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HomeMy WebLinkAboutAudit Reports - Public - FY20 Review of Glendale City Court Compliance with AOC Minimum Accounting Standards - 1/15/2020 January 15, 2020 Mayor Weiers and Members of Glendale City Council: Independent Internal Audit Program (IIAP) is pleased to present the report of independent review of Glendale City Court’s compliance with Arizona Supreme Court’s Administrative Office of Court (AOC)Minimum Accounting Standards (MAS). The AOC requires this review to be performed at least once every three years. This review was included on the approved FY20 audit plan. IIAP began work on this review in November 2019 and concluded in January 2020 and covered the three calendar years 2017, 2018 and 2019. The report was reviewed and accepted by the Council-appointed Audit Committee at its January 9, 2020 meeting. We would like to thank the management and staff of the Glendale City Court for their corporation and support during this review. Should you have any questions regarding this report, please don’t hesitate to contact me at 930-2103 or via email at eogutu@glendaleaz.com Respectfully Submitted, Emmanuel Ogutu, CIA, CFE Internal Audit Program Manager Distribution: Kevin Phelps, City Manager Michael Bailey, City Attorney Vicki Rios, Assistant City Manager Brent Stoddard, Deputy City Manager Elizabeth Finn, Presiding Judge, Glendale City Court Jean Moreno, Director, Organizational Performance Lisette Camacho, Director, Budget and Finance Irene Avalos, Audit Committee Member Rusty Simmons, Audit Committee Member Independent Review of City Court Compliance with Minimum Accounting Standards January 2020 Independent Internal Audit Program Report No. 2020-001 Independent Internal Audit Program Independent Review of Glendale Court 1 Table of Contents Independent Auditor’s Report on the Application of Agreed -Upon Procedures .. 2 Background ....................................................................................................................... 3 Procedures and Results: .............................................................................................................. 4 Independent Internal Audit Program Independent Review of Glendale Court 2 Independent Auditor’s Report on the Application of Agreed-Upon Procedures January 15, 2020 Arizona Supreme Court Administrative Office of the Courts Elizabeth Finn, Presiding Judge Glendale City Court We have performed an independent review of the Glendale City Court using the procedures enumerated in the Minimum Accounting Standards (MAS), Guide for External Review by Auditors (revised May 30, 2018), which were issued and approved by the Arizona Supreme Court, Administrative Office of the Courts (AOC) to assist you in evaluating management assertions that the City Court has maintained effective internal controls over financial accounting and reporting and complied wi th the Minimum Accounting Standards detailed in Arizona Code of Judicial Administration (ACJA) Section 1-401. The Glendale City Court’s management is responsible for maintaining a system of internal controls to ensure compliance with MAS requirements. This engagement was conducted in accordance with the U.S. Government Accountability (GAO), Generally Accepted Government Auditing Standards (GAGAS) as well as the Institute of Internal Auditors (IIA), international standards for the professional practice of internal auditing. The sufficiency of these procedures is solely the responsibility of the specified users of the report. Consequently, we make no representation regarding the sufficiency of the procedures described below whether for the purpose for which this report has been requested or for any other purpose. The “Independent Review Procedures and Results” section of this report, outlines the required procedures and our findings. There were no material reportable findings and recommendations identified as a result of the procedures performed. We were not engaged to and did not conduct an examination, the objective of which would be the expression of an opinion on management’s assertion. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of the Arizona Supreme Court, AOC, and the Glendale City Court and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited. Emmanuel Ogutu, CIA, CFE Internal Audit Program Manager Independent Internal Audit Program Independent Review of Glendale Court 3 Background The Arizona Supreme Court’s AOC, through §1-401 of the ACJA (referred to as the Code, entirely in this report), established the MAS for all appellate, superior justice and municipal courts to help the courts in ensuring the safety of public monies and outline the role and responsibilities of court personnel in complying with these standards. Section G of the Code requires each court to undergo an independent review, at least triennially, of its accounting records, procedures, automated financial management systems and internal controls. The City of Glendale’s Independent Internal Audit Program (IIAP), is independent of the City Court based on U.S. GAO, GAGAS standards as well as IIA standards for the professional practice of internal auditing, mandatory standards on independence. The City of Glendale’s ordinance1 establishes the IIAP that reports to an Audit Committee appointed by the City Council. The previous review of the Court’s MAS was completed in January 2017. This review covers three year- period of calendar years 2017 through 2019. As required by the standards applicable to an agreed-upon procedures engagement, the City Court provided the following representations: a) The MAS for Arizona Courts prescribes the standard accounting policies and procedures to assist courts in complying with applicable statutes and generally accepted accounting principles. b) The Administrative Office of the Courts Guide for External Review by Auditors (Revised May 