douglas county cash handling internal controls review

FINAL REPORT

Douglas County CASH HANDLING INTERNAL CONTROLS REVIEW

June 16, 2020

Moss Adams LLP 999 Third Avenue, Suite 2800

Seattle, WA 98104 (206) 302-6500

Cash Handling Internal Controls Review Report

FOR INTERNAL USE OF DOUGLAS COUNTY ONLY

Table of Contents

Executive Summary 1

Scope and Methodology 3

Internal Controls Review Results 5

A. Cash Handling Policies and Procedures 5

B. Cash Receipt – Monitoring 5

C. Cash Receipt Reconciliations and Deposits 7

Cash Handling Internal Controls Review Report | 1 FOR INTERNAL USE OF DOUGLAS COUNTY ONLY

EXECUTIVE SUMMARY Douglas County (the County) requested its internal auditor, Moss Adams, to review its cash handling internal controls. The review took place between October 2019 and May 2020. The cash handling internal controls review focused on assessing controls over cash receipts, reconciliations, deposits, and recording.

The review of internal controls was completed under the consultancy standards of the American Institute of Certified Public Accountants (AICPA). As such, this work was not an audit of internal controls that resulted in a formal opinion or other form of assurance. Moss Adams reviewed the County’s cash handling internal controls for design and performed limited testing in key areas to determine if the controls were designed effectively. Specific areas where cash handling practices were reviewed included:

• Cash Collections: Cash collections at the various County departments/sites that handle cash payments from customers and/or citizens.

• Department Reconciliations: Daily cash collection reconciliations performed at the various County departments/sites.

• Department Deposits: Deposits made by departments/sites to the Treasury Department (Treasury).

• Treasury Reconciliations: Reconciliations performed by Treasury on all direct cash receipts (i.e., payments collected from customers and citizens for in-person payments at Treasury) and department/site deposits processed.

• Treasury Deposits and Recording: Deposits made by Treasury to the County bank accounts, and the recording of cash receipts in the general ledger.

The County has internal controls in place for many cash handling functions. Some examples of commendable activities include:

• When a department/site makes a deposit at Treasury, both the depositor and the cashier sign the deposit documentation to show the transfer of accountability for the funds.

• The Finance Department recently began performing surprise cash counts to verify petty cash funds on hand at the various departments/sites. These counts had been established years ago; however, Treasury recently began performing them on a regular/rotating basis.

• Deposit Packets are maintained to support deposits processed by Treasury, and those packets provide a means of reconciliation between the department/site deposits, receipts collected from in-person payments, the end-of-day deposit documentation, and the system reports showing revenue posting.

Similar to most counties, there is an opportunity to strengthen policies, procedures, systems, and controls. Gaps were identified in some of the areas reviewed, mainly due to the decentralized nature of cash receipt operations and differing methods of cash processing. The primary conclusion from this review is the County has an opportunity to improve internal controls around cash and strengthen processes and procedures. Suggested priorities to address over the next 6 to 12 months include, but are not limited to:

• Department/site-specific cash handling policies and procedures


• Internal cash audits/surprise cash counts

• Monitoring department/site cash receipt activities


SCOPE AND METHODOLOGY The scope of our review included a high-level evaluation of key cash handling internal controls throughout the County to determine the general adequacy of internal controls and identify areas warranting more in-depth review in the future.

To gain an understanding of the processes and controls in place at various departments/sites across the County, we performed interviews with personnel who are involved in cash handling processes. Personnel from the following departments/sites were included:

• County Manager’s Office

• Community Development

• Community Services

• Finance Department

• Library

• Tahoe Justice Court

• Tahoe Department of Motor Vehicles

• Public Works

• Sheriff’s Office

• Clerk/Treasury

The procedures performed during the internal controls review to assess the County’s cash handling function included the following:

• Identifying control objectives over cash handling and controls that would satisfy each control objective.

• Reviewing policies and procedures, as well as cash handling process documentation, created by the various departments/sites and determining if detailed cash handling policies and procedures were documented for each of the 24 departments/sites that were authorized to handle cash funds in the September 2019 Board Resolution.

