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HomeMy WebLinkAboutCOM 0976.000 2016-2018 Valerie T.Poindexter sY of k Bonnie S.Nims,CGAP Chair&Presiding Officer Legislative Auditor Council District 1 : z „+ ? Business Address 'Pr• "w►VA: P`` 120 Pauahi Street Suite 309 Hilo,Hawaii 96720 Count OFFICE OF THE LEGISLATIVE AUDITOR 25 Aupuni Street Hilo,Hawai`i 96720 * (808)961-8386 * Fax(808)961-8905 website:http://hawaiicountv.gov e-mail:publiclaoghawaiicounty.gov 161 June 26, 2018 oc, 4 Ca --'4t Honorable Valerie T. Poindexter, Council Chairwoman and —4 Members of the Hawaii County Council a"‹ Hawaii County Council =r' vac 25 Aupuni Street *vo Hilo, Hawaii 96720 ©. T'x Re: Follow-Up Audit Report Dear Chairwoman Poindexter and Council Members: In keeping with generally accepted government auditing standards and the Hawaii County Charter Section 3-18(d)(3), the Office of the Legislative Auditor has a responsibility to monitor and follow-up on audit recommendations to ensure that audit findings are being addressed through appropriate corrective action and to aid us in planning future audits. This report is to inform you that we have completed our follow-up effort for the audit of the County of Hawai'i's Purchasing Card (pCard) Program (Report No. 2015-01) dated July 17, 2015. Our review determined that County management, including the Department of Finance and the Hawaii County Council, has adequately implemented all six of our audit recommendations. We commend County Management and the Department of Finance for their continued efforts to improve pCard Program efficiency and oversight. For your reference, this report includes a highlights page that provides background and summary information on the original audit and the completed follow-up effort. Following the highlights page is a detailed implementation status update for each recommendation. This concludes audit follow-up work related to this audit. We sincerely thank the Department of Finance, Office of Management, Department of Liquor Control, and all other departments reviewed for their assistance, cooperation, and prompt feedback during the follow-up review process. If you have any questions or concerns about the Comm. No. _CI CD Ref. To: pc, Hawai`i County is an Equal Opportunity Provider and Employer JUN 2 7 2 0 Ref. Date status of recommendations discussed in this report please feel free to contact me at 961-8386. This follow-up report and the 2015 pCard Performance Audit Report are available.on the Office of the Legislative Auditor's web page at . http://www.hawaiicounty.gov/legislative-auditor/. Respectfully, / 401110 .► L 4. :onnie S. Nims, CGAP Legislative Auditor cc. Harry Kim, Mayor Wil Okabe, Managing Director Deanna Sako, Finance Director Stewart Maeda, County Clerk County of HawaiTs Purchasing Card Program June 26, 2018 Report Highlights Follow-up County of Review: Hawai`i's Purchasing Card Program June 26, 2018 Hiqhliqhts from Oriqinal Auc The County of Hawai"i Department of The County of Hawai`i's pCard program includes Finance and the Hawai"i County Council several industry best practices. This design has has implemented all six recommendations resulted in the program generally being used made in our July 2015 audit report. appropriately. The majority of the departments we reviewed clearly demonstrated the legitimate department purpose of the pCard transactions and the Background benefit to the County and taxpayers. In 2001, the State of Hawai`i's State Procurement Office established the Purchasing Card Program (pCard program) to improve efficiency, flexibility, and convenience when buying goods and services. The County of Hawaii adopted the State's program in 2003 and it is administered by the County's Department of Finance and coordinated with the State Procurement Office. Both state and county policies limit types of purchases paid with a pCard. Purpose The purpose of the audit was to evaluate if the program's internal controls were adequate to reduce the risk of fraud and misuse of purchase cards and to identify potential areas for improvement. The audit also looked at pCard transactions to see if they were in compliance with county and state laws and regulations, County policies, and industry best practice. However, our audit did identify 164 transactions totaling $29,961.41 that did not follow County policy, had a questionable public purpose, and may have violated state law. Furthermore, some transactions were not reimbursed timely. Gaps in existing policy and procedures should be addressed and program oversight could be improved to help prevent and detect any future inappropriate transactions. We identified six recommendations for management to increase internal controls for County -issued purchasing cards: • Updating the County Code; • Treating all employees and departments fairly and equitably; • Updating pCard Policy and Procedures; • Strengthening monitoring practices to ensure expenditures are for a legitimate department purpose and demonstrate a clear benefit to the County and taxpayers; • Providing on-going training to departments; and • Using available technology from the card issuer to improve monitoring practices. Recommendations: Status of Implementation Clarify County Code We recommend that the Hawai"i County Council consider revising the language of the County Code, Article 16, Section 2-98. Adjustments and exceptions, to clarify that authorized exceptions for travel and other expenses are still required to follow state law requiring public funds to be used for a public purpose. Fair and Equitable Treatment We recommend that County