30, 2018) contains the procedures and sample sizes agreed upon for this review. c) We are responsible for establishing and maintaining effective internal controls over financial accounting, reporting and compliance with the MAS. Further, we have conducted the required annual self-assessments and have established and maintained effective internal controls over financial accounting, reporting and compliance with the MAS. d) We have made available to the auditor all documentation related to compliance with the specified requirements. e) We are not aware of any known noncompliance with the specified requirements, including any occurring during the years 2017 through 2019. f) We have had no communication from the AOC or others concerning possible noncompliance with the specified requirements, including any such communication received between January 1, 2017 and December 31, 2019. 1 Ordinance No. O19-43 passed by the City Council on May 14, 2019 Independent Internal Audit Program Independent Review of Glendale Court 4 Procedures and Results: PROCEDURE A: Administrative Requirements 1. Determine if all financial transactions are recorded in an automated cash receipts journal and include: a) Date payment was receipted; b) Amount received; c) Receipt/transaction number; and d) Payment distribution by type (fine, criminal justice enhancement fund, medical services enhancement fund, bond, etc.). 2. Verify if the court has posted the financial policies required by MAS in a conspicuous location in the court’s main lobby accessible to the general public or next to each customer service station and includes the following: a) A statement regarding the methods of payment that the court accepts, such as but not limited to, cash, certified checks, money orders, or credit cards; b) A statement that a receipt will be provided for every payment made in person to the court; c) A statement that the receipt provided by the court is proof of payment; and d) A statement regarding the court’s dishonored payment policy RESULTS: We sampled copies of financial transactions from the Case Management System and confirmed that they include the key information indicated in procedure (1) above. We also observed that the Court’s financial policies are posted in the main lobby of the Court’s building. No material exceptions were noted as a result of applying these procedures. PROCEDURE B: Safeguarding Monies and Financial Records 1. Determine through interviews, observation and by taking an inventory of the contents of the safe if the court safeguards accounting records such as receipts, checks, and monies received by the court as follows: a. Store monies in a secure location from the moment they are received until they are deposited with the bank or local treasurer; b. Retain, count, and handle all monies in a secure location that is not accessible to the public and is only accessible to authorized personnel until monies are deposited with the bank or local treasurer; c. Maintain physical restrictions between the public and the areas where court monies and financial records are stored and allow only authorized access to those areas. d. Display signs limiting admittance to areas where monies and financial records are stored, unless access is restricted by electronic access control. Independent Internal Audit Program Independent Review of Glendale Court 5 e. Change safe keys and/or combinations upon either: i. Termination of employment of a person who was granted full access to a safe, unless access to the court or area where the safe is located is restricted by electronic access control or; ii. Change of responsibility of an employee who was granted full access to a safe, unless the area where the safe is located is restricted by electronic access control; f. Assign each cashier a unique user identification. The user identification shall only be used by the assigned user; g. Each cashier shall individually secure the assigned cash drawer fund in a separate lockable drawer or locking bank bag at all times prior to reconciliation and verification; h. Secure blank checks and credit card invoices in a safe, locked cabinet or secured area; i. Secure all manual receipt books and ensure they are accessible only to authorized individuals; j. Prohibit the use of signature stamps when signing financial documents such as checks. Courts may use a check signing machine to imprint authorized signatures on checks; k. Keep cash drawers or bank bags, safes and vaults locked at all times when not in use; l. Store monies overnight in a locked, immovable and fireproof safe or vault with restricted access; m. Use locking bags or tamper-proof plastic bags to transfer court monies to the bank or local treasurer; n. Court employees and authorized personnel who issue receipts on behalf of the court shall not keep court monies with their own personal funds, deposit court monies in a personal bank account or take court monies home with them upon departure; o. Court staff shall not cash personal checks or purchase supplies using monies from the cash drawer fund; p. Court staff shall not commingle personal monies with court monies including making personal change from the cash drawer fund or court monies or making change for court payments with personal monies; and q. Court staff shall investigate any shortage or overage of monies within one business day. If there is still a discrepancy, court staff shall document the discrepancy and report it to court management. r. Court staff shall not correct an original entry to any financial documents and/or instruments such as, but not limited to, a check or receipt by erasing or masking (correction tape/fluid) the entry. When correcting errors, court staff shall strikethrough the original entry, initial the correction entry, and obtain a second person’s verification to validate Independent Internal Audit Program Independent Review of Glendale Court 6 the correct. Documentation of the verification shall clearly contain the second person’s initials. RESULTS: No material exceptions were noted as a result of applying these procedures. PROCEDURE C: Independent Review by Auditors 1. Review the last independent review report to determine if the court date stamped the final report. (Effective on and after 4/11/2018). 