2017-02 Performance Audit Report: Cash Handling at County of Hawai'i's Department of Water Supply

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What internal controls should be expected over cash receipts? Internal controls are broadly defined as a process effected by management. They are designed to provide reasonable assurance on the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations. Internal controls can help achieve performance targets and prevent loss of resources. An organization's internal control structure over cash handling operations should include the following elements: • Segregation of Incompatible Duties. Duties should be segregated amongst employees so that errors and irregularities made by one employee are difficult to conceal. • Independent Review and Monitoring. Management should document their review and approval of critical tasks performed by employees. Employees should not review and approve their own work. • Written Policies and Procedures. Policies and procedures should be approved by management, cover all aspects of operations, be sufficiently detailed, and be distributed to staff. In addition, ongoing monitoring is necessary to ensure policies, procedures, and internal controls, remain effective and efficient as operations change. • Physical Safeguarding of Assets. Assets should be physically protected from loss and unauthorized use. Why are internal controls important? Effective internal controls reduce the risk of theft or misappropriation of assets and helps provide reasonable assurance that the County's objectives will be achieved. Internal controls are affected by the actions of individuals within the County, as well as policies and procedures. Segregation of Incompatible Duties. Segregation of duties helps prevent fraud, waste, and abuse and can address the risk of management circumventing existing control procedures. Essentially, no one individual has control over all key aspects of a transaction or an event. "Responsibilities and duties involving transactions and events are separated among different employees with respect to authorization, approval, processing and recording, making payments or receiving funds, review and auditing, and the custodial functions and handling of related assets. Duties are assigned systematically to a number of individuals to ensure that effective checks and balances exist. ))4 Independent Review and Monitoring. When independent monitoring is designed and implemented appropriately, organizations are more likely to identify and correct problems on a timely basis. The Government Accountability Office (GAO) provides an overview of monitoring: 4 Steinhoff, Jeffrey C. "GAO Internal Control Standards, Internal Control Management, and Evaluation Tool".GAO.gov. https://www.gao.gov/assets/80/76615.pdf (accessed June 30, 2016), pg: 40. DWS Cash Receipts Background 15