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Home My WebLink About2018-01 Performance Audit Report: Cash Handling at County of Hawai'i's Mass Transit AgencyCash Handling at County of Hawai'i's Mass Transit Agency Report No. 2018-01 Valerie T. Poindexter Bonnie S. Nims, CGAP J�iv of 114 Legislative Auditor Chair &Presiding Officer o . Council District I Business Address $>�tF•oF µA;�¢� 120 Pauahi Street Suite 309 f� �`Pubjul"i Hilo, Hawaii 96720 W.Alunt Q4 OFFICE OF THE LEGISLATIVE AUDITOR 25 Aupuni Street Hilo, Hawaii 96720 * (808) 961-8386 * Fax (808) 961-8905 website: h9p:11hawaiicounty.gov e-mail: publiclao(aco.hawaii.hi.us April 30, 2018 The Honorable Valerie T. Poindexter, Council Chairperson and Members of the Hawaii County Council Hawaii County Council 25 Aupuni Street Hilo, Hawaii 96720 Dear Chair Poindexter and Council Members, In accordance with Hawaii County Charter Section 3-18(d)(2), attached is the Office of the Legislative Auditor's report of our audit of cash handling at the Hawaii County Mass Transit Agency (Mass Transit). The purpose of the audit was to determine if cash handling internal controls at Mass Transit are adequate and effective to ensure that revenue is properly controlled and deposits are timely and accurate. We evaluated if these internal controls followed best practices and identified areas for improvement. In fiscal year 2016-2017, Mass Transit receipted approximately $1.2 million in bus fares and shared ride taxi coupons (taxi coupons). Management of such a significant revenue stream makes it important for Mass Transit to have sound controls to safeguard revenue. As described in the attached report, Mass Transit needs to develop stronger cash handling internal controls to ensure that revenue is properly controlled and deposits are timely and accurate. Specifically, Mass Transit needs to update the bus cash handling system and increase the priority of cash handling internal controls. These internal controls include physically securing their assets, segregating incompatible duties, implementing monitoring and oversight procedures, updating and enforcing policies and procedures, and providing training. We also found Mass Transit needs to improve their control over manual cash receipts and their purchase order sales process. Through stronger internal controls and monitoring, Mass Transit will be able to improve its collection, safeguarding, and accounting for its transportation revenue. Our report lists several related recommendations. Hawai'i County is an Equal Opportunity Provider and Employer If you need any further information, please let me know. We would like to thank Mass Transit's staff for their assistance and cooperation during this audit. We greatly appreciate all of their valuable time and efforts spent on providing us information. Respectfully, Bonnie S. Nims, CGRP Legislative Auditor cc: Harry Kim, Mayor Stewart Maeda, County Clerk Wil Okabe, Managing Director Maria Aranguiz, Mass Transit Administrator Deanna Sako, Finance Director Transportation Commission Report Highlights-- Cash ighlights April 30, 2018 Cash Handling at the County of Hawai`Ps Mass Transit Agency Background The County of Hawaii Mass Transit Agency's (Mass Transit) mission is to provide safe, clean, convenient transportation services for the residents and visitors to the County of Hawaii. In fiscal year 2016-2017, 639,000 passengers rode the bus and 148,000 used the shared ride taxi program providing Mass Transit with approximately $1.2 million in revenue. What was the purpose of this audit? This performance audit was undertaken to evaluate if Mass Transit's internal controls were adequate to reduce the risk of fraud and mishandling of cash receipts and to identify potential areas for improvement. The audit also looked at cash receipt transactions to ensure that receipts were deposited timely and intact. We initiated the audit, as we believe cash receipts are an inherently high- risk process. In addition, Hawaii County Council passed Resolution 218-17 (June 23, 2017) requesting an audit of Mass Transit's cash handling procedures. Mass Transit's cash handling process was inadequate and ineffective to ensure that revenue is properly controlled and deposits are timely and accurate. Specifically, we found that cash was not physically secured, incompatible duties were not segregated, independent monitoring was insufficient, and cash was not deposited timely. We also found that Mass Transit sold taxi coupons, bus tickets, and bus passes using purchase orders outside of the County's contracting process. In January 2018, we conducted a surprise cash count. We counted nearly $30,000 in bus fare revenue, some of which had been there since July 2017. Due to the numerous internal control weaknesses, an ineffective bus cash receipting system, and the inconsistencies found during our count, we could not determine if all the cash paid by the bus riders was included in our count. We were unable to determine if money had been lost or misappropriated. We also reviewed December 2017 cash receipts and found that all money that was receipted - was recorded and deposited. However, we could not determine if all money was receipted. Management has generally agreed with the comments and recommendations in this report. Their complete response to this audit can be found on page 29: Management Response. To enhance Mass Transit's ability to collect all revenue from the sale of taxi coupons as well as bus fares, tickets, and passes, we offer 30 recommendations to Mass Transit management and staff. These recommendations include updating the bus cash handling system and prioritizing cash handling internal controls. Some of these internal controls include physically safeguarding cash and cash equivalents, segregating duties, monitoring, and implementing and enforcing policies and procedures. A complete list of our recommendations can be found on page 24: What do we recommend? This audit was conducted in accordance with general accepted government auditing standards. This page intentionally left blank. Table of Contents Introduction.................................................................................................................................1 AuditObjectives..........................................................................................................................2 AuditScope and Methodology................................................................................................. 2 Commendations & Noteworthy Events.....................................................................................3 Background................................................................................................................................. 4 Who is the Mass Transit Agency?............................................................................... 4 How much does it cost?.............................................................................................. 4 Where can you purchase bus tickets, bus passes, and shared ride taxi coupons? .... 5 How much money does Mass Transit receive in bus and taxi fares? ......................... 5 How many passengers use Mass Transit?................................................................. 6 Whodrives the buses?................................................................................................6 How is bus ridership recorded?...................................................................................6 AuditResults.............................................................................................................................. 7 Cash handling internal controls at Mass Transit are inadequate and ineffective to ensure that revenue is properly controlled and deposits are timely and accurate. As a result, we are unable to determine if cash receipts were complete .................. 7 ➢ What did we find?....................................................................................................... 8 Results of our surprise cash count........................................................................ 8 Cash was not physically secured.......................................................................... 9 Incompatible duties are not adequately segregated............................................11 Independent monitoring is insufficient.................................................................12 Taxi Coupons, Bus Tickets & Passes are sold using purchase orders ............... 13 Cash was not deposited timely............................................................................14 ➢ What are the consequences?.................................................................................... 15 BusFares............................................................................................................ 15 Taxi Coupons, Paratransit Coupons, Bus Tickets & Passes collected at the Mass Transit Administrative Office................................................................................17 Taxi Coupons, Bus Tickets & Passes collected at the Mo'oheau Bus Terminal.. 17 Taxi Coupons, Bus Tickets & Passes sold via purchase orders ......................... 18 ➢ Why did this happen?............................................................................................... 18 Mass Transit did not prioritize cash handling internal controls ............................18 The current bus cash handling system is ineffective...........................................19 Written policies and procedures are incomplete, insufficiently detailed, and not consistently followed or enforced........................................................................ 20 ➢ What do we recommend?........................................................................................ 24 Management's Response.........................................................................................................29 Appendix A — Audit Criteria..................................................................................................... 37 Introduction The Office of the Legislative Auditor conducted this performance audit of County of Hawai`i's Mass Transit Agency's (Mass Transit) cash handling process pursuant to Section 3-18 of the Hawaii County Charter, which outlines the Office of the Legislative Auditor's primary duties. Performance audits typically examine the effectiveness, economy, or efficiency of a government program. They can include analyzing the services of an entire department or activity, identifying possible cost savings, identifying the outcomes achieved by a program, or comparing actual department practices against the practices called for in law or policy. Our objective in performance auditing is to improve public services provided by county government. We do this by recommending specific actions that will address the issues we raise and by providing valuable information to the public, the administration, program leadership, the Hawai'i County Council, and the Mayor. A performance audit of the Mass Transit cash handling process was included in the fiscal year 2017-2018 annual audit plan based on the results of our countywide risk assessment. The Hawaii County Council also passed Resolution 218-17 (June 23, 2017) requesting an audit of Mass Transit's cash handling procedures. There are inherent risks associated with the implementation of the cash handling processes. If no internal controls exist, or if they exist but are not enforced, the risks related to the process increases, thereby increasing the risk exposure to the County. On a national level, employee misappropriation of cash is the most common type of fraud. According to the Association of Certified Fraud Examiners' (ACFE) 2014 Report to the Nations on Occupational Fraud and Abuse, organizations lose five percent of revenues to fraud each year.' "The most common employee occupational frauds of misappropriation of cash include: check tampering, revenue skimming, fraudulent disbursements by fake invoicing, payroll schemes, and billing scams .112 In April 2016, Mass Transit experienced a break-in where several buckets of cash were stolen. The Office of the Legislative Auditor determined that a thorough examination of cash handling policies, procedures, and processes was warranted. 1 "The Cost of FRAUD". ACFE.com. https://www.acfe.com/rttn/images/cost-of-fraud-infographic.pdf (accessed June 30, 2016). Z "Guarding Against Internal Frauds Committed by Employees". Bizfilings.com. https://www.bizfilings.com/toolkit/research-topics/running-vour-business/fraud-protection/guarding-against- internal-frauds-committed-by-employees (accessed April 3, 2018). Mass Transit Cash Handling Introduction I 1 Audit Objectives The Office of the Legislative Auditor's fiscal year 2017-2018 annual audit plan included a performance audit of the County of Hawai`i's Mass Transit cash handling and receipting process. The objective of the audit was to evaluate if cash handling internal controls at Mass Transit are adequate and effective to ensure that revenue is properly controlled and deposits are timely and accurate. Audit Scope and Methodology To accomplish our objectives, we: • Developed an understanding of the policies, procedures, processes, and document flows; • Compared Mass Transit's cash handling procedures, practices, and performance measures to recommended industry best practices; • Assessed compliance with Mass Transit's cash handling policies and procedures, County of Hawai'i Code, County of Hawai'i Charter, and Hawai'i Revised Statues; • Conducted a surprise cash count of bus fare revenue at the Baseyard; • Analyzed cash receipts by comparing calculated expected revenue based on ridership to actual reported revenue; • Examined purchase requisitions, purchase orders, and payments for bus tickets, bus passes, and taxi coupons sold to vendors; • Analyzed cash receipts by comparing revenue source data (manual cash receipts, bus trip sheets) to the deposit and revenue posting; • Corroborated information through interviews with appropriate personnel, reviewed documentation and performed testing of documentation and controls; and • Reviewed additional documentation as needed (e.g., daily bus trip sheets, manual cash receipts, treasury receipts, bank courier receipts, revenue reports). We conducted this audit from September 2017 through March 2018. During the course of our audit, we assessed internal controls relevant to the audit objective. This included a review of applicable policies and procedures, cash handling standards, and interviews with knowledgeable staff. We also conducted a surprise cash count of bus fares and reviewed cash receipts and bus fares from December 2017. Taxi licenses and license renewals were not specifically included in our audit scope due to the low dollar volume and the receipting procedures follow the basic process as other manual receipts. We did not rely on computer generated data. We conducted this performance audit