HomeMy WebLinkAboutCOM 0920.000 2016-2018 Valerie T.Poindexter -y o Bonnie S.Nims,CGRP
Chair&Presiding Officer o�N "�: 4r% °. Legislative Auditor
Council District 1
Business Address
•
OF
,•aTQTF._ -47'; •- / 120 Pauahi Street
,.,,.,..
Suite 309
Hilo,Hawai`i 96720
Gunk .afPaftat t
OFFICE OF THE LEGISLATIVE AUDITOR ,
25 Aupuni Street Hilo,Hawai`i 96720 * (808)961-8386 * Fax(808)961-8905 �, C :
website:http:%hawaiicounty.gov e-mail:puhliclao(i9co.hawaii.hi.us CQ
April 30, 2018 d Q-(
—rin
C)
1;›*The Honorable Valerie T. Poindexter, Council Chairperson and
Members of the Hawai`i County Council
Hawaii County Council
25 Aupuni Street
Hilo, Hawai`i 96720
Dear Chair Poindexter and Council Members,
In accordance with Hawai`i County Charter Section 3-18(d)(2), attached is the Office of the
Legislative Auditor's report of our audit of cash handling at the Hawai`i County Mass Transit
Agency(Mass Transit). The purpose of the audit was to determine if cash handling internal
controls at Mass Transit are adequate and effective to ensure that revenue is properly controlled
and deposits are timely and accurate. We evaluated if these internal controls followed best
practices and identified areas for improvement.
In fiscal year 2016-2017, Mass Transit receipted approximately $1.2 million in bus fares and
shared ride taxi coupons (taxi coupons). Management of such a significant revenue stream
makes it important for Mass Transit to have sound controls to safeguard revenue. As described
in the attached report, Mass Transit needs to develop stronger cash handling internal controls to
ensure that revenue is properly controlled and deposits are timely and accurate. Specifically,
Mass Transit needs to update the bus cash handling system and increase the priority of cash
handling internal controls. These internal controls include physically securing their assets,
segregating incompatible duties, implementing monitoring and oversight procedures, updating
and enforcing policies and procedures, and providing training. We also found Mass Transit
needs to improve their control over manual cash receipts and their purchase order sales process.
Through stronger internal controls and monitoring, Mass Transit will be able to improve its
collection, safeguarding, and accounting for its transportation revenue. Our report lists several
related recommendations.
Comm. No. CO-®
Ref. To:
Hawai'i County is an Equal Opportunity Provider and Employer Ref. Date APR 3 0 2013
If you need any further information, please let me know. We would like to thank Mass Transit's
staff for their assistance and cooperation during this audit. We greatly appreciate all of their
valuable time and efforts spent on providing us information.
Respectfully,
Bonnie S.Nims, CGAP
Legislative Auditor
cc: Harry Kim, Mayor
Stewart Maeda, County Clerk
Wil Okabe, Managing Director
Maria Aranguiz, Mass Transit Administrator
Deanna Sako, Finance Director
Transportation Commission
Cash Handling at
County of Hawai'i's
Mass Transit Agency
Report No. 2018-01
April 30, 2018
` des
Report Highlights April 30, 2018
Cash Handling at the County of Hawai`Ps
Mass Transit Agency
Background
The County of Hawaii Mass Transit
Agency's (Mass Transit) mission is to
provide safe, clean, convenient
transportation services for the
residents and visitors to the County of
Hawaii.
In fiscal year 2016-2017, 639,000
passengers rode the bus and
148,000 used the shared ride taxi
program providing Mass Transit with
approximately $1.2 million in
revenue.
What was the purpose of
this audit?
This performance audit was
undertaken to evaluate if Mass
Transit's internal controls were
adequate to reduce the risk of fraud
and mishandling of cash receipts and
to identify potential areas for
improvement.
The audit also looked at cash receipt
transactions to ensure that receipts
were deposited timely and intact.
We initiated the audit, as we believe
cash receipts are an inherently high-
risk process. In addition, Hawaii
County Council passed Resolution
218-17 (June 23, 2017) requesting an
audit of Mass Transit's cash handling
procedures.
Mass Transit's cash handling process was inadequate and
ineffective to ensure that revenue is properly controlled and
deposits are timely and accurate. Specifically, we found that cash
was not physically secured, incompatible duties were not
segregated, independent monitoring was insufficient, and cash was
not deposited timely. We also found that Mass Transit sold taxi
coupons, bus tickets, and bus passes using purchase orders
outside of the County's contracting process.
In January 2018, we conducted a surprise cash count. We counted
nearly $30,000 in bus fare revenue, some of which had been there
since July 2017. Due to the numerous internal control weaknesses,
an ineffective bus cash receipting system, and the inconsistencies
found during our count, we could not determine if all the cash paid
by the bus riders was included in our count. We were unable to
determine if money had been lost or misappropriated.
We also reviewed December 2017 cash receipts and found that all
money that was receipted - was recorded and deposited. However,
we could not determine if all money was receipted.
Management has generally agreed with the comments and
recommendations in this report. Their complete response to this
audit can be found on page 29: Management Response.
To enhance Mass Transit's ability to collect all revenue from the
sale of taxi coupons as well as bus fares, tickets, and passes, we
offer 30 recommendations to Mass Transit management and staff.
These recommendations include updating the bus cash handling
system and prioritizing cash handling internal controls. Some of
these internal controls include physically safeguarding cash and
cash equivalents, segregating duties, monitoring, and implementing
and enforcing policies and procedures. A complete list of our
recommendations can be found on page 24: What do we
recommend?
This audit was conducted in accordance with general accepted government auditing standards.
This page intentionally left blank.
Table of Contents
Introduction.................................................................................................................................1
AuditObjectives..........................................................................................................................2
AuditScope and Methodology................................................................................................. 2
Commendations & Noteworthy Events.....................................................................................3
Background................................................................................................................................. 4
Who is the Mass Transit Agency?............................................................................... 4
How much does it cost?.............................................................................................. 4
Where can you purchase bus tickets, bus passes, and shared ride taxi coupons? .... 5
How much money does Mass Transit receive in bus and taxi fares? ......................... 5
How many passengers use Mass Transit?................................................................. 6
Whodrives the buses?................................................................................................6
How is bus ridership recorded?...................................................................................6
AuditResults.............................................................................................................................. 7
Cash handling internal controls at Mass Transit are inadequate and ineffective to
ensure that revenue is properly controlled and deposits are timely and accurate.
As a result, we are unable to determine if cash receipts were complete .................. 7
➢ What did we find?....................................................................................................... 8
Results of our surprise cash count........................................................................
8
Cash was not physically secured..........................................................................
9
Incompatible duties are not adequately segregated............................................11
Independent monitoring is insufficient.................................................................12
Taxi Coupons, Bus Tickets & Passes are sold using purchase orders ...............
13
Cash was not deposited timely............................................................................14
➢ What are the consequences?.................................................................................... 15
BusFares............................................................................................................ 15
Taxi Coupons, Paratransit Coupons, Bus Tickets & Passes collected at the Mass
Transit Administrative Office................................................................................17
Taxi Coupons, Bus Tickets & Passes collected at the Mo'oheau Bus Terminal.. 17
Taxi Coupons, Bus Tickets & Passes sold via purchase orders ......................... 18
➢ Why did this happen?............................................................................................... 18
Mass Transit did not prioritize cash handling internal controls ............................18
The current bus cash handling system is ineffective...........................................19
Written policies and procedures are incomplete, insufficiently detailed, and not
consistently followed or enforced........................................................................ 20
➢ What do we recommend?........................................................................................ 24
Management's Response.........................................................................................................29
Appendix A — Audit Criteria..................................................................................................... 37
Introduction
The Office of the Legislative Auditor conducted this performance audit of County of Hawai`i's
Mass Transit Agency's (Mass Transit) cash handling process pursuant to Section 3-18 of the
Hawaii County Charter, which outlines the Office of the Legislative Auditor's primary duties.
Performance audits typically examine the effectiveness, economy, or efficiency of a government
program. They can include analyzing the services of an entire department or activity, identifying
possible cost savings, identifying the outcomes achieved by a program, or comparing actual
department practices against the practices called for in law or policy.
Our objective in performance auditing is to improve public services provided by county
government. We do this by recommending specific actions that will address the issues we raise
and by providing valuable information to the public, the administration, program leadership, the
Hawai'i County Council, and the Mayor.
A performance audit of the Mass Transit cash handling process was included in the fiscal year
2017-2018 annual audit plan based on the results of our countywide risk assessment. The
Hawaii County Council also passed Resolution 218-17 (June 23, 2017) requesting an audit of
Mass Transit's cash handling procedures.
There are inherent risks associated with the implementation of the cash handling processes. If
no internal controls exist, or if they exist but are not enforced, the risks related to the process
increases, thereby increasing the risk exposure to the County. On a national level, employee
misappropriation of cash is the most common type of fraud. According to the Association of
Certified Fraud Examiners' (ACFE) 2014 Report to the Nations on Occupational Fraud and
Abuse, organizations lose five percent of revenues to fraud each year.' "The most common
employee occupational frauds of misappropriation of cash include: check tampering, revenue
skimming, fraudulent disbursements by fake invoicing, payroll schemes, and billing scams .112 In
April 2016, Mass Transit experienced a break-in where several buckets of cash were stolen.
The Office of the Legislative Auditor determined that a thorough examination of cash handling
policies, procedures, and processes was warranted.
1 "The Cost of FRAUD". ACFE.com. https://www.acfe.com/rttn/images/cost-of-fraud-infographic.pdf (accessed
June 30, 2016).
Z "Guarding Against Internal Frauds Committed by Employees". Bizfilings.com.
https://www.bizfilings.com/toolkit/research-topics/running-vour-business/fraud-protection/guarding-against-
internal-frauds-committed-by-employees (accessed April 3, 2018).
Mass Transit Cash Handling Introduction I 1
Audit Objectives
The Office of the Legislative Auditor's fiscal year 2017-2018 annual audit plan included a
performance audit of the County of Hawai`i's Mass Transit cash handling and receipting
process. The objective of the audit was to evaluate if cash handling internal controls at Mass
Transit are adequate and effective to ensure that revenue is properly controlled and deposits
are timely and accurate.
Audit Scope and Methodology
To accomplish our objectives, we:
• Developed an understanding of the policies, procedures, processes, and document
flows;
• Compared Mass Transit's cash handling procedures, practices, and performance
measures to recommended industry best practices;
• Assessed compliance with Mass Transit's cash handling policies and procedures,
County of Hawai'i Code, County of Hawai'i Charter, and Hawai'i Revised Statues;
• Conducted a surprise cash count of bus fare revenue at the Baseyard;
• Analyzed cash receipts by comparing calculated expected revenue based on ridership to
actual reported revenue;
• Examined purchase requisitions, purchase orders, and payments for bus tickets, bus
passes, and taxi coupons sold to vendors;
• Analyzed cash receipts by comparing revenue source data (manual cash receipts, bus
trip sheets) to the deposit and revenue posting;
• Corroborated information through interviews with appropriate personnel, reviewed
documentation and performed testing of documentation and controls; and
• Reviewed additional documentation as needed (e.g., daily bus trip sheets, manual cash
receipts, treasury receipts, bank courier receipts, revenue reports).
We conducted this audit from September 2017 through March 2018. During the course of our
audit, we assessed internal controls relevant to the audit objective. This included a review of
applicable policies and procedures, cash handling standards, and interviews with
knowledgeable staff. We also conducted a surprise cash count of bus fares and reviewed cash
receipts and bus fares from December 2017. Taxi licenses and license renewals were not
specifically included in our audit scope due to the low dollar volume and the receipting
procedures follow the basic process as other manual receipts. We did not rely on computer
generated data.
We conducted this performance audit in accordance with general accepted government auditing
standards. Those standards require that we plan and perform the audit to obtain sufficient,
Mass Transit Cash Handling Audit Objective, Scope & Methodology 12
appropriate evidence to provide a reasonable basis for our findings and conclusions based on
our audit objectives. We believe the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives. Our conclusions on the effectiveness of
these controls are detailed within this report.
We thank the Mass Transit's staff for their assistance and cooperation during this audit.
Management generally agreed with the comments and recommendations in this report. Their
complete response to this audit can be found on page 29: Management Response.
Commendations & Noteworthy Events
In February 2018, the County hired a new Mass Transit Administrator who has been open and
receptive to our audit recommendations. We are also pleased to report that Mass Transit has
taken a proactive role in strengthening certain controls we identified as weaknesses during the
course of the audit. Additionally, we appreciate the cooperation exhibited by Mass Transit and
their willingness to implement many of our recommendations. For instance, Mass Transit has
asserted they now:
• Account for daily trip sheets and cash;
• Identify and report cash overages and shortages on treasury receipts;
• Improved safeguarding of assets (cash is only counted when two employees are
available and the room where cash is counted is secured); and
• Deposit cash timely.
We will follow up at the appropriate time to determine whether and to what extent all
recommendations have been implemented.
Mass Transit Cash Handling Audit Objective, Scope & Methodology 13
Background
Who is the Mass Transit Agency?
The County of Hawaii Mass Transit Agency provides transportation services to the Big Island of
Hawaii including:
• Hele-On Buses, providing fixed -route transit
service in the Hilo and Kona areas Monday
through Saturday and limited commuter
services to the South Kohala Resort areas
seven days a week. (Figure 1)
• Shared Ride Taxi Program where
participants may take a cab ride anywhere in
the Hilo urbanized area up to a nine mile
radius from the point of origin by purchasing
taxi coupons.
