HomeMy WebLinkAboutAudit Reports - Public - Report No. 2021-001 City-Wide Cash Handling Audit Report - 10/14/2020C
Glendale
A R I Z O N A
October 14, 2020
Mayor Weiers and Members of Glendale City Council:
Independent Internal Audit Program (IIAP) is pleased to present the City-wide Cash
Handling audit report. This audit was conducted between July and September 2020
and is part of the continuous monitoring of cash handling process across the City. The
audit covered the period July 1, 2019 to June 30, 2020.
During the audit, IIAP noted that internal controls on cash handling are generally effective.
IIAP identified three additional areas where opportunities exist to strengthen controls on the
City's cash handling process in order to enhance the safeguarding of the City's cash assets.
Details of these are included in the audit report.
The report was reviewed and accepted by the Council -appointed Audit Committee at its
October 8, 2020 meeting.
IIAP would like to thank the City management and staff for their corporation and support
during the audit.
Should you have any questions regarding this report, please don't hesitate to contact me at
623-930-2103 or via email at eoautu@alendaleaz.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
Jean Moreno, Interim Director, Organizational Performance
Lisette Camacho, Director, Budget and Finance
Irene Avalos, Audit Committee Member
Rusty Simmons, Audit Committee Member
C
Glendale
A R 1 7 0 N A
Glendale City -Wide
Cash Handling Audit Report
October 14, 2020
Independent Internal Audit Program
Table of Contents
ExecutiveSummary........................................................................................................ 2
A. Introduction............................................................................................................... 3
B. Background.............................................................................................................. 3
C. Objective................................................................................................................... 5
D. Key Outcomes.......................................................................................................... 5
E. Audit Results and Recommendations....................................................................... 5
E1. Scope Limitation on Cash Count....................................................................... 5
E2. City-wide Cash Handling Policies and Procedures should be updated ......... 5
E3. Change Fund authorization records and process needs improvement ......... 7
E4. Oversight of Cash handling needs to be strengthened ................................... 8
F. Audit Scope and Methodology................................................................................10
G. Data Reliability........................................................................................................10
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Independent Internal Audit Program City-wide Cash Handling
Executive Summary
As part of our FY 2021 Audit Plan approved by the City Council, the Independent Internal
Audit Program (IIAP) conducted a City-wide audit of cash handling process. The audit
was performed to evaluate the effectiveness of internal controls over cash handling and
to determine if they are adequate to mitigate against risks association with cash loss or
misappropriation.
Audit Objectives:
The objective of this audit was to assess the adequacy of internal controls around cash
handling at selected City Departments/Cash points and determine their effectiveness to
provide reasonable assurance on compliance with policies and procedures and to
mitigate against risks associated with loss or misappropriation of cash.
Audit Conclusions:
Cash Management is a critical component of the City's operations with approximately $19
million dollars' in revenues processed by the City in the period between January and June
2020. Cash being an area where the risk of theft or misappropriation, it is important that
internal controls over cash handling are adequate to provide assurance to management
that critical risks that could impact cash handling operations are always reasonably
mitigated.
In our opinion, internal controls are generally operating effectively to safeguard cash and
cash equivalents throughout the City. However, we identified several instances where
additional improvements are needed including:
Moderate: The City needs to update City-wide Cash handling policies and
procedures to align with best practice standards on cash management and align with
cash practices across the cash handling locations;
High: The process for authorization of change funds needs improvement and the
authorization records need to be updated; and
High: Increase oversight over cash handling process by requiring periodic surprise
cash counts by those responsible for oversight as well as periodic surprise cash count
by disinterested personnel;
1 iNovah Cashiering system monthly revenue reports.
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Independent Internal Audit Program City-wide Cash Handling
A. Introduction
Independent Internal Audit Program (IIAP) conducted a city-wide audit of Cash handling
process in July/August 2020. The audit was included as part of IIAP's FY21 Annual Audit
Plan. This audit is part of the annual audits performed by IIAP as part of continuous
monitoring process. was to assess the adequacy of internal controls around cash handling
at selected City Departments/Cash points and determine their effectiveness to provide
reasonable assurance on compliance with policies and procedures and to mitigate
against risks associated with loss or misappropriation of cash.
