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HomeMy WebLinkAboutCOM 0348.000 2018-2020 Aaron Chung Bonnie S.Nims,CLAP ffi Chair&Presiding Ocer 4o�NtY a�F•„q�,' Legislative Auditor Council District 2 Business Address �r'•• ;:°•'4`` 120 Pauahi Street qT4 OF HPN� Suite 309 Count Hilo,Hawai'i 96720 OFFICE OF THE LEGISLATIVE AUDITOR 25 Aupuni Street Hilo,Hawai'i 96720 * (808)961-8386 * Fax(808)961-8905 website:http:11hawaiicountv.Qov e-mail:publiclao(a�liawaiicounty_,gov June 28, 2019 Honorable Aaron S. Y. Chung, Council Chair andC7 Members of the Hawaii County Council —+ Hawai'i County Council co o 25 Aupuni Street ' ? Hilo, Hawaii 96720 Dear Chair Chung and Council Members, co In accordance with generally accepted government auditing standards and the Hawai'i 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. We have completed our follow-up audit of the Cash Handling at County of Hawai'i's Department of Parks and Recreation Performance Audit (Report.No. 2016-01) dated June 30, 2016. The Department of Parks and Recreation implemented four of the five audit recommendations. Management continues efforts to implement the remaining recommendation of updating and enforcing policies and procedures - specifically performing and documenting surprise cash counts; approving of all voided and waived transactions; adequate safeguarding of cash receipts; and fraud reporting guidance. We commend the Department of Parks and Recreation's leadership and staff for their continued efforts to improve cash handling internal controls over facility use permits and for their assistance, cooperation, and prompt feedback during the follow-up process. Management has generally agreed with the comments and status of recommendations in this report. Comm. No. ✓b Ref. To: IFC, Ref. Dote JUN 2 8 2019 Hawai'i County is an Equal Opportunity Provider and Employer If you have any questions or concerns about the status of recommendations discussed in this report please feel free to contact me at 961-8386. Respectfully, Bonnie S. Nims, CGAP Legislative Auditor cc: Harry Kim, Mayor Wil Okabe, Managing Director Jon Henricks, County Clerk Roxcie L. Waltjen, Director, Department of Parks and Recreation Maurice C. Messina, Deputy Director, Department of Parks and Recreation Deanna Sako, Finance Director Hawaii County is an Equal Opportunity Provider and Employer Follow-up AuditCash Handling at Report County of HawaiTs Department of Parks and Recreation .0 Follow-Up June 28, 2019 i I i Igo Office Report Highlights June 28, 2019 Cash Handling at Department of Parks & Recreation Follow-Up Original Audit no 1 rem 11 • • Background Background There are inherent risks associated with In June of 2016, the Office of the Legislative Auditor the implementation of the cash handling concluded an audit of cash handling of facility use processes. If no internal controls exist, permits at the Department of Parks and Recreation or if they exist but are not enforced, the (P&R) and issued five recommendations. risks related to the process increases, thereby increasing the risk exposure to Management has generally agreed with the the County. The Office of the Legislative comments and status of recommendations in this Auditor determined that a thorough report. examination of facility use permits cash handling policies, procedures, and Objective processes was warranted. To determine if the Department of Parks and Recreation implemented our 2016 cash handling What we recommended audit recommendations. The audit identified improvements for management to increase internal What we found controls for facility use permits cash handling including: We tested five recommendations and found that Segregating incompatible duties management took action as follows: • among those who perform accounting procedures and those Implemented In Progress who handle cash. Segregation of 1 0 • Implementing ongoing monitoring Duties of the internal control system over cash receipting activities to ensure that revenue is complete. Monitoring and 2 0 • Updating, strengthening, and Oversight enforcing cash handling policies and procedures; and Policies and 0 • Providing initial and on-going Procedures cash handling and internal controls training for all employees Training who handle revenue. This audit was conducted in accordance with generally accepted government auditing standards. What We Found: Status of Implementation Recommendation - Segregation of Duties We recommend that incompatible P&R Administration took immediate iolemented duties be adequately segregated corrective action to ensure adequate at the Department of Parks and segregation of duties for those Recreation. If duties cannot be responsible for cash handling (i.e., clerks, sufficiently segregated, mitigating supervisors, and management) when: controls, such as a detailed • Issuing permits supervisory review and monitoring of the activities should be • Collecting payment implemented to reduce risks. . Conducting supervisory oversight, approvals, and reconciliations Implementing