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

Home

What should be 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 need to 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. No single individual should have complete control over all phases of a transaction. 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 the same document. • An employee who handles cash receipts should not maintain the change fund and receive deposit slips or corrections from the bank. • An employee who reconciles the bank statements should have no responsibility for cash receipts, disbursements, or custody. When duties cannot be segregated due to the small size of the department or division, compensating controls should be considered. These compensating controls should include monitoring activities such as a detailed independent review. Monitoring activities are an integral component of internal controls; unmonitored controls tend to deteriorate over time. When monitoring is designed and implemented appropriately, organizations are more likely to identify and correct problems on a timely basis. Ongoing monitoring can occur in the course of daily operations including regular management and supervisory activities including comparisons, reconciliations, and other routine actions. Incompatible duties are not adequately segregated We examined the cash receipt handling processes at the Hilo Main office and found that proper segregation of duties for cash handling was not in place. Currently, the Waterworks Controller makes the daily bank deposit as well as performs a final review of the daily cash receipt's reconciliation. In addition, the Waterworks Controller has full access to the cash receipting DWS Cash Receipts Audit Results 19