2. Review the final reports issued for the last independent review and for the last operational review conducted by the AOC to determine if the court has addressed all financial findings noted in the reports. RESULTS: Our review of the last independent review conducted by Glendale City Auditor’s Office, dated January12, 2017 and confirmed that the court addressed the three findings raised in the report. We also confirmed that no operational review was conducted by AOC during the period 2017 t hrough 2019. PROCEDURE D: Segregation of Duties 1. Through interviews, observation and review of documentation determine the following: b. A second authorized person, other than the person performing that duty, verifies disbursements, deposits, voided receipts and daily and monthly reconciliations and documents the verification in a method that identifies the verifier such as initials, signature or other electronic identifiers. c. A second authorized person, other than the person performing that duty, reviews all manual receipts issued on a daily basis and that the documentation of the review clearly contains the initials of the court employee who issued or voided the manual receipt as well as the authorized person who verified the issuance or voiding; and d. Verify that a second authorized person signs checks prepared by someone else unless the check requires two signatures. For courts with manual checks, verify that a second authorized person signs check prepared by someone else unless the check requires two signatures. For courts with online checks (the bank prepares the paper check and mails it out), verify that the person who entered the check online is not the same person who verified and authorized the online check. RESULTS: No material exceptions were noted as a result of applying these Independent Internal Audit Program Independent Review of Glendale Court 7 procedures. PROCEDURE E: Cash Handling Acceptance of Payment 1. Observe the court’s practice for accepting payments to determine if only court authorized personnel or electronic interfaces receipts payments on behalf of the court. 2. Determine if payments received from defensive driving schools are received in the form of business check, money order, wire transfer or electronic fund transfer. Endorsements 3. During count of cash drawers or cash bags and when staff opens the daily mail, determine if all checks and money orders payable to the court are properly and clearly endorsed with a restrictive endorsement stamp that reads “For Deposit Only – Payable To (account’s name)” upon receipt. 4. Determine through interviews and observations if checks and money orders payable to another court are not endorsed and are sent to the proper court within two business days. Unidentified Monies 5. Determine if the court has a process to identify the defendant and case number when cash, checks, money orders are received without identifying information; and, that the court receipts the unidentifiable funds into a suspense or hold account within the automated financial management system and deposits into the bank within one business day. 6. Review the court’s “Unidentified Monies” file and verify if: a. Copies or an electronic image of the checks or money orders, receipts and supporting documentation are retained by the court; and b. Unidentified monies are reported and remitted as unclaimed funds pursuant to statute. Receipting 7. Determine if the court is receipting monies received no later than the next business day. 8. Determine if the receipts generated by the court reflect the date the monies were receipted. 9. Select a random sample of at least 20 individual receipts (for bonds, fines, Independent Internal Audit Program Independent Review of Glendale Court 8 fees, surcharges, and restitution for all court levels; add child support, probate, and other trust monies for superior court) using the cash receipts journal as the source document. Determine if the individual receipts contain the following information (as applicable): a. Name of court; b. Case number; c. Defendant's name; d. Plaintiff's name; e. Date payment was receipted; f. Amount received; g. Name and address of the third-party payer making the payment (if available) and if not included on the case financial record; h. Identification of person receiving the payment; i. Method of payment such as cash, check, payment card or electronic fund transfer; j. Unique sequential receipt/transaction number. 10. Sample 10 defensive driving school payments and verify if the monies from the defensive driving schools were receipted by the end of the next business day and payment was recorded in each defendant's case financial record. 11. Determine if the court is receipting overpayments as an overpayment and not as a fine, surcharge, bond, or restitution. Manual Receipts 12. Determine if manual receipts are only used when the court's automated financial system is inoperable and manual receipts are entered into the automated management system by the end of the business day or as soon as the system is operable. 