Monitoring and Oversight We recommend the Department Management and supervisors routinely Implemented of Parks and Recreation perform monitor: ongoing monitoring of the design . Revenue and expenditures, and operating effectiveness of the reconciliations on revenue internal control system as part of accounts the normal course of operations. Ongoing monitoring includes Security deposit accounts regular management and • Daily treasury receipt reconciliation supervisory activities, comparisons, reconciliations, and In addition, P&R has implemented other routine actions. counterfeit detection and robbery response procedures to protect the County and its employees from loss revenue/theft. Credit/debit card terminals were implemented in Hilo (May 2016) and Kona (June 2016) as a payment option for facility use permits. Cash Handling Follow-up Audit What We Found: Status of Implementation 11 P&R asserted, "Credit card use reduces the volume of cash handling for our staff and can range upwards to 35%." Credit/debit card terminals are available at the following locations: • Hilo Main Office Administration • Kona Permit Office • Hilo Municipal Golf Course • Recreation Division • Hoolulu Office We further recommend that the A two-person team is used to further Implemented Department of Parks and ensure an independent verification Recreation implement an process: independent verification process by deploying a two-person team A clerk: (an employee and a supervisor) in • Issues permits the cash handling process by separating custodial duties and • Reconciles cash, checks, and daily reconciliation from credit card payments reconciliation review and timely . Prepares Treasury Receipts deposits. • Makes next business day deposits into Treasury Division A supervisor: • Verifies cash, checks, credit cards reconciliation and signs off on Treasury Receipts • Performs monthly reconciliation of permits • Reports any variances to management for assessment and resolution Cash Handling Follow-up Audit What We Found: Status of Implementation 2 Update and Enforce Policies and Procedures We recommend the Department i Progress of Parks and Recreation 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: • Provide clear guidance on Written policies and procedures were independent review and updated in January 2019 to address monitoring procedures. independent review and monitoring. These procedures may We verified the following: include: ✓ Perform and document ✓ Surprise cash counts are not surprise cash counts documented in written cash handling policy. Because P&R staff only count the $100 petty cash/change fund generally at the beginning of the workday, we determined adequate surprise cash counts were not performed. P&R could improve internal controls by addressing and documenting surprise cash counts in their written cash handling policy and consider developing procedures to compare actual cash collected to cash receipts. ✓ Add independent ✓ P&R updated policies and review/verification by procedures to include an supervisors including independent review/verification of review of voided and cash, check, and credit cards, cash waived transactions, over/short, daily deposits, adjustments to account reconciliations, and monitoring date for cash over/short, daily sequence and consecutive deposits, and numbering of permits, including reconciliations, date voids. Cash Handling Follow-up Audit What We Found: Status of Implementation 13 sequence of deposit P&R generally agreed and asserted, record, and numeric "Independent review/verification integrity of permits updated and included in our policy. Voided transactions are documented. Cash over/short policy was updated and included in our policy. Daily deposits were improved by initiating a database system which reduces the risk of inadvertent errors and improved efficiency. Admin facility use permits are now on pre-numbered carbon to improve the numeric integrity of permits. We tested nine transactions totaling $3,100 for further review. We found that all money that was receipted was deposited, generally complied with P&R's cash handling policy and procedures, and identified opportunities to further strengthen internal controls. ✓ Approval of all voided ✓ Although not clearly written into and waived transactions policy, P&R asserted, "All waived permits must receive Director approval." While P&R has a process for checking/accounting for voids during their end-of-day reconciliation and documenting "Request for Waiver", we determined there were still gaps in written policies and procedures. P&R could improve internal controls by addressing the approval of all voided and waived transactions (i.e., when/why to void a transaction, who approves voids/waived transactions, monitoring, etc. Cash Handling Follow-up Audit What We Found: Status of Implementation 4 ✓ Provide guidance and ✓ P&R provided guidance on clarification on individual segregation of duties for job duties to ensure employees handling revenue. adequate segregation of duties exists. • Clarify