• Testing limited samples of transactions in selected key areas of cash handling functions. Detailed testing included: ○ Selecting a sample of 10 dates between March 2019 through January 2020 and two cash

receipting departments/sites for each date (for a total of 20 sample selections). For each date, we requested the Deposit Packet maintained by Treasury to support the deposits received from the two departments/sites selected. For each of the 20 Deposit Packets, we tested to determine if: − The department/site was submitting a reconciliation of the cash receipts to the deposit

submitted to Treasury − Sign-offs were recorded by the department/site to signify reconciliation and review had

occurred prior to deposit − Sign-offs were recorded by the department/site and the Treasury cashier taking the

deposit at the time of deposit at Treasury − Amounts recorded by Treasury for the deposit reconcile to the deposit documentation for

the department/site ○ Selecting a sample of nine dates for the review period of March 2019 through January 2020

and obtaining the Deposit Packet for Tahoe General Services, which are part of Treasury, but are setup at a remote location and handle the processing of specific off-site department’s/site’s deposits. Assessed the Deposit Packet for each date for appropriate sign-offs, reconciliation performed, and other supporting documentation.


○ Selecting a sample of 20 cash receipt transactions (cash and check payments) from the reporting period of March 2019 through January 2020. For each transaction, we reviewed the Deposit Packets to assess whether the related cash receipts were being deposited by the department/site in a timely manner. We searched the Deposit Packets for dates that would indicate the date of physical receipt by the department/site (i.e., a physical cash receipt issued and date) to compare to the deposit date recorded by Treasury.

• Performing trend analysis utilizing the system-generated cash receipts report for the review period of March 2019 through January 2020. We performed analysis to assess cash receipts by month and by department/site to identify significant fluctuations (i.e., whether significant increases or decreases of cash collections were reported). We inquired about the fluctuations and assessed them for reasonableness.

• Assessing whether the controls in place would prevent or detect errors or the misappropriation of County assets.

• Providing recommendations regarding key controls that need to be implemented or improved.

In support of the internal controls review, the matrix provided in Section III provides results by:

• Control objectives

• Control issues

• Corresponding recommendations

• Likelihood of occurrence

• Impact of occurrence

Likelihood of occurrence is defined as the probability of a negative event occurring. Impact of occurrence is defined as the level of significance if a negative event occurs. Risk levels of low, moderate, or high were used to rate the likelihood of occurrence and impact of occurrence for each finding.

Beyond those controls that have been reported within this report as a control issue, additional controls were reviewed without exception. It should be noted that many controls were reviewed multiple times in relevant, separate department reviews, but not all controls or departments were reviewed. Departments were selected to provide a broad understanding of the County’s cash handling control environment. Key controls with exception conditions are reported in this document.

Due to the COVID-19 pandemic, which was occurring at the time of this internal controls review, we were unable to perform certain planned procedures, as we were unable to go on site for testing. As a result, we were unable to perform on-site visits at a sample of departments/sites that handle cash receipts to perform a surprise cash count and physically observe cash controls in place. The County should consider including these additional on-site procedures during a future follow-up review.


INTERNAL CONTROLS REVIEW RESULTS

Control Objective Control Issue Recommendation Likelihood

of Occurrence

Impact of Occurrence

A. Cash Handling Policies and Procedures

1 Detailed cash handling policies and procedures are documented for the overall County and each individual department that collects cash receipts. Cash handling processes are consistent and well-controlled at each cash receipts site.

There are 24 sites across the County that collect cash receipts. In addition, there are special events each year (i.e. Airshow, Candy Dance) that also collect cash receipts. Only seven of the 24 sites have detailed policies and procedures for cash handling, and those documented are not consistent and in some cases not complete. There are no documented policies and procedures for cash receipts at special events.

A comprehensive analysis of each cash handling site should be performed to understand the processes for collecting, depositing, reconciling, and safeguarding cash. Each site’s processes should be assessed for adequate internal controls to protect and account for the County’s cash on hand and payments received.

Where needed, internal controls should be improved or added, and comprehensive site-specific cash handling policies and procedures should be documented, implemented, and regularly audited/verified (see recommendation #2 and #4). Each set of cash handling site-specific policies and procedures should meet the minimum control standards included in County-wide policies.

