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HomeMy WebLinkAboutAudit - Other Publications - Public - Glendale Civic Center Cash Handling Review - 10/14/2015 _______________________________________________________________________________________ 1 Glendale Civic Center Cash Handling Date: October 14, 2015 To: Richard A. Bowers, Acting City Manager From: Candace MacLeod, City Auditor Subject: Review of Glendale Civic Center Cash Handling In September 2015, the City Auditor’s Office conducted a review of Glendale Civic Center’s (GCC) cash handling practices. GCC is located in the Community Services Department. The purpose of the review was to assess GCC’s internal controls over cash handling. The review was initiated due to a missing November 2014 catering check that was reported to the City Auditor by Finance on August 31, 2015. After further investigation, the city was informed that the missing check was attributed to an inadvertent bank error. The check, which was payable to GCC, was received by the bank and deposited into the incorrect account. The city notified the bank about the missing check in September 2015, and after further research, the bank delivered a check to GCC for the missing funds, which was deposited on September 9, 2015. GCC is located in downtown Glendale and offers nearly 40,000 square feet of rentable space for corporate events, trade shows, weddings and private parties. In 2010, the city entered into an exclusive license agreement (Agreement) with Arizona Catering (Caterer) for the provision of food and beverage service at the facility. Under the Agreement, the city receives monthly commissions based on catering revenue. GCC accepts cash, checks, credit cards, money orders and cashier’s checks as forms of payment. GCC is staffed by three full-time and two part-time employees. Table 1 summarizes GCC revenue, expenditures and staffing over the last three years. Table 1 – GCC Actual Revenue, Expenditures and FTEs* Description FY13 FY14 FY15 Revenue $395,476 $408,309 $375,728 Transfer In $296,602 $310,648 $158,498 Expenditures $647,938 $599,749 $541,919 FTEs 5 4 3 The scope of the review was July 1, 2014 to June 30, 2015 and included: • Interviews with staff; • Review of budgets and financial records; • Review of license and use agreements; • Review of policies and procedures; and • Tracing a sample of deposits to financial records and backup documentation. *As provided by the Glendale Budget Office on September 28, 2015. _______________________________________________________________________________________ 2 Glendale Civic Center Cash Handling The auditors met with GCC staff, examined deposit documentation and reviewed cash handling practices. A review of credit card receipts was not included in the scope of this report. A number of internal control weaknesses were identified during the review and are summarized in Table 2, along with recommendations and management responses. Table 2 – GCC Cash Handling Internal Controls Issues Internal Control Issue Audit Recommendation GCC Management Response October 2015 1. One employee currently receives cash and checks, records receipt of the funds, prepares deposits and reconciles revenue. Glendale Cash and Credit Card Handling Policies and Procedures (Cash Handling Policies) state that adequate separation of duties should exist between the receipt, recording and reconciling of revenue. Inadequate separation of duties increases the risk of theft, loss or fraud. 1.1 GCC should ensure adequate separation of duties between the receipt, recording and reconciling of revenue. 1.1 Concur. Changes have been implemented whereby all cash and checks are being received, recorded and processed by two people in dual custody. This lapsed due to the re-assignment of a key employee when the city re- organization occurred July 1, 2014. Effective immediately, staff is scheduled in a way to ensure dual custody and separation of duties. GCC staff will also explore the possibility of an Electronic Payment system for possible implementation later this fiscal year. 2. GCC does not log the receipt of cash and checks received in the mail or hand-delivered. Mail is opened in single custody. Cash and checks should be logged upon receipt. Mail should be opened in dual custody. The risk of theft or loss increases if cash is not opened and logged in dual custody. 2.1 GCC should ensure mail is opened in dual custody. 2.2 GCC should ensure cash and checks received in the mail or in person are logged in dual custody. 2.1 Concur. As of September 11, 2015, GCC now opens all mail in dual custody. 2.2 Concur. As of September 11, 2015, GCC now logs all checks received in person or in the mail in dual custody. _______________________________________________________________________________________ 3 Glendale Civic Center Cash Handling Internal Control Issue Audit Recommendation GCC Management Response October 2015 3. Cash and checks are delivered to the city cashier in single custody beyond the one business day requirement. The transport of the deposit is not logged. Cash Handling Policies state that checks should be delivered to the city cashier in dual custody within one business day. The transport must be logged (names, dates, time and amount.) Untimely deposits increase the risk of theft or loss. The transport of funds in single custody reduces employee safety and increases the risk of theft or loss. 3.1 GCC should ensure cash and checks are delivered to the city cashier in dual custody and the transport is logged. 3.2 GCC should ensure cash and checks are deposited in accordance with Cash Handling Policies. 3.1 Concur. GCC staff now handles all cash in dual custody at all times and delivers deposits to the city cashier in dual custody. A transport log is being created and will be used beginning October 13, 2015 to log all cash, checks and credit card payments being transported to the cashier’s office. The possible use of a courier will be explored with Finance by December 1, 2015. 