in accordance with general accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, Mass Transit Cash Handling Audit Objective, Scope & Methodology 12 appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Our conclusions on the effectiveness of these controls are detailed within this report. We thank the Mass Transit's staff for their assistance and cooperation during this audit. Management generally agreed with the comments and recommendations in this report. Their complete response to this audit can be found on page 29: Management Response. Commendations & Noteworthy Events In February 2018, the County hired a new Mass Transit Administrator who has been open and receptive to our audit recommendations. We are also pleased to report that Mass Transit has taken a proactive role in strengthening certain controls we identified as weaknesses during the course of the audit. Additionally, we appreciate the cooperation exhibited by Mass Transit and their willingness to implement many of our recommendations. For instance, Mass Transit has asserted they now: • Account for daily trip sheets and cash; • Identify and report cash overages and shortages on treasury receipts; • Improved safeguarding of assets (cash is only counted when two employees are available and the room where cash is counted is secured); and • Deposit cash timely. We will follow up at the appropriate time to determine whether and to what extent all recommendations have been implemented. Mass Transit Cash Handling Audit Objective, Scope & Methodology 13 Background Who is the Mass Transit Agency? The County of Hawaii Mass Transit Agency provides transportation services to the Big Island of Hawaii including: • Hele-On Buses, providing fixed -route transit service in the Hilo and Kona areas Monday through Saturday and limited commuter services to the South Kohala Resort areas seven days a week. (Figure 1) • Shared Ride Taxi Program where participants may take a cab ride anywhere in the Hilo urbanized area up to a nine mile radius from the point of origin by purchasing taxi coupons. • Kako`o Paratransit Service in the Hilo and Kona area. Paratransit is a reservation - based service to provide transportation services to persons with disabilities who are unable to use the regular fixed Hele-On bus service within the Hilo and Kona service areas. How much does it cost? Fares for each transportation service are: • Hele-On Bus — o general fare is $2.00 Hele-On Bus Routes Xmhoq r A'edNeleagll� A P41— .� Aolqune N. A County of Hawaii Maas TransttAgency emRawl rt�� Photo courtesy of Mass Transit (hftp://www.heleonbus.or,q/schedules-and-maps Figure 1 o seniors (age 60+), students, and disabled persons (with disability card issued by the Mass Transit Agency), the fare is $1.00 (must have a valid ID) o sheets of ten bus tickets ($15.00 for general and $7.50 for senior, student, and disabled riders) o monthly passes ($60.00 for general and $45.00 for senior, student, and disabled riders) • Shared Ride Taxi Program - taxi coupons are sold in increments of one ($6.00), five ($15.00), 10 ($25.00), or 15 ($30.00). The weekly limit is 15 coupons per rider. • Kako`o Paratransit Service - a one-way fare is $4.00 payable upon pickup. Mass Transit Cash Handling Background 14 a c M 0 t Where can you purchase bus tickets, bus passes, and shared ride taxi coupons? Bus tickets, monthly passes, and shared ride taxi coupons can be purchased at: • County of Hawai'i Mass Transit Agency Administrative Office at Iron Works (until March 2018) • County of Hawai'i building in Hilo (effective March 2018) • Mo'oheau Bus Terminal Information Center Ten Ride bus tickets can also be purchased at the following KTA Super Stores locations: • Waimea Center • Keauhou Shopping Center • Waikoloa Highlands Center (Also sells monthly passes) • Kona Coast Shopping Center (Also sells monthly passes) How much money does Mass Transit receive in bus and taxi fares? In fiscal year (FY) 2016-2017, Mass Transit received approximately $1.2 million for bus and taxi coupon sales (bus fares totaled $821,575 and taxi coupon sales totaled $378,761). (Figure 2) Kako'o Paratransit Service reported nearly $5,400 in sales in its first year. Bus Fare Revenue $1,100 $1 ,045 $1,000 957 $900 $800 $700 $600 $500 FY 13-14 $904 $822 FY 14-15 FY 15-16 FY16-17 Fiscal Year Source: County of Hawai'i Proposed Operating Budget, Actual Revenue Taxi Coupon Sales $400 $384 $379 $350 W $296 - $300 M $255 o $250 t Figure 2 $200 I FY 13-14 FY 14-15 FY 15-16 FY16-17 Fiscal Year Mass Transit Cash Handling Background 15 How many passengers use Mass Transit? In fiscal year (FY) 2016-2017, 639,000 passengers rode the bus while 148,000 used the shared ride taxi program. While bus passengers have declined since FY2013-2014, taxi riders have significantly increased. (Figure 3) 900,000 800,000 700,000 a 600,000 L 500,000 400,000 °C 300,000 200,000 100,000 0 How has bus and taxi ridership changed? FY 13-14 FY 14-15 Bus Ridership Source: Mass Transit provided ridership numbers. Who drives the buses? I Bus ridership has decreased 638 728 by 24% since FY13-14 Taxi ridership 147,731 has increased by 59% since FY13-14 FY 15-16 FY 16-17 I Fiscal Year Taxi Ridership Figure 3 County owned buses and vans are driven by contracted employees. The County also contracts with Jacks Tours, Roberts Hawaii, and Polynesian Adventures to supplement available buses on certain routes. How is bus ridership recorded? Ridership is recorded by the bus drivers using a "trip sheet". When a passenger enters the bus, the driver marks the number of passengers and the type of fare paid for each route. The driver then submits the trip sheets to Mass Transit while the bus's fare box is emptied. Mass Transit Cash Handling Background 16 Audit Results Cash handling internal controls at Mass Transit are inadequate and ineffective to ensure that revenue is properly controlled and deposits are timely and accurate. As a result, we are unable to determine if cash receipts were complete. Management is responsible for an effective internal control system. Internal controls should be 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 controls: • Physical Safeguarding of Assets. Assets should be physically protected from loss and unauthorized use. • 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. They should not review and approve their own work. An organization's management should incorporate these controls into written policies and procedures. These policies and procedures should cover all Summary of Internal Controls aspects of operations, be sufficiently detailed, and be distributed to staff. In addition, ongoing monitoring is necessary to ensure policies and procedures, and internal controls, remain effective and efficient as operations change. The Department of Finance's Accounting Manual requires each County department to establish Source: Data compiled by the Office of the Legislative Auditor internal controls to ensure cash is Table 1 safeguarded, accounted for, and properly recorded. Our audit evaluated Mass Transit's cash handling procedures and we found that internal controls are generally inadequate and ineffective to ensure that revenue is properly Best Practice Was it Performed? Safeguarding of Assets including: • Physical security No • Timely deposits/reporting Independent Monitoring No Segregation of duties No Written Policies and Procedures Inadequate Mass Transit Cash Handling Audit Results 17 controlled and deposits are timely and accurate. (Table 1) As a result, errors and irregularities may go undetected by employees performing their normal assigned duties. iLA . I Results of our surprise cash count While gaining an understanding of the Mass Transit cash handling system, we observed a large amount of unsecured cash on the Baseyard's breakroom table. (Figure 5) In addition, the safe used to store the daily bus fare cash was full. (Figure 4) We also identified several boxes of included: cash in the closet. Neither the safe nor the boxes of cash had been counted consistently for several months. We therefore decided to perform a surprise cash count from January 19, 2018 through January 25, 2018. During this period, we counted all cash in both the safe and the closet. We also counted any new bus fare cash that came into the Baseyard through January 23, 2018. While counting the cash, we reconciled to the ridership based on the trip sheets. In total, we counted nearly $30,000 in 447 cash bags (each fare box is emptied into a "cash bag" along with the route's trip sheets). This included routes dating from July 10, 2017 through January 23, 2018, a span of 193 days. Based on the ridership trip sheets completed by the bus drivers, we calculated expected revenue to be $28,664. This resulted in a net overage of $1,304. We observed that only 8% of the bags balanced to the trip sheets (29% were under and 63% were over). The largest calculated cash bag overage ($199) was because no trip sheet was included with the cash; the largest underage ($212) was because no cash was included with the trip sheet. We could not determine what happened to the cash from the bag with the underage. As partially mentioned above, some inconsistencies • Numerous cash over/shorts compared to calculated expected revenue • Cash bags with money but no trip sheets • Cash bags with trip sheets but no money • Cash bags with no bills, only coins • Trip sheets were inaccurate and incomplete Mass Transit Cash Handling Audit Results 18 • Several boxes were filled with various unreconciled trip sheets for August, September, and October 2017. We could not determine if this money had been deposited. Based on these results, and the internal controls noted below, we could not determine if all the cash paid by the bus riders was included in our cash count. We were unable to determine if money had been lost or misappropriated. After our surprise cash count, with the assistance of the Department of Finance, the cash was deposited. During our subsequent follow up, only one to two days of cash was stored in the safe. We noted certain issues that we communicated directly to Mass Transit's management. We appreciate their commitment to resolving these matters. Cash was not physically secured Safeguarding of assets is an integral component of internal controls to provide effective stewardship of public resources. When safeguarding of assets and physical controls are designed and implemented appropriately, departments and agencies are more likely to identify and correct systematic problems on a timely basis. The United States Government Accountability Office (GAO), Standards for Internal Control in the Federal Government ("Green Book") states that management should design an internal control structure to include physical controls to secure and safeguard vulnerable assets such as cash. In addition, the Government Finance Officers Association (GFOA) establishes best practices for general revenue controls. These best practices include physical security procedures, especially for funds that are not deposited the same day they are receipted. We identified several safeguarding of assets weaknesses at both the Mass Transit Administrative Office and the Baseyard: Mass Transit Administrative Office: Manual receipts are printed and pre -numbered in- house using a Word document. This increases the risk that receipts could be duplicated and cash misappropriated. In addition, we observed these receipts were sitting on the front counter and easily accessible to the public. Receipts should be pre - numbered, pre-printed, and secured. • Bus tickets and taxi coupons are left in an opened box behind the counter. Bus tickets are Mass Transit Cash Handling Audit Results 19 exceptionally at risk since they are not pre -numbered and therefore, management cannot assess the completeness of the inventory. • Cash is kept in the pencil case in an unlocked desk drawer during the day. Basevard: While money is locked in a safe and a locked closet overnight, both locations are left open and unattended during the day. We observed cash left unattended on the breakroom table, the safe door was ajar, and both doors to the room unlocked. This breakroom is accessible to all Mass Transit staff. (Figure 5) • Several employees have access to locked fare boxes. While these boxes are Example of a fare box Photo courtesy of the Office of the Legislative Auditor Figure 6 easily removed. locked, the rivets holding it together can be easily removed and there is no process to ensure that all fare boxes are accounted for. (Figure 6) Bus's fare boxes are not emptied daily or after each route and may only return to the Baseyard every four days. In addition, when the Account Clerk is unavailable or absent from work, no one empties the bus's fare boxes, sometimes for several days. As a result, some fare boxes arrive at the Baseyard overflowing and unable to automatically lock. Employees then use another fare box to catch the overflow. This increases the risk that money may be lost or stolen and not deposited or recorded timely. While cameras have been installed in the room where cash is counted, we observed key blind spots, the camera and recordings are not regularly monitored, and the employee counting the cash has access to the camera and recordings. Some county -owned vans do not have locking fare boxes. When there is no fare box, a manila envelope or plastic bag is used. Some fare boxes do not lock and can be • The safe combinations and keys have never been changed. Lock combinations and keys should be changed periodically and always when custody changes hands. • There is no receipt log of the cash received from the contracted bus service providers. Physically securing cash and assigning accountability to an individual employee reduces the risk of loss or theft. All employees accepting payments should have a secured, lockable cash drawer and only the employee collecting the payments should have access. If there is more than one person receiving payments at the same time, each person should have their own cash Mass Transit Cash Handling Audit Results 110 drawer. In addition, it is best practice to maintain cash records in a separate location from the cash itself. If fraud or theft does occur, the records cannot easily be taken, destroyed, or modified. Separation of cash records and cash is a simple cash security practice that can discourage theft, or at least allow the timely discovery of theft. Incompatible duties are not adequately segregated Segregation of duties' 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 a 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. We examined the cash handling processes at the Mass Transit Administrative Office and found that proper segregation of duties for cash handling was not in place. Currently, the County Transportation Specialist: • maintains the master Word document for some in-house receipts (custody of assets), • performs over-the-counter sales (custody of assets), • maintains the key to where the change funds