• Kako`o Paratransit Service in the Hilo and
Kona area. Paratransit is a reservation -
based service to provide transportation
services to persons with disabilities who are
unable to use the regular fixed Hele-On bus
service within the Hilo and Kona service
areas.
How much does it cost?
Fares for each transportation service are:
• Hele-On Bus —
o general fare is $2.00
Hele-On Bus Routes
AefW ana
,.hk,:
Goumy of Hawaii Mass Transit Agency
Sus Rouj_
Photo courtesy of Mass Transit
(hftp://www.heleonbus.org/schedules-and-maps)
Figure 1
o seniors (age 60+), students, and disabled persons (with disability card issued by
the Mass Transit Agency), the fare is $1.00 (must have a valid ID)
o sheets of ten bus tickets ($15.00 for general and $7.50 for senior, student, and
disabled riders)
o monthly passes ($60.00 for general and $45.00 for senior, student, and disabled
riders)
• Shared Ride Taxi Program - taxi coupons are sold in increments of one ($6.00), five
($15.00), 10 ($25.00), or 15 ($30.00). The weekly limit is 15 coupons per rider.
• Kako`o Paratransit Service - a one-way fare is $4.00 payable upon pickup.
Mass Transit Cash Handling Background 14
Where can you purchase bus tickets, bus passes, and shared ride taxi coupons?
Bus tickets, monthly passes, and shared ride taxi coupons can be purchased at:
• County of Hawai'i Mass Transit Agency Administrative Office at Iron Works (until March
2018)
• County of Hawai'i building in Hilo (effective March 2018)
• Mo'oheau Bus Terminal Information Center
Ten Ride bus tickets can also be purchased at the following KTA Super Stores locations:
• Waimea Center
• Keauhou Shopping Center
• Waikoloa Highlands Center (Also sells monthly passes)
• Kona Coast Shopping Center (Also sells monthly passes)
How much money does Mass Transit receive in bus and taxi fares?
In fiscal year (FY) 2016-2017, Mass Transit received approximately $1.2 million for bus and
taxi coupon sales (bus fares totaled $821,575 and taxi coupon sales totaled $378,761).
(Figure 2) Kako'o Paratransit Service reported nearly $5,400 in sales in its first year.
Mass Transit Cash Handling Background 15
Bus Fare Revenue
Taxi Coupon Sales
$1,100
$1,045
$400
$384 $379
$1,000
957
$904
$350
$900
$822 �
$296
$800
$300
c
$700
°
$255
3
t
$600
o
$250
$500
$200
FY 13-14 FY 14-15 FY 15-16
FY16-17
FY 13-14 FY 14-15 FY 15-16 FY16-17
Fiscal Year
Fiscal Year
Source:
County of Hawaii Proposed Operating Budget,
Actual Revenue
Figure 2
Mass Transit Cash Handling Background 15
How many passengers use Mass Transit?
In fiscal year (FY) 2016-2017, 639,000 passengers rode the bus while 148,000 used the
shared ride taxi program. While bus passengers have declined since FY2013-2014, taxi
riders have significantly increased. (Figure 3)
How has bus and taxi ridership changed?
900,000 836,617
800,000
700,000
a 600,000
L 500,000
400,000
°C 300,000
200,000 93,069
100,000
0
FY 13-14 FY 14-15 FY 15-16
Fiscal Year
Bus Ridership Taxi Ridership
Source: Mass Transit provided ridership numbers.
Figure 3
Who drives the buses?
Bus ridership
has decreased
638,725 ' by 24% since
FY13-14
147,731
FY 16-17
Taxi ridership
has increased
by 59% since
FY13-14
County owned buses and vans are driven by contracted employees. The County also contracts
with Jacks Tours, Roberts Hawaii, and Polynesian Adventures to supplement available buses
on certain routes.
How is bus ridership recorded?
Ridership is recorded by the bus drivers using a "trip sheet". When a passenger enters the bus,
the driver marks the number of passengers and the type of fare paid for each route. The driver
then submits the trip sheets to Mass Transit while the bus's fare box is emptied.
Mass Transit Cash Handling Background 16
Audit Results
Cash handling internal controls at Mass Transit are inadequate
and ineffective to ensure that revenue is properly controlled and
deposits are timely and accurate. As a result, we are unable to
determine if cash receipts were complete.
Management is responsible for an effective internal control system. Internal controls should be
designed to provide reasonable assurance on the effectiveness and efficiency of operations,
reliability of financial reporting, and compliance with applicable laws and regulations. Internal
controls can help achieve performance targets and prevent loss of resources. An organization's
internal control structure over cash handling operations should include the following controls:
• Physical Safeguarding of Assets. Assets should be physically protected from loss and
unauthorized use.
• Segregation of Incompatible Duties. Duties should be segregated amongst employees
so that errors and irregularities made by one employee are difficult to conceal.
• Independent Review and Monitoring. Management should document their review and
approval of critical tasks performed by employees. They should not review and approve
their own work.
An organization's management should incorporate these controls into written policies and
procedures. These policies and
procedures should cover all Summary of Internal Controls
aspects of operations, be
sufficiently detailed, and be
distributed to staff. In addition,
ongoing monitoring is necessary to
ensure policies and procedures,
and internal controls, remain
effective and efficient as operations
change.
The Department of Finance's
Accounting Manual requires each
County department to establish Source: Data compiled by the Office of the Legislative Auditor
internal controls to ensure cash is Table 1
safeguarded, accounted for, and
properly recorded. Our audit evaluated Mass Transit's cash handling procedures and we found
that internal controls are generally inadequate and ineffective to ensure that revenue is properly
Best Practice
Was it
Performed?
Safeguarding of Assets including:
• Physical security
• Timely deposits/reporting
Independent Monitoring
Segregation of duties
Written Policies and Procedures
Mass Transit Cash Handling Audit Results 17
controlled and deposits are timely and accurate. (Table 1) As a result, errors and irregularities
may go undetected by employees performing their normal assigned duties.
Results of our surprise cash count
While gaining an understanding of the Mass Transit cash handling system, we observed a large
amount of unsecured cash on the Baseyard's breakroom table. (Figure 5) In addition, the safe
used to store the daily bus fare cash was full. (Figure 4) We also identified several boxes of
included:
cash in the closet. Neither the safe nor the boxes of cash
had been counted consistently for several months. We
therefore decided to perform a surprise cash count from
January 19, 2018 through January 25, 2018. During this
period, we counted all cash in both the safe and the closet.
We also counted any new bus fare cash that came into the
Baseyard through January 23, 2018. While counting the
cash, we reconciled to the ridership based on the trip
sheets.
In total, we counted nearly $30,000 in 447 cash bags
(each fare box is emptied into a "cash bag" along with the
route's trip sheets). This included routes dating from July
10, 2017 through January 23, 2018, a span of 193 days.
Based on the ridership trip sheets completed by the bus
drivers, we calculated expected revenue to be $28,664.
This resulted in a net overage of $1,304. We observed
that only 8% of the bags balanced to the trip sheets (29%
were under and 63% were over). The largest calculated
cash bag overage ($199) was because no trip sheet was
included with the cash; the largest underage ($212) was
because no cash was included with the trip sheet. We
could not determine what happened to the cash from the
bag with the underage.
As partially mentioned above, some inconsistencies
• Numerous cash over/shorts compared to calculated expected revenue
• Cash bags with money but no trip sheets
• Cash bags with trip sheets but no money
• Cash bags with no bills, only coins
• Trip sheets were inaccurate and incomplete
Mass Transit Cash Handling
Audit Results 18
• Several boxes were filled with various unreconciled trip sheets for August,
September, and October 2017. We could not determine if this money had been
deposited.
Based on these results, and the internal controls noted below, we could not determine if all the
cash paid by the bus riders was included in our cash count. We were unable to determine if
money had been lost or misappropriated.
After our surprise cash count, with the assistance of the Department of Finance, the cash was
deposited. During our subsequent follow up, only one to two days of cash was stored in the
safe.
We noted certain issues that we communicated directly to Mass Transit's management. We
appreciate their commitment to resolving these matters.
Cash was not physically secured
Safeguarding of assets is an integral component of internal controls to provide effective
stewardship of public resources. When safeguarding of assets and physical controls are
designed and implemented appropriately, departments and agencies are more likely to identify
and correct systematic problems on a timely basis. The United States Government
Accountability Office (GAO), Standards for Internal Control in the Federal Government ("Green
Book") states that management should design an internal
control structure to include physical controls to secure and
safeguard vulnerable assets such as cash. In addition, the
Government Finance Officers Association (GFOA) establishes
best practices for general revenue controls. These best
practices include physical security procedures, especially for
funds that are not deposited the same day they are receipted.
We identified several safeguarding of assets weaknesses at
both the Mass Transit Administrative Office and the Baseyard:
Mass Transit Administrative Office:
Manual receipts are printed and pre -numbered in-
house using a Word document. This increases the
risk that receipts could be duplicated and cash
misappropriated. In addition, we observed these
receipts were sitting on the front counter and easily
accessible to the public. Receipts should be pre -
numbered, pre-printed, and secured.
• Bus tickets and taxi coupons are left in an opened
box behind the counter. Bus tickets are
Mass Transit Cash Handling Audit Results 19
exceptionally at risk since they are not pre -numbered and therefore, management
cannot assess the completeness of the inventory.
• Cash is kept in the pencil case in an unlocked desk drawer during the day.
Basevard:
While money is locked in a safe and a locked closet overnight, both locations are left
open and unattended during the day. We observed cash left unattended on the
breakroom table, the safe door was ajar, and both doors to the room unlocked. This
breakroom is accessible to all Mass Transit staff. (Figure 5)
• Several employees have access to locked fare boxes. While these boxes are
Example of a fare box
Photo courtesy of the Office of the
Legislative Auditor
Figure 6
easily removed.
locked, the rivets holding it together can be easily removed
and there is no process to ensure that all fare boxes are
accounted for. (Figure 6)
Bus's fare boxes are not emptied daily or after
each route and may only return to the Baseyard every four
days. In addition, when the Account Clerk is unavailable or
absent from work, no one empties the bus's fare boxes,
sometimes for several days. As a result, some fare boxes
arrive at the Baseyard overflowing and unable to automatically
lock. Employees then use another fare box to catch the
overflow. This increases the risk that money may be lost or
stolen and not deposited or recorded timely.
While cameras have been installed in the room
where cash is counted, we observed key blind spots, the
camera and recordings are not regularly monitored, and the
employee counting the cash has access to the camera and
recordings.
Some county -owned vans do not have locking
fare boxes. When there is no fare box, a manila envelope or
plastic bag is used. Some fare boxes do not lock and can be
• The safe combinations and keys have never been changed. Lock combinations and
keys should be changed periodically and always when custody changes hands.
• There is no receipt log of the cash received from the contracted bus service
providers.
Physically securing cash and assigning accountability to an individual employee reduces the
risk of loss or theft. All employees accepting payments should have a secured, lockable cash
drawer and only the employee collecting the payments should have access. If there is more
than one person receiving payments at the same time, each person should have their own cash
Mass Transit Cash Handling Audit Results 110
drawer. In addition, it is best practice to maintain cash records in a separate location from the
cash itself. If fraud or theft does occur, the records cannot easily be taken, destroyed, or
modified. Separation of cash records and cash is a simple cash security practice that can
discourage theft, or at least allow the timely discovery of theft.
Incompatible duties are not adequately segregated
Segregation of duties' primary objective is to minimize the risk or occurrence of errors or fraud
by ensuring that no one employee has the ability to both commit and/or conceal errors or fraud
in the normal course of their duties. Generally, the primary incompatible duties that need to be
segregated are:
• Authorization or approval
• Custody of assets
• Recording transactions
• Reconciliation/Control Activity
To achieve the highest level of internal control over the cash handling process, a different
person should be involved in billing/recording, collecting, authorization or approval, and
reconciling functions. No single individual should have complete control over all phases of a
transaction. Some examples of incompatible duties are:
• An employee who opens the mail and endorses checks should not handle cash
receipts.
• An employee who prepares a document should not approve the same document.
• An employee who handles cash receipts should not maintain a change fund and receive
deposit slips or corrections from the bank.
• An employee who reconciles the bank statements should have no responsibility for
cash receipts, disbursements, or custody.
We examined the cash handling processes at the Mass Transit Administrative Office and found
that proper segregation of duties for cash handling was not in place. Currently, the County
Transportation Specialist:
• maintains the master Word document for some in-house receipts (custody of assets),
• performs over-the-counter sales (custody of assets),
• maintains the key to where the change funds are secured at night (custody of
assets),
• performs and approves voids (authorization/approval),
• reviews end -of -day cash receipts and reconciles to the treasury receipt
(reconciliation/control activity), and
• sometimes deposits daily revenue with the Treasury Division (custody of assets).
Mass Transit Cash Handling Audit Results 111
When duties cannot be segregated due to the small size of the department or division,
compensating controls should be considered. These compensating controls should include
monitoring activities such as a detailed independent review. While Mass Transit has
implemented some monitoring controls (a review of the end -of -day cash receipts), the County
Transportation Specialist should not have access to cash and review and approve their own
work.
