposed Budget Book Pg. 159-163
FY17 •Property and Facilites Department
FY18
•Facilities Department
•Property Managment function placed under Administrative Services
FY24
•Facilities Department
•Property Management Department
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 2
Graph I
Trend of Facilities
revenues and
expenses (Budget
Actual FY19-23)
• Facility management
Long-term planning and project management of capital asset replacement; development and
execution of new construction and remodel projects (coordinated with Property
Management); facilities-related services and procurement; and annual testing of life safety
systems.
• Building and grounds maintenance
Maintenance and repair of all building management systems, interior and exterior finishes,
building entry systems, as well as the grounds and hardscapes.
• Custodial services
Daily and deep cleaning, hard floor maintenance, and carpet cleaning.
Facilities primarily funds its operations through internal service charges to other County
departments and functions. It also gathers fees from external customers for maintenance and utility
reimbursements. The department received funds in Fiscal Years (FY) 2020 and 2021 through the
Coronavirus Aid, Relief, and Economic Security (CARES) Grant to support essential services.
Additionally, Facilities manages funds for capital construction projects and significant renovations,
which are not included in Graph I.
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 3
Graph II
Trend of lease
revenues (Budget
Actual FY19-23)
Staffing for Facilities has remained consistent at around 25 full time employees, growing slightly for
Fiscal Year 2024 to 26.75. From a cash handling perspective, administrative staff assigned to those
duties include a management analyst and administrative support specialist, with oversight coming
from the Facilities Director.
Property Management Department
The Property Management Department (Property Management) consists of three staff: a county
property specialist, management analyst, and the County Property Manager. They manage County-
owned real estate, including the acquisition and disposition of holdings, leasing activity, and project
management. Funding comes from County land sale earnings, project development funds, and the
General Fund. Property Management also collects lease payments for properties the County rents to
external entities, shown in Graph II. For example, Property management collected rent from
tenants at the Kingwood Avenue properties which had existing lease agreements when the County
purchased them in 2021. Compared to the previous fiscal year, this acquisition more than tripled
lease revenues. As the leases expire and the County utilizes the buildings for its own purposes,
revenues are gradually returning to their previous levels.
Lease revenues
increase
sharply in FY22
due to the
acquisition of
the Kingwood
Ave. properties.
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 4
2. Findings and Observations
Overall, both departments performed well in providing fiscal controls over collected revenues. The
following observations are tailored to each department with consideration to staffing levels,
business demands, and operational challenges. They are intended to further improve the
procedures put into place.
Facilities Fiscal Observations
Additional controls could improve oversight over Facilities revenues.
When reviewing the cash handling procedures in Facilities, it was evident that the staff had a good
grasp of the process, but there were insufficient written instructions to support the implementation
of internal controls. The department did not have written procedures for reconciling receipts
recorded in the accounting system and managing accounts receivable. Additionally, the
documented procedures directed the movement of funds between staff without any tracking.
The County Cash Handling Policy (F-11) mandates directors to design, implement, and monitor
effective cash handling controls while also promoting an effective internal control environment.
Communication is an essential component of internal controls. Accurately written policies and
procedures are necessary for effective financial and accounting controls. For example, an effective
fiscal control involves jointly recounting monies as they move from one staff person to another.
Billed customers have additional risks that should be explicitly addressed in procedures. Customer
risk areas include: creating new customers; making billing adjustments; and providing segregation
of duties for staff performing accounting and collections.
Without comprehensive written accounting procedures, Facilities risks having inadequately planned
controls and inadequate oversight. There is also a risk that staff may not adhere to stated control
procedures.
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 5
Facilities experiences a limited number of transactions with external customers, reducing the
perception of the need for extensive written procedures. Departmental policies and procedures
should be at least sufficient to address a minimum level of internal controls over revenue and
deposit handling, monitoring, oversight, and segregation of duties. These policies and procedures
should detail the responsibilities of each employee.