are secured at night (custody of assets), • performs and approves voids (authorization/approval), • reviews end -of -day cash receipts and reconciles to the treasury receipt (reconciliation/control activity), and • sometimes deposits daily revenue with the Treasury Division (custody of assets). Mass Transit Cash Handling Audit Results 111 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. While Mass Transit has implemented some monitoring controls (a review of the end -of -day cash receipts), the County Transportation Specialist should not have access to cash and review and approve their own work. Independent monitoring is insufficient When duties are not adequately segregated, it is even more vital that the cash handling process be independently reviewed and monitored regularly. Because management performs part of the cash handling process, work should be reviewed for completeness and accuracy. Specifically, we observed the following: Prior to October 2017, the Account Clerk would empty multiple fare boxes onto the breakroom table, count cash, and prepare the bank deposit slip. There was no reconciliation of the cash to the bus trip sheets to calculate any cash overage/shortage. During the course of the audit, an independent employee began verifying the cash to the deposit slip. However, there is still no independent review of the trip sheets to verify the cash over/short. • Mass Transit does not conduct a reconciliation to ensure all trip sheets were received, all cash collected was collected from bus fares, all deposits were made to the bank, and all treasury receipts were processed. This reconciliation would help ensure cash collected, deposited, and recorded was accurate and intact. • Bus tickets are not pre -numbered and are not adequately secured. As a result, management cannot determine if all bus tickets are accounted for and bus ticket inventory is complete. • There is no review for consecutiveness and completeness of taxi coupons or bus passes. Controlling and reviewing pre -numbered coupons and passes help deter and detect potential theft of cash receipts. Furthermore, since duties are not adequately segregated, this review is imperative to ensure all revenue is collected and deposited timely. • Instead of purchasing pre -numbered, pre-printed receipts, Mass Transit created receipts using a Word document. One employee maintains the Word document receipts for taxi licenses and the Mo'oheau Bus Terminal (MBT), while a second employee maintains the Word document receipts for the Mass Transit Administrative Office. Both employees also perform over-the-counter transactions. Using a Word document allows for easy manipulation of the receipt numbers. Furthermore, management cannot adequately review for consecutiveness and completeness. We observed instances of duplicate, triplicate, and missing receipt numbers at MBT. Mass Transit Cash Handling Audit Results 112 • There is no independent review of taxicab reimbursements. When a taxicab submits their daily passenger log for reimbursement, the Clerk verifies that the coupon is valid and calculates the total to be paid to the taxicab owner. These totals should be independently verified for accuracy. • Voids are not independently reviewed. While the County Transportation Specialist does approve and review voids, the same Specialist also processes cash receipts and completes voids. • There is no independent reconciliation of revenue to the general ledger. Without reconciling the treasury receipts to the general ledger revenue account, Mass Transit cannot determine if all money that was deposited, was recorded. • Outstanding accounts receivable balances from bus tickets, bus passes, and taxi coupons purchased with a purchase order are not independently reviewed to ensure accounts are paid and current. • Cash over/shorts and cash/check composition are not consistently recorded on the treasury receipt. Without specifying this information, management cannot, and has not, monitored to ensure the integrity of the deposit. • Surprise cash counts are not performed. Cash counts are an important part of internal control procedures and encourage honesty and discourage misappropriation. Cash counts should be conducted on a surprise basis by someone independent of the cash operation. Monitoring is 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 such as comparisons, reconciliations, and other routine activities. There should always be another level of review and approval performed by a knowledgeable person independent of the cash handling process. A thorough review of the processes will help with accuracy, completeness, and timeliness. The reviewer should be someone who is knowledgeable in daily operations, has the authority to make decisions, someone who does not perform the process, and document evidence of review by a signature or initials and date. Taxi Coupons, Bus Tickets & Passes are sold using purchase orders Mass Transit sells taxi coupons, bus tickets, and bus passes using purchase orders to third party vendors such as KTA, schools, hotels, and non-profit organizations ("vendors"). We found: • No formal contract was established between the County of Hawaii and these vendors. While Mass Transit did have both verbal and written agreements with the vendors, Hawaii County Charter Section 13-13 requires that all contracts with private Mass Transit Cash Handling Audit Results 113 parties for the performance of any function or activity with the County must be authorized and approved by the mayor, corporation counsel, and the finance director. Most vendors do not pre -pay for bus tickets, passes, or taxi coupons, instead they submit a purchase order and Mass Transit later sends an invoice or statement. Since payment is frequently made more than 30 days after invoice, this results in an outstanding accounts receivable balance. Hawaii County Code Sections 18-90, 18-91, and 18-92 establishes Mass Transit's fare structure. There is no criterion to allow for billing of charges or accounts receivable. • One vendor brings Mass Transit a check when they require taxi coupons. The vendor then sends a Fax requesting the amount of coupons needed and the amount is deducted from the balance of the payment received. At least once, the balance was negative with the vendor owing the County more money than they paid. • Discount ranging from five to 10% was given to vendors on top of the pre -sale discount ticket price. Hawaii County Code Section 18-90 establishes the rates for full and pre -payment fares. There is no criterion to allow for an additional discount. • Written statements proclaim an 18% interest rate will be applied to purchase orders outstanding more than 45 -days. We did not find any instances where the interest was applied on outstanding balances. • There is no process to ensure collection of outstanding accounts receivable balances. Typically, the only statement sent to vendors is the initial invoice or statement. • At least one vendor reassigned non -transferable taxi coupons. Mass Transit's website states that coupons are non -transferable and non-refundable. In addition, Mass Transit's cash handling policies state that no refunds or exchanges are allowed unless authorized by the Administrator. We found no record of authorization. Cash was not deposited timely As mentioned above, the Government Finance Officers Association (GFOA) establishes best practices for general revenue controls. These best practices include daily processing and timely deposit of receipts, ideally within 24 hours of receipt; County policy requires all revenue to be deposited within two working days. We found: • When the Account Clerk is absent from work, no other employee performs the Account Clerk's job duties. Consequently, deposits are not made timely. Furthermore, having another employee periodically perform someone's job duties allows for the potential of irregularities to surface. Contracted bus service providers submit their bus revenue to Mass Transit up to three months after collection. Mass Transit Cash Handling Audit Results 114 Current Mass Transit policy limits taxi coupons to 15 coupons per week, per customer. In some instances, customers wanted to purchase 30 coupons in one week. Mass Transit employees accepted payment for the entire 30 coupons but held the customer's money for one week to comply with the policy. During our surprise cash count, we counted a Paratransit deposit totaling $1,425 for fares collected for a three-month period (10/1/17 to 11/26/17). Although the cash was counted, reconciled, and secured in the safe at the Baseyard, $1,425 in paratransit coupons was not timely deposited. Because of these internal control weaknesses, in addition to our surprise cash count discussed above, we tested December 2017 cash receipts to determine if cash received for bus fares, taxi coupons, paratransit coupons, and bus tickets and passes was deposited and recorded timely and intact. We also analyzed cash receipts by comparing calculated expected revenue based on ridership to actual reported revenue. We found that all money that was receipted - was recorded and deposited. However, we could not determine if all money was receipted. Bus Fares To ensure that bus fare revenue was complete, we: 1. Recalculated the expected December 2017 revenue based on ridership counts marked on the bus trip sheets. We then compared this amount to the total counted and recorded by Mass Transit and to the deposit. We reviewed 2,040 bus trip sheets (347 fare boxes) with fares totaling $32,750 from deposits made in December 2017. The total amount deposited for these trip sheets was $34,361. This resulted in net overage of $1,682 (more money was deposited than the calculated revenue from ridership). We found: • 301 instances (87%) where the fare boxes' expected revenue from the trip sheet and the cash deposited did not match; 13% of the bags balanced to the trip sheets (32% were under and 55% were over). • 18 instances where Mass Transit did not correctly calculate the actual cash collected when totaling the trip sheets. • One instance totaling $24.81 where the deposit was less than Mass Transit's calculated total. • One deposit was short by $49.50 and adjusted by the bank. • An average delay of 21 days between receipt (trip sheet route date) and the deposit with a high of 84 days (September 1, 2017 route sheets were Mass Transit Cash Handling Audit Results 115 deposited on December 28, 2017). In addition, some December 2017's trip sheets and cash collected for those bus trips was not deposited until January and February 2018. The Department of Finance's policy requires deposits to be made within two working days; best practices states that deposits should be made within 24 hours. In 12 out of 21 instances (57%), the deposit ticket date did not match the date listed on the treasury receipt. The Account Clerk listed the date the deposit was processed, not the actual date the deposit was made. This may make reconciling the deposit to the treasury receipt more difficult if the dates do not consistently match. • An average of six working days (with a high of eight days) between when the money was deposited compared to when it was recorded on a treasury receipt. The Department of Finance's policy requires treasury receipts to be completed within two working days. 2. Calculated the number of expected bus routes per day and compared to the trip sheets included in the December 2017 deposits. Mass Transit was unable to account for or provide all trip sheets for December 2017 to verify all cash was deposited. Based on route and trip information provided by Mass Transit, we calculated approximately 95 trip sheets per weekday. Each route may have several trip sheet depending on route and pickup location. On average, we were only able to find and verify 78 trip sheets per weekday — ranging from 53 to 96 trip sheets per weekday. We searched several boxes of records and deposits made in January and February 2018 and were unable to locate all December trip sheets. 3. Calculated expected annual revenue from ridership data. We sought to determine if annual bus fare revenue was reasonable by comparing annual ridership numbers to reported revenue (ridership x fare = revenue). Based on the results of our cash count and bus fare testing above, we did not consider the ridership numbers to be accurate and we were unable to complete this comparison with any reliability. This type of analysis of financial relationships is an excellent management tool to monitor revenue and budget expectations. However, without reliable data, the meaningfulness of the comparison is diminished. Mass Transit Cash Handling Audit Results 116 Taxi Coupons, Paratransit Coupons, Bus Tickets & Passes collected at the Mass Transit Administrative Office We reviewed 605 receipts totaling $21,400 from December 2017 and found that all money that was receipted, was deposited. However, due to the following issues, we could not determine if all transactions were receipted and revenue was complete: • Numerous gaps in the taxi coupon and bus pass numbers were identified. Since the consecutiveness is not monitored, we could not determine where the missing coupons or passes may be located; they may have been issued in prior/post months, given to outside vendor or contractor, or lost/stolen. • Bus tickets are not pre -numbered. We therefore could not determine if the bus ticket revenue is complete and all transactions were receipted. • One instance where the Paratransit coupon numbers were not listed on the receipt. • Mass Transit does not identify the cash/check composition on their treasury receipt. Without this information, we could not verify the integrity of the deposit. There was an average of two days, and up to four days, between the date of the receipt and the date of the deposit. Of the 20 deposits reviewed, one deposit was made three working days after receipt and one deposit was made four working days after receipt. As mentioned above, the Department of Finance's policy requires deposits and treasury receipts to be made within two working days; best practices states that deposits should be made within 24 hours. Taxi Coupons, Bus Tickets & Passes collected at the Mo'oheau Bus Terminal We reviewed 439 receipts totaling $22,500 collected at the Mo'oheau Bus Terminal (MBT) from December 2017 and found that all money that was receipted, was deposited. However, due to the following issues, we could not determine if all transactions were receipted and revenue was complete: • Numerous gaps in the taxi coupon numbers were identified. Since the consecutiveness is not monitored, we could not determine where the missing taxi coupons may be located; they may have been issued in prior/post months, given to an outside vendor or contractor, or lost/stolen. • 41 instances totaling $9,100 where no written receipt was issued. If a customer does not want a receipt, MBT indicates "Cash/No Name" on the manual receipt. These receipts ranged from $30 to over $500. • Three