Accounting firm releases results of City of Springfield internal audit

(From the City of Springfield)

Certified accounting firm RubinBrown LLP has completed audit reports of the City of Springfield’s cashier operations and accounts payable and cash disbursements processes. The reports include best practices, observations, recommendations and process improvement opportunities.

The City hired RubinBrown in 2014 to create a three-year audit plan of the City’s departments. Visit the City’s Open Data page to view audits completed.

Cashier Operations Internal Audit

The City employs a full-time cashier at the Busch Municipal Building to collect, balance, and deposit payments on behalf of several city departments. The payroll clerk within the Finance Department is trained on the cashier’s duties and serves as cashier when the head cashier is absent for more than one day. Both employees are under the direction of the director of Finance.

The cashier operations internal audit covered remittances between Jan. 1, 2016 and Dec. 31, 2016 and included the following procedures:

• In-person interviews with the cashier and Finance Department personnel to gain an understanding of the cashier operations’ processes.
• Observation of the cashier’s activities to assess efficiencies and effectiveness of the process.
• Documentation of current procedures in place, including:
  • balancing incoming remittances to the applicable journal entry support
  • balancing the total intake for the day and preparing the deposit
  • reconciliations performed by independent Finance Department personnel.
• Testing a sample of remittances to ensure procedures are operating as documented.
  

Best practices

Based on RubinBrown’s review, the cashier operations process has adequate internal controls, except as provided below. The following are some of the observations indicative of the cashier’s adherence to best practice internal controls:

The cashier maintains a log of remittances in Excel which is used to assist with daily reconciliations.

The cashier has several checks and balances in place during the daily close process to ensure all funds are captured and the deposit is prepared correctly. Daily reconciliations are performed to the penny.

Finance Department personnel perform adequate reconciliations that are independent of the cashier on a daily basis designed to ensure that all funds remitted to the cashier reached the bank and were recorded in Oracle, the City’s online business platform.

Policy requires that the Cashier’s office is always locked and access restricted to authorized personnel only.

Observations, recommendations and process improvement opportunities

• RubinBrown noted the following observations during its review.
• Journal entries posted by the cashier are not always reviewed for accuracy in Oracle by the department that prepared the entry.
• In testing a sample of remittances, a $50 payment was applied to an improper credit that was previously placed on the customer’s account due to error.
• Vault and safe combinations within the Finance Department are not changed as frequently as policy requires.

Six process improvement opportunities were identified, which can be viewed on pages 6-8 of the report. The opportunities include:

• Reducing the number of cash collection points in the Busch Municipal Building to make cash collection more centralized.
• Requiring all remittances to the cashier be placed in a bank bag with a lock and install a security camera in the cashier’s office.
• Setting a minimum threshold for employee reimbursements to accumulate before they are processed by the City.
• Establishing a variance threshold for the cashier’s balance of incoming remittances and require that remittances containing a variance greater than this threshold include supporting documentation and a description of the change, if applicable.
• Consider eliminating the employee benefit of allowing employees to cash personal checks at the cashier’s desk of up to $100 per day.
• Creating a formal policy that the cashier must take at least one consecutive week of vacation or temporary reassignment per year.
  

Accounts Payable and Cash Disbursements Internal Audit

The internal audit of the AP and cash disbursements processes included invoice receipt and approval performed by various City departments, the sending of the approved invoice to the accounts payable department, and payment process performed by accounts payable.

As of October 2016, cash disbursements over the period totaled $111,714,947, with 99 percent of the number of payments being made by check and 1 percent of payments being processed through ACH/Wire.

The audit covers transactions occurring from Nov. 1, 2015 through Oct. 31, 2016 and included:

• In-person interviews with accounts payable and Finance personnel in order to gain an understanding of and document the following cash disbursements processes:
  • Invoicing
  • Check run (including physical check stock security)
  • Emergency payments
  • Month-end close process.
• Review of roles and responsibilities for segregation of duties conflicts.
• Limited testing of transactions to corroborate the documented processes.
• Evaluation of trends using data analysis for the areas identified above.
  

Best practices

Based on RubinBrown’s review, the accounts payable department has adequate internal controls, except as provided in the observations below.

The following are some of the observations indicative of the accounts payable department’s adherence to best practice internal controls:

• Month-end procedures are properly in place and are well documented in a month end packet.
• A log is maintained in order to require various departments to acknowledge, via signature, receipt of finalized checks.
  

Observations, recommendations and process improvement opportunities 

RubinBrown noted the following observations during the review:

• Three invoices were improperly paid twice.
• 136 gaps in check numbers were noted in the disbursements register.
• No check log is kept in the Finance vault to track checks being removed from the vault.
• Segregation of duties issues were present as one employee had both payroll and accounts payable access within Oracle.
• Finance control procedures do not address potential conflicts of interest with City Council members that could violate Missouri state statute.
• The Finance control procedure requiring individuals to be authorized to approve accounting documents has not been updated or maintained.

Four process improvement opportunities were identified, which can be viewed on pages 8-10 of the report. They are:

• Centralizing accounts payable operations in the following areas:
  • Invoice receipt
  • Entering invoices into Oracle.
• Additionally, consider utilizing the three-way match capabilities in Oracle. A three-way match process allows invoices for approved purchase orders to be paid once items are received on in the system by the requesting department. Implementing these actions would eliminate the need for department approval of invoices.
• Ensuring invoices are paid on time in order to avoid any unnecessary late charges.
• Exploring the possibility of implementing the ACH functionality within Oracle. Confirm no security issues exist that would expose the company to increased risk.
• Exploring the Oracle capabilities to store invoice copies within the system. Increased usage of this feature will allow different departments to access invoice copies regardless of where the physical invoice lies in the payment process.

Zone 3 Councilman Mike Schilling is the chair of City Council’s Finance and Administration Committee, which reviewed the audit.

“Internal audits provide important information to the City’s leadership team, as well as accountability to the taxpayers,” Schilling said.