Recommendation
The Facilities Department should complete documentation of their accounting policies and
procedures to address identified concerns.
Property Managament Fiscal Observations
Property Management’s written accounting policies and procedures are outdated.
Similar to Facilities, Property Management did not have written procedures for the reconciliation
process or managing accounts receivable. Additionally, existing written policies and procedures for
control over monies no longer reflect the organizational structure. Finally, due to the limited size of
the Property Management department, it is challenging to establish a clear segregation of duties
when there are only two individuals. For example, currently the property specialist position is
vacant, so the management analyst has the responsibility of receiving and posting receivable
payments, managing customer accounts, and accounting for all transactions.
The County Cash Handling Policy (F-11) assists departments in addressing their cash handling
practices and procedures. According to the policy, 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. One way to ensure the proper
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 6
segregation of duties between two individuals is by implementing dual controls. For instance, both
individuals could be present and actively engaged in the process of counting and verifying cash
before recording it. Given the department's size and the potential need for dual controls (such as
when one person is on vacation), written procedures should incorporate them as a backup plan.
Without clear written procedures, staff are left to their own devices to perform their assigned duties.
Sufficient controls may not be in place to safeguard all assets from fraudulent activity and such
activity is easier to conceal in the absence of written procedures. This risk is amplified by insufficient
segregation of duties, which increases the chance of theft. When too many duties are concentrated
with any one person it may be difficult to sufficiently safeguard assets and ensure proper
accounting. No evidence of theft or fraud was present in examined transactions.
A prior audit recommendation from the 2012 audit report, Property & Facilities – Cash handling over
revenues, led to the establishment of a procedure noted in the 2013 follow up report. Since then,
the Facilities Department director no longer oversees the Property Management Department, and
procedures have not been revised to address the new structure. Staff are currently in the process of
recruiting a property specialist, which will ease segregation of duties difficulties.
Recommendation
The Property Management Department should revise its written accounting policies and
procedures for monies collected. This includes recognition of the current organizational structure,
documentation of the reconciliation and accounts receivable processes, and establishing sufficient
segregation of staff duties.
Property Management does not have a written procedure for charging filing and
recording fees.
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 7
Graph III
Trend of Property
Management
resources (Budget
Actual FY19-23)
Property Management relies on funds from County foreclosed land sales to cover a portion of its
administrative costs. Over the last two fiscal years, it refrained from calculating or directly charging
filing and recording fees. Instead, Property Management relied on lump sum transfers from the
proceeds of each sale for reimbursements. A recent Supreme Court ruling may impact how the
County is allowed to recoup administrative costs for foreclosed land sales in the future. 2 In one
possible scenario, the County might be allowed to charge for expenses but would also need to
provide an opportunity for returning the remainder of profits to former property owners. The
County has not yet made any determinations regarding the administration of foreclosed property
sales.
County financial policy (F-14) offers guidance on how to establish and periodically review fees for
services. These user fees enable County departments to financially sustain the services they offer.
Notably, filing and recording fees have been part of the approved fee schedule since Fiscal Year
2016.
As the County navigates the impacts of the Supreme Court ruling, it underscores the significance of
2 Tyler vs. Hennepin County, Minnesota
Reimbursements
from land sales
accounted for
34% of Property
Management
resources in
FY23.
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 8
fee collections in compensating for the resources that may be lost from land sale proceeds. Failing
to charge these fees would necessitate a greater reliance on the General Fund to sustain operations
at their current level.
The department has seen turnover in the manager position since the last fee schedule adjustment.
Due to insufficient documentation regarding the creation of the current fee schedule, the current
staff faces a lack of clarity in charging the approved fees within the schedule. Fees have not been
adjusted for the last seven years to reflect the growth in the department and the rising indirect
costs.
Recommendation
The Property Management Department should document the process and criteria for charging
filing and recording fees. This could also include recalculation of the fees during the annual review to
ensure the rate is still accurate.