receipt numbers were issued three times (triplicate) totaling $915 and one receipt number was issued two times (duplicate) totaling $60. • Two instances of missing receipts. Mass Transit Cash Handling Audit Results 117 Taxi Coupons, Bus Tickets & Passes sold via purchase orders We reviewed 23 vendors and assessed if there were any outstanding balances, how long the balances were outstanding, when payments were made, and if payments were applied timely. We also verified Mass Transit's "balance sheet" to invoices, requisitions, and payment and recalculated the total ending balance. We found: • Twelve vendors had no outstanding balance as of March 2018. • Seven vendors owe Mass Transit a total of $29,809 for tickets that Mass Transit advanced. • Two vendors had an outstanding balance dating back to 2014 totaling $26,309. Mass Transit is currently working with Corporation Council and the Department of Finance to collect one of these accounts ($25,859). The second account ($450) remains outstanding. • Two vendors where Mass Transit's balance sheet was incorrect or supporting documentation was not included. o One vendor's balance sheet appeared to be missing a reoccurring invoice amount; however, the missing invoice amount was reflected in the ending balance. In addition, no invoices or requisitions for the monthly reoccurring charges were included in the supporting documentation. o One vendor's balance sheet's ending final balance did not recalculate and we could not determine the actual balance. Mass Transit was unable to provide additional supporting documentation to verify the correct balance. Why did this happen? mdl� Mass Transit did not prioritize cash handling internal controls The United States Government Accountability Office (GAO), Standards for Internal Control in the Federal Government ("Green Book") states that "[t]he control environment is the foundation for an internal control system. It provides the discipline and structure, which affect the overall quality of internal control. It influences how objectives are defined and how control activities are structured." The Green Book further states that without a strong "tone at the top", "the entity's risk identification may be incomplete, risk responses may be inappropriate, control activities may not be appropriately designed or implemented, information and communication may falter, and results of monitoring may not be understood or acted upon to remediate deficiencies." After a break-in in 2016, the Department of Finance (Finance) met with Mass Transit to discuss their cash handling procedures. Finance directed Mass Transit to safeguard their cash and reconcile each trip sheet by route. As a result, written cash handling procedures were developed in September 2016 and updated in November 2016 and some security measures were implemented (a safe was purchased and locking doors and security cameras were installed). Mass Transit received funding for an additional position to count bus fare cash Mass Transit Cash Handling Audit Results 118 receipts and prepare the bank deposit. While this position was filled in 2016, only one person was assigned to count cash. As of April 2018, two employees count bus fare cash receipts to minimize risk. We observed that most of these internal controls were not fully implemented or enforced. As mentioned above, examples of the internal control weaknesses included cash left unattended and the safe door left ajar, key blind spots to the security cameras, untimely deposits, and cash not properly reconciled. Furthermore, as described in more detail below, policies and procedures were inadequate, not followed, or enforced. Based upon these facts and our observations, it is our conclusion that Mass Transit management did not make cash handling internal controls a priority. As a result, even with the assistance of Finance, control procedures have not been adequately designed or implemented and deficiencies have not been adequately addressed. The current bus cash handling system is ineffective The current bus fare receipting system is not effective at safeguarding cash, recording ridership, and ensuring that the full fare is collected. As described above, we identified some safeguarding weaknesses including overflowing or a lack of locking fare boxes. We also observed the following: During both our surprise cash count and our December 2017 receipt testing, we observed that the bus trip sheets were not accurate. We consistently calculated differences between the expected revenue based on the recorded ridership counts in comparison to the actual revenue that was received by Mass Transit. Generally, more money was deposited than the expected revenue, indicating that not all riders had been recorded. Without reliable ridership counts, management may not be able to adequately budget, monitor revenue, and make well- informed decisions. • Riders may not pay the full bus fare. We observed fare boxes with ripped dollars, tokens, foreign currency, and bus ticket stubs. o Mass Transit keeps a box of bills that were ripped by passengers to avoid paying the full fare. While performing our count, we were able to match some of these ripped dollars using the serial number. Subsequently, the Department of Finance was able to match up and deposit approximately $300 of these bills. o Passengers use the perforated stub at the top of the bus tickets sheets. (Figure 7) Example of perforated bus ticket stub Mti�rn M.n � a iuron,na ho..aeruNwaca 4- r Mn��w•tl+�.� 0N-AoYNCISLE NON—a M. REV-. eEE 11111•pll wsaw _ HON�roaaoaaie NORaeEFuuoRg�El RE F�CQW Source: Copies of bus tickets provided by Mass Transit Figure 7 Mass Transit Cash Handling Audit Results 119 • Bills are folded several times to fit into the bus's fare boxes. Not only can the bus drivers not determine if the full fare was paid, it also takes Mass Transit staff a lengthy time to unfold the bills for deposit. Without an effective cash handling system, management cannot make informed decisions, monitor revenue and ridership, and ensure that cash is complete and fares are paid in full. Written policies and procedures are incomplete, insufficiently detailed, and not consistently followed or enforced The Government Finance Officers Association (GFOA) establishes best practices including documenting accounting policies and procedures. The GAO's Green Book also recommends establishing written policies to document internal controls and responsibilities. The development of written departmental policies and procedures are an effective way to maintain a strong system of internal controls. Best practices recommend that management evaluate written policies and procedures annually and update periodically. They should also be sufficiently detailed to: • delineate the authority and responsibility of all employees, especially the authority to authorize transactions and the responsibility for the safekeeping of assets and records; • indicate which employees are to perform which procedures; • describe the procedure as they are actually intended to be performed rather than in some idealized form; and • explain the design and purpose of control related procedures to increase employee understanding of and support for controls .3 At the County of Hawaii, each department and agency is responsible for creating and maintaining their own policies and procedures by using the Department of Finance's Accounting Manual as a basis for establishing an adequate system of internal controls. Mass Transit did not establish written policies and procedures until September, 2016 and updated in November, 2016. These procedures only address the Mass Transit Administrative Office; there are no written policies for bus fares received at the Baseyard. Furthermore, these policies are not sufficiently detailed to conform to best practices. We compared the November 2016 Mass Transit's cash handling policies and procedures, as well as current practices, to expected control procedures and found several deficiencies. (Table 2) s Government Finance Officers Association, Best Practices, Documenting Accounting Policies and Procedures http://www.gfoa.org/policies-and-procedures-documentation Mass Transit Cash Handling Audit Results 120 Do Mass Transit's policies and procedures conform to best practices? Were policies & Was the actual practice Expected Procedure procedures complete? performed? Administrative Baseyard Administrative Baseyard Office Office 1. Independent review and Inadequate No Nc No monitoring 2. Segregation of duties Inadequate No No No 3. Physical security procedures Inadequate No No No 4. Timely deposit of receipts voe No No No 5. Checks endorsed immediately No N/A No N/A 6. Timely reconciliation of cash No No receipts to applicable ledgers 7. Receipts are consecutive and pre-numbered (including No N/A N/A voids) 8. Taxi coupons, bus tickets, and bus passes are consecutive N/A N/A and pre-numbered 9. Account for cash as it is received (Timely recognition of Yes revenue) 10. Reconciliation of total checks No N/A N/A and cash and over/shorts 11. Fraud reporting No Source: Data compiled by the Office of the Legislative Auditor Table 2 Specifically we found: Independent review and monitoring. Existing procedures only address the verification of the deposit information. Mass Transit has not addressed numerous review and monitoring opportunities. Policies and procedures should require a thorough review performed by an independent person to ensure accuracy, completeness, and timeliness of receipts and bus fares. 2. Segregation of duties. Existing procedures do not address separating any of the physical custody of the cash, depositing, or cash reconciliation functions. Current employee assignment allows everyone to collect and receipt cash, including the employee who is responsible for the approval, review, and monitoring. Policies and Mass Transit Cash Handling Audit Results 121 procedures should require that a different person be responsible for recording, collecting, authorizing, reconciling, and depositing functions. 3. Physical security procedures. Current procedures do address securing the cash boxes at the Administrative Office. There are no written policies and procedures for the bus fare revenue collected at the Baseyard. In addition, the security over coupons, tickets, and passes are not addressed. These items are the equivalent to cash and should follow the same security and processes. Policies and procedures should require that all cash and cash equivalents be adequately secured. 4. Timely deposit of receipts. The Administrative Office does have policies that require deposits to be made within two business days. There are no written policies and procedures for the bus fare revenue collected at the Baseyard. We found frequent instances where deposits were not made timely at both the Administrative Office and the Baseyard, with some deposited up to six months after receipt. Policies and procedures should require that all funds be deposited within two working days as required by County policy, but best practices recommends 24 hours. 5. Checks endorsed immediately. Policies do not address restrictive endorsement of checks. Currently, Mass Transit does not restrictively endorse checks until the end of the day. Policies and procedures should require check endorsement immediately upon receipt. 6. Timely reconciliation of cash receipts to applicable ledgers. Existing procedures do not address timely reconciliation of cash receipts to the deposits or revenue accounts. Policies and procedures should require that reconciliations are performed timely to ensure that the deposits were properly posted and any adjustments are made in the correct period. 7. Receipts are consecutive and pre -numbered (including voids). Existing procedures address the manual receipting processes including who is assigned to print the receipts. There is no written procedure to issue receipts sequentially or review for consecutiveness. However, since these receipts are a Word document and the employee assigned to print the receipts assigns the number and handles cash, there is an increased risk that the receipt numbers could be altered and cash misappropriated. We found several instances of duplicate, triplicate, and missing receipt numbers. Sequential receipts are necessary to ensure that all payments are documented and revenue collected is intact. By using pre -numbered receipts and reviewing sequentially, receipts cannot be easily duplicated or voided. 8. Taxi coupons, bus tickets, and bus passes are consecutive and pre -numbered. Taxi coupons and bus passes are pre -numbered — bus tickets are not. Current policy does not mention consecutiveness and there no procedure in place to: (1) issue pre - numbered coupons, tickets, and passes sequentially or (2) to review and reconcile the consecutiveness and completeness of these items. We found numerous gaps in both taxi coupons and bus passes that could not be located. These items are the equivalent to cash and should follow the same security and processes. Mass Transit Cash Handling Audit Results 122 9. Account for cash as it is received (Timely recognition of revenue). Current policy at the Administrative Office requires deposits to be made within two business days. The Administrative Office deposits cash receipts at the Treasury Division, which requires a treasury receipt to accompany the deposit. At the Baseyard, deposits are made with Bank of Hawaii, hence a treasury receipt is not required at the time of deposit. Our testing of Administrative Office receipts found an average of two days, and up to four days, between the receipt date and the date the deposit was received by the Treasury Division. At the Baseyard, we found an average of six working days (with a high of eight days) between when the deposit date and when it was recorded on the treasury receipt. Procedures should require accounting for cash upon receipt to eliminate the risk of errors or theft. 10. Reconciliation of total checks and cash and over/shorts. Current procedures do not require the notation of cash and check composition or cash over/shorts on the treasury receipt, preventing the Treasury Division and Mass Transit management from verifying the integrity of the deposit. Furthermore, there is no policy or procedure to independently reconcile the cash and check composition and cash over/shorts. Procedures should require the notation of both cash and check composition and cash over/shorts on the treasury receipt and an independent reconciliation of the composition to the cash receipts to ensure the integrity of the deposit and so that cash receipt transactions can be easily identified, traced, and corrected. 