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HomeMy WebLinkAbout2022-03 Mass Transit Cash Handling Follow-upCounty of Hawai'i Seal County of Hawai'i Office of the County Auditor Mass Transit Cash Handling Follow-Up Report No. 2022-03 August 09, 2022 Picture of a map of Hilo. Picture of Hele-On Bus with bicycle. Picture of Hele-On Bus with door open and sign saying For Destination. Tyler J. Benner County Auditor County of Hawaii County of Hawai'i Office of the County Auditor Office of the County Auditor 120 Pauahi St., 309 Ph 808.961.8386 Hilo, HI 96720 F 808.961.8905 www.hawaiicounty.gov August 09, 2022 Honorable Maile Mederios David, Council Chair and Members of the Hawaii County Council Hawaii County Council 25 Aupuni Street Hilo, Hawaii 96720 Dear Chair David and Council Members, In accordance with generally accepted government auditing standards and the Hawaii County Charter Section 3-18(d)(2), the Office of the County Auditor conducts or causes to be conducted: Performance and/or financial audits of the funds, programs, services, and operations of any county agency, executive agency, or program, as set forth by the county auditor in an annual audit plan that shall be transmitted to the county council and the mayor and filed with the county clerk as a public record. We have completed our follow-up engagement of the Cash Handling at the County of Hawai`i's Mass Transit Agency Report No. 2018-01, dated April 30, 2018. The objective was to determine if the Mass Transit Agency implemented the 2018 cash handling audit recommendations. In January 2022, the Hawaii County Council voted on Bill 105 to temporarily suspend fares for all mass transit fixed routes and paratransit services until December 31, 2025. Grant funds will cover operational costs during the temporary suspension period. The intent of the amendment is to remove barriers to riding public transit, boost and rebuild ridership, and keep frontline employees and riders safe and socially distanced from each other by eliminating the exchange of fares. As a result of the change in operations, we determined eight of our original recommendations are not applicable (N/A). To improve government accountability and ensure audit recommendations are implemented or resolved, we will be continuously monitoring the status of pending recommendations using our remediation tracker. Hawai`i County is an Equal Opportunity Provider and Employer In this follow-up audit we tested a total of 30 recommendations and found 14 recommendations were implemented, seven were partially implemented, eight were not applicable, and one was not implemented. Status ofRecommendations Implemented Partially Implemented* Not Implemented* Not Applicable* 14 7 1 8 Department has fully Department has made Sufficient and The risk associated with completed the audit significant progress. We appropriate evidence the recommendation no recommendation. We reviewed sufficient and was unavailable to longer exists or is no reviewed sufficient appropriate evidence to support key aspects of longer applicable. and appropriate support key aspects of the the recommendation evidence to support all recommendation. or department has no aspects of the plans to implement the recommendation. recommendation. To view the status of open recommendations please visit our website at: https://www.hawaiicounty.gov/our-county/legislative/office-of-the-county-auditor. In response to a draft of this follow-up report, MTA Management was unable to determine if they generally agreed or disagreed with the audit results. A copy of management's full response can be found in Chapter 4. We would like to express our sincere appreciation and commend the Mass Transit Agency for their continued efforts to improve cash handling practices. If you have any questions or concerns about the status of recommendations discussed, please feel free to contact me at 961-8386. Thank you. Respectfully, Tyler J. Benner County Auditor County of Hawaii cc: Mitchell D. Roth, Mayor Lee Lord, Managing Director Jon Henricks, County Clerk John Andoh, Mass Transit Administrator Table of Contents Executive Summary................................................. 1 AboutUs................................................................... 6 Chapter 1 Introduction Objective................................................................7 Scope and Methodology........................................7 Definitions..............................................................8 Chapter 2 Status of Recommendations Update the Bus Cash Handling System Recommendation 1.1 .................................9 Recommendation 1.2.................................9 Recommendation 1.3.................................9 Cash Handling Internal Controls Should be a Priority Recommendation 2.1 ...............................10 Safeguard Assets Recommendation 3.1 ...............................11 Recommendation 3.2...............................12 Recommendation 3.3...............................13 Recommendation 3.4...............................14 Recommendation 3.5...............................14 Recommendation 3.6...............................15 Recommendation 3.7...............................15 Segregate Incompatible Duties Recommendation 4.1 ...............................16 Implement Monitoring and Oversight Recommendation 5.1 ...............................17 Recommendation 5.2 ...............................18 Recommendation 5.3 ...............................19 Recommendation 5.4 ...............................19 Recommendation 5.5 ...............................20 Control Manual Cash Receipts Recommendation 6.1 ...............................21 Improve Purchase Order Sales Process Recommendation 7.1 ...............................22 Recommendation 7.2 ...............................22 Recommendation 7.3 ...............................22 Update and Enforce Policies and Procedures Recommendation 8.1 ...............................23 Provide Training Recommendation 9.1 ...............................25 Recommendation 9.2 ...............................26 Improve Other Cash Handling Internal Controls and Procedures Recommendation 10.1 .............................27 Recommendation 10.2 .............................27 Recommendation 10.3 .............................28 Recommendation 10.4 .............................28 Recommendation 10.5 .............................28 Recommendation 10.6 .............................29 Conclusion .................................................. 30 Chapter 3 Fraud, Waste, and Abuse ................... 31 Chapter 4 Management Response ...................... 