13. Review the court's manual receipt book and sample 10 manual receipts to verify the following: a. Manual receipts are at least two-part forms, pre-printed with unique sequential numbers and the name of the court on each receipt. Receipts are issued in sequence within each book; b. Manual receipts are entered into the financial automated system and are cross-referenced; the automated receipt number is referenced on the manual receipt and the manual receipt number is referenced on the automated receipt or recorded in a docket entry in the case management system; c. A second person reviews the manual receipts and verifies receipts are issued in sequence, are recorded in the financial management system, and all receipts are accounted for and have actually been issued or Independent Internal Audit Program Independent Review of Glendale Court 9 voided; d. There is documentation that a second person reviewed the manual receipts such as initials or signature; and e. The court has an established written policy, procedure or guidelines to account for all unissued manual receipts at least quarterly. Voided Receipts 14. Select a sample of 10 automated and 10 manual voided receipts to determine that all voided receipts are not altered in any way, and if an error is made or a correction is needed, the receipt is marked "VOID" and the reason for voiding the receipt is noted on the receipt, unless the reason is indicated on the case financial record. Verify that all copies of voided manual receipts are retained in the manual receipt book. Verify if a new receipt was issued for each voided receipt and that the voided receipt number is referenced on the replacement receipt. Online Transactions 15. Determine if the court has a manual retrieval process for online transactions. If so, the court must retrieve and receipt the transactions to the case financial management system no later than the end of the next business day. 16. Determine if the court has an automated retrieval process for online transactions. If so, the court must receipt the transactions to the case financial management system no later than the end of the next business day. 17. Verify receipts associated with online transactions contain the following additional elements in the case financial record: online transaction date, online transaction number, and name and address of cardholder, if available; however, there shall be at a minimum, an audit trail to identify the cardholder’s information for disbursement purposes. RESULTS: No material exceptions were noted as a result of applying these procedures. PROCEDURE F: Disbursements 1. Sample at least 10 disbursements to determine if disbursements were made only in the form of a check, credit to the payment card originally used to make the payment or an electronic fund transfer and that all checks and/or approved payment card adjustments or reversals were only signed by authorized signers. Independent Internal Audit Program Independent Review of Glendale Court 10 2. Verify checks issued by the court are pre-printed with sequential numbers, or electronically assigned and disbursed in sequential order. 3. Sample 10 bond disbursements and verify bond monies were disbursed according to written court order and only to the individual who posted the bond or to the third party authorized to receive monies by the person posting the bond. 4. Sample 10 restitution payments and verify restitution payments were disbursed to victims within the time requirements of ACJA § 5-204. 5. Determine if the court has established written guidelines for refunding and disbursing overpayments and bonds. 6. For all sampled disbursements, verify the disbursements were recorded in the court’s automated financial management system by the end of the next business day and disbursed within the time period prescribed in the court’s written policies and procedures. 7. For all sampled disbursements, verify each automated disbursement record contains the following: case number, party names, date check issued, check amount and/or converted amount, name of payee, check number, payment distribution (fines, surcharges, restitution, bond, etc.), amount disbursed and electronic fund transaction number, if applicable. 8. Verify the court’s disbursement journal contains the following at a minimum: date check issued, amount disbursed, name of payee, court check number, method of payment distribution, and electronic fund transaction number, if applicable. 9. Verify voided checks are marked “VOID” on the face of the check and all voided checks are retained. For courts with online checks (the bank prepares the paper check and mails it out and places a stop payment on the check if not cashed by the expiration date or returned as undeliverable and the bank retains the check), verify that the check is flagged “void/stop payment” in the court’s automated financial system. 10. Verify when the court deems a check has been lost or stolen that the court placed a stop payment on the check. Independent Internal Audit Program Independent Review of Glendale Court 11 11. Verify when the court issues replacement checks, the new check is issued following normal disbursement procedures, and the court cross-references both the new check number and canceled check number on all accounting records. 12. If the court uses a petty cash fund, verify the court is following local policies and procedures regarding usage and reimbursement of the petty cash funds. RESULTS: No material exceptions were noted as a result of applying these procedures. PROCEDURE G: Bank Accounts and Deposits 1. Examine a recent bank statement(s) for each account and verify that all bank and investment accounts are established under the name of the court, unless these accounts are maintained by the city, county or in the case of appellate courts, the state treasurer and are established in the name of the city, county or state. 2. Determine if the court maintains a current list of all checking, investment and other bank accounts which includes the name and address of the banking institution, the account number, the account name, and the names of those authorized to sign checks or make withdrawals . 3. Determine if the court maintains current signature cards/agreements for all bank and investment accounts involving court monies, unless the accounts are maintained by the city, county, or, in the case of appellate courts, the state treasurer and are established in the name of the city, county, or state. 