11. Fraud reporting procedures. Existing procedures do not address fraud reporting. Policies and procedures should require a fraud reporting process to aid in the detection and prevention of fraud. By providing fraud -reporting procedures, all County employees will be made aware of the types and signs of theft or fraud, the consequences associated with it, and how to report it. Those who are planning to commit fraud will know that management is watching and may be deterred by this. Honest employees who are not tempted to commit fraud will also be made aware of possible signs of fraud or theft and how to report any concerns. By identifying gaps in policies and procedures, management can identify where effective controls need to be placed, where to provide sufficient detail for new and existing procedures and to clarify unclear procedures so that they are easier to follow. Once these procedures have been officially established and approved, all Mass Transit employees and contracted bus drivers should be trained in correct cash handling and ridership count procedures. Mass Transit Cash Handling Audit Results 123 The County of Hawai"i Mass Transit Agency's cash handling process inadequately addresses internal controls, leaving gaps in existing policy including safeguarding of assets and management oversight. The audit recommends that Mass Transit immediately address the internal control weaknesses revealed through our site visits and develop a more proactive cash handling oversight program. The following recommendations address each of these areas. 1. Update the bus cash handling system 1.1 We recommend Mass Transit management equip each County bus and van with an updated electronic fare box to collect passenger fares and track ridership. 1.2 We further recommend Mass Transit pre -number bus tickets. As mentioned in recommendation 3.1 and 5.2 respectively, these tickets should be adequately secured and monitored for consecutiveness and completeness. 1.3 We further recommend Mass Transit remove or alter the perforated stub at the top of the bus ticket sheets to ensure passengers pay the full fare. 2. Cash handling internal controls should be a priority 2.1 We recommend Mass Transit management prioritize cash handling internal controls. Management should be responsible for an effective internal control system and internal controls increase the likelihood that the organization will achieve their objectives 3. Safeguard assets 3.1 We recommend Mass Transit management ensure physical security over manual receipts, cash, and cash equivalents (e.g., bus tickets, bus passes, taxi coupons). 3.2 We further recommend Mass Transit management ensure deposits are made timely, both for contracted bus services and cash received by Mass Transit. Ideally, deposits should be made within 24 hours, but at least within two business days. 3.3 We further recommend Mass Transit staff restrictively endorse checks immediately upon receipt. Mass Transit Cash Handling Audit Recommendations 124 3.4 We further recommend Mass Transit management change lock or safe combinations once an employee who had access leaves the organization or is reassigned to another position. 3.5 We further recommend Mass Transit management implement a cash receipt log for all incoming revenue including bus fares from contracted bus service providers. 3.6 We further recommend Mass Transit management assess the security camera locations, regularly monitor, and limit access to the screen and recordings. 3.7 We further recommend Mass Transit staff empty fare boxes frequently to ensure the automatic locking mechanism works. 4. Segregate incompatible duties 4.1 We recommend that Mass Transit management separate incompatible duties. One individual should not be in charge of all of the cash handling elements: physical custody of cash, depositing cash, recording/adjusting transactions in the system, and reconciling the revenue accounts. If duties cannot be sufficiently segregated, mitigating controls, such as independent monitoring could be implemented. 5. Implement monitoring and oversight 5.1 We recommend Mass Transit management perform ongoing monitoring of their internal control system as part of the normal course of operations. Ongoing monitoring includes regular management and supervisory activities, daily reconciliation of cash receipts, and other routine actions. 5.2 We further recommend Mass Transit management specifically implement ongoing monitoring procedures of the cash handling process including both comparisons and reconciliations. For example, someone independent of the cash handling process should review and/or reconcile: • The consecutiveness and completeness of manual cash receipts, paratransit coupons, taxi coupons, bus passes, and bus tickets (once pre - numbered) • Voided cash receipts • Revenue receipted and deposited to the general ledger • Outstanding accounts receivable balances from tickets, coupons and passes purchased with a purchase order • Bus trip sheets (ridership) to cash collected and deposited • Recorded over/shorts for patterns or irregularities • Recorded cash to check composition for irregularities Mass Transit Cash Handling Audit Recommendations 125 • Completeness of bus trip sheets to ensure all trip sheets and related cash receipts are received and deposited • Taxi reimbursements receipts and deposits 5.3 We further recommend Mass Transit management and staff monitor cash bags for patterns and inconsistencies (e.g., repeated over/shorts, inaccurate and incomplete trip sheets, cash bags with no trip sheets, cash bags with trip sheets and no cash, invalid ticket stubs). If Mass Transit discovers unexpected patterns and/or inconsistencies, they should follow up with the respective bus driver or person responsible for the cash. 5.4 We further recommend Mass Transit management conduct analytical procedures and financial relationship analysis to monitor controls, revenue, and budget expectations. One examples of an analytical procedure is comparing ridership counts to revenue (ridership x fare = revenue). 5.5 We further recommend that the Mass Transit conduct surprise cash counts at all cash handling locations. 6. Control manual cash receipts 6.1 We recommend Mass Transit staff use official pre -numbered and pre-printed receipts. If Mass Transit wants to continue the practice of printing in-house receipts, this file should be maintained by someone outside the cash handling system. As mentioned in recommendation 5.2, these receipts should be monitored for consecutiveness and completeness. 7. Improve purchase order sales process 7.1 We recommend Mass Transit management comply with Hawaii County Charter Section 13-13, which requires all contracts with private parties to perform any function or activity with the County to be authorized and approved by the mayor, corporation counsel, and the finance director. 7.2 We further recommend Mass Transit management require payment at the time of sale unless an official contract has been established and approved. If and when a contract is executed, terms should be complied with and enforced (e.g., discounts, interest rates, timely payment, reassignment of non -transferable coupons). 7.3 We further recommend Mass Transit management implement a process to ensure collection of all outstanding accounts receivable balances. Mass Transit Cash Handling Audit Recommendations 126 8. Update and enforce policies and procedures 8.1 We recommend Mass Transit management establish, clarify, and enforce internal controls in County policy and procedures to ensure consistency throughout the department and with industry best practices including but not limited to: • Timely independent review and monitoring procedures • Guidance and clarification on individual job duties to ensure adequate segregation of duties exists • Physical security procedures • Timely deposit of receipts • Endorsing checks immediately upon receipt • Consecutiveness of pre -numbered receipts, paratransit coupons, taxi coupons, bus passes, and bus tickets (once pre -numbered) • Timely recognition of revenue • Cash and check composition reconciliation • Recording and reconciliation of cash over/shorts • Fraud reporting guidance These policies should provide enough detail to describe how the procedures are intended to be performed, delineate authority and responsibility, and indicate which employees are to perform which procedures. 9. Provide training 9.1 We recommend Mass Transit management provide ongoing cash handling and internal controls training for all employees who handle revenue. 9.2 We further recommend Mass Transit provide ongoing training to bus drivers on ridership count and cash collection procedures. 10. Improve other cash handling internal controls and procedures 10.1 We recommend Mass Transit management required cash over/shorts and cash to check composition be consistently recognized on the treasury receipts. 10.2 We further recommend Mass Transit staff follow their policies regarding the selling of 15 coupons per week per customer or management should revise the policy to reflect actual practices. Mass Transit Cash Handling Audit Recommendations 127 10.3 We further recommend Mass Transit ensure that when an employee is absent from work, another employee performs their duties to allow for the potential of irregularities to surface. 10.4 We further recommend Mass Transit staff notate the actual deposit date (not the bank process date) on the treasury receipt. 10.5 We further recommend Mass Transit complete treasury receipts within two working days as required by the Department of Finance's policy. 10.6 We further recommend Mass Transit reconcile and record trip sheets timely. Mass Transit Cash Handling Audit Recommendations 128 Management's Response lwy f• Ha Kim c Maria Aranguix " u County of Hawai M ayur Adm in istratur Mass Transit Agency 23 Aupuni Slrcel • Hilo, HawsVi 96720 • (808) 9614343 Fax {808) %1-8745 April 26, 2018 Ms_ Bonnie S. Nims, CGRP Legislative Auditor Office of the Legislative Auditor County of Hawai'i 120 Pauahi Street, Suite 309 Hilo, HI 96720 Dear Ms. Nims: Subject: Audit Report: Cash Handling at County of Hawaii Mass Transit Agency The Mass Transit Agency (MTA) agrees that internal controls regarding the handling of cash within its agency can be improved. The MTA has already taken steps prior to the issuance of this report to strengthen its internal controls and additional changes are being considered based on the recommendations of the office of the Legislative Auditor (Legislative Auditor). This response was prepared with the help of the Department of Finance and we appreciate their support. The following are MTA's comments to the findings of the Legislative Auditor and changes that the MTA has made or will make concerning the recommendations: 1. Update the cash handling system 1.1 We recommend Mass Transit management equip each County bus and van with an updated electronic fare box to collect passenger fares and track ridership. Response: The MTA is currently assessing scope of proposed on -board technologies that could be implemented (as a scalable, modular approach), to effectively address fare revenue collection, passenger statistics. i.e. total ridership by rouse while being mindful of the financial constraints facing the entire County. 1.2 We further recommend Mass Transit pre -number bus tickets. As mentioned in recommendation 3.1 and 5.2 respectively, these tickets should be adequately secured and monitored for consecutiveness and completeness. Response: The MTA is exploring all viable options regarding this recommendation and the cost effectiveness of each option. Semng rite Interests aftAw People afOur Island Hau ai'l Counry is an Equal OPParrrmtr Prm ider and Etnplmrr Mass Transit Cash Handling Management's Response 129 1.3 We further recommend Mass Transit remove or alter the perforated stub at the top of the bus ticket sheets to ensure passengers pay the full fare. Response: The MTA is currently reviewing current practice, and identifying feasible options to minimize this issue. The MTA is also addressing this issue of minimizing the acceptance of non -valid payment with the contracted bus companies. 2. Cash handling internal controls should be a priority 2.1 We recommend Mass Transit management prioritize cash handling internal controls. Management should be responsible for an effective internal control system and internal controls increase the likelihood that the organization will achieve their objectives. Response: Although the MTA agrees that improvements are needed to strengthen its internal controls over the handling of cash, the management of MTA has implemented various improvements in the past year and a half because it understands the importance of this issue. The Legislative Auditor's report indicates that "Muss Transit received funding far an additional position to count hus fare cash receipts and prepare the hank deposit. While this positlon was filled in 2016 only one person was assigned to count cash. " MTA received funding for this position on July 1, 2016 and this position was filled on November 1, 2016. Later, the MTA began to require the presence of two staff members as the cash was counted and prepared for deposit and then effective February 7, 2018, the MTA now requires two employees to participate in the counting and recounting of the cash. 3. Safeguard Assets 3.1 We recommend Mass Transit management ensure physical security over manual receipts, cash, and cash equivalents (e.g., bus tickets, bus passes, taxi coupons). Response: The audit report states that "some county-om,ned vans do not have locking_ fare boxes. When there is no fiare box, a manila envelope or plastic hag is used. " All vans have locked cash boxes that have been redesigned to include a slot to allow for the insertion of payment. The MTA has already established adequate security upgrades and enhancements to address this issue, including secured rooms, video camera, and limited access. 3.2 We further recommend Mass Transit management ensure deposits are made timely, both for contracted bus services and cash received by Mass Transit. Ideally, deposits should be made within 24 hours, but at least within two business days. Response: The MTA has taken the necessary steps to ensure that cash deposits are made within the two business day requirement and implemented changes to facilitate the timely delivery of funds from the contracted bus service companies. Mass Transit Agency — Cash Handling Management's Response Page 2 Mass Transit Cash Receipts Management's Response 130 3.3 We further recommend Mass Transit staff restrictively endorse checks immediately upon receipt. Response: The MTA has directed staff to ensure compliance with recommended practice. 3.4 We further recommend Mass Transit management change lock or safe combinations once an employee who had access leaves the organization or is reassigned to another position. Response: The MTA is reviewing and updating all existing procedures, to ensure compliance with this and that similar recommendations are fully addressed. 3.5 We further recommend Mass Transit management implement a cash receipt log for all incoming revenue including bus fares from contracted bus service providers. Response. The MTA has already begun to implement various logs to track the receipt of monies from the contracted providers. 