HomeMy WebLinkAbout20012632.tiff Weld County Council
September 7, 2001
Weld County Treasurer's Office
Report on the Review of Internal
Controls over Cash Receipts, Cash
Disbursements and Investment
Activities
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Table of Contents
Page
Section - Number
Transmittal Letter
I. Summary
Purpose 1
Scope of Work Performed 1
Observation Assumptions 1
II. Observations and Recommendations
Departmental Internal Controls 2
Cash Receipts Internal Controls 5
Disbursements Internal Controls 7
Investments Internal Controls 9
General Computer Controls 11
Deloitte&Touche LLP
Suite 3600
555 Seventeenth Street
Denver, Colorado 80202-3942
Tel:(303)292-5400
312-4000 Deloitte
www.us.deloitte.com
September 7, 2001 &Touche
Weld County Council
Attn: Claud Hanes
915 10th Street
Greeley, Colorado 80631
Dear Council Members:
We were engaged to review the internal controls over the cash receipts, cash
disbursements and investment activities within the Weld County Treasurer's Office and
to make recommendations for improvements. Our services were performed from June
18, 2001 through July 6, 2001 and were performed in accordance with the standards for
consulting services issued by the American Institute of Certified Public Accountants.
The procedures performed did not constitute an audit, a review or a compilation of the
Weld County Treasurer's financial statements or any part thereof, nor an examination of
management's assertions concerning the effectiveness of the Weld County Treasurer's
internal control systems, nor an examination of compliance with laws, regulations, or
other matters. Accordingly, our performance of the procedures do not result in the
expression of an opinion or any other form of assurance on the financial statements or
any part thereof, nor an opinion or any other form of assurance on the Weld County
Treasurer's internal control systems or its compliance with laws,regulations, or other
matters.
The Weld County Treasurer's Office is, and will continue to be, solely responsible for
establishing and maintaining effective internal controls, including, without limitation,
systems designed to assure compliance with policies,procedures, and applicable laws and
regulations.
Our findings and recommendations related to the Treasury Office's internal controls,
based on discussions and information provided by Treasury Office personnel, are
contained in the accompanying report.
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Summary
PURPOSE
Due to the potential weaknesses in the internal controls identified by the County
Commissioners within the Treasurer's Office, the County Commissioners determined the
need to evaluate the existing internal controls. The purpose of our engagement was to
understand existing internal controls in place over selected areas as defined in the
following scope of work performed and to provide management recommendations for
improvement.
SCOPE OF WORK PERFORMED
The areas covered by our engagement included manual- and system-related processes and
procedures. The objective was to identify existing or missing controls related to the
authorization, recording, accuracy, safeguarding, reconciliation and reporting of
transactions specific to the cash receipts, disbursements and investment activities within
the Treasury Office. Additionally, our procedures included the general computer controls
of the related application systems utilized by the Treasury Office.
The scope of our work did not include an evaluation of:
• The sufficiency of the existing application systems used by the Treasury Office;
• The competency or work load of employees within the Treasury Office; and
• The performance of the investments handled by the Treasury Office.
Key activities performed during the engagement included:
• Inspection of relevant documentation, including previously issued reports on
internal control matters related to the Treasury Office;
• Interviews with staff and management personnel; and,
• Development of recommendations for improvement of internal controls within the
Treasury Office.
OBSERVATION ASSUMPTIONS
Per discussions with County personnel, it is our understanding that the County has
authorized an accountant to be added to the Treasurer's Office staff. We have used this
assumption in developing our recommendations for the observations identified. In the
event the accountant is not employed, the County Treasurer's Office should continue
with the implementation of the recommendations with an appropriate level of
modifications to reflect the lower staffing level.
Page 1
Observations and Recommendations
I. DEPARTMENTAL INTERNAL CONTROLS
The following observations and recommendations apply to the overall internal controls
within the Treasury Office.
A. DOCUMENTED TREASURY POLICIES AND PROCEDURES
The Treasury Office is required to adhere to several statutes, county commissioner
guidelines and other regulatory requirements in the performance of Treasury
activities. These requirements provide a"high level" of guidance in the
performance of the Treasury function; however, a more detailed level of policies
and procedures describing activities, specific to the functions within the Treasury
Office, have not been developed. Detailed policies and procedures would provide
for more thorough guidance to department personnel in the performance of their
assigned job duties and responsibilities.