32 Executive Summary Background The Office of the County Auditor has completed a follow-up engagement with the County of Hawai`i's Mass Transit Agency (MTA) Cash Handling. We initiated the audit, with the understanding cash receipts are an inherently high-risk process. The audit identified MTA cash handling process was inadequate and ineffective to ensure revenue is properly controlled and deposits are timely and accurate. Based on the conditions at the time, 30 recommendations were made. The purpose of this follow-up audit was to determine if MTA implemented the prior recommendations. Subsequently, in January 2022, the Hawaii County Council voted on Bill 105 to temporarily suspend fares for all mass transit fixed routes and paratransit services until December 31, 2025. Grant funds will cover operational costs during the temporary suspension period. The intent of the amendment is to remove barriers to riding public transit, boost and rebuild ridership, and keep frontline employees and riders safe and socially distanced from each other by eliminating the exchange of fares. Fare suspension does not apply toward County-contracted shared-ride services, curb-to-curb van services operated by the Department of Parks and Recreation, or non-fixed bus services provided in partnership with non-profit organizations. In this follow-up, we tested 22 of 30 recommendations to determine if MTA implemented our cash handling recommendations. We determined 14 recommendations were implemented, seven were partially implemented, and one was not implemented. Subsequently, because of fare suspension, eight of our original recommendations are no longer applicable. We found: Status of Recommendations Status Update the bus cash handling system 1.1 We recommended MTA equip County buses and vans with an updated Partially electronic fare box to collect passenger fares and track ridership. Implemented 1.2 We recommended MTA pre-number bus tickets. Not Applicable 1.3 We recommended MTA remove or alter the perforated stub at the stop Not Applicable of the bus ticket sheets to ensure passengers pay the full fare. Executive Summary 1 Status of Recommendations Status Cash handling internal controls should be a priority 2.1 We recommended MTA management prioritize cash handling internal Partially controls. Management should be responsible for an effective internal Implemented control system and internal controls increase the likelihood that the organization will achieve their objectives. Safeguard assets 3.1 We recommended MTA management ensure physical security control Implemented over manual receipts, cash, and cash equivalents. 3.2 We recommended MTA ensure deposits are made timely. Implemented 3.3 We recommended MTA staff endorse checks immediately upon Implemented receipt. 3.4 We recommended MTA change lock or safe combinations periodically. Implemented 3.5 We recommended MTA implement cash receipt log for all incoming Not Applicable revenue. 3.6 We recommended MTA assess security camera locations, regular Partially monitor, and limit access to screen and recordings. Implemented 3.7 We recommended MTA staff empty fare boxes frequently to ensure Not Applicable automatic locking mechanism works. Segregate incompatible duties 4.1 We recommended MTA separate incompatible duties. Partially Implemented Implement monitoring and oversight 5.1 We recommended MTA perform ongoing monitoring of their internal Not control system as part of normal course of operations. Implemented 5.2 We recommended MTA implement ongoing monitoring procedures Partially including both comparisons and reconciliations. Implemented 5.3 We recommended MTA monitor cash bags for patterns and Not Applicable consistencies. 5.4 We recommended MTA conduct analytical procedures and financial Implemented relationship analysis. 5.5 We recommended MTA conduct surprise cash counts at all cash Implemented handling locations. 2 Executive Summary Status of Recommendations Status Control manual cash receipts 6.1 We recommended MTA use official pre-numbered and pre-printed Implemented receipts. Improve purchase order sales process 7.1 We recommended MTA comply with County Charter X13-13 contracts. Implemented 7.2 We recommended MTA require payment at the time of sale. Not Applicable 7.3 We recommended MTA implement process to collect outstanding Not Applicable receivables. Update and enforce policies and procedures 8.1 We recommended MTA establish and enforce internal controls. Partially Implemented Provide training 9.1 We recommended MTA provide ongoing staff cash handling training. Implemented 9.2 We recommended MTA provide ongoing training to bus drivers on Implemented ridership count and cash collection procedures. Improve other cash handling internal controls and procedures 10.1 We recommended MTA record cash over/shorts and cash to check Implemented composition on treasure receipts. 10.2 We recommended MTA follow their policies regarding selling 15 (taxi) Implemented coupons per week per customer or revise the policy to reflect actual practices. 10.3 We recommended MTA ensure that when an employee is absent from Implemented work, another employee performs their duties to allow for the potential of irregularities to surface. 10.4 We recommended MTA staff notate actual deposit date (not the bank Implemented process date) on the Treasury receipt. 10.5 We recommended MTA complete Treasury receipts within two Not working days as required by Department of Finance policy. Applicable 10.6 We recommended MTA reconcile and record trip sheets timely. Partially Implemented Executive Summary 3 Conclusion We commend the Mass Transit Agency for their efforts to improve cash handling practices over share-ride, curb-to-curb, and non-fixed bus services for the County of Hawaii. To further strengthen internal controls over the cash handling process, we've identified some opportunities. MTA should continue to remediate remaining recommendations and address the following: Partially Implemented 1.1 Continue to order new buses with updated electronic fare boxes 2.1 Prioritize documentation and enforcement of their internal cash handling controls 3.6 Continue to enhance and maintain their video systems 4.1 Implement controls to further establish segregation of duties 5.2 Develop and implement ongoing management monitoring of processes 8.1 Continue to update procedures and ensure consistency 9.6 Continue to consistently track and reconcile ridership Not Implemented 5.1 Develop and implement management reconciliation for cash handling processes Fully Implemented We also commend Mass Transit Agency (MTA) for fully implementing 14 recommendations in areas such as: • Ensuring valuables received are deposited timely • Check endorsements are performed upon receipt • Valuables are locked in secure locations • MTA management develops and maintains analytical procedures and performs financial relationship analysis • MTA conducts surprise cash counts and follows up on any issues • All pre-numbered taxi coupons, licenses and receipts are tracked for consecutiveness and completeness • Contracts are appropriately tracked • MTA ensures staff are trained in all aspects of their primary and secondary assignments • MTA also ensures bus drivers receive ongoing training as changes occur • Management maintains public facing information, materials, and documentation, to ensure they are informed of any changes via their website, order forms and related documentation • Management ensures there are trained backups for staff who are out of the office • Account Clerks ensure that financial paperwork for the Treasury is appropriately completed and managed timely 4 Executive Summary Lastly, we would like to acknowledge the improvements MTA has made in developing and implementing the cash handling process. Did MTA's Policies and Procedures Improve since the 2018 Audit? Were Policies and Was the actual Procedures Complete? Practice Expected Procedure Performed? 