4. Determine if the court deposits cash, checks and money orders with the local treasurer or bank by the next business day the court and the treasurer are open when receipts exceed $300.00 or at least weekly if receipts totaled less than $300.00. 5. Compare bank deposits to the cash receipts journal to determine if funds were deposited in the same form as received. Independent Internal Audit Program Independent Review of Glendale Court 12 RESULTS: No material exceptions were noted as a result of applying these procedures. PROCEDURE H: Reconciliation of Financial Records Daily Reconciliations 1. Determine through interviews and observation that each court employee responsible for a cash drawer fund verifies the beginning cash fund before usage. 2. Determine through interviews and observation each court employee responsible for a cash drawer fund reconciles and balances all monies received after each shift with the cash receipts journal. Verify the clerk initialed/signed the daily cash receipts summary report used to document the reconciliation and that a second person verified the clerk’s reconciliation and initialed/signed the report. 3. Perform count of each cash drawer and reconcile total daily receipts to cash receipts journal for each clerk responsible for a cash drawer. 4. Observe and verify preparation of the daily deposit and the reconciliation of the total daily receipts to the cash receipts journal and determine the daily cash receipts summary report or deposit ticket is initialed/signed by the person preparing the deposit and by the second person reviewing and verifying the deposit and that documentation supporting the deposit is retained. 5. Using the cash receipts journal as the source document, verify total receipts for each day to the validated deposit ticket and credit card detail report, as applicable, and to the bank account statement. If monies are deposited with the local treasurer (city, county or state as applicable), verify total receipts for each day to the daily funds transmittal report and to the receipt issued by the local treasurer. 6. Determine if the court retains the records of daily reconciliations performed and supporting documentation as required by the records retention schedule. RESULTS: No material exceptions were noted as a result of applying these procedures. Independent Internal Audit Program Independent Review of Glendale Court 13 Monthly Reconciliations 1. Review and verify the reconciliation of the receipts journal for the month to the monthly remittance report submitted to the local treasurer (city, county or state as applicable) and compare to the disbursement check issued. 2. Review and verify the reconciliation of all bank accounts maintained by the court. Reconcile deposits with the receipts journal and checks written with the disbursements journal. 3. Review and verify the reconciliation of the court’s record of open/outstanding bonds to the automated financial management system report and to all bank accounts and cash balances. 4. Review and verify the reconciliation of the petty cash fund, if used by the court. 5. Review all reconciliations and supporting documentation and determine if the reconciliations are performed monthly and accurately, are initialed/signed by the person performing the reconciliation and are initialed/signed by the second person reviewing and verifying the reconciliation. 6. Determine if the court retains the following records for each bank account and reconciliations as required by the records retention schedule: a. Copy of the bank reconciliation; b. Record of outstanding checks; c. Record of deposits in transit; d. Bank statements; e. Canceled checks; f. Canceled deposit slips; g. Bank issued debit and credit memos; h. Monthly financial reconciliations and supporting documentation; and i. Any documentation that requests the adjustment or void of a case financial record. RESULTS: No material exceptions were noted as a result of applying these procedures Independent Internal Audit Program Independent Review of Glendale Court 14 PROCEDURE I: Outstanding Checks 1. Determine if the court investigates all court checks, manual or online, outstanding for more than six months on a monthly basis, unless maintained by a city, county, or state financial agency. Determine if the court documents action taken or disposition of outstanding checks investigated and retains documentation in accordance with the records retention schedule, if the investigation is performed by the court. 2. Determine if the court places a stop payment on outstanding court checks, unless the check indicates a date or number of days after which the check becomes void and then determine if the court has remitted outstanding checks as unclaimed funds to the county or state pursuant to statute. Determine if the court retains documentation of outstanding checks reported and remitted to the Department of Revenue or County Treasurer as unclaimed finds and review the report for the prior year. RESULTS: No material exceptions were noted as a result of applying these procedures PROCEDURE J: Bonds 1. Determine if the court reviews monthly pending and outstanding bonds posted more than 90 days. Sample 5 bonds posted more than 90 days to verify the court took action on the bonds, i.e. reviewed by judge and ordered to hold bond, refund bond, forfeit bond, etc. RESULTS: No material exceptions were noted as a result of applying these procedures PROCEDURE K: Reporting 1. Select one month’s remittance report and determine if the report and monies are remitted to the local treasurer (city, county or state as applicable) and that the court received documentation acknowledging the submission of the report. RESULTS: No material exceptions were noted as a result of applying these procedures.