3.6 We further recommend Mass Transit management assess the security camera locations, regularly monitor, and limit access to the screen and recordings. Response: The MTA has already incorporated all practical measures to ensure compliance with this recommendation, i.e. limited access to authorized staff to the data room and screen and recordings. 3.7 We further recommend Mass Transit staff empty fare boxes frequently to ensure the automatic locking mechanism works. Response: Although the MTA acknowledges that improvements are needed regarding the frequency of the emptying of fare boxes, the audit report's statement that ..when the account Clerk is unavailable or absent from work no one empties the bus's./are boxes, sometime for several days" does not provide a correct portrayal of the situation. To the extent possible, other MTA staff members have always supported the Account Clerk when she is unable to empty the fare boxes. Additional changes have been made and alternative options are being considered to further the MTA's efforts. 4. Segregate incompatible duties 4.1 We recommend that Mass Transit management separate incompatible duties. One individual should not be in charge of all of the cash handling elements: physical custody of cash, depositing cash, recording/adjusting transactions in the system, and reconciling the revenue accounts. if duties cannot be sufficiently segregated, mitigating controls, such as independent monitoring could be implemented. Mass Transit Agency — Cash Handling Management's Response Page 3 Mass Transit Cash Receipts Management's Response 131 Response: The audit report cites specific concerns with the duties of the County Transportation Specialist (Specialist). The report states that the Specialist "maintains the master Word document far some in-house receipts" but this is limited to receipts used by the independent contractor that sells MTA tickets and passes for which the cash receipts are maintained by the contractor on a daily basis. The report states that the Specialist performs aver -the -counter safes " but this is only done as a last resort if no other staff is available to service the customer, which is due to the relatively small staff size of the MTA. The report states that the Specialist "reviews end -of -dory tush receipts and reconciles lu the treasury receipt " but her role is primarily as a secondary reviewer because the initial review and reconciling of receipts at the end of the day is the responsibility of the Account Clerk. If the MTA finds that it is short-staffed on a particular day, the Specialist may be the initial reviewer but there is always a secondary reviewer as a mitigating control. S. Implement monitoring and oversight 5.1 We recommend Mass Transit management perforin ongoing monitoring of their internal control system as part of the normal course of operations. Ongoing monitoring. includes regular management and supervisory activities, daily reconciliation of cash receipts, and other routine actions. Response: The MTA has begun to review and revise its existing practices and implement improvements based on need and viability. 5.2 We further recommend Mass Transit management specifically implement ongoing monitoring procedures of the cash handling process including both comparisons and reconciliations. For example, someone independent of the cash handling process should review and/or reconcile: o the consecutiveness and completeness of manual cash receipts, paratransit coupons, taxi coupons. bus passes, and bus tickets (once pre -numbered) o voided cash receipts o revenue receipted and deposited to the general ledger o outstanding accounts receivable balances from tickets, coupons and passes purchased with a purchase order o bus trip sheets (ridership) to cash collected and deposited o recorded over/shorts for patterns or irregularities o recorded cash to check composition for irregularities o completeness of bus trip sheets to ensure all trip sheets and related cash receipts are received and deposited a taxi reimbursements receipts and deposits Response: Certain points above are already being addressed by the MTA including monitoring over/shorts and the trip sheets and others are being considered by the MTA in relation to the feasibility of implementation. Mass Transit Agency— Cash Handling Management's Response Page 4 Mass Transit Cash Receipts Management's Response 132 5.3 We further recommend Mass Transit management and staff monitor cash bags for patterns and inconsistencies (e.g., repeated over/shorts, inaccurate and incomplete trip sheets, cash bags with no trip sheets, cash bags with trip sheets and no cash, invalid ticket stubs). If Mass Transit discovers unexpected patterns and/or inconsistencies, they should follow up with the respective bus driver or person responsible for the cash. Response: With the hiring of the Account Clerk in 2016, procedures were developed regarding the monitoring of the trip sheets and over/shorts. Although improvements were needed regarding the adherence to these procedures, the MTA has implemented revised and stronger procedures. 5.4 We further recommend Mass Transit management conduct analytical procedures and financial relationship analysis to monitor controls, revenue, and budget expectations. One example of an analytical procedure is comparing ridership counts to revenue (ridership x fare = revenue). Response. The MTA will include additional analytical procedures and financial analysis in its review procedures. 5.5 We further recommend that the Mass Transit conduct surprise cash counts at all cash handling locations. Response: The MTA will work to implement this recommendation. 6. Control manual cash receipts 6.1 We recommend Mass Transit staff use official pre -numbered and pre-printed receipts. If Mass Transit wants to continue the practice of printing in-house receipts, this file should be maintained by someone outside the cash handling system. As mentioned in recommendation 5.2, these receipts should be monitored for consecutiveness and completeness. Response: The MTA has begun to research the cost of pre -numbered and pre-printed receipts. 7. Improve purchase order sales process 7.1 We recommend that Mass Transit management comply with Hawaii County Charter Section 13-13, which requires all contracts with private parties to perform any function or activity with the County to be authorized and approved by the mayor, corporation counsel, and the finance director. Response: The MTA has temporarily halted such sales in question until procedures are developed with the support of the Office of the Corporation Counsel and the Department of Finance. Mass Transit Agency — Cash Handling Management's Response Page 5 Mass Transit Cash Receipts Management's Response 133 7.2 We further recommend Mass Transit management require payment at the time of sale unless an official contract has been established and approved. If and when a contract is executed, terms should be complied with and enforced (e.g., discounts, interest rates, timely payment, reassignment of non -transferable coupons). Response: The MTA has temporarily halted the acceptance of purchase orders and sales to non -individuals and is working with both the Office of the Corporation Counsel and the Department of Finance to ensure compliance. Also, the audit report states that "One vendor brings Mass Transit a check when they require tax! coupons. The vendor then sends a Fax requesting the amount of Coupons needed and the amount is deducted from the balance gfthe payment received At least once, the balance was negative with the vendor owing the County more money than the paid. " However, when the vendor came to the MTA office to pick up their coupons, they brought a check for payment at that time to exchange for the coupons so at no time did they owe the County more money. 7.3 We further recommend Mass Transit management implement a process to ensure collection of all outstanding accounts receivable balances. Response: The MTA staff reviews the balances of all vendors on a weekly basis. To put things in perspective, the average total monthly accounts receivable for sales on account for the past five months is approximately $11,000, with a high of $21,000. 8. Update and enforce policies and procedures 8.1 We recommend Mass Transit management establish, clarify, and enforce internal controls in County policies and procedures to ensure consistency throughout the department and with industry best practices including but not limited to: o Timely independent review and monitoring procedures ❑ Guidance and clarification on individual job duties to ensure adequate segregation of duties exists o Physical security procedures o Timely deposit of receipts ❑ Endorsing checks immediately upon receipt o Consecutiveness of pre -numbered receipts, paratransit coupons, taxi coupons, bus passes, and bus tickets (once pre -numbered) o Timely recognition of revenue o Cash and check composition reconciliation o Recording and reconciliation of cash over/shorts o Fraud reporting guidance Response: Although the MTA acknowledges that its internal controls could be improved, it has already begun to revise the procedures followed by its staff as explained in the responses to the other similar recommendations. The MTA will continue to assess its current policies and make the necessary changes. Mass Transit Agency — Cash Handling Management's Response Page 5 Mass Transit Cash Receipts Management's Response 134 9. Provide training 9.1 We recommend Mass Transit management provide ongoing cash handling and internal controls training for all employees who handle revenue. Response: The MTA has requested and received training from the Department of Finance and it will work to identify any additional areas for improvement. 9.2 We further recommend Mass Transit provide ongoing training to bus drivers on ridership count and cash collection procedures. Response: The MTA will work to implement this recommendation and have begun to discuss the possibility of streamlining the information collected and forms used. 10. Improve other cash handling internal controls and procedures 10.1 We recommend Mass Transit management require cash over/shorts and cash to check composition to be consistently recognized on the treasury receipts. Response: The MTA will weigh the impact of these recommendations on the overall internal control processes but the cash over/shorts are being monitored on a designated spreadsheet where it is easier to identify trends and problems. 14.2 We further recommend Mass Transit staff follow their policies regarding the selling of 15 coupons per week per customer or management should revise the policy to reflect actual practices. Response: The MTA will review its policies regarding this matter. 10.3 We further recommend Mass Transit ensure that when an employee is absent from work, another employee performs their duties to allow for the potential of irregularities to surface. Response: To the extent possible, the MTA now requires other staff to perform these duties when employees are out. 10.4 We further recommend Mass Transit staff notate the actual deposit date (not the bank process date) on the treasury receipt. Response: The MTA has already begun to input the actual deposit date at the top of the treasury receipt and notate the bank process date within the body of the receipt. 10.5 We further recommend Mass Transit complete treasury receipts within two working days as required by the Department of Finance's policy. Response: The MTA will continue to work on ensuring that it complies with this requirement. Mass Transit Agency — Cash Handling Management's Response Page 7 Mass Transit Cash Receipts Management's Response 135 10.6 We further recommend Mass Transit reconcile and record trip sheets timely. Response: With the hiring of the Account Clerk in 2016, procedures were developed regarding the monitoring of the trip sheets and over/shorts. Although improvements were needed regarding the adherence to these procedures, the MTA has implemented revised and stronger procedures. In summary, the Mass Transit Agency will continue to review its internal controls and make adjustments to its procedures, processes and policies as necessary. Mass Transit Agency—Cash Handling Respectfully, Maria " ole" Aranguiz Mass Transit Administrator Management's Response Page 8 Mass Transit Cash Receipts Management's Response 136 Appendix A: Audit Criteria Hawaii Revised Statute, Title 5, Section 40-2 requires each county to establish and maintain its own internal control system: §40.2 Accounting systems and internal control; enforcing the use of and inspection of the same... (c) The judiciary, the legislature, and each county shall be responsible for the establishment and maintenance of its respective internal control system. The Hawaii County Charter, Article XIII, Section 13-13 describes contract requirements: Section 13-13. Contracts. The county may enter into contracts with private parties, other counties, the State or the United States for the performance of any function or activity which the county is authorized to perform. All written contracts to which the county is a party shall: (a) Be approved by the corporation counsel as to form and legality. (b) Be authorized by the council by resolution if legislative action is necessary to implement the contract. (c) Except as otherwise provided, be signed by the mayor. (d) Be approved by the director of finance as to the availability of funds in the amounts and for the purposes set forth therein if they involve financial obligations of the county. Such contracts shall not extend beyond the term for which an appropriation to finance such obligations has been made, except as otherwise provided by this charter. This provision shall not apply to obligations for the procurement of utility services. Hawaii County Code, as amended sets the fare rates: Section 18-90. Fares. (a) Unless otherwise provided for in this section, every person using the mass transit service owned, maintained or operated by the County shall be charged a $2 cash one-way fare. (b) Discounted fares for senior citizens, person with a disability and students. The following persons shall be charged a $1 cash one-way fare: (1) Senior citizens age sixty and older after providing proof of age from a valid state ID card, County of Hawaii senior ID card, driver's license, birth certificate or passport; Mass Transit Cash Handling Audit Criteria 137 (2) A person with a disability with a valid, "Person With Disability Identification Card" issued by the County of Hawaii; and (3) Students (through college) with a valid school identification card. (c) Fare prepayment discounts. (1) All tickets for travel can be prepurchased at a discount of twenty-five percent off the scheduled cash fare by purchasing a sheet of ten tickets for $15 per sheet with no expiration date ("Ten Ride Discount Sheet"). (2) Senior citizens age sixty and older may prepurchase a sheet of ten tickets for $7.50 per sheet