2010-01-AU Limited Scope Performance Audit of Department of Water Supply's Internal Controls for Cash Handling and Financial IT Systems

Home

CHAPTER 4: CASH HANDLING SYSTEMS CHAPTER 4 CASH HANDLING SYSTEMS OVERVIEW An internal controls review related to cash handling assesses the adequacy and effectiveness of cash handling controls to support achievement of management's objectives, such as safeguarding or protecting cash from misappropriation, theft, and fraud, while at the same time, providing public services and programs in an effective and efficient manner. Therefore, it is important for management to clearly define its objectives relating to "cash" (currency, coin, checks, and credit card payments); identify any risks relating to achievement of its objectives; and implement relevant, cost - effective controls to reduce risks to an acceptable level and provide the greatest degree of assurance that management objectives will be met. Of all governmental assets, cash is the most vulnerable to mishandling, misappropriation, and theft; and therefore, safeguarding of cash should be one of management's foremost objectives. In response to our request for documentation of departmental controls, policies, and procedures relating to cash handling, DWS management provided various copies of operational procedures and related written communications transmitting said procedures dated from June 29, 1999 through January 14, 2010. In 1999, the Finance Division revised its cash handling procedures in response to repeated cash overages and shortages; but DWS management did not fully enforce revised control procedures or recognize the significance of its risk exposure. During our entrance conference on September 30, 2009, DWS management informed the auditors that it had recently discovered a theft of money by one of its Cashiers. The complaint filed by the Hawaii County Prosecutor's Office charged that a theft had occurred on or between July 1, 1997 through August 15, 2009, in a continuing course of conduct. In a no contest plea, the employee agreed to pay restitution in the amount of $78,868.40, which County officials confirm has been reimbursed to DWS. In response to discovery of the theft, the Finance Division and its Management Accounting Branch developed further revised cashiering procedures dated January 14, 2010. However, DWS management has still not fully implemented revised procedures — including segregation of duties and independent recordation of customer mail -in payments — citing lack of adequate personnel to implement improved controls. Management establishes the control environment of an organization, sets its ethical tone, and provides discipline and structure in the organization through its development and implementation of policies and procedures that set forth 23