Management, including the Department of Finance comply with County Code Article 15, Section 2-83 and treat all employees and departments in a fair and equitable manner and to hold them consistently to the same laws, policies, and procedures. r 91 itatus, The Hawai"i County Council amended and Implemented passed Ordinance No. 15-95 (November 10, 2015), to clarify, Section 2-98 (b)(1) Adjustments and exceptions, "No exception involving public funds shall be authorized without a public purpose". Subsequent to the 2015 audit, the Implemented Department of Finance continued to enforce the rules fairly among all departments and adhered to the County Code of Ethics. In addition, the Hawai"i County Council amended the County Code of Ethics Section 2-83 (b)(4) Fair treatment, with Ordinance No. 15-103 (July 1, 2016), to clarify, "No officer or employee shall use or attempt to use the officer's or employee's official position to secure or grant unwarranted privileges, exemptions, advantages, contracts, or treatment, for oneself or others, including but not limited to: Using County property, facilities, equipment, time, or personnel for a private business, campaign purposes, or for any purpose other than for a public purpose". Purchasing Card Follow-up Recommendations: Status of Implementation 11 Recommendation Auditee Action Status Update Policies and Procedures We recommend the Department of Finance complete an annual comprehensive review and clarify the Purchasing Card Program and Procedures Manual to ensure that it is consistent with state law and other applicable county guidance including but not limited to: o Remove the caveat "unless specifically authorized" on personal purchases and liquor. o Clarify policy on specific types of allowable and unallowable purchases. o Clarify policy on the timeliness of reimbursements. o Provide clear guidance on documenting the legitimate department purpose in the transaction description. Strengthen Monitoring We recommend the Department of Finance, in addition to their current review procedures, complete a periodic review and/or perform additional monitoring of pCard transactions to ensure expenditures are for a legitimate department purpose and have a clear benefit to the County. The Department of Finance Purchasing Division reviewed and updated the Purchasing Card Program and Procedures Manual on: • May 2016 • August 2016 • December 2016 In addition: • Mayor Kim prohibited the purchase of alcohol with Finance Memorandum 16-08 (December 12, 2016). • Council Chairwoman Poindexter issued, Use of County Funds for the Purchase of Alcoholic Beverages Memorandum (December 19, 2016), "It will be the policy of the County Council and the Office of the County Clerk that there are no reasonable exceptions that would allow for the purchase of alcohol with County funds". The Department of Finance, Department pCard Coordinators, Department Heads, and the pCard Administrator increased monitoring efforts to ensure compliance with applicable laws, rules, and County policies and procedures. Some examples of monitoring efforts included: • attaching a memo for authorized exception approved by the pCard Administrator in accounting system • referencing procurement authorization or approval • reviewing and approving request for adjustments and exceptions (RAE) by the Finance Director • submitting Delegation of Department pCard Coordinator Responsibilities to Finance. Implemented Implemented Purchasing Card Follow-up Recommendations: Status of Implementation 12 Provide Training We recommend the Department of Finance provide on-going training to each department, including pCard Coordinators, cardholders, and supervisors. Use Available Technology We recommend Department of Finance consider incorporating the First Hawaiian Bank CentreSuite pCard application into the FRESH Invoice database, including uploading and downloading pCard data, to improve monitoring of pCard transactions. The Department of Finance provided internal control, procurement, and pCard training on August 30, 2016. In addition, the Department of Finance provides departments with one-on-one and as needed training. In 2015, management considered incorporating various features of the CentreSuite program. However, due to cost constraints, they elected not to incorporate these features. Furthermore, the Department of Finance asserted that since transactions are continuously reviewed for compliance with applicable laws and County policies and procedures by the Department pCard Coordinator and Department Head, the additional costs did not merit the additional benefit. We believe that as long as the Department of Finance continues to actively monitor pCard transactions, the risk will be minimized. Implemented Implemented To corroborate that the County implemented our recommendations, we reviewed all pCard transactions from August 2015 to December 2017. We selected 67 transactions totaling $24,086 for further review and found that these transactions followed County policy and state law. Purchasing Card Follow-up Recommendations: Status of Implementation 13 Conclusion On behalf of the citizens of the County of Hawai"i, we sincerely thank leadership and staff for their corporation during our follow-up review and for their commitment to accountability and transparency in local government. We thank the Department of Finance and the Hawai"i County Council for implementing all six purchasing card recommendations. We may also consider ongoing monitoring of purchase card transactions as part of our fiscal year 2018-2019 audit plan. Purchasing Card Follow-up Conclusion 14