2018 2022 2018 2022 1. Independent Review and Monitoring Inadequate Inadequate No Partially 2. Segregation of Duties Inadequate Yes No Partially 3. Physical Security Procedures Inadequate Yes No Yes 4. Timely Deposit of Receipts No Yes No Yes 5. Checks Endorsed Immediately No Yes No Yes 6. Timely Reconciliation of Cash Receipts to No No No Yes Applicable Ledgers 7. Receipts are Consecutive and Pre- No Yes No Yes numbered (including voids) 8. Taxi Coupons, Bus Tickets, are No Yes No Yes Consecutive and Pre-numbered 9. Account for Cash as it is Received (Timely No Yes No Yes Recognition of Revenue) 10. Reconciliation of Total Checks, and Cash No No No Yes Over/shorts 11. Fraud Reporting No Yes No Yes Source: Data compiled by the Office of the County Auditor Executive Summary 5 About us Mission It is our mission to serve the Council and citizens of Hawaii County by promoting accountability, fiscal integrity, and openness in local government. Through performance and/or financial audits of County agencies and programs, the Office of the County Auditor examines the use of public funds, evaluates operations and activities, and provides findings and recommendations to elected officials and citizens in an objective manner. Our work is intended to assist County government in its management of public resources, delivery of public services, and stewardship of public trust. Audit Authority Hawaii County Charter §3-18 establishes an independent audit function within the Legislative Branch through the Office of the County Auditor. Purpose The purpose of this engagement is to follow-up and monitor the responses to audit recommendations by audited entities by evaluating if Mass Transit Agency's internal controls are adequate to reduce the risk of fraud and mishandling of cash receipts and to identify potential areas of improvement. The follow-up also looked at cash receipt transactions to ensure that receipts were deposited timely and intact. Performance Audit Definition Performance audits provide objective analysis, findings, and conclusions to assist management and those charged with governance and oversight with, among other things, improving program performance and operations, reducing costs, facilitating decision making by parties responsible for overseeing or initiating corrective action, and contributing to public accountability. 6 About Us Chapter 1 Introduction Objective Did Mass Transit Agency implement the 2018 cash handling audit recommendations? Scope The prior audit evaluated cash handling from September 2017 to April 2018. The follow-up audit evaluated cash handling from May 2018 to June 2022. • Specifically, we reviewed, taxi coupons, licenses, and ridership from January 2022 to June 2022. This follow-up audit was limited to reviewing and reporting on the implementation of the recommendations. We did not consider new or previous issues that did not relate to our original recommendations. Methodology To verify Mass Transit Agency implemented the 2018 cash handling recommendations, we: • Corroborated information with appropriate staff to follow-up on the responses to audit recommendations • Reviewed applicable laws and other relevant governance • Performed tests of internal controls and transactions over the cash handling process • Conducted site visits to verify monitoring and oversight practices • Conducted surprise cash counts at Mass Transit base yard and Mo`oheau Bus Terminal • Was mindful of potential fraud, waste, and abuse during the audit • Noted exceptions and identified areas for improvement We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Objective,Scope,and Methodology 7 Definitions Implemented: Department has fully completed the audit recommendation. We reviewed sufficient and appropriate evidence to support all aspects of the recommendation. Partially Implemented: Department has made significant progress. We reviewed sufficient and appropriate evidence to support key aspects of the recommendation. Not Implemented: Sufficient and appropriate evidence was unavailable to support key aspects of the recommendation or department has no plans to implement the recommendation. Not Applicable: The risk associated with the recommendation no longer exists or is no longer applicable. 8 Definition Chapter 2 Status of Recommendations Update the Bus Cash Handling System Condition and Cause MTA comingled monies from various fare boxes and did not reconcile fares and ridership counts to trip sheets to determine cash over/shorts. Effect of the Condition A break down in internal controls contributed to an ineffective cash handling system that did not properly track ridership. Recommendation 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." Agency Action • Confirmed vendor began tracking ridership in November 2021 until May 2022 • Ordered four new buses equip with electronic farebox, anticipated arrival April 2022 • Plan to install electronic fireboxes for Americans with Disabilities Act (ADA) accessible buses upon arrival • Plan to equip new fleet with electronic fireboxes by 2024 • Plan to decommission County buses and vans Audit Activity We reviewed ridership reports from January to May 2022, and one notice to proceed contract to purchase four ADA accessible buses equipped with electronic fireboxes. As of August 2022, no new buses were delivered. To meet this recommendation MTA will equip electronic fireboxes to collect passenger fares and track ridership. Status: Partially Implemented Recommendation 1.2 — Not Applicable "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." Recommendation 1.3— Not Applicable "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." Update the Bus Cash Handling System 9 Cash handling internal controls should be a priority Condition and Cause MTA did not prioritize cash handling internal controls. Internal control weaknesses included: • Cash left unattended and safe door left ajar • Security cameras contain blind spots • Untimely deposits • Cash not properly reconciled • Policies and procedures were inadequate, not followed, or enforced Effect of the Condition The fare receipting system is not effective at safeguarding cash, ensuring full fares are collected, and deposits are accurate. Recommendation 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." Agency Action MTA performed the following: • Developed and updated various policies and procedures to address cash handling controls • Implemented dual control • Reconciled cash counts • Safeguarded assets • Ensured physical security Audit Activity To verify status, we reviewed cash handling