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 Water billing transactions are not submitted to a "real time" financial system to ensure efficient recording, processing, reconciling, monitoring, and reporting of all customer payments. The Public Utility Billing System (PUBS) is set up as a batch processing system. As walk -in and mail -in payments are received for water bills, they are entered into the PUBS application as a "batch" or a sort of suspense account rather than being posted to customer accounts in "real time ". At a certain time each day, all transactions that have been entered since the last "batch" was posted are grouped (batched) and posted to the appropriate customer accounts. Reports are run showing summaries of all customer transactions included in the batch as well as details of the amounts of cash, checks, and credit cards associated with those transactions. Each office has its own cut -off time to ensure that its deposits are made by the end of each work day. Any water bill payments that are processed after the cut -off time are processed in a new batch, which is carried over to the bank deposit for the following work day. An average of 750 daily transactions is contained in a daily "batch" and deposit for the Hilo office. Batch processing is considered outdated in current accounting practice, since it holds a number of transactions in limbo until the "batch" is posted (routinely on the next work day). Among the risks associated with batch processing is the manipulation of batch data and the misappropriation of assets in the absence of sufficient controls. For example, until the recent revision of Finance Division procedures, daily batch reports (incoming totals by payment type) were not reconciled to daily bank deposits (total deposits by payment type). Thus, a Cashier could accept a walk - in cash payment, enter it as a check payment in PUBS, and replace the cash with a subsequent mail -in check payment before posting of the next batch report. This is a common embezzlement scheme that in the absence of adequate controls can continue undetected for an extended period of time. The fact that DWS has still not implemented sufficient cash handling controls — from segregation of duties for mail -in payments to the sharing of Cash Cans, logins, and passwords — perpetuates an environment susceptible to the mishandling or misappropriation of customer payments that can escape early detection. RECOMMENDATION DWS management should conduct an analysis of all of its cash handling activities, control processes, and financial systems to identify areas of significant risk and their potential impact on operations as well as an analysis of improved cost - effective controls to reduce risks to acceptable levels. For example, if batch processing is still to be used, management needs to ensure that reports are generated for each Cashier and each financial system 36