3.2 Concur. As of September 2, 2015, GCC staff now logs and delivers all payments to the city cashier in dual custody as per the city’s cash handling policies. 4. Cash receipts and checks are transferred in single custody to a locked cabinet in the GCC manager’s office prior to deposit. Cash Handling Policies require double custody on all cash not bagged and sealed. Checks should be physically protected with vaults and safes. It is the responsibility of the department to make the necessary provisions to safeguard cash in their area. 4.1 GCC should ensure cash is handled in dual custody prior to being bagged and sealed. 4.2 GCC should ensure cash and checks are adequately safeguarded prior to deposit. 4.1 Concur. This was resolved immediately and GCC staff now handles all cash, checks and credit card payments in dual custody. 4.2 Concur. As of October 6, 2015, GCC acquired a safe with a depository drop on site for all cash and checks received prior to deposit. This safe was approved by Finance and is located in a lockable office in GCC. _______________________________________________________________________________________ 4 Glendale Civic Center Cash Handling Internal Control Issue Audit Recommendation GCC Management Response October 2015 Cash should not be retained in desk drawers or file cabinets since they are easily accessed with minimal forcing or available keys. 5. Counterfeit detection pens are not utilized by the GCC. Cash Handling Policies state that cash handling units should utilize counterfeit detection pens on bills $50 and higher. The risk of receipt of counterfeit bills increases if counterfeit detection pens are not utilized. 5.1 GCC should ensure counterfeit detection pens are utilized in accordance with Cash Handling Policies. 5.1 Concur. As of October 5, 2015, GCC has a counterfeit pen on site for use with cash payments when $50 bills or higher are received. 6. A review of a sample of Treasury Receipts (TRs) indicated that GCC employees preparing and transporting deposits were not recording their name on the TR. Cash Handling Policies state that the names of the persons preparing and dropping off deposits should be recorded on the TR. Accountability is reduced and the risk of theft or loss increases if TRs are not properly completed. 6.1 GCC should ensure TRs are completed in accordance with Cash Handling Policies. 6.1 Concur. This was resolved on September 11, 2015. GCC staff now records their names on TRs. 7. Checks are made payable to GCC. Use agreements state that payments are to be made payable to GCC. 7.1 GCC should ensure checks are made payable to the city of Glendale. 7.1 Concur. City-approved contracts currently state to have all checks made payable to GCC, per the City Attorney’s Office. Any _______________________________________________________________________________________ 5 Glendale Civic Center Cash Handling Internal Control Issue Audit Recommendation GCC Management Response October 2015 Cash Handling Policies state that checks should be made payable to the city of Glendale. The risk of theft or fraud increases if checks are not made payable to the city. 7.2 GCC should work with the City Attorney’s Office to amend wording relating to check payments in use agreements. change in procedure will require review, discussion with the City Attorney and Finance. Appropriate discussion on this process will take place by October 31, 2015 and a revised process identified for possible implementation by November 30, 2015. 7.2 See response 7.1 above. 8. In FY15, 9 of 11 Caterer’s checks to the city were late. GCC did not charge the caterer a service charge on the late payments. Section 4(E) of the Agreement states that the Caterer shall pay all monies due to the city monthly and within 20 days after the close of the prior month. Section 4(F) of the Agreement states that unpaid commissions shall bear a service charge of 1% per month. There is an increased risk of noncompliance if agreement terms and conditions are not monitored. 8.1 GCC should contact the Caterer to ensure commission payments are submitted to the city in accordance with the Agreement. 8.2 GCC should assess the Caterer service charges on late commission payments in accordance with the Agreement. 8.1 Concur. GCC has contacted the Caterer to ensure all commission payments are submitted to the city in accordance with the Agreement and to remind them of the 1% late fee. An individual is now specifically assigned contract monitoring duties with the Caterer. Additional oversight of contract monitoring has also been assigned to Community Services’ administrative staff to review the contract regularly. 8.2 Concur. Future late payments will be assessed a late fee in accordance with the terms of the Agreement. _______________________________________________________________________________________ 6 Glendale Civic Center Cash Handling Internal Control Issue Audit Recommendation GCC Management Response October 2015 9. An employee from Communications prepares and sends out monthly utility invoices for the Caterer on behalf of GCC. The invoices are not reviewed or approved by a supervisor. The invoices are not prepared in SharePoint and do not include a specific date or invoice number. A review of a sample of payments indicated that the Caterer was not always invoiced timely nor did they pay the city in accordance with the Agreement. Finance does not have a citywide policy for invoicing third parties. Section 12 of the Agreement states that the city will bill the Caterer each month for electricity, gas, water and refuse and payment is due within 20 days of billing. Utility bills not paid with 30 days are grounds for termination of the Agreement. Invoices should be prepared, reviewed and tracked in accordance with city procedures to reduce the risk of error or theft. 9.1 GCC should ensure utility invoices are prepared in SharePoint in a timely manner, reviewed by a supervisor and forwarded to Finance for billing. 