RECOMMENDATION: Detailed documentation of Treasury policies and
procedures should be developed and distributed to department personnel and
monitored for effective implementation.
B. SEGREGATION OF DUTIES
Most systems of internal control rely on assigning certain responsibilities to
different individuals, or"segregating" incompatible functions. Such segregation of
duties is intended to prevent one person from having both (1) access to assets and
(2) responsibility for maintaining the accountability for such assets. Within the
Treasury Office, several instances of incompatible functions exist that allow for the
access to assets and related records.
RECOMMENDATION: In order to support an improved level of segregation of
duties amongst employees, the following outlines recommended changes:
• Remove the Office Manager from having wire and check signing authority
• Remove all Cashiers from having check signing authority
• Reassign the responsibility of preparing the bank reconciliations to the
accountant
• Reassign the responsibility for review of disbursements to the Office Manager
or accountant
• Reassign the receipt and handling of NSF checks to a person with no
cashiering responsibilities
• Reassign the photocopying of checks to a person with no cashiering
responsibilities
• Ensure all posting of taxes is performed by people who do not have cashiering
responsibilities
• Evaluate the benefits and costs of utilizing a lock-box for deposits to further
segregate the handling of cash receipts
• The accountant should perform a Daily Cash Reconciliation Report
Page 2
Observations and Recommendations
C. DOCUMENTED JOB DESCRIPTIONS
Weld County has documented grade descriptions that are applicable to a position in
any department within the County. Specific job descriptions and responsibilities
within the Treasury Office have not been documented to provide explicit
communication of responsibilities to employees. With the changes implemented
with the other recommendations,the need to develop job descriptions for
employees within the Treasury Office will increase in importance. The descriptions
will allow employees to better understand their duties and responsibilities within the
department.
RECOMMENDATION: Management should develop and document employee job
descriptions that are specific to Treasury Office employee duties and
responsibilities.
D. REVIEW OF TREASURY ACTIVITY
The Treasury Office currently encompasses nine employees that are responsible for
the daily activities within the office. Of these nine employees, three have
management-level responsibility to monitor the activity of the remaining employees
and ensure that the functions of the department are carried out efficiently and
effectively. On a daily basis, staff employees perform their responsibilities as
assigned, which include cash collections, disbursements, tax notifications and
processing, general journal recording, etc. Monitoring controls have not been
implemented to help identify, from a detective control perspective, any unusual or
inappropriate activity during the course of employee work. For example,journal
entries are not reviewed, comparison of the Cash Activity Report to the General
Ledger and Deposit slip is not performed, and analysis of check disbursements is
not performed.
RECOMMENDATION: Monitoring controls should be implemented to provide for
the detection of errors or irregularities in a timely manner by employees in the
normal course of performing their assigned functions. Such monitoring controls
should include, at a minimum:
• Review all journal entries on a daily basis
• Compare Cash Activity Report to General Ledger and Deposit Slip on a
daily basis
• Monitor status of NSF checks for resolution on a monthly basis
• Perform monthly and yearly analysis on check disbursements
• Review and resolve suspense account items on a monthly basis
• Review all outdated checks on a monthly basis
• Review employee Eagle TIMS+ system access on a semi-annual basis
• Review all reversal journal entries made for tax obligations
Page 3
Observations and Recommendations
E. ACCESS TO THE SAFE COMBINATION LOCK
The lock combination is known to several people within the Treasury Office, and
the combination number is not securely stored. Access to the safe combination
presents the risk that cash is more easily assessable for potential misappropriation.
Additionally, cash not present within the cash registers should be locked in a safe
during the business hours. On some days during the year,the cash on-hand is
excessive in the cash register and should be transferred to the safe..
RECOMMENDATION: The combination to the safe should be known only to the
Treasurer, Deputy Treasurer and Office Manager. The current combination should
be changed and knowledge of the combination limited. Additionally, the safe
should be locked at all times. Any excess cash over an acceptable dollar level
should be locked within the safe until deposited in the bank, rather than stored in
the cash registers.