Independent monitoring is insufficient
When duties are not adequately segregated, it is even more vital that the cash handling process
be independently reviewed and monitored regularly. Because management performs part of the
cash handling process, work should be reviewed for completeness and accuracy. Specifically,
we observed the following:
Prior to October 2017, the Account Clerk would empty multiple fare boxes onto the
breakroom table, count cash, and prepare the bank deposit slip. There was no
reconciliation of the cash to the bus trip sheets to calculate any cash
overage/shortage. During the course of the audit, an independent employee began
verifying the cash to the deposit slip. However, there is still no independent review of
the trip sheets to verify the cash over/short.
• Mass Transit does not conduct a reconciliation to ensure all trip sheets were
received, all cash collected was collected from bus fares, all deposits were made to
the bank, and all treasury receipts were processed. This reconciliation would help
ensure cash collected, deposited, and recorded was accurate and intact.
• Bus tickets are not pre -numbered and are not adequately secured. As a result,
management cannot determine if all bus tickets are accounted for and bus ticket
inventory is complete.
• There is no review for consecutiveness and completeness of taxi coupons or bus
passes. Controlling and reviewing pre -numbered coupons and passes help deter
and detect potential theft of cash receipts. Furthermore, since duties are not
adequately segregated, this review is imperative to ensure all revenue is collected
and deposited timely.
• Instead of purchasing pre -numbered, pre-printed receipts, Mass Transit created
receipts using a Word document. One employee maintains the Word document
receipts for taxi licenses and the Mo'oheau Bus Terminal (MBT), while a second
employee maintains the Word document receipts for the Mass Transit Administrative
Office. Both employees also perform over-the-counter transactions. Using a Word
document allows for easy manipulation of the receipt numbers. Furthermore,
management cannot adequately review for consecutiveness and completeness. We
observed instances of duplicate, triplicate, and missing receipt numbers at MBT.
Mass Transit Cash Handling Audit Results 112
• There is no independent review of taxicab reimbursements. When a taxicab submits
their daily passenger log for reimbursement, the Clerk verifies that the coupon is
valid and calculates the total to be paid to the taxicab owner. These totals should be
independently verified for accuracy.
• Voids are not independently reviewed. While the County Transportation Specialist
does approve and review voids, the same Specialist also processes cash receipts
and completes voids.
• There is no independent reconciliation of revenue to the general ledger. Without
reconciling the treasury receipts to the general ledger revenue account, Mass Transit
cannot determine if all money that was deposited, was recorded.
• Outstanding accounts receivable balances from bus tickets, bus passes, and taxi
coupons purchased with a purchase order are not independently reviewed to ensure
accounts are paid and current.
• Cash over/shorts and cash/check composition are not consistently recorded on the
treasury receipt. Without specifying this information, management cannot, and has
not, monitored to ensure the integrity of the deposit.
• Surprise cash counts are not performed. Cash counts are an important part of
internal control procedures and encourage honesty and discourage misappropriation.
Cash counts should be conducted on a surprise basis by someone independent of
the cash operation.
Monitoring is an integral component of internal controls; unmonitored controls tend to
deteriorate over time. When monitoring is designed and implemented appropriately,
organizations are more likely to identify and correct problems on a timely basis. Ongoing
monitoring can occur in the course of daily operations including regular management and
supervisory activities such as comparisons, reconciliations, and other routine activities.
There should always be another level of review and approval performed by a knowledgeable
person independent of the cash handling process. A thorough review of the processes will help
with accuracy, completeness, and timeliness. The reviewer should be someone who is
knowledgeable in daily operations, has the authority to make decisions, someone who does not
perform the process, and document evidence of review by a signature or initials and date.
Taxi Coupons, Bus Tickets & Passes are sold using purchase orders
Mass Transit sells taxi coupons, bus tickets, and bus passes using purchase orders to third
party vendors such as KTA, schools, hotels, and non-profit organizations ("vendors"). We
found:
• No formal contract was established between the County of Hawaii and these
vendors. While Mass Transit did have both verbal and written agreements with the
vendors, Hawaii County Charter Section 13-13 requires that all contracts with private
Mass Transit Cash Handling Audit Results 113
parties for the performance of any function or activity with the County must be
authorized and approved by the mayor, corporation counsel, and the finance
director.
Most vendors do not pre -pay for bus tickets, passes, or taxi coupons, instead they
submit a purchase order and Mass Transit later sends an invoice or statement.
Since payment is frequently made more than 30 days after invoice, this results in an
outstanding accounts receivable balance. Hawaii County Code Sections 18-90,
18-91, and 18-92 establishes Mass Transit's fare structure. There is no criterion to
allow for billing of charges or accounts receivable.
• One vendor brings Mass Transit a check when they require taxi coupons. The
vendor then sends a Fax requesting the amount of coupons needed and the amount
is deducted from the balance of the payment received. At least once, the balance
was negative with the vendor owing the County more money than they paid.
• Discount ranging from five to 10% was given to vendors on top of the pre -sale
discount ticket price. Hawaii County Code Section 18-90 establishes the rates for
full and pre -payment fares. There is no criterion to allow for an additional discount.
• Written statements proclaim an 18% interest rate will be applied to purchase orders
outstanding more than 45 -days. We did not find any instances where the interest
was applied on outstanding balances.
• There is no process to ensure collection of outstanding accounts receivable
balances. Typically, the only statement sent to vendors is the initial invoice or
statement.
• At least one vendor reassigned non -transferable taxi coupons. Mass Transit's
website states that coupons are non -transferable and non-refundable. In addition,
Mass Transit's cash handling policies state that no refunds or exchanges are allowed
unless authorized by the Administrator. We found no record of authorization.
Cash was not deposited timely
As mentioned above, the Government Finance Officers Association (GFOA) establishes best
practices for general revenue controls. These best practices include daily processing and timely
deposit of receipts, ideally within 24 hours of receipt; County policy requires all revenue to be
deposited within two working days. We found:
• When the Account Clerk is absent from work, no other employee performs the
Account Clerk's job duties. Consequently, deposits are not made timely.
Furthermore, having another employee periodically perform someone's job duties
allows for the potential of irregularities to surface.
Contracted bus service providers submit their bus revenue to Mass Transit up to
three months after collection.
Mass Transit Cash Handling Audit Results 114
Current Mass Transit policy limits taxi coupons to 15 coupons per week, per
customer. In some instances, customers wanted to purchase 30 coupons in one
week. Mass Transit employees accepted payment for the entire 30 coupons but held
the customer's money for one week to comply with the policy.
During our surprise cash count, we counted a Paratransit deposit totaling $1,425 for
fares collected for a three-month period (10/1/17 to 11/26/17). Although the cash
was counted, reconciled, and secured in the safe at the Baseyard, $1,425 in
paratransit coupons was not timely deposited.
Because of these internal control weaknesses, in addition to our surprise cash count discussed
above, we tested December 2017 cash receipts to determine if cash received for bus fares, taxi
coupons, paratransit coupons, and bus tickets and passes was deposited and recorded timely
and intact. We also analyzed cash receipts by comparing calculated expected revenue based
on ridership to actual reported revenue. We found that all money that was receipted - was
recorded and deposited. However, we could not determine if all money was receipted.
Bus Fares
To ensure that bus fare revenue was complete, we:
1. Recalculated the expected December 2017 revenue based on ridership counts
marked on the bus trip sheets. We then compared this amount to the total counted
and recorded by Mass Transit and to the deposit.
We reviewed 2,040 bus trip sheets (347 fare boxes) with fares totaling $32,750 from
deposits made in December 2017. The total amount deposited for these trip sheets
was $34,361. This resulted in net overage of $1,682 (more money was deposited
than the calculated revenue from ridership). We found:
• 301 instances (87%) where the fare boxes' expected revenue from the trip
sheet and the cash deposited did not match; 13% of the bags balanced to the
trip sheets (32% were under and 55% were over).
• 18 instances where Mass Transit did not correctly calculate the actual cash
collected when totaling the trip sheets.
• One instance totaling $24.81 where the deposit was less than Mass Transit's
calculated total.
• One deposit was short by $49.50 and adjusted by the bank.
• An average delay of 21 days between receipt (trip sheet route date) and the
deposit with a high of 84 days (September 1, 2017 route sheets were
Mass Transit Cash Handling Audit Results 115
deposited on December 28, 2017). In addition, some December 2017's trip
sheets and cash collected for those bus trips was not deposited until January
and February 2018. The Department of Finance's policy requires deposits to
be made within two working days; best practices states that deposits should
be made within 24 hours.
In 12 out of 21 instances (57%), the deposit ticket date did not match the date
listed on the treasury receipt. The Account Clerk listed the date the deposit
was processed, not the actual date the deposit was made. This may make
reconciling the deposit to the treasury receipt more difficult if the dates do not
consistently match.
• An average of six working days (with a high of eight days) between when the
money was deposited compared to when it was recorded on a treasury
receipt. The Department of Finance's policy requires treasury receipts to be
completed within two working days.
2. Calculated the number of expected bus routes per day and compared to the trip
sheets included in the December 2017 deposits.
Mass Transit was unable to account for or provide all trip sheets for December 2017
to verify all cash was deposited. Based on route and trip information provided by
Mass Transit, we calculated approximately 95 trip sheets per weekday. Each route
may have several trip sheet depending on route and pickup location. On average,
we were only able to find and verify 78 trip sheets per weekday — ranging from 53 to
96 trip sheets per weekday.
We searched several boxes of records and deposits made in January and February
2018 and were unable to locate all December trip sheets.
3. Calculated expected annual revenue from ridership data.
We sought to determine if annual bus fare revenue was reasonable by comparing
annual ridership numbers to reported revenue (ridership x fare = revenue). Based
on the results of our cash count and bus fare testing above, we did not consider the
ridership numbers to be accurate and we were unable to complete this comparison
with any reliability.
This type of analysis of financial relationships is an excellent management tool to
monitor revenue and budget expectations. However, without reliable data, the
meaningfulness of the comparison is diminished.
Mass Transit Cash Handling Audit Results 116
Taxi Coupons, Paratransit Coupons, Bus Tickets & Passes collected at the Mass Transit
Administrative Office
We reviewed 605 receipts totaling $21,400 from December 2017 and found that all money that
was receipted, was deposited. However, due to the following issues, we could not determine if
all transactions were receipted and revenue was complete:
• Numerous gaps in the taxi coupon and bus pass numbers were identified. Since the
consecutiveness is not monitored, we could not determine where the missing
coupons or passes may be located; they may have been issued in prior/post months,
given to outside vendor or contractor, or lost/stolen.
• Bus tickets are not pre -numbered. We therefore could not determine if the bus ticket
revenue is complete and all transactions were receipted.
• One instance where the Paratransit coupon numbers were not listed on the receipt.
• Mass Transit does not identify the cash/check composition on their treasury receipt.
Without this information, we could not verify the integrity of the deposit.
There was an average of two days, and up to four days, between the date of the receipt and the
date of the deposit. Of the 20 deposits reviewed, one deposit was made three working days
after receipt and one deposit was made four working days after receipt. As mentioned above,
the Department of Finance's policy requires deposits and treasury receipts to be made within
two working days; best practices states that deposits should be made within 24 hours.
Taxi Coupons, Bus Tickets & Passes collected at the Mo'oheau Bus Terminal
We reviewed 439 receipts totaling $22,500 collected at the Mo'oheau Bus Terminal (MBT) from
December 2017 and found that all money that was receipted, was deposited. However, due to
the following issues, we could not determine if all transactions were receipted and revenue was
complete:
• Numerous gaps in the taxi coupon numbers were identified. Since the
consecutiveness is not monitored, we could not determine where the missing taxi
coupons may be located; they may have been issued in prior/post months, given to
an outside vendor or contractor, or lost/stolen.
• 41 instances totaling $9,100 where no written receipt was issued. If a customer does
not want a receipt, MBT indicates "Cash/No Name" on the manual receipt. These
receipts ranged from $30 to over $500.
• Three receipt numbers were issued three times (triplicate) totaling $915 and one
receipt number was issued two times (duplicate) totaling $60.
• Two instances of missing receipts.
Mass Transit Cash Handling Audit Results 117
Taxi Coupons, Bus Tickets & Passes sold via purchase orders
We reviewed 23 vendors and assessed if there were any outstanding balances, how long the
balances were outstanding, when payments were made, and if payments were applied timely.
We also verified Mass Transit's "balance sheet" to invoices, requisitions, and payment and
recalculated the total ending balance. We found:
• Twelve vendors had no outstanding balance as of March 2018.
• Seven vendors owe Mass Transit a total of $29,809 for tickets that Mass Transit
advanced.
• Two vendors had an outstanding balance dating back to 2014 totaling $26,309.
Mass Transit is currently working with Corporation Council and the Department of
Finance to collect one of these accounts ($25,859). The second account ($450)
remains outstanding.
• Two vendors where Mass Transit's balance sheet was incorrect or supporting
documentation was not included.
o One vendor's balance sheet appeared to be missing a reoccurring invoice
amount; however, the missing invoice amount was reflected in the ending
balance. In addition, no invoices or requisitions for the monthly
reoccurring charges were included in the supporting documentation.
o One vendor's balance sheet's ending final balance did not recalculate and
we could not determine the actual balance. Mass Transit was unable to
provide additional supporting documentation to verify the correct balance.