High High

B. Cash Receipt – Monitoring

2 At all departments that collect cash receipts on the County’s behalf, adequate security of cash receipts and cash funds, including petty cash, is in place and compliance is verified through independent monitoring and reviews.

For the most part, surprise cash counts are not conducted on cash receipt funds (i.e., cash drawers for daily receipts at the various departments). The surprise counts that are performed are limited to counting the assigned petty cash fund; however, no other cash controls are tested. These petty cash counts only recently started being performed by Finance.

Given the County collects cash at various departments, which have varying levels of controls over the cash funds, there is a risk that adequate controls are not in place to protect the County’s assets.

A formal internal process should be established to perform surprise cash counts, ensuring coverage of all departments and special events throughout the year. These surprise cash counts should be performed by someone independent of the cash receipts process (i.e. preferably an individual or Department outside of Treasury or other cash functions). Surprise cash counts should serve as a means to: (1) determine whether the cash on hand at that point in time ties to the cash receipt log, book, or system in place at the

High Moderate



of Occurrence


Policies and procedures do not address a surprise cash count process, and there are no independent verifications of the security controls over cash on hand.

department; and (2) assess the physical controls, or lack thereof, over the cash on hand at the department. The surprise cash count process should be formally documented, and a checklist should be developed to ensure all areas are assessed and the count is performed consistently. Consider including the following elements:

● Reconciling the physical cash, checks, and credit card receipts on hand to the department’s record of the cash receipts collected since the last deposit (this will vary between departments and may include a receipt book, log, or system).

● Verifying the base fund (small cash fund maintained at all times for issuing change for cash receipt payments) ties to the amounts recorded by Treasury.

● Ensuring physical custody of cash is properly secured in single control (i.e., employees are not sharing drawers or commingling funds).

● Verifying keys and combinations (where applicable) are properly secured and access to them is properly restricted to individuals that require access based on their job responsibilities.

● Assessing whether cash drawers/boxes are locked when staff are away from their workstations.

● Verifying that all checks on hand have been restrictively endorsed upon receipt, if the County implements this requirement.

● Assessing whether cash receipts on hand are “current” (i.e., deposits are being performed, at a minimum, each week).

● Physically observing whether a sign is posted in the area where cash receipts are collected informing customers/citizens to contact Treasury if a written receipt is not issued for a payment made (if the County implements this requirement).



of Occurrence


3 The Treasury Department performs independent assessments of cash receipt trends, by receiving department, on a regular basis to identify and investigate unexpected trends.

There are no independent cash receipt analyses performed by receiving departments on a regular basis. There is no assessment of cash receipt trends, significant increases or decreases in collections from month to month or prior year to current year, or variance analysis performed by Treasury or another designated department.

Given the number of departments that collect cash on a regular or occasional basis, it is important to monitor and assess collection activity on a regular basis. The County should implement cash receipt monitoring controls including:

● A monthly trend analysis to assess cash receipts by department/site. Any significant fluctuations (increases/decreases from prior month) should be investigated for reasonableness.

● A monthly trend analysis of cash receipts by department/site and prior year to current year (by month and year-to-date). Any significant fluctuations (increases/decreases from the same month and the year-to-date period) should be assessed for reasonableness.

● A weekly assessment of deposits made to Treasury by department/site to identify any potential sites that are not submitting deposits on a timely basis.

Reports should be established to present these statistics/amounts in a format that would be easily updated on a monthly basis. Treasury, or another designated department, should perform and document their assessment of these reports. Specific attention should be given to significant decreases in cash receipts. These decreases could signify the potential for: (1) deposits not being submitted by the department/site in a timely manner, such as holding onto cash receipts for weeks or months at a time, and/or (2) misappropriation of cash receipts (i.e., cash receipts being stolen and not deposited to Treasury).