F. TRANSACTION DESCRIPTIONS
We noted that the transaction descriptions within the Eagle TIMS+ system do not
follow any standards. For example, several general ledger accounts are utilized to
track non-sufficient funds (NSF) checks received by the County for various
departments. The transaction descriptions used within the sub-ledgers do not
provide sufficient detail to efficiently or effectively identify the NSF check writer.
Additionally, we noted that several NSF checks that occurred on a given day were
grouped together, which reduces the ability to trace a single check back to a payer.
RECOMMENDATION: The reference and description fields within the Eagle
TIMS+ system should be more effectively utilized. The information should be
unique to the journal entry. Management should define journal entry standards for
the use of the description and reference fields within the TIMS+ application.
Specifically with NSF checks, all NSF checks should be individually identified
within the general ledger accounts along with any abbreviated legend identifying
the type of transaction. For example, a subsequent payment of a NSF check could
be identified in the reference column as "SCD," representing short check deposit.
Page 4
Observations and Recommendations
II. CASH RECEIPTS INTERNAL CONTROLS
The following observations and recommendations apply to the internal controls relevant
to the cash receipts function within the Treasury Office.
A. RESOLUTION OF BANK RECONCILIATIONS
We noted that bank reconciliations for the past few years contained reconciling
items that were maintained on the bank reconciliation,but not recorded into the
general ledger during the month of the reconciliation or in the subsequent month.
Bank reconciliations are a key control in the identification and resolution of
potential errors or irregularities within the cash account; however, as a control it is
only effective if the identification and resolution of reconciliation items is
performed within a timely manner.
RECOMMENDATION: The bank reconciliations should be performed in a more
timely manner after the month end and any uncertain and/or unposted items should
be resolved within the following month. Additionally, all unreconciled activity
should be posted into the general ledger as a suspense item.
B. MONITORING AND RESOLUTION OF NON-SUFFICIENT FUNDS (NSF)
The Treasury Office receives numerous NSF checks from taxpayers. The current
policy and procedures for handling the NSF checks is undocumented and the
procedure is not completely understood by employees. In most cases, Treasury
personnel will contact the party in hopes that he/she will come into the office and
make a payment. The NSF check will be held, awaiting that payment. In some
cases, the NSF checks will be reversed in the Eagle TIMS+ application, which will
identify the taxpayer as delinquent. In other cases, no transaction will occur and the
check will be held on an employee's desk while the county waits for the taxpayer to
make their payment in the office.
RECOMMENDATION: Policies and procedures should be clearly defined regarding
what activities should be performed when the bank returns NSF checks. These
policies and procedures should include that the incoming mail be received and
opened by a non-cashier and all tax payments and NSF notices be posted by the
Office Manager or another non-cashier employee. Management should be
responsible for the monthly review and follow-up with staff of all outstanding NSF
checks to help ensure proper resolution.
C. DAILY ACTIVITY REPORT
A daily activity report is used to balance the day's receipts that have been entered
into the Eagle TIMS+ software against the daily cash activity. The report is
inefficient and ineffective in identifying the sources of information and in the
deposit to the bank. Additionally,the report does not clearly show that the cash
receipts are equal to the general ledger activity.
Page 5
Observations and Recommendations
RECOMMENDATION: The daily activity report should be modified so that it
clearly identifies the daily deposit and that the cash receipts ties to the receipts
identified in the general ledger. Additionally,the report should be signed and dated
by the preparer, who should not have cash management responsibilities, and a
secondary management review should be performed and signed by the reviewer.
The report should balance and any discrepancies should be resolved before any
further cash receipt activity occurs.
D. CASH REGISTER END-OF-DAY BALANCE
In the past, the Treasury Office did not have a policy, nor did not enforce any
requirement to maintain the cash in the registers or in the safe at a set dollar
amount. Without such a policy or enforcement, the daily amounts within the two
registers and safe had varying balances. The Treasury Office has recently
implemented a new procedure to keep the cash registers set at $1,500 per drawer
on-hand after the deposits to the bank and the safe at a $500 amount.
RECOMMENDATION: The Treasurer's Office should continue with the newly
implemented procedure to keep only the $1,500 on-hand per cash register and the
$500 in the safe. Additionally, a periodic surprise cash count audit should be
performed by a management person to help ensure the cash in the register agrees to
the amount reported on the daily cash activity, and that the cash in the safe is at the
$500 reported amount.