Mass Transit did not prioritize cash handling internal controls
The United States Government Accountability Office (GAO), Standards for Internal Control in
the Federal Government ("Green Book") states that "[t]he control environment is the foundation
for an internal control system. It provides the discipline and structure, which affect the overall
quality of internal control. It influences how objectives are defined and how control activities are
structured." The Green Book further states that without a strong "tone at the top", "the entity's
risk identification may be incomplete, risk responses may be inappropriate, control activities
may not be appropriately designed or implemented, information and communication may falter,
and results of monitoring may not be understood or acted upon to remediate deficiencies."
After a break-in in 2016, the Department of Finance (Finance) met with Mass Transit to discuss
their cash handling procedures. Finance directed Mass Transit to safeguard their cash and
reconcile each trip sheet by route. As a result, written cash handling procedures were
developed in September 2016 and updated in November 2016 and some security measures
were implemented (a safe was purchased and locking doors and security cameras were
installed). Mass Transit received funding for an additional position to count bus fare cash
Mass Transit Cash Handling Audit Results 118
receipts and prepare the bank deposit. While this position was filled in 2016, only one person
was assigned to count cash. As of April 2018, two employees count bus fare cash receipts to
minimize risk. We observed that most of these internal controls were not fully implemented or
enforced. As mentioned above, examples of the internal control weaknesses included cash left
unattended and the safe door left ajar, key blind spots to the security cameras, untimely
deposits, and cash not properly reconciled. Furthermore, as described in more detail below,
policies and procedures were inadequate, not followed, or enforced.
Based upon these facts and our observations, it is our conclusion that Mass Transit
management did not make cash handling internal controls a priority. As a result, even with the
assistance of Finance, control procedures have not been adequately designed or implemented
and deficiencies have not been adequately addressed.
The current bus cash handlin_a system is ineffective
The current bus fare receipting system is not effective at safeguarding cash, recording ridership,
and ensuring that the full fare is collected. As described above, we identified some
safeguarding weaknesses including overflowing or a lack of locking fare boxes. We also
observed the following:
During both our surprise cash count and our December 2017 receipt testing, we
observed that the bus trip sheets were not accurate. We consistently calculated
differences between the expected revenue based on the recorded ridership counts in
comparison to the actual revenue that was received
by Mass Transit. Generally, more money was
deposited than the expected revenue, indicating that
not all riders had been recorded. Without reliable
ridership counts, management may not be able to
adequately budget, monitor revenue, and make well-
informed decisions.
• Riders may not pay the full bus fare. We observed
fare boxes with ripped dollars, tokens, foreign
currency, and bus ticket stubs.
o Mass Transit keeps a box of bills that were
ripped by passengers to avoid paying the full
fare. While performing our count, we were
able to match some of these ripped dollars
using the serial number. Subsequently, the
Department of Finance was able to match up
and deposit approximately $300 of these bills.
o Passengers use the perforated stub at the top
of the bus tickets sheets. (Figure 7)
Example of perforated bus ticket stub
EnWuyar aM R�•.J.'
M�.r� rm
WQHH£PYNO+�Aff
�NW'LHr onw^i e.. "'�
MIABLK�I
,v=a..a._,.,w
p, AEFY�
t—REFYwA®YE
e..�.M
ydruQA,,.,T—
_
HpN�[oglHoustE
«am -err 4,
HtlNdFEirircroASLELE
k,.�w..n mµ+�+w
N4N'IREPYM0N6[
Source: Copies of bus tickets
provided by
Mass Transit
Figure 7
Mass Transit Cash Handling Audit Results 119
• Bills are folded several times to fit into the bus's fare boxes. Not only can the bus
drivers not determine if the full fare was paid, it also takes Mass Transit staff a
lengthy time to unfold the bills for deposit.
Without an effective cash handling system, management cannot make informed decisions,
monitor revenue and ridership, and ensure that cash is complete and fares are paid in full.
Written policies and procedures are incomplete, insufficiently detailed, and not
consistently followed or enforced
The Government Finance Officers Association (GFOA) establishes best practices including
documenting accounting policies and procedures. The GAO's Green Book also recommends
establishing written policies to document internal controls and responsibilities. The development
of written departmental policies and procedures are an effective way to maintain a strong
system of internal controls.
Best practices recommend that management evaluate written policies and procedures annually
and update periodically. They should also be sufficiently detailed to:
• delineate the authority and responsibility of all employees, especially the authority to
authorize transactions and the responsibility for the safekeeping of assets and
records;
• indicate which employees are to perform which procedures;
• describe the procedure as they are actually intended to be performed rather than in
some idealized form; and
• explain the design and purpose of control related procedures to increase employee
understanding of and support for controls .3
At the County of Hawaii, each department and agency is responsible for creating and
maintaining their own policies and procedures by using the Department of Finance's Accounting
Manual as a basis for establishing an adequate system of internal controls. Mass Transit did
not establish written policies and procedures until September, 2016 and updated in November,
2016. These procedures only address the Mass Transit Administrative Office; there are no
written policies for bus fares received at the Baseyard. Furthermore, these policies are not
sufficiently detailed to conform to best practices.
We compared the November 2016 Mass Transit's cash handling policies and procedures, as well
as current practices, to expected control procedures and found several deficiencies. (Table 2)
s Government Finance Officers Association, Best Practices, Documenting Accounting Policies and Procedures
http://www.gfoa.org/policies-and-procedures-documentation
Mass Transit Cash Handling Audit Results 120
Do Mass Transit's policies and procedures conform to best practices?
Were policies &
Was the actual practice
Expected Procedure
procedures complete?
performed?
Administrative
Baseyard
Administrative
Baseyard
Office
Office
1. Independent review and
Inadequate
No
No
No
monitoring
2. Segregation of duties
Inadequate
No
No
No
3. Physical security procedures
Inadequate
No
No
No
4. Timely deposit of receipts
Yes
No
No
No
5. Checks endorsed immediately
No
N/A
No
N/A
6. Timely reconciliation of cash
No
No
receipts to applicable ledgers
7. Receipts are consecutive and
pre-numbered (including
No
N/A
No
N/A
voids)
8. Taxi coupons, bus tickets, and
bus passes are consecutive
No
N/A
No
N/A
and pre-numbered
9. Account for cash as it is
received (Timely recognition of
Yes
No
No
No
revenue)
10. Reconciliation of total checks
No
N/A
No
N/A
and cash and over/shorts
11. Fraud reporting
No
No
No
Source: Data compiled by the Office of the Legislative Auditor
Table 2
Specifically we found:
Independent review and monitoring. Existing procedures only address the verification
of the deposit information. Mass Transit has not addressed numerous review and
monitoring opportunities. Policies and procedures should require a thorough review
performed by an independent person to ensure accuracy, completeness, and
timeliness of receipts and bus fares.
2. Segregation of duties. Existing procedures do not address separating any of the
physical custody of the cash, depositing, or cash reconciliation functions. Current
employee assignment allows everyone to collect and receipt cash, including the
employee who is responsible for the approval, review, and monitoring. Policies and
Mass Transit Cash Handling Audit Results 121
procedures should require that a different person be responsible for recording,
collecting, authorizing, reconciling, and depositing functions.
3. Physical security procedures. Current procedures do address securing the cash
boxes at the Administrative Office. There are no written policies and procedures for
the bus fare revenue collected at the Baseyard. In addition, the security over
coupons, tickets, and passes are not addressed. These items are the equivalent to
cash and should follow the same security and processes. Policies and procedures
should require that all cash and cash equivalents be adequately secured.
4. Timely deposit of receipts. The Administrative Office does have policies that require
deposits to be made within two business days. There are no written policies and
procedures for the bus fare revenue collected at the Baseyard. We found frequent
instances where deposits were not made timely at both the Administrative Office and
the Baseyard, with some deposited up to six months after receipt. Policies and
procedures should require that all funds be deposited within two working days as
required by County policy, but best practices recommends 24 hours.
5. Checks endorsed immediately. Policies do not address restrictive endorsement of
checks. Currently, Mass Transit does not restrictively endorse checks until the end
of the day. Policies and procedures should require check endorsement immediately
upon receipt.
6. Timely reconciliation of cash receipts to applicable ledgers. Existing procedures do
not address timely reconciliation of cash receipts to the deposits or revenue
accounts. Policies and procedures should require that reconciliations are performed
timely to ensure that the deposits were properly posted and any adjustments are
made in the correct period.
7. Receipts are consecutive and pre -numbered (including voids). Existing procedures
address the manual receipting processes including who is assigned to print the
receipts. There is no written procedure to issue receipts sequentially or review for
consecutiveness. However, since these receipts are a Word document and the
employee assigned to print the receipts assigns the number and handles cash, there
is an increased risk that the receipt numbers could be altered and cash
misappropriated. We found several instances of duplicate, triplicate, and missing
receipt numbers. Sequential receipts are necessary to ensure that all payments are
documented and revenue collected is intact. By using pre -numbered receipts and
reviewing sequentially, receipts cannot be easily duplicated or voided.
8. Taxi coupons, bus tickets, and bus passes are consecutive and pre -numbered. Taxi
coupons and bus passes are pre -numbered — bus tickets are not. Current policy
does not mention consecutiveness and there no procedure in place to: (1) issue pre -
numbered coupons, tickets, and passes sequentially or (2) to review and reconcile
the consecutiveness and completeness of these items. We found numerous gaps in
both taxi coupons and bus passes that could not be located. These items are the
equivalent to cash and should follow the same security and processes.
Mass Transit Cash Handling Audit Results 122
9. Account for cash as it is received (Timely recognition of revenue). Current policy at
the Administrative Office requires deposits to be made within two business days.
The Administrative Office deposits cash receipts at the Treasury Division, which
requires a treasury receipt to accompany the deposit. At the Baseyard, deposits are
made with Bank of Hawaii, hence a treasury receipt is not required at the time of
deposit. Our testing of Administrative Office receipts found an average of two days,
and up to four days, between the receipt date and the date the deposit was received
by the Treasury Division. At the Baseyard, we found an average of six working days
(with a high of eight days) between when the deposit date and when it was recorded
on the treasury receipt. Procedures should require accounting for cash upon receipt
to eliminate the risk of errors or theft.
10. Reconciliation of total checks and cash and over/shorts. Current procedures do not
require the notation of cash and check composition or cash over/shorts on the
treasury receipt, preventing the Treasury Division and Mass Transit management
from verifying the integrity of the deposit. Furthermore, there is no policy or
procedure to independently reconcile the cash and check composition and cash
over/shorts. Procedures should require the notation of both cash and check
composition and cash over/shorts on the treasury receipt and an independent
reconciliation of the composition to the cash receipts to ensure the integrity of the
deposit and so that cash receipt transactions can be easily identified, traced, and
corrected.
11. Fraud reporting procedures. Existing procedures do not address fraud reporting.
Policies and procedures should require a fraud reporting process to aid in the
detection and prevention of fraud. By providing fraud -reporting procedures, all
County employees will be made aware of the types and signs of theft or fraud, the
consequences associated with it, and how to report it. Those who are planning to
commit fraud will know that management is watching and may be deterred by this.
Honest employees who are not tempted to commit fraud will also be made aware of
possible signs of fraud or theft and how to report any concerns.
By identifying gaps in policies and procedures, management can identify where effective
controls need to be placed, where to provide sufficient detail for new and existing procedures
and to clarify unclear procedures so that they are easier to follow. Once these procedures have
been officially established and approved, all Mass Transit employees and contracted bus drivers
should be trained in correct cash handling and ridership count procedures.
Mass Transit Cash Handling Audit Results 123
The County of Hawai"i Mass Transit Agency's cash handling process inadequately addresses
internal controls, leaving gaps in existing policy including safeguarding of assets and
management oversight. The audit recommends that Mass Transit immediately address the
internal control weaknesses revealed through our site visits and develop a more proactive cash
handling oversight program.
The following recommendations address each of these areas.
1. Update the bus cash handling system
1.1 We recommend Mass Transit management equip each County bus and van with
an updated electronic fare box to collect passenger fares and track ridership.
1.2 We further recommend Mass Transit pre -number bus tickets. As mentioned in
recommendation 3.1 and 5.2 respectively, these tickets should be adequately
secured and monitored for consecutiveness and completeness.
1.3 We further recommend Mass Transit remove or alter the perforated stub at the
top of the bus ticket sheets to ensure passengers pay the full fare.
2. Cash handling internal controls should be a priority
2.1 We recommend Mass Transit management prioritize cash handling internal
controls. Management should be responsible for an effective internal control
system and internal controls increase the likelihood that the organization will
achieve their objectives
3. Safeguard assets
3.1 We recommend Mass Transit management ensure physical security over
manual receipts, cash, and cash equivalents (e.g., bus tickets, bus passes, taxi
coupons).
3.2 We further recommend Mass Transit management ensure deposits are made
timely, both for contracted bus services and cash received by Mass Transit.
Ideally, deposits should be made within 24 hours, but at least within two business
days.
3.3 We further recommend Mass Transit staff restrictively endorse checks
immediately upon receipt.
Mass Transit Cash Handling Audit Recommendations 124
3.4 We further recommend Mass Transit management change lock or safe
combinations once an employee who had access leaves the organization or is
reassigned to another position.
3.5 We further recommend Mass Transit management implement a cash receipt
log for all incoming revenue including bus fares from contracted bus service
providers.