9.2 GCC should ensure the utility payments are made in accordance with the Agreement. 9.3 Finance should develop a citywide policy for invoicing third parties. 9.1 Concur. GCC staff is currently preparing the utility billing. This invoice now includes the date that the invoice is prepared and sent to the Caterer. The GCC manager reviews the billing/invoice before it is sent to the Caterer. GCC is also waiting on Finance to establish its new SharePoint site, which will resolve this issue. Until then, Finance has given GCC approval via email on September 24, 2015 to continue with our process of invoicing the Caterer directly until SharePoint is set-up. 9.2 Concur. All future utility billings will be made in accordance with the Agreement. 9.3 Concur. Finance will develop and communicate a policy by June 30, 2016. _______________________________________________________________________________________ 7 Glendale Civic Center Cash Handling Internal Control Issue Audit Recommendation GCC Management Response October 2015 There is an increased risk of noncompliance if agreement terms and conditions are not monitored. 10. The $10,000 performance surety was not obtained from the Caterer. The Agreement requires the Caterer to provide a $10,000 performance surety to the city upon execution. The city’s exposure to risk and loss increases if the performance surety has not been obtained. 10.1 GCC should obtain the performance surety from the Caterer. 10.1 Concur. The Caterer is currently making arrangements to provide the city with the $10,000 performance surety. The GCC manager has had dialogue with both the City Attorney and Caterer to obtain the performance surety by November 15, 2015. 11. GCC currently deducts the cost of linens for non- catered events provided by the Caterer from monthly catering commission checks. The Agreement does not discuss payment for linens for non-catered events. Undocumented business arrangements increase risk and potential noncompliance with city procurement policies. 11.1 GCC should ensure the cost of linens for non-catered events are addressed in either the Agreement or another form that follows city procurement policy. 11.1 Concur. GCC staff will work with Materials Management and the City Attorney’s Office to see if an addendum is needed. This will be finalized by December 1, 2015 and implemented by the end of this calendar year. 12. GCC staff does not reconcile daily receipts to the city’s financial records. Cash Handling Policies state that departments should review their accounts in the general ledger, verify the 12.1 GCC should ensure receipts are reconciled to the city’s financial records on an ongoing basis. 12.1 Concur. Receipts are now reconciled daily as TRs are received back from the cashier’s office. INovah, the city’s accounting software, will be installed to verify receipts and cross-reference against the BCR. This will occur by November 15, 2015. _______________________________________________________________________________________ 8 Glendale Civic Center Cash Handling Internal Control Issue Audit Recommendation GCC Management Response October 2015 amounts and verify deposit account numbers. Lack of reconciliation increases the risk that revenue is not accurate, complete or properly recorded. 13. Voided GCC receipts do not contain explanations or evidence of supervisory review. Cash Handling Policies state that voided receipts should be explained and reviewed. Lack of adequate documentation and supervisory review increases the risk of theft or loss. 13.1 GCC should ensure voided receipts are explained and reviewed by a supervisor. 13.1 Concur. Effective September 8, 2015, all TRs have an explanation for any voided receipt and this will be reviewed by a supervisor. 14. GCC internal cash handling procedures are either outdated or have never been formalized. Two staff members handling cash have not been trained on Cash Handling Policies. Cash Handling Policies state that procedures should be documented and staff should be trained. Lack of documented procedures reduces consistency of application and increases the risk that city policy is violated. 14.1 GCC should develop internal cash handling procedures and train staff. 14.1 Concur. a) All internal cash handling procedures have been updated; b) All existing staff are scheduled to go through city cash handling training with Finance on October 21, 2015; and c) All future staff hired at GCC that will be handling cash, checks or credit card payments, will be trained on proper cash handling requirements before being allowed to handle any cash, checks or credit card payments. _______________________________________________________________________________________ 9 Glendale Civic Center Cash Handling Internal Control Issue Audit Recommendation GCC Management Response October 2015 15. Cameras and card access readers are not installed in areas of GCC and the Annex Building where cash and checks are dropped off by clients or balanced by staff. Cameras and card readers provide enhanced levels of safety and accountability for employees. Lack of cameras and card readers increases the risk of theft or loss and reduces accountability. 15.1 GCC should consider installing cameras and card readers at GCC and the Annex Building. 15.1 Concur. GCC will purchase and install a video camera recorder system that will record the front office area where payments are received and will also record the area where the safe is located by October 31, 2015. GCC staff is conducting a security assessment and will be identifying GCC and the Annex Building in a request for Security Card Access Readers through the city’s IT Steering Committee request. Please let me know if you have any questions. cc: Michael D. Bailey, City Attorney Jennifer Campbell, Assistant City Manager Tom Duensing, Interim Assistant City Manager Vicki Rios, Interim Director Finance and Technology Erik Strunk, Director of Community Services