Page 6
Observations and Recommendations
III. DISBURSEMENTS INTERNAL CONTROLS
The following observations and recommendations apply to the internal controls relevant
to the disbursement (i.e., accounts payable) functions within the Treasury Office.
A. WIRE TRANSFER AUTHORIZATION
In order to process a wire transfer within the County bank and investment accounts
through the Wells Fargo wire system, one employee must enter the wire
information and a secondary employee must review the wire transfer within the
system. The secondary review is performed by a second cashier who is utilizing a
former employee's account. We noted on the Wells Fargo list of authorized wire
transfer accounts that the second cashier has not been specifically authorized to
approve wire transfer transactions.
RECOMMENDATION: The Wells Fargo authorized wire transfer list should be
updated to include the second cashier by name and the previous employee account
should be removed.
B. VALIDATION OF WIRE TRANSFERS
In order to send a wire transfer within the Wells Fargo system, one employee is
required to enter in the information and a second employee is required to authorize
the transaction. Currently, the secondary person approving the wire transfers does
not appear to have sufficient training to perform the function. In addition, the wire
transfer review process has not included the preparation of supporting documents
for review by the second approver.
RECOMMENDATION: The review should be performed by a person who
understands and has supporting documents to review the wire transfer data. All
wire transfers should be supported by a voucher with supporting documentation
attached and indications of the personnel prepared and approved the transaction.
Subsequent to the review, the wire transfer should be printed, signed and dated by
both employees.
C. REVIEW OF DISBURSEMENTS
The Treasurer's Office issues disbursements by check for tax refunds, rebates,
miscellaneous, etc. After a cashier prints the checks on preprinted check stock, a
signature stamp of the Treasurer, which is stored within the safe, is applied by the
cashier to the checks. The signed checks and check register from the Eagle TIMS+
software are then reviewed and manually signed by the Deputy Treasurer.
However, the check register does not provide enough supporting documentation to
ensure the payment is for an appropriate amount, purpose or recipient.
RECOMMENDATION: The review of disbursements should be performed against
either supporting documents or the check register should be modified to include
enough detail to allow the Deputy Treasurer to clearly identify why the
disbursement is being made and the accuracy of the information. In either case, the
Page 7
Observations and Recommendations
check register should be signed and dated by the Deputy Treasurer and stored in the
vault within the Treasurer's Office.
D. CHECK LOG
Currently, no check log is maintained that identifies the blank check stock on hand
or voided for cash disbursements. Although the blank check stock is stored within
the vault,the un-issued checks represent negotiable instruments that are liquid in
nature; therefore, control over these items needs to be maintained. Typically, each
check is assigned a number, and the sequence of un-issued, issued and voided
checks is tracked in a check log.
RECOMMENDATION: A manual check log should be maintained to control blank
check stock. The log should contain the starting and ending check numbers, any
voided checks, the date printed, and the date of sign-off by the employee who
printed the checks. The log should then be reviewed by either the Deputy Treasurer
or Office Manager on a periodic basis (e.g., bi-weekly) to help identify any missing
checks.
E. CANCELLATION OF OUTDATED CASH DISBURSEMENTS
The Treasurer's cash disbursement checks specify that the check is "void if not
cashed within 90 days" of disbursement. However, an inspection of the existing
aging of non-cleared checks identified that 44 checks are over 90 days old and are
still maintained within the Eagle software. These checks are dated between
February 4, 2000 and February 22, 2001. The total amount of these non-cleared
checks is $43,806.44. Due to the current banking arrangement the County has with
Wells Fargo,the County is able to place a "stop/hold" on any and all non-cleared
checks without incurring a fee.
RECOMMENDATION: The Treasurer's Office on a monthly basis should review
the outstanding checks and issue a"stop/hold"with the Wells Fargo bank on those
checks. The appropriate journal entry should then be made to offset the cancelled
checks.
Page 8
Observations and Recommendations
IV. INVESTMENTS INTERNAL CONTROLS
The following observations and recommendations apply to the internal controls relevant
to the investment activities within the Treasury Office.