3.6 We further recommend Mass Transit management assess the security camera
locations, regularly monitor, and limit access to the screen and recordings.
3.7 We further recommend Mass Transit staff empty fare boxes frequently to
ensure the automatic locking mechanism works.
4. Segregate incompatible duties
4.1 We recommend that Mass Transit management separate incompatible duties.
One individual should not be in charge of all of the cash handling elements:
physical custody of cash, depositing cash, recording/adjusting transactions in the
system, and reconciling the revenue accounts. If duties cannot be sufficiently
segregated, mitigating controls, such as independent monitoring could be
implemented.
5. Implement monitoring and oversight
5.1 We recommend Mass Transit management perform ongoing monitoring of their
internal control system as part of the normal course of operations. Ongoing
monitoring includes regular management and supervisory activities, daily
reconciliation of cash receipts, and other routine actions.
5.2 We further recommend Mass Transit management specifically implement
ongoing monitoring procedures of the cash handling process including both
comparisons and reconciliations. For example, someone independent of the
cash handling process should review and/or reconcile:
• The consecutiveness and completeness of manual cash receipts,
paratransit coupons, taxi coupons, bus passes, and bus tickets (once pre -
numbered)
• Voided cash receipts
• Revenue receipted and deposited to the general ledger
• Outstanding accounts receivable balances from tickets, coupons and
passes purchased with a purchase order
• Bus trip sheets (ridership) to cash collected and deposited
• Recorded over/shorts for patterns or irregularities
• Recorded cash to check composition for irregularities
Mass Transit Cash Handling Audit Recommendations 125
• Completeness of bus trip sheets to ensure all trip sheets and related cash
receipts are received and deposited
• Taxi reimbursements receipts and deposits
5.3 We further recommend Mass Transit management and staff monitor cash bags
for patterns and inconsistencies (e.g., repeated over/shorts, inaccurate and
incomplete trip sheets, cash bags with no trip sheets, cash bags with trip sheets
and no cash, invalid ticket stubs). If Mass Transit discovers unexpected patterns
and/or inconsistencies, they should follow up with the respective bus driver or
person responsible for the cash.
5.4 We further recommend Mass Transit management conduct analytical
procedures and financial relationship analysis to monitor controls, revenue, and
budget expectations. One examples of an analytical procedure is comparing
ridership counts to revenue (ridership x fare = revenue).
5.5 We further recommend that the Mass Transit conduct surprise cash counts at
all cash handling locations.
6. Control manual cash receipts
6.1 We recommend Mass Transit staff use official pre -numbered and pre-printed
receipts. If Mass Transit wants to continue the practice of printing in-house
receipts, this file should be maintained by someone outside the cash handling
system. As mentioned in recommendation 5.2, these receipts should be
monitored for consecutiveness and completeness.
7. Improve purchase order sales process
7.1 We recommend Mass Transit management comply with Hawaii County Charter
Section 13-13, which requires all contracts with private parties to perform any
function or activity with the County to be authorized and approved by the mayor,
corporation counsel, and the finance director.
7.2 We further recommend Mass Transit management require payment at the time
of sale unless an official contract has been established and approved. If and
when a contract is executed, terms should be complied with and enforced (e.g.,
discounts, interest rates, timely payment, reassignment of non -transferable
coupons).
7.3 We further recommend Mass Transit management implement a process to
ensure collection of all outstanding accounts receivable balances.
Mass Transit Cash Handling Audit Recommendations 126
8. Update and enforce policies and procedures
8.1 We recommend Mass Transit management establish, clarify, and enforce
internal controls in County policy and procedures to ensure consistency
throughout the department and with industry best practices including but not
limited to:
• Timely independent review and monitoring procedures
• Guidance and clarification on individual job duties to ensure adequate
segregation of duties exists
• Physical security procedures
• Timely deposit of receipts
• Endorsing checks immediately upon receipt
• Consecutiveness of pre -numbered receipts, paratransit coupons, taxi
coupons, bus passes, and bus tickets (once pre -numbered)
• Timely recognition of revenue
• Cash and check composition reconciliation
• Recording and reconciliation of cash over/shorts
• Fraud reporting guidance
These policies should provide enough detail to describe how the procedures are
intended to be performed, delineate authority and responsibility, and indicate
which employees are to perform which procedures.
9. Provide training
9.1 We recommend Mass Transit management provide ongoing cash handling and
internal controls training for all employees who handle revenue.
9.2 We further recommend Mass Transit provide ongoing training to bus drivers on
ridership count and cash collection procedures.
10. Improve other cash handling internal controls and procedures
10.1 We recommend Mass Transit management required cash over/shorts and cash
to check composition be consistently recognized on the treasury receipts.
10.2 We further recommend Mass Transit staff follow their policies regarding the
selling of 15 coupons per week per customer or management should revise the
policy to reflect actual practices.
Mass Transit Cash Handling Audit Recommendations 127
10.3 We further recommend Mass Transit ensure that when an employee is absent
from work, another employee performs their duties to allow for the potential of
irregularities to surface.
10.4 We further recommend Mass Transit staff notate the actual deposit date (not
the bank process date) on the treasury receipt.
10.5 We further recommend Mass Transit complete treasury receipts within two
working days as required by the Department of Finance's policy.
10.6 We further recommend Mass Transit reconcile and record trip sheets timely.
Mass Transit Cash Handling Audit Recommendations 128
Management's Response
11a1W` Kim County of Hawaic • Maria Aranguia
l
.4laror Administrator
Mass Transit. Agency
25 AUPLIM Sircel • Hilo, Hawaii 95720 • (808) 96 1-8 43 Fax 1808! 461-8745
April 26, 2018
Ms_ Bonnie S. Nims. CGAP
Legislati%c ,Xuditor
Orrice cif the I c�_=,islaii�.r Atidilor
(.enlnt� in Ha��Lli'i
1-10 11a1-ahi Street. 5u11c 309
Hilo, Hl 96720
Dear Ms. Nims:
Subject: Audit Report: Cash Handling at County of Hawaii Mass Transit Agency
The Mass Transit Agency (NIT.A) agrees that internal controls regard Wno the handling of cash
+ithin its a -enc,, can be inipi oN Ltd. I liv \ITA haL, alrcadN lakes ].)rior to the issirmie (,i'
this report uo strengthen it irnternal controls and additional chatlgcti <lrc hch)u colli ;idcrccl ha,ed
oii the recolnrnc°ndations of the ()ffice of the I.cOslati\c Auditor(i.eLislat-] c :yud-Itan-l- I lli
respunse: %N Lis p r,:pared with the help of tlic 1)cparliiient of Finance aiiJ �%c appreciate their
support.
The fol Iov, inr1. are \LTA's comments to the findings of the Legislative Auditor and changes that
the M -1 .A h,1a made ur will nial.c co cerning the recommendations:
1. Update the cash handling system
1.I We iccornmend Mass Transit management equip each Counly bus and Xan with an
updated electroiiie flare box to collect passenger fares and track ridership.
Respori,e: 'l'hc it A is cun-crit11 assessing scope of piopo,,cd ori-hcr.rrd technolo-iL:, that
ciuilri be implenicnted (as n ,calahlc_ inociuLtr :tpproach). to cl lccti� elN addre,s Parc
revenue collection. 17clssenh,cr stati,tic,- 1.c, iota] ricicr,hil7 ht rotlw v,110C hciri rriinctl'trl
of the Immicial cenistraint, tlici,ig the enure t'ountti.
1.2 We further rcconirncnd %Iris Transit pre-numhcr hus tickets. As mentioned in
reconirnetidatloii 3.1 Lind 3-2 respeclively, these tickets should be adequately secured and
monitored tin- ctui.•ecuti\cncs J] Id coniplcictiess.
Response: -1 he €MITA i, c.p10r1119 all �k iahlc options regardiiw, thi, rtconrntendl iliwi :ii)d
the co ->t rleiicss o1 each option..
Serving lire huerems r f rhe AeryVe of 0up Island
Ifau'ai 'r Cwrnra• rs an �grral Opparnmrh- Prrnuler a+u1 F.,>:; . . � .
Mass Transit Cash Handling Management's Response 129
1.3 We further recommend ti1aa5 "I ransit remo%c or ruler the perforated stub at the top of
the bus ticket sheets to ensure lxtSSen 1cr's pay the fc111 fare.
Response: The MTA is currcntly rc%lc%ling current pracIicc. anti ]LIentif"<I'll T ferasible
options to minimize this issue. "I Il'c 'ri FA i5 aIso addres,�inu hats 1�Srlc all'iii inImIzing the
acceptance of non -valid payment r�ith div cotmacted bus COIIlpanies.
2. Cash handling internal controls should be a prioritM
2.1 We recommend N1as,.; I r.msk mama<_:cment prioritize cash 17a11dli:iL internaI controls.
1`l lull 't'12 C'l7; 'should for :lio cff,cIJIvC internal controiL:�:,:stcmi and irn.aI
control; Increase the likelihood fait elle organization will achieNe tlhcir objc ctit'Ls.
R.0":I)llfly.': \Ifhough the .N1 I A ll,_'_rcc:s that imploU Ciliciit` ..!C' riCl l{d _I to strengthen 'its
inIcrr Ii coIIIrclls Over the hantlII c,I ec15h. the managew,• 11 M IA has imp Icnicnted
\'ai AiL1`, 1:111'rlll clllclllti 11 [lit: past 1 cal' 4111L1 'Ll 11',[] f bcccll:`;c 11 li•I[IC'1';[:all{15 the 111117Or'taelcc Of
l Ile 1 t 1
!f71� I;�llti. .e+�'1�I:1t17C: :�L1C lt(}l ti [-C:1}G)rl :lat�ic,ltC;, lll:lt i�t.�Y �' it+,'+ll P'C'('�'ll't'( ,'[7?rl:llll"
±;Irrl!im",,! J)oS'!ioll ill {fmw hus Ja.rc C'[oii i-eC[rij','' [1i i;; I![11;' Ilit, bank[1C'f1l1.YfP.
{1 I1ih i''1Y po,titlrri? i1",i� 1011['ll i!r 1016. onii, m w Ix'+'.wlPl ',';1, .1 1.. 1): r,r {lluit! c'[rrlt
Iccci\eta ILIIKI11)U fill- this I,[+S'6011 orl Jule I. IHO ,incl Ill Siti
IS I'c l)II N\ IS tilled on
leu. ember 1. 201Later, the 11 1 A be`,an to rcclulie fl -x presence o t�4o stat,f• I11e1tlbers
as the cash `<\ras c{}1111tccI ,Incl 1)rcpiired for (Icposit and then cf1'ccLI\ c I ebruary 7, 2018, the
MTA now requires, t110 et'11-)Io\ c , to p,Ir'icIpaie In Ille countir'.L, � I n J r+ot,o71nting of the
cash.
3. Safeguard Assets
3.1 We recommend Mass Transit M,I11a"clnen1 crlSurc 1*\ SiC,11 security over manual
receipts, cash, and cash equivalents lc.g,, bras tick(:ts. hus passes, taxi coupons).
Response: TIIc audit rel-1ort states that "sonic co? rr',-l,it,necl vans clo not have locking fare
boxes. When Mere rs m Iare box, a rrrcrirrla c on-cbllrlc rw 1,1o_- iic &W is iii -ed " All vans
have locked cash boxes tl7,lt haN c been lcdesigned to include a slot to allow for the
insertion of pat incilt- 1 he NI I :1 hci5 ,llrc,1,1\ established adequate security upgrades and
enhancements to t=.tic?r1"1eis issue. inciuding secured rooms, video camera, and limited
access.
t 11.111hc1_ zees nwiend Mass Transit management ensure deposits are made timely,
both for contracted l7lls ;cr'< ICCs ,ind cash received by Mass Transit. Ideally, deposits
should be made within 24 hours. hul c11 least within two business days.
Response: The NITA has taken the necessary steps to ensure that cash deposits are made
within the tt�c, tLiN rct;,;irement and implemented changes to facilitate the timely
delivery of 1Limi`ti llwii the L:wi':rlctcci bus ser%ice companies..
---. --
IS W 1G, Management's Rc" ponse Daae,
Mass Transit Cash Receipts Management's Response 130
3.3 We further recommend Mass Transit staff restrictively endorse checks immediately
upon receipt.
Response: The MTA has directed staff to ensure compliance with recommended practice.
3.4 We further recommenc: Klass Transit management change lack or safe combinations
once an emp'o cc ,\ 1,+ Il;,J ..cccss leap es the organization or is reassigncd to ,mother
pUtillli,n.
Responsc -H-ie MTA is revie-�r inu and updating all existing procedures, to ensure
compliance with this and That similar recommendations are fully addressed.
3.5 We further recommend Mass 'l"ransit management implement a cash receipt log for
all incoming reg untie including bus fares from contracted bus service providers.
Response: The \1 1 A has alrctidx- beLltin to ,mplcment various los-,s to track the reccipt, of
monies from the contracted prm iders.
3.6 We further recommend Mass Transit tnanaoement assess the security camera
locations, regularly monitor. and limit access to the screen and recordings.
Response: The %I T:1 has ah-L!Lidy incorporated all practical measure, to ensure
compliance w lth ibis recommendation, i.e. limited acee,s to authorised staff to the data
1'00111 L'111d Sc'reell and roue?rdings.
