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

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CHAPTER 4: CASH HANDLING SYSTEMS FINDING Physical security over mail -in checks during the Payment posting process is inadequate. Due to the daily volume of mail -in check payments received in the Hilo Office from the post office or from the Waimea and Kona District offices through a bonded courier service, mail -in checks are divided equally between the two Hilo Cashiers, who sort and post the checks at their desks. Normally, only one Cashier sorts and posts checks at a given time, while the other Cashier tends the customer service payment window. Each Cashier is assigned a separate plastic container that is large and wide enough to hold all checks assigned to the Cashier. However, the plastic containers cannot be locked and are left unattended. It should be noted that DWS management has implemented recognized control practices of timely depositing of cash on a daily basis and any undeposited "cash" is properly safeguarded during "non- working" hours as it is placed in secured safes for which access controls are in place for the Hilo office and Waimea and Kona District offices. However, current physical security over mail -in customer payments in process during "working hours" is inadequate. Checks should be treated as cash since they are negotiable items, and should be kept in a secured and locked location to prevent inadvertent or intentional mishandling or misappropriation. As stated earlier, the Assistant Controller reported that the Hilo office averages from $56,000 to $373,000 in check deposits per day, and failure to adequately safeguard customer payments will continue to expose the Department to risks of misappropriation or fraud. RECOMMENDATION It is the responsibility of DWS management to assess current risks to customer monies; analyze its current cash handling processes; and implement adequate control processes to ensure the physical security of customer cash and other negotiable instruments at all times. In addition to establishing a proper control environment and implementing adequate policies and procedures, management needs to continually monitor control processes to ensure that they remain relevant and effective in safeguarding cash assets. Criteria: Internal Control Criteria — GFOA Cash Receipts Policy: "Internal controls: All aspects of cash receipts shall be subject to proper internal controls with standard controls documented and followed by revenue generating departments:... o Physical security procedures during work hours and non- working hours for all funds received and change drawers maintained. " 29