A. SEGREGATION OF DUTIES
Investment transactions currently performed within the Treasury Office do not
follow an appropriate segregation of duties. The Treasurer currently maintains
complete control over the recording, approving, reconciliation, review and analysis,
and has authorized signature authority of payments/receipts with respect to
investments. In addition, in relation to a few investments held by the County, the
interest paid is sent directly to the Treasurer, who in turn is responsible for the
deposit into the bank account.
RECOMMENDATION: Segregation of duties should be established for the
recording, purchasing/sale and reconciliation of the investments within the
Treasurer's Office. The recording of investment activity within the Evare
investment system and the Eagle accounting systems should be performed by the
new accountant. Additionally, all interest checks received should be required to be
directly deposited into the County bank accounts to help ensure that funds are not
lost in the process and/or lose value in transit.
B. INVESTMENTS IN NON-APPROVED ENTITIES
The Board of County Commissioners, pursuant to Colorado statute and the Weld
County Home Rule Charter, has authorized a limited number of banks and savings
and loan associations as depositories for the funds of Weld County. The Treasurer
is instructed to place deposits with the Treasurer's Office with authorized entities.
We identified that a few bank or savings and loan entities are used but have not
been approved by the County Commissioners.
RECOMMENDATION: The Treasurer should resolve the disposition of the current
non-authorized bank and savings and loan entities with the Board of County
Commissioners.
C. RECONCILIATION OF EVARE AND EAGLE
Our review of the balances of Evare to Eagle on June 21, 2001, identified that
several asset and cash totals were not in balance. Additionally, in past external
audits, the Evare and Eagle systems have not been in balance.
RECOMMENDATION: On a weekly basis, the Evare and Eagle systems should be
reconciled. This reconciliation will help to ensure that transactions are entered in
both the Evare and Eagle systems on a timely basis and help ensure that both
systems remain in balance.
Page 9
Observations and Recommendations
D. MONTHLY REPORTING OF INVESTMENT ACTIVITY
The Treasurer's Office reports on the activity of the investments to the County
Controller on a yearly basis. This yearly communication of investment activity to
the County Controller does not provide sufficient reporting of investment activity to
keep the County's general ledger up to date.
RECOMMENDATION: The Treasurer's Office should provide monthly reporting of
all investment activity to the County Controller. The investment activity should
include purchases, sales, redemptions, gains/losses, interest income and portfolio
performance. The information will allow the County Controller to reconcile the
County's general ledger system to the Treasury Office information.
Page 10
Observations and Recommendations
V. GENERAL COMPUTER CONTROLS
The following observations and recommendations apply to the internal controls relevant
to the general computer controls within the Treasury Office.
A. EAGLE TIMS+ACCESS CONTROLS
In a manual system, segregation of duties may be enforced administratively, based
on assignment of job responsibilities. In an automated system, segregation of duties
is typically enforced through the use of automated access restrictions. Within the
Eagle TIMS+ software that is utilized by the Treasury Office for cash receipts,
disbursements, general ledger transactions and other activities, an appropriate level
of segregation of duties has not been enforced to correspond with a segregation of
job responsibilities. For example, one cashier is defined within the system to have
cashiering,journal entry, cash receipt and cash disbursement capabilities along with
the actual handling of cash receipts.
RECOMMENDATION: Upon modification of job responsibilities to support an
appropriate level of segregation of duties, the Eagle TIMS+ software application
should also be modified accordingly. On a periodic basis, the access controls
should be reviewed to help ensure compliance with the segregation of duties.
B. EAGLE TIMS+ APPLICATION ACCOUNTS
An evaluation of the existing accounts that have access to the application identified
several accounts with high (i.e., powerful) levels of security authorization that
belong to the Weld County Information Services Department and two accounts that
belong to the vendor. These accounts exist on a continual basis,rather than on an
"as-needed"basis. This access increases the risk that unauthorized and potentially
unknown transactions or changes can occur within the software, which include both
programs and data.
RECOMMENDATION: As owners of the Eagle TIMS+ application, the Treasurer's
Office should ensure that they know who, when and why access is provided to
Information Services and vendor personnel. Although it may be necessary to have
Information Services personnel with active accounts, it should be evaluated whether
such accounts need to have complete access to the system on a continual basis, or
only when upgrades to or maintenance of the software are necessary.
Page 11
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