3.7 We Furtller reconlnnend Mass Transit statf'empiN f.lrc hotcs frequently to ensure the
automatic locking ntecliamsm works.
Response: Although the MTA acknow led-cs that Improvements are needed regarding the
tri:cluenc} of the empt} illg ol' fare boxes, Inc l edit report's statement that"l, 1tr,t /he
fc'c-o tint C ierk t.1 mi, i4'C!i ltible or absenl.pwm ',, ork no rine emplies t1ic )1 s'V1w 4 bo. es,
s�,ntrtit„c fr�r ,c°1 c, ct1 ilars" does not provide a correct portrayal of the situation. To the
extent possihle. other MTA staffinomtiers have always supported the Account Clerk
when she is Unable to cmptY the Marc boxes. Additional changes have been made and
alternative options arc being considered to further the MTA's efforts.
4. Segregate incompatible duties
4.1 % e recommend that Mass Transit management separate incompatible duties. One
incl i. idual should not he in charge of all of the cash handling elements: physical custody
oi'c:ash, depositint., cash, rceordingYadjustin- transactions in the system. and reconciling
tllc re1`elllle LICC[1LIMS. IJ'dutles c isnot he s,Ifflclently segre-ated. mitigating controls,.
such as independent monitoring could be implemented.
Management's Response Page 3
Mass Transit Cash Receipts Management's Response 131
Response: I lie milli repclri dies specific Concerns `,\1111 the duties of* the ('otlnty
I ra[lsl c rLit lon `,heeIII ll,% (SpccILL II,t). I llc rcport ,talc;, :hat the SpccIaIP i ' muintaillc (lit,
n1w1[')' if f rd'lo, li111em fUi'.'+'omt' 717-ItJi; r*i' +-e [ c'I11b but illls is Ili-nlled to rccclpt� used I?%
the 11 dq)endent c'rllltI'actorthat s [I 11 I \-1L-kct and passes fclr Ivhlch the c[idi 3"�c�lllt
We Ina]rltclir]ed 11: t:l: contractor oil rt ,,Lily basis. I Ile rcpt rt "late. Olat the Specialist
bu, this is only dtlrtc a, a last icsort i1' no otllcr ,iaff is
ata, '1hle to scr. ice I:ltc �, [siomcr. %xhlch is duc to the rd at'%cly ;mall tat -t -silt• of the
DO I A. fele report ,I:;[tt , that the til,ccialist "rc t-ic lt.s end-e)1-cluY ca,,h 1-ccc'ili1V and
I-ec'c,lte'lle.c to the rrrcr= , E r;.l but hei roe, i, primarily as a secondary reviewer
because thr illiti,tl :'c• ice Hld rk:t,ollcililig of -receipts at the enol of'the da, is the
re: l,';In,,i!�ilit., c t l'lc '.� • ,,, [ !.',1:. Ifthe M-! A fmdu , thni ii ;P; 1-1 ;It ;t:lff',d on a
paolcuilir da . the �peciali,'. mi', he the initial re\ lcNvr but there is ahvays a secondary
rc� ic"Cl- as a 1111ti'-'atin
5. implement monitoring and oversight
5.1 `Vc recommend d Mass 11'illls'.t pe] 1,'1'111 olleq-'t)IIl_,, of thell'
internal comrol s,, st mi A-; pm -1 ill the 11111-111;PI 00111-s,' fit ,lperr IIWIS- ( )11�YI['ILI 11101111%11 -lilt'.
includes rcI Wnr nlltn. !-'cnlcm and ,tipci-Osory activities, daily reconcilialiol'i oI'C,1sl7
receipts, and otltci r01.1t][11c• aetlfllly.
Response- "I lic \1 I A has he,'ttrt to rcyie�� anti reg ise its existing practices and implement
improN cmcn(s based on need and .IA-)lhty.
5.2 \Vc Curt hcr rcconlmencl Nlas�; 'I ransit man.%=eenlenl spccitIcal Iv implement omming
tnonittaril7i' f rllecEli re 0!' (Ile e,l,lt llitncllil; process illcludil l,both comparisons aild
reccnlcili llol:;. Fol Cmillllllc. I'miliconc independent o1'(1)c cash handling process should
;lnd'ol recoltcile:
o the consecutiveness and completeness of manual cash receipts, paratransit
ctlupons. taxi coupons, bus passes, and bus tickets (once lire -numbered)
U c 01 vd trash rcceitlts
a IVN en UC rcccilltccl and dcro41tcil to the facncrnl lccleu'er
D []ultit;lltilmL, accoullt` 1'� C'Cl1` rifle halalicc o1r, , ickets, coupons and passes
Illir -ch iced %Cilli a niirch-r...i' d',r 1Pr
a 11111 trip sheets (r-I&I-Shit;) 1.) >,It collcctcd :lila ,ICI)w ilcd
o recorded mci ;Iwrls for paticr : or irrc;ti''E Iiic,
o recorded e,ls;ll io %heck compo,li:.it, tcli :rr. 'kr.iI'llIli�'s
C] C01Ilpl,.,ic'ness of bus trip tihccis to C'.1l4Ure ;ill trip sheet., .wd related cash
rc�'cil}i, ,ire rcceP ed and deposited
o taxi reimbursements receipts and deposits
Response: Certain points above arc already being addressed by the MTA including
monitoring oier.'shorts and the trip sheets and others are being considered by the \l I A in
relation to the feasibility ofimplementatiO1.
Mass Transit Ate- Aling Management's, Response t'.lR.
Mass Transit Cash Receipts Management's Response 132
5.3 WL, f n-ther recd mmcnd \lass Transit manapsement and staid monitor c.cah ha2,., Icer
patterns and incoilsista;ncies (e. L).. rcl)c. l0d o%er shorts, inacciir.ric unci incomplete 1! -Ip
slicers_ cash bass \%ith no trip sheets, cash baggy: ��ith trip sheets etnd no cash. inv.3lid ticket
sttihs) I I' N lass I rnnsit disco\ ers tinexpected patterns nnJ'or inconsistencies.. they should
f0110�4 up with the respective his drip cr or person responsible for the cash.
Response: With the hiring oi'the 1ccolmt (Merl~ in 2(110, proccdmvs �Mcre developed
regardint! the monitoring 0I'the trip sheet; srxl over shorts. Althn11_11 1111prc \ ell icnt-, ��Qrc
ncedecf r _;trtling the adherence to these procccittres. the �V1TA h;is implementcJ reg, isecl
and stroin,,eer procedures.
5.4 We further recommend Mass Transit management conduct anal tical procedures and
financial relationship Linalysis to monitor control~, rcVcntic. and budget expectations.
One example of an anal tical proccdure is comparing ridership counts to rct Cabe
(ridership x tare = revenue).
Response: The MTA will include additional analytical procedures and financial analysis
in its review procedures.
5.5 We further recommend that (lie :Hass Transit conduct surprise cash counts at all cash
handling locations.
Response: The MTA will work: to implement this recommendation.
6. Control manual cash receipts
6.1 We recommend it'lass Transit staff use official pre -numbered and pre-printed
receipts. I t' Nl,iss Transit �� tints to continue the practice of printing in-house receipts, this
file should be maintained h% someone niitside the cash handling system. As mentioned in
recommendation 5.2, these receipts should be monitored for consecutiveness and
completeness.
Response: The MTA has begtin to research the cost of pre -numbered and pre-printed
receipts.
7. Improve purchase order sales process
7.1 We recommend that Mass Transit management comply with IJawai`i Ccntnty Charter
Section 1 -1 ,_ «Lich requires all contracts with private parties to perform anti [unction or
activity with the O)untN to be authorized and approved by the ma\ 0i'. corporation
counsel, and the finance director.
Response: The NITA has temporarily halted such s;ilcq in -1.ma tion .until procedures are
developed with the support of the Office of the cot pot,ttik,:i ( oiin,cl and the Department
of Finance.
�1 x)t,,s,, Response Page 5
Mass Transit Cash Receipts Management's Response 133
7.21 We f'tn,thcl" rec4n11r1, 11e: V,r;; 1 ;m,,n m.,magement require pliNnicni at the timc of
salr r1 :lcS, un t f1i :,,1 Lt ..ra4: h.: I .:n �ahliShed and apprmn _-d. It'and �Nhcn a contract
is e\ecute(l. ter1111 ith and elaforced discuullis, interest rates,
timet% pctynlew. re,1 ,i iu t nl . 1w:1 1;,l:14cra1fle Coupons).
Response: The M 1A hl Ietttl7etr:Iri1. halted the acccp[ance o l.d:rs and Saul[:;
to 110TI-indINIdIMIS anal i, �Norkitw, ith loth the ()1'11CC uf'ihc ('nrptjr�ttlnn C OLIVISCI tend
the I)ep[vlmcnt ell Fii!l H4 CC 10 C01111111.1ncc- AI -so, the audit rcporI stair' Thai "One
t'C•i;clor brim's :il(Iw• i ii'!!w [.( it ?7;.'li ilzej' rcclitirc (axi L'oul?oi1s The l't n(lor then
StMU 0 I11N alli(Jl1 u 4"i ' OUPOns !1['i'cl'Ee! clltel Ills' F111IU11!?! I e�e'.�21c 1e'c� 11'OIT7
the o/ t!,,c pc;, ;ri'rll re CVI;1.c Ii - I' /C'CIiI rML.C. thc :lYCr/,mcc ii -as /Tf °,LrU"+t"t' :l Ilii "he
1'02del, rll'. 1!; !I1C' ( ounll illore Ildfr+l:'i !held the _mliif " I fo„cver. ash; 11 the N molter cane
to the \1 I A office to pick t:1) 11r; c:stullun5, 111c1 hrou�,ht a cLcck i;�, par Tient .It [hat time
to exchange for the coupons so at no time did tile), oN+e the Count} more motley.
7.3 We further recommend 'Klass Transit management implement a process to ensure
collection of all outstanding accounts receivable balances.
Response: The M' F.,,\ Staff revicNNs the balances of all vendnl'S ()n n '.lcckI\ husis. TO pttt
tlrilt 5 in perSpecw V. the a\ cruse [lttal muntltk ,ICCO[ut[, Ieeei't c&]C [ 1r S�11C Oil account
for the past tive nlontlls is ppro xin-"ItcIN S 1 1 .1100. v, 1111 a high of S' LOW),
8. Update and enforce policies and procedures
8.1 We recommend Mass Transit management establish, clarify, and enforce internal
cor: rots ir1 ('tturlfoie• J11d procedure.", to ensure consistency throughout the
del .::'I1.:nt incl „ith Indwslr% heS1 I)rae11ce5 including but not limited to:
o Titnel} independent re% iew and monitoring procedures
o Guidance deed clalrification on individual job duties to ensure adequate
Set,re;,.ttitlrl A duties exists
o l'h ,foal SCCL1111\ I)roteCdUICs
o I i nlc l . deposit cit- receipts
o L.ndor ing checks immediately upon receipt
o U,111 e. chief` o nt: �� 11f T -1V -1-1+1-tiered receipts, paratransit coupons, taxi
coupons, bus pat„c',. ,Inc] h',ts tickets (once pre -numbered)
o "Timely recouniIW11 01 [-c\ ettue
o Cash and check et,n:f osi[ion reconciliation
c) Rccording and rccmi ili:tti[rtl of cash o%er.' liorts
o kr,ttld rcllur[in1_' _uid Ince
Respom,c Itholugh the MTA ackllc ^,. iedecs that its internal controls could he improved,
it has alrc,ld\ hCL” m to rc%i;c the prolc:edurcti hN il, ,i.ilfas exTILliri;,cl in the
responses to the oihcr ;Millar rccommenclatioln,. I Ilc M l A c%il] cotl.tirl[Ic to asses, its
current policies and make the necessary changes.
Mass Transit Agency — Cash Handling Man.igemi. is Response Page 5
Mass Transit Cash Receipts Management's Response 134
9. Provide training
9.1 We recommend Mass Transit management provide ongoing cash handling and
internal controls training for all employees �,�ho handle revenue.
Response: The MTA has requested and recei\ ed training from the Department of Finance
and it will work to identi ty mv additional ureas for improvement.
9.2 We further recommencl Mms 'Transit provide ongoing training to bus drivers on
ridership count and cash collection procedure~.
Response: The MTA will work to implement this rccommcndation and have begun to
discuss the possibility of streamlining the information collected and forms used.
10. Improve other cash handling internal controls and procedures
10.1 We recommend Mass Transit management require cash over/shorts and cash to
check composition to be consistent)} rccwmined on the treasury receipts.
Response: The IN ITA \Hill weigh the impact of these recomnicndatioiis on the overall
internal control processes but the cash o\ cj`shorts are heinrg monitored on a designated
spreadsheet where it is easier to idcntit' trends acid prohie.!ms.
10.2 We further recommend Mass Transit staff follow their policies regarding, the selling
of 15 coupons per kN cck per customer or management should revise the policy to reflect
actual practices.
Response: The MTA k\ ill ree icw its 1.)olieics res,ardin,o this matter.
10.3 We further recommend Mass Transit ensure that ,�vhen an crrtployee is absent from
work, another employee performs their duties to allow for the potential of] rre"Lilarl ties to
surface.
Response: To the extent possible, the 1 ITA now requires other staff to perform these
duties when employees are out.