with no expiration date ("Ten Ride Discount Sheet"), after providing proof of age from a valid state ID card, County of Hawaii senior ID card, driver's license, birth certificate or passport. (3) A person with a disability may prepurchase a sheet of ten tickets for $7.50 per sheet with no expiration date ("Ten Ride Discount Sheet"), with a valid, "Person With Disability Identification Card" issued by the County of Hawaii. (4) Students (through college) may prepurchase a sheet of ten tickets for $7.50 per sheet with no expiration date ("Ten Ride Discount Sheet"), with a valid school identification card. (5) A monthly bus pass fare plan may be purchased at a cost of $60 for unlimited rides on all routes. Monthly passes shall be valid through the last calendar day of each month with no grace period. (6) Senior Citizens age sixty and older may purchase a discounted monthly bus pass offered at a cost of $45 for unlimited rides on all routes, after providing proof of age from a valid state ID card, County of Hawaii senior ID card, driver's license, birth certificate or passport. Monthly passes shall be valid through the last calendar day of each month with no grace period. (7) A person with a disability may purchase a discounted monthly bus pass offered at a cost of $45 for unlimited rides on all routes, with a valid, "Person with Disability Identification Card" issued by the County of Hawaii Monthly passes shall be valid through the last calendar day of each month with no grace period. (8) Students (through college) may purchase a discounted monthly bus pass offered at a cost of $45 for unlimited rides on all routes, after providing a valid school identification card. Monthly passes shall be valid through the last calendar day of each month with no grace period. (9) The Ten Ride Discount Sheet, the monthly pass, and any pilot program pass must be purchased directly from the mass transit agency or its designated representative. (d) Fare waived for children under the age of five. All fares for travel by children under the age of five shall be waived. (e) Paratransit service fares. Under the Americans with Disabilities Act (ADA), the fare for a trip charged to an ADA paratransit eligible user of the complementary paratransit service shall not exceed twice the fare that would be charged to an individual paying full fare (i.e., without regard to discounts) for a trip of similar length, at a similar time of day, on the entity's fixed route system: Mass Transit Cash Handling Audit Criteria 138 (1) A one-way paratransit rider fare shall be twice the fare of the current full fare (e.g. without any discounts) on the fixed -route system; (2) The fares for individuals accompanying ADA paratransit eligible individuals, who are provided service under section 37.123 (f) of the ADA, shall be the same as for the ADA paratransit eligible individuals they are accompanying; and (3) A personal care attendant shall not be charged for complementary paratransit service. (f) Shared -ride fares. Shared -ride program coupons may be purchased by the public through the mass transit agency and its designated coupon sales outlets in accordance with the following schedule: Coupon Price Single coupon $6 5 coupon book $15 ($3 per coupon) 10 coupon book $25 ($2.50 per coupon) 15 coupon book $30 ($2 per coupon) For one-way travel limited to a maximum of nine miles under the shared -ride program the fare to be collected is set out in fare schedule A in section 18-92. (g) Promotional fares. (1) The purpose of this subsection is to provide lower bus fares when a new route or service is provided or to boost ridership on established routes. (2) The transit administrator may establish fares on a temporary basis for a period not to exceed one hundred and eighty calendar days for bus routes and services. Section 18-91. Baggage. A driver of any mass transit bus owned, maintained and operated by the County shall charge $1 for each piece of baggage, including large backpacks, except that any small bag such as a train case, handbag, briefcase, or a package that can be carried on the lap of the passenger and within the passenger's respective seat shall be conveyed without charge. Section 18-92. Fare schedules. FARE SCHEDULE A Shared -Ride Fares One -Way Mileage No. of Coupons (Per Person) 0 — 4.0 miles 1 coupon 4.1 — 9.0 miles 2 coupons Rates are maximum charge per zone. Shared -ride carriers may charge less at their discretion. Mass Transit Cash Handling Audit Criteria 139 County of Hawaii Department of Finance, Accounting Manual Part I (June 7, 1999) requires departments and agencies to maintain internal controls: General This section charges departments and agencies with the responsibility to maintain an adequate system of internal controls and with the further responsibility to see that the internal control continues to function effectively as designed... Internal Control 1. Objective. The objective of internal control is to provide reasonable assurances as to the safeguarding of assets against loss from unauthorized use or disposition and as to the reliability of financial reports for preparing financial statements and maintaining accountability for assets... Required Features. Any system of internal control should include, as a minimum, the following elements: 1. Systems of authorizations, approvals, and recording procedures adequate to provide reasonable accounting control over assets, liabilities, revenues, and expenditures. 2. Separation of duties concerned with record keeping and accounting reports from those concerned with operations or asset custody. 3. Physical controls over assets. 4. Personnel whose qualifications are commensurate with their responsibilities and duties. 5. Continuing internal review by management to determine: a. Prescribed policies, rules and regulations are being carried out. b. Changes in operations have not made the procedures inefficient or obsolete. c. Effective corrective measures are being taken promptly when deficiencies are discovered. County of Hawaii Department of Finance, Memorandum 17-06 (May 31, 2017) reminds departments that cash and treasury receipts are required within two working days: ... Please take time now to catch up on delinquent deposits and delinquent treasury receipts. As a reminder all cash is to be deposited within two working days. For those of you using night deposit boxes or who have payments automatically deposited into the County's bank account, your treasury receipts are also required within two working days ... Mass Transit's Cash Handling Procedures (November 1, 2016) states: 1. All office staff will be assigned individual cash boxes, each with a $30.00 kitty for the sale of bus passes, bus tickets, shared ride taxi coupons, paratransit coupons and items pertaining to licensed taxi companies, or any other items with a cash value. Cash Mass Transit Cash Handling Audit Criteria 140 boxes are not to be accessible by anyone else but to whom it was assigned and each staff member will be responsible for the cash/checks in their cash box. To reduce the risk of error, all cash should be separated according to the denomination, and should face the same direction. Checks should be kept together. 2. All office staff are to keep cash box closed and secured while not in active use and will be kept in the area designated and approved by the Administrator. Cash boxes are not to be left unattended and will be locked in the individual staff member's designated area when away from the office. That staff member and the Administrator will be the holders of keys/combination to the office staff's designated locked area. 3. Each staff member is to complete a cash receipt form (written legibly including initials) for all items sold. A cash receipt shall also be completed for RETURNED CHECKS (include item that was sold plus $20.00 return check fee). Be specific that the payment is for a returned check. Refer to the return check binder. The original receipt will be given to the purchaser and the carbon copy will be kept in the receipt book. The return check collection shall be submitted to the Account Clerk in the "return check" envelope provided, after it is collected. Do no submit at the end of the day.* 4. Each staff member is to complete a cash receipt form (written legibly including initials) for all Taxi license business (renewals, decals, application fees, & Section 18). Included on the receipt shall be the item(s) cash is collected for and the taxicab license number as well as the CH number when applicable. The original receipt will be given to the purchaser and the carbon copy will be kept in the receipt book. 5. When accepting cash and coin payments, staff member shall recount in front of the customer to confirm the amount received from the customer. If change is given back to the customer, the change should be counted back to the customer, to avoid errors. 6. When accepting check payments, staff member shall ensure the check is completed accurately and accordingly, ensuring a phone number is received. Do not accept a post-dated check. (note if the name on the check if different from whom the purchase is for, please note on the receipt form — i.e. jane doe purchased by john doe) 7. Completed pages of carbon copies of the receipts shall be fastened immediately to the recorded receipt file to avoid misplaced pages or receipts being out of sequence. 8. No refunds or exchanges are allowed unless authorized by the Administrator. 9. The Transportation Specialist must approve of all voided cash receipts. The original receipt is to be stapled to the carbon copy in the receipt book with a brief explanation written by the office staff who voided the cash receipt and "Void" shall Mass Transit Cash Handling Audit Criteria 141 be written on both the original and the copy. The Transportation Specialist will approve the explanation and initial the voided receipt.*** 10. Any changes to the carbon copy of the receipt after the original has been given to the customer must be approved by the Transportation Specialist who will initial the area that the changes were made.*** 11. Each staff member shall calculate the sum of their daily sales using an adding machine and legibly initialing the tape. Tape shall be attached and secured with a paper clip along with all cash and check payments received and submitted to the Account Clerk by 4:00 pm each work day.* 12. The Account Clerk shall reconcile all office staffs sales with cash/checks received and verify the sales with the receipt book.* 13. The Account Clerk shall complete a County Treasury Deposit Sheet for all the day's sales.* 14. The Transportation Specialist shall verify the Account Clerk's sales with cash/checks received and verify the sales with the receipt book.** 15. The Transportation Specialist shall verify all deposit information on the County Treasury Deposit Sheets before it is submitted to the County Treasury on the following work day.** 16. At the close of business, sales deposits and staff cash boxes shall be locked in the lost and found cabinet in the back conference room by the Transportation Specialist. *** The Administrator, Transportation Specialist, and Operations Assistant will hold keys for these areas. 17. The door to the office conference room and all office entrances shall be locked at end of day. The Administrator, Transportation Specialist, and Operations Assistant will hold of keys for these areas. (Paratransit Specialist has keys to the main office). As a team, everyone should ensure that the office is secured at the end of the day. 18. The Clerk 11 (Transit Assistant in absence of the Clerk 11) shall submit the sales deposit from the prior work day to the County Treasury office each work day (deposits must be made within 2 business days) and turn in the treasury receipts to the Transportation Specialist to verify before giving to the Account Clerk to file. 19. Any discrepancies at the County Treasury office shall be returned to the transit office. The Administrator, Transportation Specialist and the Account Clerk shall be informed by the Clerk II (Transit Assistant in absence of the Clerk 11). Mass Transit Cash Handling Audit Criteria 142 20. The Operations Assistant shall print out the cash receipts for the sale of bus passes, bus tickets, shared ride taxi coupons and paratransit coupons (when applicable). 21. The Transportation Specialist shall print the cash receipts for items pertaining to licensed taxi companies. 22. The Account Clerk shall print the cash receipts for the Hilo Information Center. The Transit Administrator will be assigned this duty when the Account Clerk is not available. ** The Operations Assistant will be assigned this duty when the Transportation Specialist is not available. 'The Account Clerk will be assigned this duty when the Transportation Specialist is not available. MASS TRANSIT OFFICE CASH HANDLING PROCEDURES Acknowledgment I have received and acknowledge reading the Mass Transit Office Cash Handling Procedures. Signature Date United States Government Accountability Office (GAO), Standards for Internal Control in the Federal Government ("Green Book") describes the importance of the control environment: Overview The control environment is the foundation for an internal control system. It provides the discipline and structure, which affect the overall quality of internal control. It influences how objectives are defined and how control activities are structured. The oversight body and management establish and maintain an environment throughout the entity that sets a positive attitude toward internal control. Principles Mass Transit Cash Handling Audit Criteria 143 1. The oversight body and management should demonstrate a commitment to integrity and ethical values. 2. The oversight body should oversee the entity's internal control system. 3. Management should establish an organizational structure, assign responsibility, and delegate authority to achieve the entity's objectives. 4. Management should demonstrate a commitment to recruit, develop, and retain competent individuals. S. Management should evaluate performance and hold individuals accountable for their internal control responsibilities... 1.05 Tone at the top can be either a driver, as shown in the preceding paragraphs, or a barrier to internal control. Without a strong tone at the top to support an internal control system, the entity's risk identification may be incomplete, risk responses may be inappropriate, control activities may not be appropriately designed or implemented, information and communication may falter, and results of monitoring may not be understood or acted upon to remediate deficiencies. The Green Book describes the appropriate types of control activities that management should design: 10.03... Physical control over vulnerable assets Management establishes physical control to secure and safeguard vulnerable assets. Examples include security for and limited access to assets such as cash, securities, inventories, and equipment that might be vulnerable to risk of loss or unauthorized use. Management periodically counts and compares such assets to control records... The Green Book states that Management should implement control activities through policies: Principle 12 — Implementing Control Activities 12.01 Management should implement control activities through policies. Attributes The following attributes contribute to the design, implementation, and operating effectiveness of this principle: • Documentation of Responsibilities through Policies • Periodic Review of Control Activities 12.02 Management documents in policies the internal control responsibilities of the organization. 