An effective system of internal control is the backbone of an entity's control environment
that provides reasonable assurance regarding achievement of the entity's objective.
Periodic testing of internal controls over cash handling is essential for the healthy
functioning of an organization. Establishing written policies detailing cash handling
controls is the first step to ensure processes are understood by employees when carrying
out their day-to-day functions concerning cash handling. In addition, proper
documentation and retention of cash control records assist with monitoring the
compliance with internal controls, rules and regulations and increases efficiency in
operations.
Budget and Finance is responsible for administrating of cash management process and
has issues policies and procedures to guide departments and staff on proper and effective
management of cash and cash equivalents. Cash procedures requires that staff handling
cash should, among other things;
• Perform timely reconciliation of cash receipts;
• Deposit cash received in a timely manner;
• Effectively use authorized change fund in accordance with the policy;
• Under training on cash handling;
• Perform quarterly cash counts and send the results on Budget and Finance; and
• Handle credit card processing in compliance with the requirements of Payment
Card Industry (PCI) standards
B. Background
The City of Glendale has documented the standards for cash handling in the Cash and
Credit Card Handling Policies and Procedures Revised on 06/23/2016. These policies
provide guidance to all City staff handling cash and sets the tone for providing the
assurance that the City's cash resources are protected against the risk of loss or
misappropriation. It is the intent of this audit to serve as an independent review of efforts
to support that assurance. Best practices for cash handling were also considered during
the fieldwork phase of this audit. While the audit was conducted at selected number of
locations within the City, the recommendations raised in this report are meant to apply to
all areas where cash is handled across the City.
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Independent Internal Audit Program City-wide Cash Handling
In addition to this and other criteria outlined in the City policy, best practices for cash
handling were considered during the audit including: sufficient segregation of duties,
over/under documentation, voided transactions, documented procedures, as well as
general oversight over cash management within each location and City-wide as well.
The City has 17 change funds used to conduct cash transactions with customers. These
funds should never be expended or depleted for any reason and should always be equal
to their established values. Change funds range from $50 to $3,000, depending on the
needs of the departments and the specific cash handling locations. However, they are
used in the processing of roughly a million dollars in cash transactions per year, so it is
essential that strong cash handling controls be in place to help prevent and/or detect
losses. Each change is authorized when established and is managed by one individual
designated by the department as the custodian and a back-up custodian. The custodian
is responsible for ensuring the fund is managed in accordance with City policies.
Procedures for establishing and maintaining of change fund are documented in section
1200 of the City's Finance Administrative Policy No. 1 on Procurement.
In the period under review, the City collected cash revenue in the amount of $18.7 million
across the 17 cash points. Each location has developed internal procedures that guides
the receipt, reconciliation and deposit of cash. The procedures must align to the City-wide
cash handling policies. Most locations deposit the cash collected on their own. All
locations send in their paperwork to the Customer Service area located at the first floor
of the City Hall. Customer service staff process all cash received across the City into
iNovah cashiering system. Finance Staff extract reports from iNovah system to record
and allocate revenue to the appropriate revenue accounts in the Tyler Munis, which is the
City's core financial management and accounting system.
Due to the COVID-19 pandemic, most locations have been reporting little to no activity
and as a result we performed cash counts at 7 of the 17 cash points (See Appendix I).
However, the sites where we conducted counts are locations that we considered higher
risk based on the amount of transactions, the amount of cash handled, and consideration
of prior audit results. In addition, we reviewed cash transactions reports and cash deposit
records to identify areas of potential loss or fraud as well as system users to verify
compliance with cash handling training requirements. We believe that along with the cash
counts we conducted and additional testing we performed, we can provide an opinion on
the adequacy and effectiveness of internal controls in place to safeguard cash throughout
the City.
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Independent Internal Audit Program City-wide Cash Handling
C. Objective
To assess the adequacy of internal controls around cash handling at selected City
Departments/Cash points and determine their effectiveness to provide reasonable
assurance on compliance with policies and procedures and to mitigate against risks
associated with loss or misappropriation of cash.