10.4 We further recommend Mass Transit staff notate the actual deposit date (not the
bank process date) on the treasury receipt.
Response: The NI'l A has already' begtan to input the actual. deposit date at the top of the
treasur\ receipt and notate the bank process elate within the hotly of the receipt.
10 WL, f'uilher recommend Mass Transit cora1plctc (%!asur` rcccil)ts uit}tirt I�\o ��orking
da•.ti as required by the Department of Finances policy.
Response: The MTA will continue to work on ensuring that it complies with this
rcrttent.
Mass Transit Agency— Cash w 1,:rating Management's ire-p:)nse Page 1
Mass Transit Cash Receipts Management's Response 135
10.6 Wt: I'Urtlwr Icl:ltrr mcm.: ila,, I r.rrtsit NCO IIC:IIc 1 d ICCOId trip :Sheets hIIIC'I1.
Response: With the hiring of the .Account Clcrk in `010, procc'cItires ,%crc dcvcIopcd
regarding the nronituiiw-, crf []w trip sliccts,incl c tiAlthough imprmcuivni: •acre
needed regarding the ndlicrcncc to tl csc procedures, the h9 l A has init)lcnrentc>`I rc%iscd
and siren] ,cr Ilroccdnres.
In summary. the Mass Transit Agency �i ill continue to reg ie�� it, internal controls and make
adjustments to its procedures. processes and policies as necessary.
Respectfully,
—e.
- ,vial a "Sole Aranguiz
Mass I mnsit .Administrator
V 3S 1 Iidr !_ irEl Manageml., [
Mass Transit Cash Receipts Management's Response 136
Appendix A: Audit Criteria
Hawaii Revised Statute, Title 5, Section 40-2 requires each county to establish and maintain
its own internal control system:
§40.2 Accounting systems and internal control; enforcing the use of and inspection of
the same...
(c) The judiciary, the legislature, and each county shall be responsible for the
establishment and maintenance of its respective internal control system.
The Hawaii County Charter, Article XIII, Section 13-13 describes contract requirements:
Section 13-13. Contracts.
The county may enter into contracts with private parties, other counties, the State or the
United States for the performance of any function or activity which the county is authorized
to perform. All written contracts to which the county is a party shall:
(a) Be approved by the corporation counsel as to form and legality.
(b) Be authorized by the council by resolution if legislative action is necessary to
implement the contract.
(c) Except as otherwise provided, be signed by the mayor.
(d) Be approved by the director of finance as to the availability of funds in the amounts
and for the purposes set forth therein if they involve financial obligations of the
county. Such contracts shall not extend beyond the term for which an appropriation
to finance such obligations has been made, except as otherwise provided by this
charter. This provision shall not apply to obligations for the procurement of utility
services.
Hawaii County Code, as amended sets the fare rates:
Section 18-90. Fares.
(a) Unless otherwise provided for in this section, every person using the mass transit
service owned, maintained or operated by the County shall be charged a $2 cash
one-way fare.
(b) Discounted fares for senior citizens, person with a disability and students. The
following persons shall be charged a $1 cash one-way fare:
(1) Senior citizens age sixty and older after providing proof of age from a valid state
ID card, County of Hawaii senior ID card, driver's license, birth certificate or
passport;
Mass Transit Cash Handling Audit Criteria 137
(2) A person with a disability with a valid, "Person With Disability Identification Card"
issued by the County of Hawaii; and
(3) Students (through college) with a valid school identification card.
(c) Fare prepayment discounts.
(1) All tickets for travel can be prepurchased at a discount of twenty-five percent off
the scheduled cash fare by purchasing a sheet of ten tickets for $15 per sheet
with no expiration date ("Ten Ride Discount Sheet").
(2) Senior citizens age sixty and older may prepurchase a sheet of ten tickets for
$7.50 per sheet with no expiration date ("Ten Ride Discount Sheet"), after
providing proof of age from a valid state ID card, County of Hawaii senior ID
card, driver's license, birth certificate or passport.
(3) A person with a disability may prepurchase a sheet of ten tickets for $7.50 per
sheet with no expiration date ("Ten Ride Discount Sheet"), with a valid, "Person
With Disability Identification Card" issued by the County of Hawaii.
(4) Students (through college) may prepurchase a sheet of ten tickets for $7.50 per
sheet with no expiration date ("Ten Ride Discount Sheet"), with a valid school
identification card.
(5) A monthly bus pass fare plan may be purchased at a cost of $60 for unlimited
rides on all routes. Monthly passes shall be valid through the last calendar day of
each month with no grace period.
(6) Senior Citizens age sixty and older may purchase a discounted monthly bus pass
offered at a cost of $45 for unlimited rides on all routes, after providing proof of
age from a valid state ID card, County of Hawaii senior ID card, driver's license,
birth certificate or passport. Monthly passes shall be valid through the last
calendar day of each month with no grace period.
(7) A person with a disability may purchase a discounted monthly bus pass offered at
a cost of $45 for unlimited rides on all routes, with a valid, "Person with Disability
Identification Card" issued by the County of Hawaii Monthly passes shall be valid
through the last calendar day of each month with no grace period.
(8) Students (through college) may purchase a discounted monthly bus pass offered
at a cost of $45 for unlimited rides on all routes, after providing a valid school
identification card. Monthly passes shall be valid through the last calendar day of
each month with no grace period.
(9) The Ten Ride Discount Sheet, the monthly pass, and any pilot program pass
must be purchased directly from the mass transit agency or its designated
representative.
(d) Fare waived for children under the age of five.
All fares for travel by children under the age of five shall be waived.
(e) Paratransit service fares.
Under the Americans with Disabilities Act (ADA), the fare for a trip charged to an
ADA paratransit eligible user of the complementary paratransit service shall not
exceed twice the fare that would be charged to an individual paying full fare (i.e.,
without regard to discounts) for a trip of similar length, at a similar time of day, on the
entity's fixed route system:
Mass Transit Cash Handling Audit Criteria 138
(1) A one-way paratransit rider fare shall be twice the fare of the current full fare (e.g.
without any discounts) on the fixed -route system;
(2) The fares for individuals accompanying ADA paratransit eligible individuals, who
are provided service under section 37.123 (f) of the ADA, shall be the same as
for the ADA paratransit eligible individuals they are accompanying; and
(3) A personal care attendant shall not be charged for complementary paratransit
service.
(f) Shared -ride fares.
Shared -ride program coupons may be purchased by the public through the mass
transit agency and its designated coupon sales outlets in accordance with the
following schedule:
Coupon Price
Single coupon
$6
5 coupon book
$15 ($3 per coupon)
10 coupon book
$25 ($2.50 per coupon)
15 coupon book
$30 ($2 per coupon)
For one-way travel limited to a maximum of nine miles under the shared -ride
program the fare to be collected is set out in fare schedule A in section 18-92.
(g) Promotional fares.
(1) The purpose of this subsection is to provide lower bus fares when a new route or
service is provided or to boost ridership on established routes.
(2) The transit administrator may establish fares on a temporary basis for a period
not to exceed one hundred and eighty calendar days for bus routes and services.
Section 18-91. Baggage.
A driver of any mass transit bus owned, maintained and operated by the County shall
charge $1 for each piece of baggage, including large backpacks, except that any
small bag such as a train case, handbag, briefcase, or a package that can be carried
on the lap of the passenger and within the passenger's respective seat shall be
conveyed without charge.
Section 18-92. Fare schedules.
FARE SCHEDULE A
Shared -Ride Fares
One -Way Mileage No. of Coupons (Per Person)
0 — 4.0 miles 1 coupon
4.1 — 9.0 miles 2 coupons
Rates are maximum charge per zone. Shared -ride carriers may charge less at their
discretion.
Mass Transit Cash Handling Audit Criteria 139
County of Hawaii Department of Finance, Accounting Manual Part I (June 7, 1999)
requires departments and agencies to maintain internal controls:
General
This section charges departments and agencies with the responsibility to maintain an
adequate system of internal controls and with the further responsibility to see that the
internal control continues to function effectively as designed...
Internal Control
1. Objective. The objective of internal control is to provide reasonable assurances as
to the safeguarding of assets against loss from unauthorized use or disposition and
as to the reliability of financial reports for preparing financial statements and
maintaining accountability for assets...
Required Features. Any system of internal control should include, as a minimum, the
following elements:
1. Systems of authorizations, approvals, and recording procedures adequate to provide
reasonable accounting control over assets, liabilities, revenues, and expenditures.
2. Separation of duties concerned with record keeping and accounting reports from
those concerned with operations or asset custody.
3. Physical controls over assets.
4. Personnel whose qualifications are commensurate with their responsibilities and
duties.
5. Continuing internal review by management to determine:
a. Prescribed policies, rules and regulations are being carried out.
b. Changes in operations have not made the procedures inefficient or obsolete.
c. Effective corrective measures are being taken promptly when deficiencies are
discovered.
County of Hawaii Department of Finance, Memorandum 17-06 (May 31, 2017) reminds
departments that cash and treasury receipts are required within two working days:
... Please take time now to catch up on delinquent deposits and delinquent treasury receipts.
As a reminder all cash is to be deposited within two working days. For those of you using
night deposit boxes or who have payments automatically deposited into the County's bank
account, your treasury receipts are also required within two working days ...
Mass Transit's Cash Handling Procedures (November 1, 2016) states:
1. All office staff will be assigned individual cash boxes, each with a $30.00 kitty for the
sale of bus passes, bus tickets, shared ride taxi coupons, paratransit coupons and
items pertaining to licensed taxi companies, or any other items with a cash value. Cash
Mass Transit Cash Handling Audit Criteria 140
boxes are not to be accessible by anyone else but to whom it was assigned and each
staff member will be responsible for the cash/checks in their cash box. To reduce the
risk of error, all cash should be separated according to the denomination, and should
face the same direction. Checks should be kept together.
2. All office staff are to keep cash box closed and secured while not in active use and will
be kept in the area designated and approved by the Administrator. Cash boxes are not
to be left unattended and will be locked in the individual staff member's designated area
when away from the office. That staff member and the Administrator will be the holders
of keys/combination to the office staff's designated locked area.
3. Each staff member is to complete a cash receipt form (written legibly including initials)
for all items sold. A cash receipt shall also be completed for RETURNED CHECKS
(include item that was sold plus $20.00 return check fee). Be specific that the
payment is for a returned check. Refer to the return check binder. The original
receipt will be given to the purchaser and the carbon copy will be kept in the receipt
book. The return check collection shall be submitted to the Account Clerk in the
"return check" envelope provided, after it is collected. Do no submit at the end of the
day.*
4. Each staff member is to complete a cash receipt form (written legibly including initials)
for all Taxi license business (renewals, decals, application fees, & Section 18).
Included on the receipt shall be the item(s) cash is collected for and the taxicab
license number as well as the CH number when applicable. The original receipt will
be given to the purchaser and the carbon copy will be kept in the
receipt book.
5. When accepting cash and coin payments, staff member shall recount in front of the
customer to confirm the amount received from the customer. If change is given back to
the customer, the change should be counted back to the customer, to avoid errors.
6. When accepting check payments, staff member shall ensure the check is completed
accurately and accordingly, ensuring a phone number is received. Do not accept a
post-dated check. (note if the name on the check if different from whom the purchase
is for, please note on the receipt form — i.e. jane doe purchased by john doe)
7. Completed pages of carbon copies of the receipts shall be fastened immediately to
the recorded receipt file to avoid misplaced pages or receipts being out of sequence.
8. No refunds or exchanges are allowed unless authorized by the Administrator.
9. The Transportation Specialist must approve of all voided cash receipts. The
original receipt is to be stapled to the carbon copy in the receipt book with a brief
explanation written by the office staff who voided the cash receipt and "Void" shall
Mass Transit Cash Handling Audit Criteria 141
be written on both the original and the copy. The Transportation Specialist will
approve the explanation and initial the voided receipt.***
10. Any changes to the carbon copy of the receipt after the original has been given to
the customer must be approved by the Transportation Specialist who will initial the
area that the changes were made.***
11. Each staff member shall calculate the sum of their daily sales using an adding
machine and legibly initialing the tape. Tape shall be attached and secured with a
paper clip along with all cash and check payments received and submitted to the
Account Clerk by 4:00 pm each work day.*
12. The Account Clerk shall reconcile all office staffs sales with cash/checks
received and verify the sales with the receipt book.*
13. The Account Clerk shall complete a County Treasury Deposit Sheet for all the
day's sales.*
14. The Transportation Specialist shall verify the Account Clerk's sales with
cash/checks received and verify the sales with the receipt book.**
15. The Transportation Specialist shall verify all deposit information on the County
Treasury Deposit Sheets before it is submitted to the County Treasury on the
following work day.**
16. At the close of business, sales deposits and staff cash boxes shall be locked in the
lost and found cabinet in the back conference room by the Transportation Specialist.
*** The Administrator, Transportation Specialist, and Operations Assistant will hold
keys for these areas.
17. The door to the office conference room and all office entrances shall be locked at end
of day. The Administrator, Transportation Specialist, and Operations Assistant will
hold of keys for these areas. (Paratransit Specialist has keys to the main office). As
a team, everyone should ensure that the office is secured at the end of the day.
18. The Clerk 11 (Transit Assistant in absence of the Clerk 11) shall submit the sales
deposit from the prior work day to the County Treasury office each work day (deposits
must be made within 2 business days) and turn in the treasury receipts to the
Transportation Specialist to verify before giving to the Account Clerk to file.