policies and procedures and found the control environment addressed: • Verification of Policies and Procedures: o We confirmed that Mass Transit Agency has defined procedures for their internal controls, however, we discovered anomalies in a couple of areas, procedures for various payment methods are confusing in areas where there should be consistency • Physical security: o Prenumbered and preprinted sales receipts are fully secured at the (Mo'oheau Bus Terminal) • General appropriateness and completeness: o Despite the lapses in some of the procedures, the Account Clerks are processing payments for Taxi Coupons and Licenses appropriately and their physical security was largely intact To fully implement this recommendation MTA will update the cash handling policies and procedures to include all cash handling activities. Status: Partially Implemented 10 Cash Handling Internal Controls Should Be A Priority Safeguard Assets Condition and Cause Cash was left unattended in MTAs breakroom and manual receipts were kept in a box under a counter. Effect of the Condition MTA control environment was insufficient to safeguard and detect actual or suspected loss of cash and cash equivalents. Recommendation 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). Agency Action • Stored cash receipts and cash equivalents in a lock drawer at Mo`oheau Bus Terminal (MBT) • Secured cash secured in a vault at MTA • Secured cash in a register drawer at two locations (MBT and MTA) Installed security cameras in vault and vault rooms, and Mo`oheau Bus Terminal • Installed alarm system with panic buttons Audit Activity To verify the status, we observed safeguarding practices at MBT and MTA. During review of camera coverage, we noted one out-of-service camera at the MTA Baseyard. MTA said they are aware and working toward resolving this issue. Status: Implemented Safeguard Assets 11 Condition and Cause MTA did not deposit cash within two business days as required by County procedure. Effect of the Condition Depositing cash within two business days is not addressed in MTA cash handling policies and procedures which increases their risk exposure. Recommendation 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." Agency Action • Implemented dual control over cash counting and over reconciliation processes • Used a courier service to ensure cash was picked up daily or within two business days Audit Activity To verify status, we compared 18 bank deposit slips to Treasury receipts and found no exceptions. MTA made all deposits within two business days as required by County procedure. We also reviewed updated cash handling policies and procedure and found two-day deposits were addressed. MTA staff followed and enforced two-day deposits. Status: Implemented 12 Safeguard Assets Condition and Cause MTA does not endorse checks until the end of the day. Effect of the Condition Policies and procedures that do not require check endorsements immediately upon receipt increases the risk of fraud. Recommendation 3.3 "We further recommend Mass Transit staff restrictively endorse checks immediately upon receipt." Agency Action In September and October 2021, MTA developed Mail and Walk-In Sales Procedures to verify: • Pay to: Director of Finance • Dollar amount is filled out and written correctly (must match) • Check is signed • Once verified, endorse the check by stamping the bank information on the back Audit Activity To verify status we verified the following: • Added procedures for endorsing checks upon receipt • Observed checks were being endorsed at the time of receipt during site visits Status: Implemented Safeguard Assets 13 Cause and Condition Unauthorized staff moved monies from an outside safe into the counting room. Effect of the Condition Without re-keying locks and periodically changing safe combinations, MTA cannot ensure unauthorized staff does not have access to monetary assets. Recommendation 3.4 "We further recommend Mass Transit change lock or safe combinations once an employee who had access leaves the organization or is reassigned to another position." Agency Action • Re-keyed all locks at MTA and MBT in January 2022 • Changed electronic keypad code at MTA • Staff acknowledge receipt of new keys at both locations (MBT and MTA) • Maintains a key log • Plan to update their policy to change their electronic keypad code at least annually and re-key locks on a case-by-case basis • MTA no longer uses a combination safe to secure cash o All monies kept either in vault (MTA Baseyard or cash register drawer (Mo'oheau) Audit Activity To verify status, we reviewed work orders, invoices, and key logs and found locks were re-keyed, electronic keypad code for the MTA front gate was changed, door alarm was installed at MBT, and staff acknowledged receipt of new keys. Status: Implemented Recommendation 3.5 - Not Applicable "We further recommend Mass Transit management implement a cash receipt log for all incoming revenue including bus fares from contracted bus service providers." 14 Safeguard Assets Condition and Cause Non-working cameras and blind spots were problematic. Effect of the Condition MTA could not ensure sufficient safeguarding practices. Recommendation 3.6 "We further recommend Mass Transit management assess the security camera locations, regularly monitor, and limit access to the screen and recordings." Agency Action • Inspected all twenty-six cameras o 13 out of 14 cameras at MTA were operable o One camera was inoperable ■ As of April 2022, the replacement part was on order • All 12 cameras at the M BT were operable • Plan to install six additional cameras to safeguard assets • MTA said they reviewed video recordings after suspicious activity is reported Audit Activity To verify status, we: • Observed camera system in a locked room with limited staff access to the screens and recordings during our site visits • Validated camera footage is being retained • During our camera review we noted one camera at the MTA is inoperable due to a problem with a device that acts as an interface for transmitting images. While MTA management has been working with the vendor for an extended period, the part needed to fix this issue has not been available. To meet this recommendation MTA will ensure all cameras are operable and are regularly monitored. Status: Partially Implemented Recommendation 3.7 — Not Applicable "We further recommend Mass Transit staff empty fare boxes frequently to ensure the automatic locking mechanism works." Safeguard Assets 15 Segregate Incompatible Duties Condition and Cause One person collected, counted, and reconciled cash. Effect of the Condition MTA did not have adequate segregation of duties to ensure cash deposits were accurate. Recommendation 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. Agency Action MTA said they updated their cash handling procedures to address segregation of duties. Audit Activity To verify status, we: Reviewed Written Procedures: • A backup list for the cash handling staff exists if one or more cash processors is not available