D. Key Outcomes
Internal controls over cash handling across the City are generally adequate and provide
reasonable assurance on their effectiveness and adequacy to mitigate the risk of loss and
misappropriation of cash and cash equivalents. However, there are additional
opportunities to further enhance controls over cash handling through ensuring the cash
handling policies and procedures are up to date and reflect best practice standards, re-
authorizing all change funds to guard against loss and misuse as well as increasing
oversight over cash management process across all cash processing locations.
E. Audit Results and Recommendations
E1. Scope Limitation on Cash Count
Cash counts performed by IIAP at the seven selected locations were all accurate and the
cash counted was properly accounted for and reflected the amounts shown in
reconciliation documents availed to us at the time of the count. We note that while our
plan was to perform surprise counts at the selected locations, this was not possible partly
because of the COVID-19 crisis. Most of the locations were temporarily closed and as a
result, IIAP Manager had to coordinate with staff to be available for the cash count, thus
defeating the purpose of surprise cash count. Therefore, our scope was limited to this
extent.
We identified three improvement opportunities related to that we discuss in findings E2 to
E4 below.
E2. City-wide Cash Handling Policies and Procedures should be updated
Condition:
The City-wide cash handling policies need improvement to provide effective guidance to
all locations that handle cash and cash equivalents. Specifically, the following procedures
are either missing or need to be strengthened.
Requirement on the frequency of cash handling training for all personnel. At
present the training schedule is determined by Finance on an ad-hoc basis and
there are no requirements for refresher training in the policy.
Occasionally, some departments use temporary employees to perform cashiering
duties. There is need to clarify this in the policy and issue procedures to address
and mitigate the risk associated with using temporary staff to perform cashiering
duties.
Independent Internal Audit Program City-wide Cash Handling
• During our review, IIAP noted 1 in 3 instances where deposits were made after the
one business day requirement documented in the policy. Upon inquiry, staff at the
cash locations indicated having been informed in training that cash receipts should
be deposited within two business day, which is contrary to what the policy states.
Criteria
According to Committee of Sponsoring Organizations principles on internal control, a
leading authority on internal controls, management should perform regular review and
update of policies and procedures that ensures control activities are developed and
designed to mitigate risks associated with critical business process.
Cause
The Cash Handling Policies and Procedures was last updated in November of 2016.
Some procedures have not been updated to align with the practices at cash locations.
Effect
Regular review and update of cash handling policies and procedures ensures staff
handling cash resources are well equipped and reduces the risks associated with loss or
misappropriation of cash. It also enhances compliance with relevant regulatory and other
requirements.
Recommendation
IIAP recommends Budget and Finance update the City-wide cash handling policy to
include a requirement by cash handling staff at locations that have recently started
processing credit cards undergo credit card processing training. Additionally, the policies
should be updated to provide details on the frequency of training including requirements
for refresher training. Budget and Finance should consider making this a mandatory
training due to the risk involved in cash handling. The Policy should include guidelines on
cash handling responsibilities for temporary staff.
management -5 response:
Management Agreement Owner Target= Completion -Date
Concur Controller & Budget and 1/31/2021
Finance Director
Action Plan:
Management Response: Budget and Finance will revise the policy to incorporate
suggestions as identified above.
Items of Clarification:
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Independent Internal Audit Program City-wide Cash Handling
1. Requirement on the frequency of cash handling training for all personnel. At
present the training is determined by Finance on an ad-hoc basis and there
are no requirements for refresher in the policy.
Management Response: Finance holds an annual training on the city's cash
and credit card handling policy. All employees who handle cash and credit and
debit cards are required to attend the training. New employees are trained, on
an as needed basis, when they are hired.
Page 19 of Cash and Credit and Debit Card Policy, section v and vi, states that
employees who process credit and debit card transactions and who have access
to credit card information must attend initial and annual trainings from the
Finance Department. The policy will be updated to clarify that all employees who
handle cash and credit and debit cards must attend initial and annual trainings
from the Finance Department.
