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HomeMy WebLinkAbout05. Receive Internal Audit Report on Petty Cash Transactions Page 1 of 8 Item 5. Central Contra Costa Sanitary District May 3, 2018 TO: HONORABLE BOARD OF DIRECTORS FROM: THERESA NIDETZ, INTERNALAUDITOR REVIEWED BY: PHILIP R. LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION ANN SASAKI, DEPUTY GENERAL MANAGER ROGER S. BAILEY, GENERAL MANAGER SUBJECT: RECEIVE INTERNALAUDIT REPORT ON PETTY CASH TRANSACTIONS JULY 1, 2016 THROUGH OCTOBER 31, 2017 Attached please find a completed Internal Audit Report on Petty Cash. The internal audit was presented to the Finance Committee on April 24, 2018 given the subject matter of the audit, and the Finance Committee's charter to address: • Appropriate levels of internal controls • Oversee proper use of financial resources • Review expenditures The audit reviewed petty cash transactions for Fiscal Year(FY) 2016-17, and four months of the current FY 2017-18. The format of the report is the standard that will be used for subsequent internal audit reports, and includes: • Audit Objective • Background • Audit Scope and Limitations • Methodology • Summary • Findings; including Recommendation and Management's Response/Action Plan The six findings related to this internal audit are documented in the report, as well as actions that management of the relevant area (Finance) have committed to take in response to the findings. The Finance Committee reviewed the report at its meeting on April 24, 2018 and recommended Board receipt. The Internal Audit Report is being presented to the Board of Directors for information and receipt. Two additional internal audit reports are planned for delivery to the Board during the current fiscal year, as well as adoption of an internal audit plan for FY 2018-19. May 3, 2018 Regular Board Meeting Agenda Packet- Page 49 of 225 Page 2 of 8 GOAL ONE: Provide Exceptional Customer Service Strategy 2- Improve Interdepartmental Collaboration GOAL THREE: Be a Fiscally Sound and Effective Water Sector Utility Strategy 2- Manage Costs GOAL SIX. Embrace Technology, Innovation and Environmental Sustainability Strategy 2- Evaluate Business Processes and Optimize Business Operations ATTACHMENTS: 1. FY 2017 Internal Audit-Petty Cash May 3, 2018 Regular Board Meeting Agenda Packet- Page 50 of 225 Page 3 of 8 CENTRAL SAN CONTRACENTRAL • • IMHOFF PLACE, MARTINEZ, CA 9,4553-A392 INTERNAL AUDIT REPORT DATE: February 13, 2018 TO: Phil Leiber— Director of Finance and Administration Thea Vassallo — Finance Manager CC: Finance Committee Board of Directors FROM: Theresa Nidetz, Internal Auditor FINAL REPORT: INTERNAL AUDIT OF PETTY CASH CONTROLS Enclosed is our report on the audit of Petty Cash Controls. We have reviewed management's response to our recommendations and have included them in the audit report. The actions taken and/or planned are responsive to the recommendations in the report. We request that you provide quarterly status reports on the implementation progress of the recommendations. The Internal Audit department will contact you or your designee near the end of each quarter to request your response. Your response and updates on the status of the recommendations can be documented in the "Audit Findings and Recommendations Tracker" that is required until all actions have been implemented. A link to the Tracker will be shared with you and your team. If you have any questions, please contact me at (925) 229-7321. Theresa P. Nidetz Internal Auditor Enclosure Add'I cc: Roger Bailey— General Manager Ann Sasaki — Deputy General Manager Todd Smithey— Finance Administrator Chris Thomas — Finance Administrator May 3, 2018 Regular Board Meeting Agenda Packet- Page 51 of 225 Page 4 of 8 INTERNAL AUDIT OF PETTY CASH CONTROLS DATE: FEBRUARY 13, 2018 INTRODUCTION Audit Objective The objective of the audit was to identify and assess the design and operating effectiveness of internal controls over the use of petty cash funds.The audit period and scope encompassed petty cash reimbursements made and recorded to the General Ledger between July 1, 2016 and October 31, 2017. Background Central San has three petty cash funds with a total imprest balance of$3,200 and located at: HOB (Martinez)for$1,400; POD (Martinez)for$1,000; and CSO (Walnut Creek)for$800. Each petty cash fund is maintained by a designated employee. For the sixteen-month period from July 1, 2016 through October 31, 2017, petty cash transactions were as follows: Petty Number of Total Fund Petty Cash Average Cash Disbursements Disbursed Imprest Turnover in 16 Transactions Location Made Balance months per Month POD 90 $ 3,654.29 $ 800 4.6 times 6 CSO 84 $ 3,105.92 $1,000 3.1 times 5 HOB 309 $10,556.27 $1,400 7.5 times 19 Total 483 $17,316.48 1 $3,200 1 5.4 times average 30 A formal petty cash reimbursement procedure (AP-103) exists as well as standard forms for requesting travel and non-travel related expense reimbursements. Typical reimbursements include: local training and professional association fees and dues, mileage and travel expenses for District business, supplies, and food and beverage for department or division events and Board meetings. Disbursements from petty cash cannot exceed $90 and transactions must not be split to circumvent that limit. Amounts greater than $90 must be submitted on a Payment Authorization form, Mileage Form, or Travel Expense Form and reimbursed by check issued through the Accounts Payable process. Audit Scope & The scope of this audit focused on the processes and controls over petty cash Limitations funds and did