2016-01 Performance Audit Report: Cash Handling at County of Hawai'i's Department of Parks and Recreation

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Segregation of duties is inadequate Segregation of duties is a key internal control and its 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 should 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. 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 that same document. • An employee who handles cash receipts should not maintain the change fund and receive deposit slips or corrections from the bank (returned checks). • An employee who prepares bank deposits/treasury receipts should not receive deposit slips or corrections from the bank/treasury, verify cash receipts, maintain the change fund, and perform the audit function. Incompatible duties should be segregated so no one employee has complete control over the cash handling process. When duties cannot be sufficiently segregated due to the small size of a department or division, it is important that mitigating controls, such as a detailed supervisory review and monitoring of the activities be put in place to reduce risks. We examined the cash receipt handling processes at both the Hilo Main Office (Hilo) and the Kona Permit Office (Kona) and found that proper segregation of duties for cash handling and processing was not in place. Currently, the Clerk is responsible for the entire cash handling process from start to finish, with little or no review by management. Specifically, the Clerk accepts payments, creates and issues permits (receipts), enters transactions into the daily deposit record, prepares deposit slips, and makes deposits for the facility use permits. In addition, the Clerk reconciles the deposit to the treasury receipt. Management has not established or performed any compensating controls to help mitigate this risk. Cash Handling for Facility Use Permits: Audit Results 17