2. The Cash Handling Policies and Procedures was last updated in November
of 2016.
Management Response: Budget and Finance will review and update the policy
by January 31, 2021.
E3. Change Fund authorization records and process needs improvement
Condition:
Departments are responsible for requesting authorization for change funds by filling a
Change Fund Request Form. This form is reviewed and approved by Finance who then
issues an approval Memo to the requesting department. During our cash count of the
change funds, none of the locations had a copy of the change fund request form or the
memo from Finance that authorized the change funds. We requested Finance to provide
copies of the forms and the memo authorizing the amounts. Finance provided
authorization for only three of the seven locations. Additionally, the authorized amount for
one location was different from the amount we counted.
Criteria
Section 1204 of the Finance Administrative Policy on Procurement policies and
Procedures provides guidelines for establishing, maintaining and approval of change
fund. It specifically stipulates that any differences in cash amount authorized against the
actual cash must be addressed when changing custodians and that cash audit sheets
must be reviewed by Finance Director or designee prior to approval.
Independent Internal Audit Program City-wide Cash Handling
Cause
Most of the locations have kept the change fund amounts for a long time and due to
staff turnover and passage of time, some of the authorizations got lost as no one was
keeping track of them.
Effect
The lack of proper authorization and safekeeping of authorization records for change
fund exposes the funds to risk of loss or misappropriation.
Recommendation
We recommend Budget and Finance:
1) To re -authorize all change funds that whose authorization are missing. Finance
should also require all cash custodians to keep copies of authorization with each
change fund in the safe.
2) Require departments to indicate the change fund amount on every request made
to Finance including requests for change in custodians and that every request be
accompanied by a cash count.
Management's Response:
Management Agreement Owner Target Completion Date
Concur I N/A 1 1/31/2021
Action Plan:
Currently all change funds have quarterly cash count sheets that identify the cash count
and custodians. The custodians and Finance approvals are noted on the quarterly cash
count sheets. These sheets are maintained by Budget and Finance. These forms show
authorization and safekeeping records for the change funds.
When there is a change in custodian the cash count sheet is used to verify the total of
the change fund and is signed off by the custodians and finance.
We will update the language in the policy to match the current practice with the cash
count sheets.
E4. Oversight of Cash handling needs to be strengthened
Condition:
IIAP requested copies of cash counts performed by Managers of the seven cash locations
selected for this audit. Except for one location, Customer Service located at the first floor
Independent Internal Audit Program City-wide Cash Handling
of the City Hall building2, there were no copies of counts from other locations. Upon further
inquiry, IIAP noted that none of the locations performed surprise cash counts as part of
supervisory oversight. Staff at these locations indicated that the quarterly cash counts
performed by the Cashiers is the only one required by Finance. None of the locations
had been subjected to an independent cash verification by Finance Staff.
Criteria
Performing random, unannounced cash counts by a designated employee is a best
practice. Surprise cash counts are an excellent tool for testing whether transactions
comply with established policies and procedures and whether cash resources are always
accurately and completely accounted for.
Cause
The City Cash Handling Policies and Procedures does not include guidance requiring
periodic cash counts by Managers as well as independent staff as part of oversight
process and to strengthen controls over cash handling and minimize risk of loss or
misappropriation of cash resources.
Effect
The risk of loss or misappropriation of funds increases when oversight of cash handling
is weak.
Recommendation
IIAP recommends that as part of strengthening the cash controls process, managers at
the cash locations be required to perform both announced and unannounced cash counts
on a periodic basis to be determined by Finance. Results of the cash counts should be
kept on file and if there are significant variances, they should be escalated to Finance for
further action. Finance should include this as a guidance when updating the City's cash
handling policies and procedures.
management's Response:
MenagerhLar t Agreement Owner Terget Completion Date
Concur Controller January 31, 2021
Action Plan:
Budget and Finance will incorporate the recommendation to include announced and
unannounced cash counts by a designated employee within the Department on a
periodic basis into the Cash and Credit and Debit Card Policy.