not include a review or assessment of controls over Purchasing, Accounts Payable or P-Card transactions. Methodology The audit was performed using the following methods: • Interviewed team members and observed the processes within the scope of the audit • Reviewed policies, guidelines and procedures • Selected and tested samples for each of the processes • Reported on audit results and discussed recommendations Central Contra Costa Sanitary District.1660.1.FY_2017-18_Internal_Audit_Report- Petty_Cash.docx 2 May 3, 2018 Regular Board Meeting Agenda Packet- Page 52 of 225 Page 5 of 8 INTERNAL AUDIT RESULTS Summary Based on Internal Audit's assessment of petty cash procedures and sampling of transactions, controls need to be improved to ensure that petty cash disbursements are accurate, properly authorized, compliant with District procedures, and properly recorded. Audit observations and recommendations were made regarding the following: • Revision of AP-103 Petty Cash Reimbursement Procedure • Segregation of Duties • Periodic Independent Verifications of Petty Cash Funds • Finance/Accounting Review of Petty Cash Replenishments • Recording Petty Cash Transactions in the General Ledger • Supporting Documentation for Petty Cash Disbursements Finding 1: Administrative Procedure (AP-103) Needs to be Revised Internal Audit reviewed Procedure AP-103 Petty Cash Reimbursements dated September 1, 2015 for clarity and completeness. Clarification is needed regarding certain requirements and controls to ensure consistency with other District procedures such as AP-008 Travel Expense Reimbursement Procedure. In addition, some procedures described in AP-103 do not reflect current practices. Recommendation: Internal Audit provided the Finance/Accounting team with proposed revisions to AP-103, including additional wording regarding supporting documentation for petty cash requests/vouchers, changing the procedure to reflect current review and approval of petty cash logs, using a standard Petty Cash Log/Replenishment Form, and referencing Travel Expense Reimbursement Procedure AP-008. Management's Response/Action Plan: The Finance Manager will revise AP-103 based on Internal Audit's recommendations and will post the revised AP-103 on Central San's intranet. The procedure will be reviewed by Finance/Accounting at least every two years to ensure it reflects current District practices and requirements. A standard Petty Cash Log/Replenishment Form will also be implemented. Target Date:June 30, 2018 for AP-103 revision;January 18, 2018 for implementation of the standard Petty Cash Log/Replenishment Form Finding 2: Segregation of Duties Duties over petty cash are not adequately segregated as follows: a) The petty cash custodian for the HOB petty cash fund who is an Accounting Technician is also responsible for inputting the petty cash transactions to the General Ledger system and processing the check that replenishes the HOB petty cash fund. b) In testing a sample of petty cash vouchers, we noted that some of the vouchers were approved by the petty cash custodians (CSO and POD) because they have an approval limit of$90. Central Contra Costa Sanitary District.1660.1.FY_2017-18_Internal_Audit_Report- Petty_Cash.docx 3 May 3, 2018 Regular Board Meeting Agenda Packet- Page 53 of 225 Page 6 of 8 Recommendation: While the risk of errors or unauthorized transactions may be minimized by a supervisory-level review of all petty cash replenishment packages, as noted in Finding 4, we recommend that: a) The approved Petty Cash replenishment package be routed for processing to an Accounting staff member who does not have access to petty cash funds. b) Petty Cash reimbursement requests be approved by someone with approval authority other than the Petty Cash custodian. Management's Response/Action Plan: a) An Accounting Technician who does not have access to Petty Cash funds will post the petty cash entries to the General Ledger for POD, CSO and HOB. Target Date: January 18, 2018 b) Petty Cash custodians will be reminded that they should not sign/approve petty cash reimbursement requests. Training will be provided to all petty cash custodians to review the risks and required controls. Target Date: March 31, 2018 Finding 3: Lack of Independent Verification and Count of Petty Cash Procedure AP-103 requires that "at least two unannounced audits per year of the petty cash funds will take place by the Accounting Office to ensure compliance with the petty cash procedures and generally accepted accounting principles." Independent verifications and counts were not performed as stipulated in AP- 103. For POD and CSO,the two most recent verifications were done in July 2015 and July 2016. For HOB,the two most recent verifications were done in May 2016 and August 2017. Recommendation: Independent unannounced verifications of petty cash funds should be performed regularly. Management's Response/Action Plan: The unannounced independent verifications of Petty Cash funds will be calendared and will be performed by an independent member of the Accounting team.The Finance Administrator will be responsible for ensuring that the verifications are performed as scheduled. Based on historical petty cash activity, the CSO and POD funds will be verified at least once per year and the HOB fund will be verified at least twice per year. The verification form will be revised to include approval and final sign-off by the Finance Administrator. Management will revise procedure AP-103 to reflect the new procedure. Target Date:June 30, 2018 Central Contra Costa Sanitary