Observation: • Verified recording/adjusting transactions and reconciling revenue accounts is performed by a person independent of the cash processing • Verified a noncash handling person reconciles revenue accounts and that the revenues are reconciled with the general ledger in the County's accounting system We noted the following exceptions: • The cash handling process is not performed under dual control in all cases • Reconciliation procedures are not fully developed • Cash verification is performed by one account clerk and a security guard or the vendor employee. This is not appropriate since the security guard or vendor employees do not work for the County nor are they under contract to perform this work To fully implement this recommendation MTA will implement dual control over their cash handling processes. Status: Partially Implemented 16 Segregate Incompatible Duties Implement Monitoring and Oversight Condition and Cause Independent monitoring was insufficient, it is important the cash handling process to be independently reviewed and monitored regularly, when duties are not adequately segregated. Effect of the Condition MTA is not able to detect irregularities in their normal course of business. Recommendation 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. Agency Action MTA developed and implemented monitoring and oversight over fiscal procedures. Audit Activity To verify status, we observed the following: • Ongoing monitoring by regular management and supervisory activities related to reconciliation of cash receipts are not occurring regularly • We noted that until an Administrative Services Assistant or equivalent is hired, supervisory activities (i.e. daily/weekly/monthly) related to cash handling will not be appropriately reconciled Since reconciliation of the cash handling process is not being performed by MTA management regularly ((i.e. daily/weekly/monthly) we determined that the status for this recommendation is not implemented. Status: Not Implemented Implement Monitoring and Oversight 17 Condition and Cause There were numerous gaps in taxi coupon consecutive numbering; MTA did not issue written receipts or issued receipts in duplicate/triplicate. Effect of the Condition MTA was unable to determine if all transactions were receipted and revenue was complete. Recommendation 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 • Taxi reimbursements receipts and deposits Agency Action MTA developed and implemented monitoring and oversight over fiscal procedures. Audit Activity To verify status, we reviewed the following processes: • During review of the MTA cash handling reconciliation process, we noted that reconciliation was being performed by the MTA Administrator and partially by the Account Clerks who are a part of the cash handling process. Since account clerks are processing cash, they are not considered independent reviewers • Identified job responsibilities required to perform the work for this recommendation • Verified the consecutiveness and completeness of manual cash receipts, and taxi coupons • Verified cash receipts are being appropriately voided • Verified that a person independent of the cash handling process was ensuring revenue deposits are being correctly reflected in the general ledger • There were no outstanding accounts receivable balances from coupons or taxi licenses purchased through a purchase order • Bus trip sheets (ridership) are collected and tracked • Recorded over/shorts for patterns or irregularities did not occur in the period reviewed • Recorded cash to check composition for irregularities did not occur in the period reviewed • Completeness of bus trip sheets to ensure all trip sheets were tracked and reconciled however differences were noted in ridership amounts between vendor's monthly trip sheet report and MTA's 2022 Monthly summary report • Taxi coupons reimbursements were being tracked when they were exchanged prior to the expiration date shown on the ticket While most items are being appropriately performed, we identified issues during cash handling and trip sheets reconciliation processes. To meet this recommendation, MTA will implement independent cash handling reconciliation processes and trip sheet reconciliation. Status: Partially Implemented 18 Implement Monitoring and Oversight Recommendation 5.3 — Not Applicable "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." Condition and Cause MTA did not monitor the relationship between ridership and revenue (ridership x fare = revenue). Effect of the Condition Without reliable data, MTA does not know the actual cost of riders and losses of revenue. Recommendation 5.4 "We further recommend Mass Transit management conduct analytical procedures and financial relationship analysis to monitor controls, revenue, and budget expectations. One example of an analytical procedure is comparing ridership counts to revenue (ridership x fare = revenue)." Agency Action MTA said they use analytical procedures to perform financial analysis to monitor controls/ridership, revenue, and budget monthly and annually. Audit Activity We observed MTA used analytical procedures to perform financial analysis to monitor controls/ridership, revenue, and budget monthly and annually. Status: Implemented Implementing Monitoring and Oversight 19 Condition and Cause Surprise cash counts were not performed. Effect of the Condition Surprise cash counts is not addressed in MTA cash handling policies and procedures which increases their risk exposure. Surprise cash counts is an important part of the internal control system, it encourages honesty and discourages misappropriation. Recommendation 5.5 "We further recommend that the Mass Transit conduct surprise cash counts at all cash handling locations." Agency Action MTA updated their cash handling procedures to include surprise cash counts. Audit Activity To verify status, we reviewed results of managements surprise cash counts and found MTA was conducting surprise cash counts regularly. Status: Implemented 20 Implementing Monitoring and Oversight Control Manual Cash Receipts Condition and Cause MTA pre-numbered and printed manual receipts in-house using a Word document. Testing found MTA issued duplicate and triplicate receipts. Effect of the Condition Printing their own manual receipts increased the risk that receipts could be duplicated and cash misappropriated. Recommendation 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." Agency Action MTA no longer prints in-house manual receipts. Pre-printed receipts are ordered from a vendor. Audit Activity To verify status, we observed sales receipts at the Mass Transit Agency Baseyard and Mo`oheau Bus Terminal and determined that they use preprinted and prenumbered receipts in contiguous order. Status: Implemented Control Manual Cash Receipts 21 Improve Purchase Order Sales Process Condition and Cause MTA sold taxi coupons, bus tickets, and bus passes to 23 vendors using purchase orders in lieu of a required contract. Effect of the Condition Non-compliance with provisions of contracted services resulted in several vendors having outstanding past due balances. Recommendation 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." Agency Action MTA developed a Fare Free Implementation Plan and issued it to the vendor to ensure their bus drivers are aware of the rules changes when greeting and driving passengers. Audit Activity Verified that the contract impacting this audit is appropriately approved and is current. Review also noted that while no supplementals or change orders were required, an MTA Fare Free Implementation Plan was developed and distributed to the vendor. Status: Implemented Recommendation 7.2 — Not Applicable "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)." Recommendation 7.3 - Not Applicable We further recommend Mass Transit management implement a process to ensure collection of all outstanding accounts receivable balances." 