or add policies P&R clarified and/or added policies regarding: regarding: ✓ timeliness of deposits; ✓ Next business day deposits into Treasury Division. ✓ adequate safeguarding ✓ Although cash and cash receipts of cash receipts; were locked in a drawer, we observed multiple employees using the same cash drawer. Management may not be able to hold any person accountable if cash is missing. P&R generally agreed and asserted, they are, "Working toward designating a locked cash drawer for each employee." We noted some safeguarding of cash and cash receipts: • Cash is secured in a locked drawer during the day and in a vault overnight. • Cash is deposited into Treasury the next business day. • Supervisor routinely monitors transaction dates, consecutive permit numbers, and voids to ensure integrity of permits. ✓ utilizing the three-part ✓ P&R started using 3-part carbon carbon pre-numbered pre-numbered permits at the end of permits; 2018. Cash Handling Follow-up Audit What We Found: Status of Implementation 5 ✓ endorsing checks ✓ P&R endorses checks immediately immediately upon upon receipt. receipt; ✓ procedures for handling ✓ P&R provided guidance on cash cash overages and short/missing/overage procedures. shortages; ✓ timeliness of recording ✓ All payments are processed at the revenue, reconciling end-of-day and deposited into cash and check Treasury the next business day. composition, reconciling revenue ledger The supervisor performs monthly accounts; and reconciliation of permits by the 15th day for the preceding month and performs periodic review of revenue. ✓ fraud reporting guidance ✓ P&R stated that they are aware of the fraud risk and fraud reporting guidance and they are working toward developing a "Management Reviews and Observations Policy". Provide Training We recommend the Some P&R employees who handle Implemented Department of Parks and revenue, attended cash handling and Recreation provide on-going internal controls training provided by: cash handling and internal Department of Finance - Purchasing, controls training for all Internal Controls 101: A Primer, employees who handle August 2016 revenue. • Department of Finance - Treasury, Detecting Counterfeit Bills, September 2017 • Office of the Legislative Auditor, Cash Handling Presentation, September 2017 Cash Handling Follow-up Audit What We Found: Status of Implementation 16 • P&R Administration, Cash Handling Procedures for Handling Cash, Check and Credit Card Payments and Detecting Counterfeit Bills, Internal Control, Permits, Accounts Payable, and Inventory training January 2019. P&R asserted they, "Perform ongoing cash handling and internal control training with employees." Management also asserted, "Further trainings will be incorporated in future staff meetings for employees who handle revenue." Cash Handling Follow-up Audit What We Found: Status of Implementation 7 Audit Objective The objective of this audit was to determine if the Department of Parks and Recreations implemented our 2016 cash handling audit recommendations. Audit Scope and Methodology To verify that the Department of Parks and Recreation Administration implemented our 2016 cash handling audit recommendations, we evaluated and corroborated information through interviews with appropriate personnel to follow-up on the responses to audit recommendations, reviewed and performed tests of controls and documents (i.e., cash handling policies and procedures, general fund daily deposit records (daily logs), completed permits, treasury receipts, training material, sign-in sheets, and other as needed documents) relating to facility use permits cash handling process between July 2016 to February 2019. We also conducted site visits to verify cash handling internal control practices at the Hilo Main Office. We did not conduct a site visit or tested completed facility use permits at the Kona Permit Office or Recreation Division (facilities/gyms) since the original audit scope identified most internal control weaknesses at the Hilo Main Office. In addition, the Hilo Main Office is responsible for updating and disseminating written policies and procedures applicable to all P&R cash receipting sites and to provide on-going training to P&R employees who handle revenue. We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Cash Handling Follow-up Audit Audit Objective, Scope, and Methodology 18 Conclusion We sincerely thank the Department of Parks and Recreation's leadership and staff for their cooperation during our follow-up effort and for implementing most of the cash handling audit recommendations such as segregation of duties, implementing monitoring and oversight, and providing training. Opportunities exist to further improve cash handling internal controls, including updating and enforcing policies and procedures regarding: • performing and documenting surprise cash counts; • approving of all voided and waived transactions; • adequate safeguarding of cash receipts; and • fraud reporting guidance. Cash Handling Follow-up Audit Conclusion 9