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HomeMy WebLinkAbout2019 June 28 - Follow Up Report: Cash Handling at County of Hawai'i's Department of Parks and Recreation Follow-UpCash Handling at County of Hawai i i I s Department of Parks and Recreation Follow -Up June 28, 2019 Aaron Chung Bonnie S. Nims, CGAP Chair & Presiding Offices o . 11 ': '` .,, g •��'• .��-. •'��. Le islative Auditor Council District 2 •' - h Jr���, `• •' Business Address • .^° • 9120 Pauahi Street Suite 309 Hilo, Hawai `i 96720 %LA1UnfV lif Fafilai I OFFICE OF THE LEGISLATIVE AUDITOR 25 Aupuni Street Hilo, Hawai `i 96720 * (808) 961-8386 * Fax (808) 961-8905 website: http://hawaiicountE.gov, e-mail: publiclao(Lhawaiicounty.gov June 28, 2019 Honorable Aaron S. Y. Chung, Council Chair and Members of the Hawaii County Council Hawaii County Council 25 Aupuni Street Hilo, Hawaii 96720 Dear Chair Chung and Council Members, In accordance 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. 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. 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 Hawai `i County is an Equal Opportunity Provider and Employer Report Highlights June 28, 2019 Cash Handling at Department of Parks & Recreation Follow -Up Original Audit Background 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. The Office of the Legislative Auditor determined that a thorough -4 examination of facility use permits cash handling policies, procedures, and processes was warranted. What we recommended The audit identified improvements for management to increase internal controls for facility use permits cash handling including: • Segregating incompatible duties among those who perform accounting procedures and those who handle cash. • Implementing ongoing monitoring of the internal control system over cash receipting activities to ensure that revenue is complete. • Updating, strengthening, and enforcing cash handling policies and procedures; and • Providing initial and on-going cash handling and internal controls training for all employees who handle revenue. Follow -Up Audit L - Background In June of 2016, the Office of the Legislative Auditor concluded an audit of cash handling of facility use permits at the Department of Parks and Recreation (P&R) and issued five recommendations. Management has generally agreed with the comments and status of recommendations in this report. Objective To determine if the Department of Parks and Recreation implemented our 2016 cash handling audit recommendations. What we found We tested five recommendations and found that management took action as follows: Implemented In Progress Segregation of 1 0 Duties Monitoring and _ 0 Oversight Policies and 0 1 Procedures Training 1 0 This audit was conducted in accordance with generally accepted government auditing standards. What We Found: Status of Implementation Segregation of Duties We recommend that incompatible duties be adequately segregated at the Department of Parks and Recreation. If duties cannot be sufficiently segregated, mitigating controls, such as a detailed supervisory review and monitoring of the activities should be implemented to reduce risks. P&R Administration took immediate corrective action to ensure adequate segregation of duties for those responsible for cash handling (i.e., clerks, supervisors, and management) when: • Issuing permits • Collecting payment • Conducting supervisory oversight, approvals, and reconciliations Implementing Monitoring and Oversight We recommend the Department of Parks and Recreation perform 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. Management and supervisors routinely monitor: • Revenue and expenditures, reconciliations on revenue accounts • Security deposit accounts • Daily treasury receipt reconciliation In addition, P&R has implemented 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. Implemented Implemented Cash Handling Follow-up Audit What We Found: Status of Implementation 11 We further recommend that the Department of Parks and Recreation implement an independent verification process by deploying atwo-person team (an employee and a supervisor) in the cash handling process by separating custodial duties and daily reconciliation from reconciliation review and timely deposits. 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 A two -person team is used to further ensure an independent verification process: A clerk: • Issues permits • Reconciles cash, checks, and credit card payments • Prepares Treasury Receipts • 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 Implemented Cash Handling Follow-up Audit What We Found: Status of Implementation 12 Update and Enforce Policies and Procedures We recommend the Department 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 independent review and monitoring procedures. These procedures may include: ✓ Perform and document surprise cash counts ✓ Add independent review/verification by supervisors including review of voided and waived transactions, adjustments to account for cash over/short, daily deposits, and reconciliations, date Written policies and procedures were updated in January 2019 to address independent review and monitoring. We verified the following: ✓ Surprise cash counts are not 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. ✓ P&R updated policies and procedures to include an independent review/verification of cash, check, and credit cards, cash over/short, daily deposits, reconciliations, and monitoring date sequence and consecutive numbering of permits, including voids. In Progress Cash Handling Follow-up Audit What We Found: Status of Implementation 13 sequence of deposit record, P&R generally agreed and asserted, and numeric integrity of "Independent review/verification 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 14 ✓ Provide guidance and ✓ P&R provided guidance on clarification on individual segregation of duties for employees job duties to ensure 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. ✓ endorsing checks ✓ P&R endorses checks immediately immediately upon upon receipt. receipt; Cash Handling Follow-up Audit What We Found: Status of Implementation 15 ✓ procedures for handling cash overages and shortages; ✓ timeliness of recording revenue, reconciling cash and check composition, reconciling revenue ledger accounts; and ✓ fraud reporting guidance Provide Training We recommend the Department of Parks and Recreation provide on-going cash handling and internal controls training for all employees who handle revenue. ✓ P&R provided guidance on cash short/missing/overage procedures. ✓ All payments are processed at the end -of -day and deposited into Treasury the next business day. The supervisor performs monthly reconciliation of permits by the 15th day for the preceding month and performs periodic review of revenue. ✓ 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". Some P&R employees who handle revenue, attended cash handling and internal controls training provided by: • Department of Finance - Purchasing, Internal Controls 101: A Primer, August 2016 • Department of Finance - Treasury, Detecting Counterfeit Bills, September 2017 • Office of the Legislative Auditor, Cash Handling Presentation, September 2017 • 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. Implemented Cash Handling Follow-up Audit What We Found: Status of Implementation 16 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 17 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 19