2 Customer service's last surprise cash count was performed in September 2018
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Independent Internal Audit Program City-wide Cash Handling
F. Audit Scope and Methodology
The audit scope included a review of procedures and transactions from July 1, 2019 to
June 30, 2020. Fieldwork began July 13, 2020 and concluded August 15, 2020. The
sample dates selected for compliance testing are January 2, 2020 and June 30, 2020. To
accomplish our audit objective, we performed the following procedures:
• Conducted cash counts at seven cash locations to test change fund and receipts
on hand;
• Observed cash handling procedures at select cash handling locations;
• Reviewed Citywide Management Policies & Procedures and departmental
policies and practices for cash handling;
• Interviewed departmental staff involved with cash processes and procedures;
• Examined reports generated from inovah cashiering system;
• Observed reconciliation process of cash receipts;
• Performed a sample test of deposits for compliance with established policies and
tracing deposits into City accounts and the general ledger; and
• Evaluation of the risk of fraud, waste, and abuse relative to the audit objective.
G. Data Reliability
The primary data utilized for the work performed in this audit was obtained directly from
the iNovah Cashiering3 system as well as Tyler Munis system. In determining whether
the data used was reliable, HAP tested the following aspects of the data:
1) Consistency —IIAP reviewed data entry practices at the customer service area and
confirmed that data entry practices are sufficiently clear and well defined. The
Customer service staff is responsible for processing all cash paid directly at the
department. They also process cash records received from various locations
across the City.
2) Completeness — This refers to the extent to which relevant data records and fields
are present and sufficiently populated. Through testing of a sample of transactions
we determine that transactions recorded in the system were supported by back-up
documents. Additionally, cash transactions were traceable to third party
documents such as bank statements obtained directly from the banks. We also
confirmed sequential numbering exists and are generally accounted for in some of
the data parameters.
3) Accuracy —IIAP matched amounts recorded in the general ledger to reports
generated by the iNovah system and confirmed that the reports generated by the
two systems agreed and where there were discrepancies, they were reconciled by
3 Inovah is the primary system used for processing all cash transactions and cash reports received at all City's cash
locations.
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Independent Internal Audit Program City-wide Cash Handling
responsible staff in Finance. Reconciling items were properly supported by back-
up documents as well.
Through the testing work performed preliminarily following the above three criteria, we
determined that the data is sufficiently reliable given its intended use.
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Independent Internal Audit Program City-wide Cash Handling
Cash Count Locations
The following are the locations where we performed the cash count.
Appendix i
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Independent Internal Audit Program City-wide Cash Handling
Date of
Fund
Cash
Location Cash Point
Amount
Count
Main Library
400
7/20/2020
Foothills Library
425
7/20/2020
Special Events
1,000
7/28/2020
Adult Center
600
7/28/2020
Foothills Aquatic
2,000
7/28/2020
Finance -Billing 1 st floor
1,600
7/21/2020
1 st Floor
1,500
7/21/2020
Landfill only
3,000
7/17/2020
Appendix i
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Independent Internal Audit Program City-wide Cash Handling
Appendix 11
Definitions of Audit Findings Rankings
We assigned the risk rankings based on our professional judgment. A qualitative
assessment of high, medium or low helps to prioritize implementation of corrective action
as shown in the table below.
Critical control weaknesses that exposes the City to a high degree of
combined risks. Recommendations from High risk findings should be
High implemented immediately (preferably within 3 months), to address areas
with most significant impact or highest likelihood of loss, misappropriation
or dama a related to the Cit assets.
Represents less than critical weaknesses that exposes the City to a
moderate degree of combined risks. Recommendations arising from
Moderate moderate risk findings should be implemented in a timely manner
(preferably within 6 months), to address moderate risks and strengthen or
enhance efficiency in internal controls on areas with moderate impact and
likelihood of exposure.
Represents low risk or control weaknesses and the exposure is not likely
to expose the City and its assets to significant losses. However, they
!LOW
should be addressed in order to improve efficiency and effectiveness of
operations. Recommendations arising from low risk findings should be
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Independent Internal Audit Program City-wide Cash Handling