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HomeMy WebLinkAbout25.06.09 Mass Transit-Baseyard1 What is a surprise cash count? A surprise cash count is an unannounced inspection of cash and cash equivalents on hand, typically conducted to verify that the amount of physical cash matches the recorded amounts in the accounting records. It is used as a control measure to: • Deter theft or fraud by keeping staff aware that their cash handling practices may be checked at any time • Ensure proper cash handling procedures are being followed • Identify discrepancies early so they can be investigated and corrected What is the purpose of a surprise cash count? The purpose of a surprise cash count is to uphold and reinforce principles of transparency, accountability, and fiscal responsibility. This activity is conducted quarterly at random locations and supports the County’s commitment to responsible financial management by ensuring public funds are handled carefully and in line with established rules. Through this work, the Office of the County Auditor (OCA) aims to strengthen community trust in the County’s financial operations. What is internal control? The policies, procedures, and systems used to safeguard assets (e.g., prevent theft or misuse), ensure accurate and reliable reporting, promote compliance with laws, rules, and internal policies, and support efficient and effective operations. The Government Accountability Office Green Book provides a framework for designing, implementing, and operating effective internal control. It is built on 5 components and 17 principles that support accountability, transparency, and the achievement of organizational goals. 1. Control Environment. Sets the foundation with leadership ethics and clearly assigns responsibilities. 2. Risk Assessment. Identifies and analyzes risks to achieving objectives. 3. Control Activities. Policies and procedures that help mitigate risks. 4. Information and Communication. Ensures that quality information flows both internally and externally to support informed decision-making. 5. Monitoring. Involves regular evaluations to verify controls are functioning and to address deficiencies. 2 What OCA did. On June 2, 2025, the Office of the County Auditor (OCA) conducted a surprise cash count of the Mass Transit Agency (MTA), located at 2299 Hoʻolaulima Road, Hilo, HI. OCA procedures included: • Site visit and verification of supporting documentation • Reviewed Cash Sorting/Counting Procedures (updated 9/1/2021) • Assessed compliance with Finance Memorandum 24-04, dated June 12, 2024, requiring cash deposits and treasury receipts within two working days • Interviewed staff to assess their understanding of and compliance with both the agencies and applicable County policies and procedures What OCA found. MTA conducts cash handling and reconciliation practices, including: • Written Cash Sorting/Counting Procedures • Safeguarding of payments in a locked vault Observations and Opportunities for Improvement. • Noncompliance with Finance Memo 24-04 o Check payments received as early as November 2024 were not promptly receipted or deposited. Specifically, a $50.00 taxi check dated 11/22/24 became stale due to delayed deposit, requiring MTA to request a replacement check from the payor. o Treasury receipts are not completed timely and often have significant delays in their submission. • Noncompliance of MTA’s Cash Sorting/Counting Procedures (eff. 09/01/2021) o The staff member stationed in the vault office also has access to the vault key and is currently the only individual assigned to that location. o A staff member or supervisor signed the bank deposit slip as "verified" without physically counting the deposit. • Other Questionable Practices and Gaps o The supervisor was unable to verify the original amount of petty cash on hand. 3  Policies do not address procedures for managing and reconciling petty cash. o A fuel reimbursement was issued from the petty cash can, resulting in an assumed shortage of $8.15.  Policies do not address the use of petty cash for reimbursements. o A check from 2023 remained in MTA’s vault. The supervisor explained it was mistakenly mailed to MTA. Although some correspondence occurred with the payor, no action was taken to return or dispose of the check.  Policies do not address how to handle payments received in error. o The November 2024 stale-dated check was shredded by a staff member at the payor’s request, despite no replacement in hand.  Establish internal controls to prevent stale-dated checks. Suggestions to Reduce Risks. • Review and update applicable Cash Sorting/Counting Procedures to address gaps • Follow written policies and procedures detailing strict processes for cash handling Conclusion As you are aware, a 2018 audit and follow-up in 2022 was performed by OCA focusing specifically on cash handling activities. The recent surprise cash count at MTA indicates that critical weaknesses in cash handling practices persist. Key concerns such as delayed deposits, inadequate segregation of duties, insufficient verification procedures, and unclear policies around petty cash and erroneous payments mirror issues previously identified and, in some cases, highlight gaps that were never fully resolved. Notably, the observation that staff continue to bypass internal control requirements, for example signing off on deposits without verifying amounts or failing to account for petty cash balances undermines the intended purpose of existing procedures and raises questions about enforcement and accountability. The shredding of a stale-dated check without securing a replacement and the prolonged retention of unclaimed checks illustrate not only procedural lapses but also a culture where financial control protocols are inconsistently applied. These deficiencies are especially alarming as the County contemplates the resumption of large- scale cash fare collection. Without a full and verified remediation of outstanding internal control risks, resuming such activities may reintroduce exposure to errors, losses, or misuse of public funds. We strongly urge renewed focus on fully implementing and enforcing internal control policies particularly those recommendations previously deemed “partially implemented” or “not implemented” in the 2022 follow-up audit. If you should have any questions, please feel free to contact our office.