Moderate Low

C. Cash Receipt Reconciliations and Deposits

4 Cash receipt reconciliations are performed daily at each cash receipt site and include reconciling cash

The reconciliations performed by the individual departments/sites prior to deposit at Treasury appear to be inconsistent. While most

The current processes at each site that handles cash receipts should be evaluated to ensure proper receipt and reconciliation procedures are in place and each site’s specific cash receipt and reconciliation process is documented and that documentation is retained. These detailed reconciliations,

Low Moderate



of Occurrence


receipts (cash, checks, and credit cards) to the site’s point of sale (POS) system, cash receipts book, or cash receipts log. Independent verification of these reconciliations is performed on a regular basis to ensure compliance.

departments are submitting some level of reconciliation support, and Treasury is documenting receipt of those funds, posting revenue, and processing deposits, it was difficult to determine if each site’s reconciliation process was adequate. Individual receipts for all transactions (i.e., copies of the original receipt given to the paying customer or citizen) were not consistently submitted to Treasury, and it was unclear if the cash receipt reconciliation process at each site was adequate and controlled.

and the related accounts receivable (A/R) activity, should be verified by Treasury during spot audits performed to ensure compliance.

While many sites have their own processes for reconciling cash deposits, and Treasury is verifying the reconciliations submitted, a full analysis should be performed at each site to verify that the following is being performed every day payments are collected:

● Document each payment immediately upon receipt in each receipting system. Departments may use either the New World system, their own separate system, a cash receipt book, or a cash receipts log.

● Ensure that a receipt is issued to the customer or citizen for each payment received.

● Ensure that payments received are correctly posted to customer accounts (i.e., A/R balances, if appropriate). Access to adjust/write-off the underlying A/R records should be restricted to individuals that are not responsible for handling cash receipts.

● Perform daily reconciliations to ensure the amount of cash receipts on hand tie to the cash receipts system (i.e., POS system at the site, cash receipts book, or cash receipts log).

● Reconcile daily cash receipt packets to the total deposit prepared for delivery to Treasury (if deposits are not made every day).

● Investigate any variances and document the results. ● Record the date and signature of the preparer and reviewer

of the reconciliations. ● Submit the Cash Receipts Reconciliation to Treasury to

support the deposit.

An audit process should be implemented where individual department reconciliations are reviewed and audited on a rotating basis to ensure sites are: (1) issuing receipts to



of Occurrence


customers/citizens for all payments made, (2) reconciling cash receipts on a daily basis, and (3) providing full Cash Receipt Reconciliation packet to Treasury upon deposit.

After the County implements new initiatives to more actively report and monitor A/R across the County, a reconciliation process should be implemented to reconcile cash receipts deposited to the corresponding A/R entries within each site system. In addition, all adjustments to A/R should be tied to appropriate support, and access should be restricted to individuals that do not handle or process cash receipts from customers/citizens.

5 Cash receipts are deposited in a timely manner.

The County’s Cash Handling Policies and Procedures only specify that “all departments receiving payments from customers will bring their daily deposits to the Treasure’s counter.” The policy does not provide specific requirements for how often payments collected at the various departments/sites must be remitted to Treasury for deposit.

Departments/sites are not submitting copies of individual cash receipts issued to customers/citizens. As a result, we were unable to test whether receipts collected at the individual departments/sites were being deposited timely (i.e., best

Cash Handling Policies and Procedures should be updated to provide specific requirements for how often individual departments/sites must submit their Deposit Packet to Treasury. Given there are many locations throughout the County that collect payments, and the amount and frequency of payments varies significantly, specific requirements should be documented. The County should clarify specific controls that must be in place to safeguard cash receipts until deposits are made. The County should consider whether all departments/sites should be required to make a deposit daily (for all days in which a payment is received), weekly, or when the total collected reaches a certain dollar threshold.

In addition, the County should assess whether the required documentation submitted to Treasury with the department/site Deposit Packet should require inclusion of the individual customer cash receipt, or whether receipts will only be required to be maintained at the individual department/site level and tested during surprise cash counts/audits.

All payments received should be deposited in a timely manner, and documentation maintained by Treasury and/or the department/site should support that this is being done.

Moderate Moderate



of Occurrence


practice is daily or every few days).

Untimely deposits have been an issue for the County in the past because departments/sites have been holding cash receipts for an extended period prior to submitting them to Treasury for deposit.

douglas county cash handling internal controls review

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