12.03 Management documents in policies for each unit its responsibility for an operational process's objectives and related risks, and control activity design, Mass Transit Cash Handling Audit Criteria 144 implementation, and operating effectiveness. Each unit, with guidance from management, determines the policies necessary to operate the process based on the objectives and related risks for the operational process. Each unit also documents policies in the appropriate level of detail to allow management to effectively monitor the control activity. 12.04 Those in key roles for the unit may further define policies through day-to-day procedures, depending on the rate of change in the operating environment and complexity of the operational process. Procedures may include the timing of when a control activity occurs and any follow-up corrective actions to be performed by competent personnel if deficiencies are identified. Management communicates to personnel the policies and procedures so that personnel can implement the control activities for their assigned responsibilities. 12.05 Management periodically reviews policies, procedures, and related control activities for continued relevance and effectiveness in achieving the entity's objectives or addressing related risks. If there is a significant change in an entity's process, management reviews this process in a timely manner after the change to determine that the control activities are designed and implemented appropriately. Changes may occur in personnel, operational processes, or information technology. Regulators; legislators; and in the federal environment, the Office of Management and Budget and the Department of the Treasury may also change either an entity's objectives or how an entity is to achieve an objective. Management considers these changes in its periodic review. The Green Book also describes the monitoring internal control and remediation of internal control deficiencies component: Overview Finally, since internal control is a dynamic process that has to be adapted continually to the risks and changes an entity faces, monitoring of the internal control system is essential in helping internal control remain aligned with changing objectives, environment, laws, resources, and risks. Internal control monitoring assesses the quality of performance over time and promptly resolves the findings of audits and other reviews. Corrective actions are a necessary complement to control activities in order to achieve objectives... Principle 16 — Perform Monitoring Activities 16.01 Management should establish and operate monitoring activities to monitor the internal control system and evaluate the results... Mass Transit Cash Handling Audit Criteria 145 Internal Control System Monitoring 16.04 Management monitors the internal control system through ongoing monitoring and separate evaluations. Ongoing monitoring is built into the entity's operations, performed continually, and responsive to change. Separate evaluations are used periodically and may provide feedback on the effectiveness of ongoing monitoring. 16.05 Management performs ongoing monitoring of the design and operating effectiveness of the internal control system as part of the normal course of operations. Ongoing monitoring includes regular management and supervisory activities, comparisons, reconciliations, and other routine actions. Ongoing monitoring may include automated tools, which can increase objectivity and efficiency by electronically compiling evaluations of controls and transactions. 16.08 Management retains responsibility for monitoring the effectiveness of internal control over the assigned processes performed by service organizations. Management uses ongoing monitoring, separate evaluations, or a combination of the two to obtain reasonable assurance of the operating effectiveness of the service organization's internal controls over the assigned process. Monitoring activities related to service organizations may include the use of work performed by external parties, such as service auditors, and reviewed by management... Principle 17 — Evaluate Issues and Remediate Deficiencies 17.01 Management should remediate identified internal control deficiencies on a timely basis... Evaluation of Issues 17.05 Management evaluates and documents internal control issues and determines appropriate corrective actions for internal control deficiencies on a timely basis. Management evaluates issues identified through monitoring activities or reported by personnel to determine whether any of the issues rise to the level of an internal control deficiency. Internal control deficiencies require further evaluation and remediation by management. An internal control deficiency can be in the design, implementation, or operating effectiveness of the internal control and its related process. Management determines from the type of internal control deficiency the appropriate corrective actions to remediate the internal control deficiency on a timely basis. Management assigns responsibility and delegates authority to remediate the internal control deficiency. Corrective Actions 17.06 Management completes and documents corrective actions to remediate internal control deficiencies on a timely basis. These corrective actions include resolution of audit findings. Depending on the nature of the deficiency, either the oversight body or management oversees the prompt remediation of deficiencies by communicating the corrective actions to the appropriate level of the organizational structure and delegating Mass Transit Cash Handling Audit Criteria 146 authority for completing corrective actions to appropriate personnel. The audit resolution process begins when audit or other review results are reported to management, and is completed only after action has been taken that (1) corrects identified deficiencies, (2) produces improvements, or (3) demonstrates that the findings and recommendations do not warrant management action. Management, with oversight from the oversight body, monitors the status of remediation efforts so that they are completed on a timely basis. Government Finance Officers Association (GFOA) provides best practices for documenting accounting policies and procedures: Communication is an essential component of a comprehensive framework of internal controls. One method of communication that is particularly effective for controls over accounting and financial reporting is the formal documentation of accounting policies and procedures. A well-designed and properly maintained system of documenting accounting policies and procedures enhances both accountability and consistency. The resulting documentation can also serve as a useful training tool for staff. Recommendation: Every government should document its accounting policies and procedures. Traditionally, such documentation has taken the form of an accounting policies and procedures manual. Thanks to advances in technology, even more effective methods are now also available for this purpose. An appropriate level of management to emphasize their importance and authority should promulgate accounting policies and procedures. The documentation of accounting policies and procedures should be evaluated annually and updated periodically, no less than once every three years, according to a predetermined schedule. Changes in policies and procedures that occur between these periodic reviews should be updated in the documentation promptly as they occur. A specific employee should be assigned the duty of overseeing this process. Management is responsible for ensuring that this duty is performed consistently. The documentation of accounting policies and procedures should be readily available to all employees who need it. It should delineate the authority and responsibility of all employees, especially the authority to authorize transactions and the responsibility for the safekeeping of assets and records. Likewise, the documentation of accounting policies and procedures should indicate which employees are to perform which procedures. Procedures should be described as they are actually intended to be performed rather than in some idealized form. Also, the documentation of accounting policies and procedures should explain the design and purpose of control related procedures to increase employee understanding of and support for controls. Mass Transit Cash Handling Audit Criteria 147 Government Finance Officers Association (GFOA) recommends governments establish a revenue control and management policy and review it on an annual basis. This policy should be customized for the size and resources of the government: The following factors should be considered in developing a general revenue control and management policy: ■ Internal controls - Management should establish controls, and ensure they are documented and followed. All aspects of cash receipting and accounts receivables should be subject to proper internal controls including: • Segregation of duties such as initiation and authorization of transactions, execution of transactions (receipting and disbursement), recording transactions, reconcilement, and maintaining custody. • Daily processing and timely deposit of receipts. Ideally, all funds should be deposited within 24 hours of receipt. • Timely reconciliation to applicable ledgers. • Physical security procedures. This is especially important for funds not deposited day of receipt. • Fraud reporting procedures. • Use of integrated receipt and accounting systems wherever practical and cost-effective. ■ Accounting practices — All receipts and receivables should be recorded in accordance with generally accepted accounting principles (GAAP). ■ Billing and collection practices - Accounts receivable should be established for services provided in advance of payment and terms for collection should be established. In accordance with established procedures, bills should be initiated, recorded in an accounts receivable system, and generated within an established timely manner after initial service delivery. Effort should be made to ensure that receivables are collected in a timely fashion. A policy should be established to provide for `write-offs' of accounts receivable, including timeframe, dollar thresholds and decision-making authority. ■ Methods of payment — A policy outlining the acceptable methods of payment for the governments should be established. This policy should include the method of access (as well as method of payment) while promoting electronic methods of access and payment when feasible and cost-effective to reduce overall risk and increase cash flow. Depositing of received funds - Treasury management should serve as the primary recipient for all revenue collection sites. There should be timely recognition and depositing of revenue collected. Smaller governments that do not have a formal treasury function are encouraged to establish a formal single point of receipt or cashier function to control access to received funds. Mass Transit Cash Handling Audit Criteria 148 ■ Due to the special nature of funds received from grants, developers, partners and other entities, governments should consider whether separate procedures should be established for recording and depositing these funds. ■ Returned checks — Procedures for processing and collection of returned checks should be established, including the assessment of fees to offset the costs associated with the returned items. ■ Accounts receivable management — All accounts receivable should be recorded in a manner that allows for aging analysis. After reviewing available collection options, governments should establish procedures that maximize collections. Collection agencies that are familiar with federal, state, and local notice requirements and regulations should be considered when their use proves cost- effective. • Bad Debts — An allowance for doubtful accounts and a write-off policy should be established. Bad debt expense should be estimated based upon a documented method of calculation. An allowance for doubtful accounts should be recorded. Write-offs should be performed periodically to ensure that accounts receivable and allowance balances are not overstated. Efforts should be made to pursue the timely collection of delinquent accounts. Budgetary review responsibilities — Revenue collections and accounts receivable should be monitored in a timely manner. Both actual and budgeted or forecast revenues should be monitored. Any significant variance of actual from the forecast or budgeted revenues should be investigated thoroughly. ■ Compliance - Governments should ensure their revenue control and management policy and procedures are in full compliance with any federal, state, local or other applicable laws, or requirements. The Committee of Sponsoring Organizations (COSO) provides an integrated internal control framework and guidance that consists of five interrelated components, which are control environment, risk assessment, control activities, information and communication, and monitoring. Component No. 3 Control Activities Control activities are the policies and procedures that help ensure managements directives are carried out. They help ensure that necessary actions are taken to address risks to the achievement of organizational objectives. Control activities occur throughout the organization at all levels and in all functions. They include a range of activities as diverse as approvals; authorizations; verifications; reconciliations; reviews of operating performance; security of assets; and segregation of duties. Mass Transit Cash Handling Audit Criteria 149 Component No. 5 Monitoring Internal control systems need to be monitored - a process that assesses the quality of system performance over time. This is accomplished through ongoing monitoring activities, separate evaluations, or a combination of the two. Ongoing monitoring occurs during the course of operations, and includes regular management and supervisory activities as well as other employee activities. The scope and frequency of separate evaluations will depend primarily on an assessment of risks and the effectiveness of ongoing procedures. Internal controls deficiencies should be reported upstream, with serious matters reported to top management and governmental leaders. Mass Transit Cash Handling Audit Criteria 150