19. Any discrepancies at the County Treasury office shall be returned to the transit
office. The Administrator, Transportation Specialist and the Account Clerk shall be
informed by the Clerk II (Transit Assistant in absence of the Clerk 11).
Mass Transit Cash Handling Audit Criteria 142
20. The Operations Assistant shall print out the cash receipts for the sale of bus
passes, bus tickets, shared ride taxi coupons and paratransit coupons (when
applicable).
21. The Transportation Specialist shall print the cash receipts for items pertaining to
licensed taxi companies.
22. The Account Clerk shall print the cash receipts for the Hilo Information Center.
The Transit Administrator will be assigned this duty when the Account Clerk is
not available.
** The Operations Assistant will be assigned this duty when the Transportation
Specialist is not available.
'The Account Clerk will be assigned this duty when the Transportation Specialist
is not available.
MASS TRANSIT OFFICE CASH HANDLING PROCEDURES
Acknowledgment
I have received and acknowledge reading
the Mass Transit Office Cash Handling Procedures.
Signature
Date
United States Government Accountability Office (GAO), Standards for Internal Control in
the Federal Government ("Green Book") describes the importance of the control environment:
Overview
The control environment is the foundation for an internal control system. It provides the
discipline and structure, which affect the overall quality of internal control. It influences
how objectives are defined and how control activities are structured. The oversight body
and management establish and maintain an environment throughout the entity that sets
a positive attitude toward internal control.
Principles
Mass Transit Cash Handling Audit Criteria 143
1. The oversight body and management should demonstrate a commitment to integrity
and ethical values.
2. The oversight body should oversee the entity's internal control system.
3. Management should establish an organizational structure, assign responsibility, and
delegate authority to achieve the entity's objectives.
4. Management should demonstrate a commitment to recruit, develop, and retain
competent individuals.
S. Management should evaluate performance and hold individuals accountable for their
internal control responsibilities...
1.05 Tone at the top can be either a driver, as shown in the preceding paragraphs, or a
barrier to internal control. Without a strong tone at the top to support an internal control
system, the entity's risk identification may be incomplete, risk responses may be
inappropriate, control activities may not be appropriately designed or implemented,
information and communication may falter, and results of monitoring may not be
understood or acted upon to remediate deficiencies.
The Green Book describes the appropriate types of control activities that management should
design:
10.03... Physical control over vulnerable assets
Management establishes physical control to secure and safeguard vulnerable assets.
Examples include security for and limited access to assets such as cash, securities,
inventories, and equipment that might be vulnerable to risk of loss or unauthorized use.
Management periodically counts and compares such assets to control records...
The Green Book states that Management should implement control activities through policies:
Principle 12 — Implementing Control Activities
12.01 Management should implement control activities through policies.
Attributes
The following attributes contribute to the design, implementation, and operating
effectiveness of this principle:
• Documentation of Responsibilities through Policies
• Periodic Review of Control Activities
12.02 Management documents in policies the internal control responsibilities of the
organization.
12.03 Management documents in policies for each unit its responsibility for an
operational process's objectives and related risks, and control activity design,
Mass Transit Cash Handling Audit Criteria 144
implementation, and operating effectiveness. Each unit, with guidance from
management, determines the policies necessary to operate the process based on the
objectives and related risks for the operational process. Each unit also documents
policies in the appropriate level of detail to allow management to effectively monitor the
control activity.
12.04 Those in key roles for the unit may further define policies through day-to-day
procedures, depending on the rate of change in the operating environment and
complexity of the operational process. Procedures may include the timing of when a
control activity occurs and any follow-up corrective actions to be performed by
competent personnel if deficiencies are identified. Management communicates to
personnel the policies and procedures so that personnel can implement the control
activities for their assigned responsibilities.
12.05 Management periodically reviews policies, procedures, and related control
activities for continued relevance and effectiveness in achieving the entity's objectives or
addressing related risks. If there is a significant change in an entity's process,
management reviews this process in a timely manner after the change to determine that
the control activities are designed and implemented appropriately. Changes may occur
in personnel, operational processes, or information technology. Regulators; legislators;
and in the federal environment, the Office of Management and Budget and the
Department of the Treasury may also change either an entity's objectives or how an
entity is to achieve an objective. Management considers these changes in its periodic
review.
The Green Book also describes the monitoring internal control and remediation of internal
control deficiencies component:
Overview
Finally, since internal control is a dynamic process that has to be adapted continually to
the risks and changes an entity faces, monitoring of the internal control system is
essential in helping internal control remain aligned with changing objectives,
environment, laws, resources, and risks. Internal control monitoring assesses the quality
of performance over time and promptly resolves the findings of audits and other reviews.
Corrective actions are a necessary complement to control activities in order to achieve
objectives...
Principle 16 — Perform Monitoring Activities
16.01 Management should establish and operate monitoring activities to monitor the
internal control system and evaluate the results...
Mass Transit Cash Handling Audit Criteria 145
Internal Control System Monitoring
16.04 Management monitors the internal control system through ongoing monitoring and
separate evaluations. Ongoing monitoring is built into the entity's operations, performed
continually, and responsive to change. Separate evaluations are used periodically and
may provide feedback on the effectiveness of ongoing monitoring.
16.05 Management performs ongoing monitoring of the design and operating
effectiveness of the internal control system as part of the normal course of operations.
Ongoing monitoring includes regular management and supervisory activities,
comparisons, reconciliations, and other routine actions. Ongoing monitoring may include
automated tools, which can increase objectivity and efficiency by electronically compiling
evaluations of controls and transactions.
16.08 Management retains responsibility for monitoring the effectiveness of internal
control over the assigned processes performed by service organizations. Management
uses ongoing monitoring, separate evaluations, or a combination of the two to obtain
reasonable assurance of the operating effectiveness of the service organization's
internal controls over the assigned process. Monitoring activities related to service
organizations may include the use of work performed by external parties, such as
service auditors, and reviewed by management...
Principle 17 — Evaluate Issues and Remediate Deficiencies
17.01 Management should remediate identified internal control deficiencies on a timely
basis...
Evaluation of Issues
17.05 Management evaluates and documents internal control issues and determines
appropriate corrective actions for internal control deficiencies on a timely basis.
Management evaluates issues identified through monitoring activities or reported by
personnel to determine whether any of the issues rise to the level of an internal control
deficiency. Internal control deficiencies require further evaluation and remediation by
management. An internal control deficiency can be in the design, implementation, or
operating effectiveness of the internal control and its related process. Management
determines from the type of internal control deficiency the appropriate corrective actions
to remediate the internal control deficiency on a timely basis. Management assigns
responsibility and delegates authority to remediate the internal control deficiency.
Corrective Actions
17.06 Management completes and documents corrective actions to remediate internal
control deficiencies on a timely basis. These corrective actions include resolution of audit
findings. Depending on the nature of the deficiency, either the oversight body or
management oversees the prompt remediation of deficiencies by communicating the
corrective actions to the appropriate level of the organizational structure and delegating
Mass Transit Cash Handling Audit Criteria 146
authority for completing corrective actions to appropriate personnel. The audit resolution
process begins when audit or other review results are reported to management, and is
completed only after action has been taken that (1) corrects identified deficiencies, (2)
produces improvements, or (3) demonstrates that the findings and recommendations do
not warrant management action. Management, with oversight from the oversight body,
monitors the status of remediation efforts so that they are completed on a timely basis.
Government Finance Officers Association (GFOA) provides best practices for documenting
accounting policies and procedures:
Communication is an essential component of a comprehensive framework of internal
controls. One method of communication that is particularly effective for controls over
accounting and financial reporting is the formal documentation of accounting policies
and procedures. A well-designed and properly maintained system of documenting
accounting policies and procedures enhances both accountability and consistency. The
resulting documentation can also serve as a useful training tool for staff.
Recommendation:
Every government should document its accounting policies and procedures.
Traditionally, such documentation has taken the form of an accounting policies and
procedures manual. Thanks to advances in technology, even more effective methods
are now also available for this purpose.
An appropriate level of management to emphasize their importance and authority should
promulgate accounting policies and procedures. The documentation of accounting
policies and procedures should be evaluated annually and updated periodically, no less
than once every three years, according to a predetermined schedule. Changes in
policies and procedures that occur between these periodic reviews should be updated in
the documentation promptly as they occur. A specific employee should be assigned the
duty of overseeing this process. Management is responsible for ensuring that this duty is
performed consistently.
The documentation of accounting policies and procedures should be readily available to
all employees who need it. It should delineate the authority and responsibility of all
employees, especially the authority to authorize transactions and the responsibility for
the safekeeping of assets and records. Likewise, the documentation of accounting
policies and procedures should indicate which employees are to perform which
procedures. Procedures should be described as they are actually intended to be
performed rather than in some idealized form. Also, the documentation of accounting
policies and procedures should explain the design and purpose of control related
procedures to increase employee understanding of and support for controls.
Mass Transit Cash Handling Audit Criteria 147
Government Finance Officers Association (GFOA) recommends governments establish a
revenue control and management policy and review it on an annual basis. This policy should be
customized for the size and resources of the government:
The following factors should be considered in developing a general revenue control and
management policy:
■ Internal controls - Management should establish controls, and ensure they are
documented and followed. All aspects of cash receipting and accounts
receivables should be subject to proper internal controls including:
• Segregation of duties such as initiation and authorization of transactions,
execution of transactions (receipting and disbursement), recording
transactions, reconcilement, and maintaining custody.
• Daily processing and timely deposit of receipts. Ideally, all funds should
be deposited within 24 hours of receipt.
• Timely reconciliation to applicable ledgers.
• Physical security procedures. This is especially important for funds not
deposited day of receipt.
• Fraud reporting procedures.
• Use of integrated receipt and accounting systems wherever practical and
cost-effective.
■ Accounting practices — All receipts and receivables should be recorded in
accordance with generally accepted accounting principles (GAAP).
■ Billing and collection practices - Accounts receivable should be established for
services provided in advance of payment and terms for collection should be
established. In accordance with established procedures, bills should be initiated,
recorded in an accounts receivable system, and generated within an established
timely manner after initial service delivery. Effort should be made to ensure that
receivables are collected in a timely fashion. A policy should be established to
provide for `write-offs' of accounts receivable, including timeframe, dollar
thresholds and decision-making authority.
■ Methods of payment — A policy outlining the acceptable methods of payment for
the governments should be established. This policy should include the method of
access (as well as method of payment) while promoting electronic methods of
access and payment when feasible and cost-effective to reduce overall risk and
increase cash flow.
Depositing of received funds - Treasury management should serve as the
primary recipient for all revenue collection sites. There should be timely
recognition and depositing of revenue collected. Smaller governments that do not
have a formal treasury function are encouraged to establish a formal single point
of receipt or cashier function to control access to received funds.
Mass Transit Cash Handling Audit Criteria 148
■ Due to the special nature of funds received from grants, developers, partners and
other entities, governments should consider whether separate procedures should
be established for recording and depositing these funds.
■ Returned checks — Procedures for processing and collection of returned checks
should be established, including the assessment of fees to offset the costs
associated with the returned items.
■ Accounts receivable management — All accounts receivable should be recorded
in a manner that allows for aging analysis. After reviewing available collection
options, governments should establish procedures that maximize collections.
Collection agencies that are familiar with federal, state, and local notice
requirements and regulations should be considered when their use proves cost-
effective.
• Bad Debts — An allowance for doubtful accounts and a write-off
policy should be established. Bad debt expense should be
estimated based upon a documented method of calculation. An
allowance for doubtful accounts should be recorded. Write-offs
should be performed periodically to ensure that accounts
receivable and allowance balances are not overstated. Efforts
should be made to pursue the timely collection of delinquent
accounts.
Budgetary review responsibilities — Revenue collections and accounts receivable
should be monitored in a timely manner. Both actual and budgeted or forecast
revenues should be monitored. Any significant variance of actual from the
forecast or budgeted revenues should be investigated thoroughly.
■ Compliance - Governments should ensure their revenue control and
management policy and procedures are in full compliance with any federal, state,
local or other applicable laws, or requirements.
The Committee of Sponsoring Organizations (COSO) provides an integrated internal control
framework and guidance that consists of five interrelated components, which are control
environment, risk assessment, control activities, information and communication, and
monitoring.
Component No. 3 Control Activities
Control activities are the policies and procedures that help ensure managements
directives are carried out. They help ensure that necessary actions are taken to address
risks to the achievement of organizational objectives. Control activities occur throughout
the organization at all levels and in all functions. They include a range of activities as
diverse as approvals; authorizations; verifications; reconciliations; reviews of operating
performance; security of assets; and segregation of duties.
Mass Transit Cash Handling Audit Criteria 149
Component No. 5 Monitoring
Internal control systems need to be monitored - a process that assesses the quality of
system performance over time. This is accomplished through ongoing monitoring
activities, separate evaluations, or a combination of the two. Ongoing monitoring occurs
during the course of operations, and includes regular management and supervisory
activities as well as other employee activities. The scope and frequency of separate
evaluations will depend primarily on an assessment of risks and the effectiveness of
ongoing procedures. Internal controls deficiencies should be reported upstream, with
serious matters reported to top management and governmental leaders.
Mass Transit Cash Handling Audit Criteria 150