The County did not have a process in place for recording conflicts of interest
disclosures in official records.
In 2023, a County staffer verbally informed the Board of County Commissioners, County
Administration, and the County Legal Department about a conflict-of-interest in a potential land
sale, but there was no written documentation. ORS 244.120 mandates that appointed public
officials, whether facing actual or potential conflicts of interest, must provide a written description of
the conflict to the appointing authority. 3 However, Section 8.020 of the County Human Resources
Personnel Rules did not specify how to make disclosures. Instead, it required employees to avoid
any employment, business, activity, practice, or action that could conflict with their County duties or
3 Public officials are defined as a person elected or appointed to an office or position within government or special district; an employee of government or special
district; a volunteer for a government agency or special district; or an agent of the State of Oregon. Oregon Government Ethics Law, A guide for public officials, Pg. 6
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 9
the County's interests, whether actual or potential.
From an internal control perspective, there are legitimate concerns with conflicts-of-interest.
Without sufficient oversight, conflicts-of-interest can provide an avenue for employees to
circumvent normal fiscal controls and potentially disburse funds to themselves through a related
business. Though no fraud was identified with this audit and the staffer acted ethically by disclosing
the potential conflict, there are routinely frauds perpetrated elsewhere in the United States where
employees have used bogus companies to divert monies. Despite these problems with conflicts-of-
interest, they are unavoidable in some cases. For example, conflicts are more common in small
communities and when special expertise is required. In these cases, disclosure and mitigation can
limit the potential for fraud.
The County policy did not provide useful guidance for employees about what to do when conflicts-
of-interest arose. In one part, the County policy seemed to simply forbid any conflict-of-interest. In
another part, it required disclosures, but the requirement was confusingly located in a section titled
prohibited activities. State law allowed more flexibility than the County policy by allowing staff to
proceed with their duties if they documented the conflict and mitigating factors were put in place.
Human Resources staff said that County policy afforded individual departments the autonomy to
independently address conflicts-of-interest. While this approach permits each department to tailor a
process to its unique needs and challenges, it also elevates the risk of not adhering to State law.
Recommendation
The Human Resources Department should align Section 8.020 with State conflict-of-interest laws
and establish a standardized disclosure procedure. This could include a template for written
notifications.
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 10
3. Management Response
Facilities
Department,
Lee Randall,
Director
Facilities Department Response
October 13, 2023
Recommendation
The Facilities Department should complete documentation of their accounting policies and
procedures to address identified concerns.
Response:
Written cash handling policies and procedures have been completed in response to the audit
recommendation.
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 11
Property
Management
Department,
Kristie Bollinger,
County Property
Manager
To: Elizabeth Pape, County Internal Auditor
Aaron Kay, Performance Auditor
From: Kristie Bollinger, Property Manager
Date: October 10, 2023
Subject: Management’s response to Audit report
Recommendation
The Property Management Department should revise its written accounting policies and
procedures for monies collected. This includes recognition of the current organizational structure,
documentation of the reconciliation and accounts receivable processes, and establishing sufficient
segregation of staff duties.
a) Management position concerning recommendation: Concurs
b) Comments: Up until October 2, 2023, Property Management has been limited to two staff and
one of those staff has been assigned to accounts receivable as well as accounts payable. With
the addition of a third member of staff, Property Management is segregating accounts
receivable and accounts payable between two staff, and those two staff will be fully cross trained
in each area. As part of training new staff on current receivable procedures, Property
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 12
Property
Management
Department
continued
Management will document processes and procures.
c) Estimated date of corrective action or date completed: Property Management is in the process
of segregating accounts receivable and accounts payable. This will be completed over the next 6
months. Documented processes and procedures will be developed in approximately the next 12
months.
d) Estimated cost to implement recommendation, if significant: Nominal
Recommendation
The Property Management Department should document the process and criteria for charging filing
and recording fees. This could also include recalculation of the fees during the annual review to ensure the
rate is still accurate.
a) Management position concerning recommendation: Concurs
b) Comments: Recording fees associated with properties sold at auction are included in the
property sales price. Recording fees associated with one-off sales are generally collected from
the buyer or may be split between the County and buyer as determined during negotiations.