22 Improve Purchase Order Sales Process Update and Enforce Policies and Procedures Condition and Cause Written policies and procedures were incomplete, insufficiently detailed, and not consistently followed or enforced. Effect of the Condition A weak control framework leads to fraud, loss or theft. Recommendation 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" Agency Action • Developed Mail-In, Walk-In, Treasury Receipt, Credit Card Sales procedures to address: o Endorse the check by stamping the bank information on the back • Used after-hours security guard/services from 5:30 pm to 6:00 am 7-days a week. The Leilani Street gate into the transfer station is locked between 5-5:30pm and reopens at 6am. Security guard patrols from Leilani Street to base yard Audit Activity Verified that all items listed below are included in MTA cash handling policies and procedures. We determined that while multiple items in this recommendation are covered by the various cash handling procedures, there are some areas not fully addressed: Exceptions • Timely independent review and monitoring procedures are not fully developed • Guidance and clarification on individual job duties to ensure adequate segregation of duties exists - MTA has procedures and processes partly meet this recommendation, however, there is only one Account Clerk assisted by various security guards/vendor staff to act as a second set of eyes for the cash count; this is not appropriate since neither of the persons is working for the County or is contractually covered to do this type of work • Cash and check reconciliation - Reconciliation of taxi coupons and licensing sales are not being reconciled daily Update and Enforce Policies and Procedures 23 • Recording and reconciliation of cash over/shorts - cash overs/shorts are not covered in any of the cash handling procedures To fully implement this recommendation MTA will ensure that policies and procedures are updated to reflect current cash handling processes. Status: Partially Implemented 24 Update and Enforce Policies and Procedures Provide Training Condition and Cause Staff was not properly trained to handle revenue transactions. Effect of the Condition Accountability cannot be ensured if MTA does not provide adequate training. Recommendation 9.1 "We recommend Mass Transit management provide ongoing cash handling and internal controls training for all employees who handle revenue." Agency Action • Developed and disseminated various procedures for: o Cash Sorting and Counting Procedures o Mail-in Sales Procedures o Walk-in Sales Procedures o Share-Ride Taxi Order Form o MBT Credit Card Sales Procedures o Farebox Collection Procedures o Treasury Receipts — Input and Filing o MTA— Petty Cash Procedures • Provided hands-on and as-needed training Audit Activity To verify status, we reviewed various procedures and interviewed staff and found that the Account Clerks were trained on key cash handling related procedures. Additionally, the MTA Administrator and Account Clerks received training other key functions in their Position Descriptions as noted below: • Accounts Payable • Payroll • Processing Requisitions Status: Implemented Provide Training 25 Condition and Cause MTA did not provide ongoing training to bus drivers. Effect of the Condition Without reliable ridership counts, management may not be able to adequately budget, monitor revenue, and make informed decisions. Recommendation 9.2 "We further recommend Mass Transit provide ongoing training to bus drivers on ridership count and cash collection procedures." Agency Action • Hosted weekly meetings with bus drivers • Confirmed the vendor began tracking ridership in November 2021 • Received daily and monthly summary ridership reports from vendor Audit Activity To verify status, we reviewed Hele-On Daily Ridership reports from January to May 2022 and Monthly Summary Reports from January to May 2022 and found the vendor was tracking ridership in November 2021. Although cash collection procedures are no longer applicable until bus fares are reinstated, we reviewed written cash handling procedures for drivers and found no exceptions. Status: Implemented 26 Provide Training Improve Other Cash Handling Internal Controls and Procedures Condition and Cause Cash over/shorts and cash to check composition were not recorded on the Treasury receipt. Effect of the Condition Without recording cash over/short or cash to check composition, management cannot ensure the integrity of the deposit. Recommendation 10.1 "We recommend Mass Transit management required cash over/shorts and cash to check composition be consistently recognized on the Treasury receipts." Agency Action MTA recorded cash over/short and cash to check composition on the Treasury receipts. Audit Activity To verify status, we reviewed 18 Treasury receipts from March and April 2022, and found no cash over/shorts were reported during the review period. MTA followed and enforced cash to check composition on the Treasury receipts. • Verified that cash and checks were itemized on the Treasury receipt Status: Implemented Condition and Cause MTA policy limited taxi coupons to 15 coupons per week, per customer. In some instances, customers purchased 30 coupons in one week. MTA accepted payment for the entire 30 coupons but held the customer's money for one week to comply with their policy. Effect of the Condition Consequently, not all monies MTA collected were deposited timely. Recommendation 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." Agency Action MTA updated their Hawaii County Mass Transit Website on the Hele-On Fares tab and Hele-on Taxi Share Rides tab to inform the public that they are no longer restricted to 15 taxi coupons per week. Audit Activity To verify status, we reviewed the Share Ride Taxi Order Form and Hele-On Shared Ride Taxi Program webpage and found that MTA no longer has restrictions on the number of taxi coupons that can be purchased at any point in time. Status: Implemented Improve Other Cash Handling Internal Controls and Procedures 27 Condition and Cause When an employee (Account Clerk) is absent from work, no other employee