District.1660.1.FY_2017-18_Internal_Audit_Report- Petty_Cash.docx 4 May 3, 2018 Regular Board Meeting Agenda Packet- Page 54 of 225 Page 7 of 8 Finding 4: Finance/Accounting Review of Petty Cash Replenishments AP-103 stipulates that "Accounts Payable person reviews Petty Cash package and submits it to the Finance Administrator or Controller for approval." While the review and validation of the petty cash log and replenishment form is done by each fund custodian's immediate supervisor, approval by Finance is not being performed. In addition,the Accounts Payable person does not review the replenishment packages for accuracy and completeness when inputting the transactions from the Petty Cash log to create the journal entries and A/P entry. Recommendation: An independent review for accuracy and completeness should be performed by Finance/Accounting and evidenced on the Petty Cash Log/ Replenishment form. Management's Response/Action Plan: The Finance Manager will revise AP-103 to reflect the review and approval by the department/division approving official and to delete the section regarding review/approval by the Finance Administrator or Controller. In addition, a procedure will be implemented for Accounting to match amounts reported on the Petty Cash logs to supporting vouchers when processing the petty cash journal entries and A/P entry. A standard Petty Cash Log/Replenishment Form will be implemented and will include sign-offs by the department/division approver and by Accounting. Target Date: June 30, 2018 for AP-103 revision;January 18, 2018 for implementation of standard Petty Cash Log/Replenishment Form Finding 5: Recording Petty Cash Transactions in the General Ledger a) Transactions are sometimes combined into one journal entry described as "Petty Cash Reimbursement" even though the disbursements did not pertain to the same employee, date or event. The reason for this practice is that the current GL system does not allow for automated GL entry uploading from Excel or other formats,thus, requiring manual input of each item on the petty cash log,which is inefficient. b) Current administrative procedures do not provide guidelines as to how certain types of expenditures should be recorded in the GL. Meals and refreshments for staff and Board meetings and employee recognition presentations were recorded as "miscellaneous" or"operating supplies". Mileage reimbursements and other transportation costs were recorded as "training", "communications", "supplies", or"miscellaneous" GL accounts, depending on the purpose of the trip. However, these costs were sometimes recorded to the Mileage Reimbursement GL account. Recommendation: a) As management develops the requirements for a new ERP (Enterprise Resource Planning) solution,the ability to automate processing of Central Contra Costa Sanitary District.1660.1.FY_2017-18_Internal_Audit_Report- Petty_Cash.docx 5 May 3, 2018 Regular Board Meeting Agenda Packet- Page 55 of 225 Page 8 of 8 accounting entries using data from spreadsheets and other sources should be a required functionality. b) For consistency, administrative procedures AP-103 Petty Cash Reimbursements and AP-101 Food and Beverage Procedure need to include wording to clarify how expenses should be coded and recorded. Management's Response/Action Plan: a) A new accounting system /ERP would facilitate the inputting and processing of petty cash transactions, particularly one that has data uploading capabilities from spreadsheets to the GL. In the meantime, petty cash disbursements will continue to be combined when possible and reported as "Petty Cash Reimbursement." b) The Finance Manager will revise AP-103 and AP-101 to provide guidelines on how certain expenditures should be coded based on the business purpose. Target Date: Estimated implementation of ERP- December 31, 2020; Revision of AP-103 and AP-101 —June 30, 2018. Finding 6: Supporting Documentation for Disbursements • Mileage reimbursements are not always supported by mileage calculations such as Google MapsTM or details of trip origination and destination. These details are required under AP-008 Travel Expense Procedure for reimbursement of miles driven in employees' personal automobiles. • Training and professional association meeting expenses do not always have supporting documentation such event flyer/registration information with event description, location and date. • Petty Cash requests/vouchers are not always signed-off by the requester when the requester designates another employee to obtain the cash on his/her behalf. Recommendation: To ensure consistency and completeness of documentation for reimbursements, AP-103 should be revised to include wording on what constitutes proper supporting documentation—in line with other District expense procedures. The employee who requested the funds should sign-off on the voucher as authorization and acknowledgment that someone else will obtain the cash on his/her behalf. Management's Response/Action Plan: The Finance Manager will revise AP-103 to clarify what is acceptable supporting documentation and to reference other related expense procedures. AP-103 will be revised to stipulate that the person requesting to be reimbursed sign-off on the petty cash voucher if he/she designates another employee to obtain the cash. The Petty Cash request/voucher form will be revised to include signature lines for requestor, delegation of receipt, and approver. Target Date: June 30, 2018 Central Contra Costa Sanitary District.1660.1.FY_2017-18_Internal_Audit_Report- Petty_Cash.docx 6 May 3, 2018 Regular Board Meeting Agenda Packet- Page 56 of 225