Recording fees associated with property sales in La Pine Industrial are negotiated and generally
split between the buyer and the City of La Pine in accordance with the IGA. Further, Property
Management is committed to reviewing and implementing a comprehensive fee schedule with
the goal to implement during the next fiscal year.
c) Estimated date of corrective action or date completed: Property Management aims to
document processes and procedures within approximately the next 12 months.
d) Estimated cost to implement recommendation, if significant: Nominal
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 13
Property
Management
Department
continued
Human
Resources
Kathleen
Hinman, HR
Director
Recommendation
The Human Resources Department should align Section 8.020 with State conflict-of-interest laws and
establish a standardized disclosure procedure. This could include a template for written notifications.
a) Management position concerning recommendation: Concurs
b) Comments: At the time a potential conflict of interest was recognized, Property Management
notified the seller’s representative and the City of La Pine’s city manager* via email on March 24,
2023 (* due to the transaction associated with the sale of property in La Pine Industrial). It was
communicated at that time that a title company would be utilized for the transaction (vs the
option of closing the transaction internally with Property Management). Further, when Property
Management presented the offer received to purchase property in La Pine Industrial at
executive session on March 29, 2023, Property management briefed the Board of County
Commissioners, Administration and County Counsel of the potential conflict of interest.
c) Estimated date of corrective action or date completed: All directed otherwise, future potential
conflicts of interest will be communicated in writing to County Administration.
d) Estimated cost to implement recommendation, if significant: Nominal
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 14
Human
Resources
continued
Date: October 17, 2023
To: Elizabeth Pape, County Internal Auditor
Aaron Kay, Performance Auditor
From: Kathleen Hinman, HR Director
Re: Facilities and Property Management Departments – Cash Handling Audit 2223-2
Thank you for the opportunity to review and comment on your report, Facilities and Property
Management Departments Cash Handling Audit Report #2223-2 (the Audit). Human Resources values your
review and the perspective it provides management as we work to evaluate and refine our practices
and systems now and into the future.
HR appreciates the attention the Audit brings in case study review of the application of HR-Personnel
Rules Section 8.020 Conflict of Interest. This will help in providing perspective when we review County
Personnel and Rules.
Below is the response to the Audit recommendation for Human Resources.
Recommendation
The Human Resources Department should align Section 8.020 with State conflict-of-interest laws and
establish a standardized disclosure procedure. This could include a template for written notifications.
Human Resources agrees with the auditors’ comments and recommendation and will work on
updating HR-Personnel Rules to better establish expectations and procedures.
Appendix A: Objective, Scope, and Methodology
The County Internal Auditor was created by the Deschutes County Code as an independent office
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 15
conducting performance audits to provide information and recommendations for improvement.
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.
“Audit
objectives” define
the goals of the
audit.
Objectives and Scope
Objectives included:
1. Review of internal controls for cash handling with Property Management and Facilities as
outlined in County Finance policy for cash handling (F-11). Identify areas to improve
efficiency and effectiveness. Additionally, review management of any change cash, petty
cash, receipts, credit cards, judgements, collections, and billings, as applicable.
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 16
2. Be aware of any issues with compliance with federal and state regulations and
requirements, as may be applicable.
Scope and timing:
The audit occurred in August and September 2023. Included in the review of cash handling
of Property Management are accounting funds primarily handled in Fund 001-25 and Facilities
primarily handled in Fund 620. No petty cash or checking account are present in either department.
The focus of the review was on internal controls over handling of third-party customer payments.
The scope of the audit did not include all aspects of the internal controls employed.
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.
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.)
Facilities and Property Cash Handling – 22/23-2 October 2023
Page 17
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