performed the Account Clerk's job duties. Effect of the Condition Consequently, deposits were not made timely. Recommendation 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." Agency Action MTA created a matrix that provides primary, secondary, and tertiary duties, for personnel who are engaged in the cash handling and other key MTA administrative responsibilities Audit Activity To verify status, we reviewed the Accounts Clerks Tasks matrix, position description, and had follow-up discussions with the Administrator and account clerks to ensure there was appropriate backup coverage for their assigned roles. Status: Implemented Condition and Cause MTA listed the date the deposit was processed, not the actual date the deposit was made. Effect of the Condition The practice of using an alternate date makes reconciling the deposit to the Treasury receipt more difficult if the dates do not consistently match. Recommendation 10.4 "We further recommend Mass Transit staff notate the actual deposit date (not the bank process date) on the Treasury receipt." Agency Action MTA updated cash handling policies and procedures to address the actual deposit date (not the bank process date) on the Treasury receipt. Audit Activity To verify status, we tested a sample of 18 Treasury packets and compared the actual deposit date on the bank receipt to the actual deposit date on the Treasury receipt date to ensure the actual deposit dates matched. Status: Implemented Recommendation 10.5— Not Applicable* "We further recommend Mass Transit complete Treasury receipts within two working days as required by the Department of Finance's policy." 28 Improve Other Cash Handling Internal Controls and Procedures Condition and Cause MTA was not tracking or reconciling ridership timely. Effect of the Condition If ridership is not tracked and reconciled timely, ridership reporting to County, State, and Federal agencies will be inaccurate and can impact MTA's ability to obtain grant funding. Recommendation 10.6 "We further recommend Mass Transit reconcile and record trip sheets timely." Agency Action • Vendor collects and provides monthly reports per terms of contract as November 2021 • MTA tracks ridership daily, monthly, and annually Audit Activity Review of trip sheets and trip sheet report provided by the vendor determined the following: • Mass Transit receives trip sheets from the vendor timely, and stores the trip sheets in the secured storage room area • Vendor employees enter trip sheet data and forward the data report to MTA • MTA reviews the ridership reports monthly • Of the eighty-three reviewed only one trip sheet had a slight problem where the passenger count was miscalculated by one passenger Compared the vendor's Hele On Daily Ridership 2022 report to MTA's Monthly Summary Report for the months of January 2022 to April 2022 and found discrepancies in total ridership between the two reports. See below: Ridership Report Comparison Month Vendor's MTA Difference (2022) Ridership Ridership Totals Totals January 351056 391125 (4,069) February 331485 331485 0 March 501806 5018131 7 April 571204 51,648 51556 Based on our review of the discrepancies noted above, the reconciliation component of this recommendation requires additional work, therefore, this recommendation is considered partially implemented. Status: Partially Implemented Improve Other Cash Handling Internal Controls and Procedures 29 Conclusion We commend Mass Transit Agency (MTA) for implementing 14 of the 22 recommendations reviewed during this audit. We would also like to commend MTA for making significant progress in partially implementing seven recommendations. We encourage MTA to strive toward fully implementing all recommendations including the one not implemented at this time. The Office of the County Auditor maintains a remediation tracker to inform stakeholders of the status of audit recommendations. The tracker is located on our audit website at: https://www.hawaiicounty.gov/our-county/legislative/office-of-the-county-auditor. We encourage departments to contact us for independent verification when they believe they have fully implemented a recommendation. In closing, we welcome County employees and members of the public to address concerns over the misuse of County resources or position through our fraud and whistleblower hotlines. Often, the improper use of government resources or positions is discovered thanks to employees and the public. Submit confidential tips to deter improper conduct by: Fraud and waste hotline: (808) 480-8213 Whistleblower hotline: (808) 480-8279 Email: concern@hawaiicounty.gov Fax: (808) 961-8905 Mail: Office of the County Auditor, 120 Pauahi St., 309 Hilo, HI 96720 To access complaints directory, visit: https://www.hawaiicounty.gov/departments/office-of-the-county-auditor/whistleblower Submit a claim: https://www.hawaiicounty.gov/our-county/legislative/office-of-the-county- auditor/inquiry-and-complaint/intake-form 30 Conclusion Chapter 3 Fraud , Waste, and Abuse Audit standards require that we remain mindful and document all instances of waste, fraud, and abuse. We did not note any instances of waste, fraud, or abuse during our audit. Fraud,Waste,and Abuse 31 Chapter 4 Management Response Mitchell D.Roth John C.Andoh Mayor Mass Transit County of Hawai'i Mass Transit Agency 25 Aupuni Street • Hilo,Hawaii 96720 • (808)961-8744 • Fax(808)961-8745 www.heleonbus.org • heleonbus@hawaiicounty.gov August 5, 2022 Tyler J. Benner, County Auditor County of Hawaii Office of the County Auditor 120 Pauahi Street, Suite 209 Hilo, HI 96720 Sent via email to: tyler.benner@hawaiicounty.gov ELECTRONIC MAIL DELIVERY Aloha Mr. Benner, This letter is to respond to the Mass Transit Agency(MTA) Cash Handling Follow-up Draft Audit Report No 20- 22-03 dated June 30, 2022, as prepared by your office. Finding MTA comingled monies from various fare boxes and did not reconcile fares and ridership to trip sheets to determine cash over/shorts. Recommendation We recommended MTA equip County buses and vans with an updated electronic fare box to collect passenger fares and track ridership. 32 Management Response Management Response MTA partially agrees with this finding.The MTA has buses under procurement invitation of bids (IFB) 4060—4 buses and 4197—8 buses that will include Genfare Fastfare fareboxes, Token Transit mobile fare collection and GMV automatic passenger counters (APC)that will be installed on the vehicles when delivered. As new buses are purchased,these fareboxes and APCs will be included. It is anticipated that the entire MTA fleet will be outfitted with this equipment by early 2025 which will consist of 55 transit buses and 7 paratransit vehicles. Until then MTA will be fare free through December 31, 2022. As part of the procurement of electronic fareboxes, MTA will be using smartcards that can store period passes such as day pass, 7-day passes, and 31-day passes which will replace pre-paid tickets and as stated in the report render recommendations 1.2 and 1.3 as non-applicable. Finding MTA did not prioritize cash handling internal controls. Internal control weaknesses included: Cash left unattended and safe door left ajar Security cameras contain blind spots Untimely deposits Cash not properly reconciled Policies and procedures were inadequate, not followed, or enforced Recommendation 2.1 We recommended MTA 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. Management Response The MTA agrees with the finding and intends to address the update of cash handling policies and procedures to include all cash handling activities upon hiring of a financial supervision person this fiscal year. Management Response 33 Finding Cash was left unattended in MTA's breakroom and manual receipts was kept in a box under a counter. Recommendation 3.6 We recommended MTA assess security camera locations, regular monitor, and limit access to screen and recordings. Management Response MTA disagrees with the finding. MTA believes this finding should be closed, as the repair was made, but failed upon installation and due to a nationwide backorder,the camera part,the part has not be able to be installed.The camera in question is an outdoor camera facing bus vehicles and does not have an impact in relation to cash collection currently.The cameras are working in the facility protecting areas with cash as well as monitoring employees moving cash between the facility and parking lot. MTA continues to work with Johnson Controls to address this issue. Finding One person collected, counted, and reconciled cash. Recommendation We recommended MTA separate incompatible duties. Management Response MTA disagrees with the finding.The MTA has three locations where cash could be collected.At Mo'oheau Bus Terminal, along with MTA staff,there is cameras monitoring the facility, as well as contracted staff from Roberts Hawaii and Professional Security Services available during the hours of cash collection.With the limited staffing at MTA, it is not possible for MTA staff to directly provide cash verification daily with its staff based on the distance of these locations and MTA has entrusted its contractors to provide this function with random oversight via cameras and other MTA staff.This was discussed with the County Auditor office in February 2022 which acknowledged and offered suggestions which includes use of the contracted security or contracted bus operations staff due to the inability of placing a second MTA employee at Mo'oheau Bus Terminal. It is envisioned that West Hawaii Civic Center will have two employees in that office until then,the Mass Transit Administrator&General Manager only works there once a week. 34 Management Response Finding Independent monitoring was insufficient, it is important the cash handling process to be independently reviewed and monitored regularly, when duties are not adequately segregated. Recommendation We recommended MTA perform ongoing monitoring of their internal control system as part of normal course of operations. Management Response MTA partially agrees with this finding. MTA does provide ongoing monitoring of the internal controls as many of the internal controls were developed by the former Administrative Services Assistant I that have been implemented and are being monitored by the Mass Transit Administrator and General Manager. Upon the hire of a new financial supervision position, additional monitoring will occur beyond what is being done today. Cash collection has dropped significantly with the suspension of fares and many of the cash has shifted to credit and debit card transactions. MTA believes this has been partially implemented. Finding There were numerous gaps in taxi coupon consecutive numbering; did not issue written receipts or issued in duplicate/triplicate. Recommendation We recommended MTA implement ongoing monitoring procedures including both comparisons and reconciliations. Management Response MTA agrees with this finding and intends to have another account clerk audit the activities of the sales at Mo'oheau Bus Terminal until a financial supervision position can be filled immediately.Taxi coupons are issued by the Clerk II with a signed acknowledgement of receipt.The audit will monitor the sales of coupons out of sequence. Long term, it is the desire of MTA to amend Chapter 18 to remove the use of coupons and pay a subsidy amount to vendors in the Shared Ride Program and is going through the process for the amendment now. Finding Written policies and procedures were incomplete, insufficiently detailed, and not consistently followed or enforced. Management Response 35 Recommendation We recommended MTA establish and enforce internal controls. Management Response MTA disagrees with the finding.The MTA has three locations where cash could be collected.At Mo'oheau Bus Terminal, along with MTA staff,there is cameras monitoring the facility, as well as contracted staff from Roberts Hawaii and Professional Security Services available during the hours of cash collection. With the limited staffing at MTA, it is not possible for MTA staff to directly provide cash verification daily with its staff based on the distance of these locations and MTA has entrusted its contractors to provide this function with random oversight via cameras and other MTA staff.This was discussed with the County Auditor office in February 2022 which acknowledged and offered suggestions which includes use of the contracted security or contracted bus operations staff due to the inability of placing a second MTA employee at Mo'oheau Bus Terminal. It is envisioned that West Hawaii Civic Center will have two employees in that office until then,the Mass Transit Administrator&General Manager only works there once a week. Finding MTA was not tracking or reconciling ridership timely. Recommendation 10.6 We recommended MTA reconcile and record trip sheets timely. Management Response MTA agrees with this finding. MTA required the fixed route operations contractor to prepare monthly reports related to providing passenger tracking for reporting to regulatory agencies. MTA staff is now reviewing such reports and reconciling them to trip sheets provided.The fixed route operations contractor will make the necessary corrections and resubmit the report back to MTA. MTA thanks the time of your staff in preparing this audit and please contact me at 808.961.8555 or email at john.andoh@hawaiicounty.gov should you have any questions with our response. Mahalo, John C. Andoh CCTM, CPM Mass Transit Administrator& General Manager 36 Management Response Tyler J. Benner County of Hawaii County Auditor Office of the Count Auditor 120 Pauahi St., 309 Hilo, HI 96720 808.961.8386 www.hawaiicounty.gov The Office of the County Auditor is tasked with promoting accountability,fiscal integrity, and openness in local government. Our work is intended to assist County government in its management of public resources, delivery of public services, and stewardship of public trust. Copies of this audit report can be obtained by contacting the Office of the County Auditor or visiting our website: