Office of Auditor of State Oversight Tips & Best Practices

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1 Office of Auditor of State Oversight Tips & Best Practices 1

2 Today s agenda Daily and monthly operations Clerks duties / expectations Oversight duties & tips Notification requirements 2

3 Bank Accounts The number of bank accounts should be limited: Multiple bank accounts provide: More opportunity More risk Multiple accounts = multiple reconciliations Separate accounts vs. robust accounting system City Clerks should not be the only authorized signer on the bank accounts. If used correctly, counter signatures are a good control to have in place. 3

4 City Expenses Should not be paid in cash Petty cash funds Approved by the City Council Kept in a secure location Kept on an imprest basis Replenishment only after the Council s review and approval Surprise counts 4

5 Disbursement listing City Expenses Prior to checks being signed and disbursed Invoices/bills available for Council s review and approval Invoices/bills/receipts should be marked paid Once approved, should be signed by Mayor or designated Council member Should be filed with minutes of Council meeting 5

6 City Expenses Payment prior to Council approval Recurring Repetitive Predictable Requires a written policy Should be identified as prepaid and approved at next Council meeting 6

7 Initial receipts listing Collections Pre-numbered receipts Squares Pay-Pal For utilities cancelled remittance stubs. Periodically reconcile regardless of which of the above is used. 7

8 Monthly Utility Reconciliations Beginning balance due to the City. Add current month s total billings amount. Subtract collections received in current month. Subtract any accounts written off (which are approved by the City Council). Ending balance should tie to accounting records. 8

9 Bank Reconciliations Key word: Monthly bank reconciliations Timely manner Prepared by someone independent of processing financial transactions OR Thoroughly reviewed by an independent party. Resolution of variances 9

10 City Clerk / Treasurer s Reports Like the bank reconciliation, needs to be done in a timely manner Components should include: Beginning balance The month s deposits The month s payments The ending balance 10

11 Other City Clerk Duties Maintaining all financial records Prompt responses to inquiries from City officials regarding financial matters Minutes of Council meetings Prompt communications Review of timesheets for other City employees (determining reasonableness) 11

12 Oversight Duties Bank Statements Original bank statements What to look for in the bank statements appearance 12

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16 Oversight Duties Bank Statements What to look for in the bank statements: Cash withdrawals Deposits followed by a cash withdrawal of the same amount Electronic payments to credit cards or vendors Inconsistent electronic payroll payments Payments including SQ NSF or overdraft fees 16

17 Oversight Duties Bank Statements What to look for in the bank statements: Images of redeemed checks Unexpected frequency of check payments Can be used to traced to authorized disbursement listing Check number out of sequence with other checks Deposit slips Composition of the deposits 17

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19 Utility Reconciliations The reconciliation reports should be backed up by monthly reports ran from the utility system at the time the reconciliation is prepared. There shouldn t be any reconciling items There shouldn t be repeating activity between monthly reconciliations. Ending balance should not be the same between months. Follow up on concerns in a timely manner. 19

20 Expenditures Actual to Budget Comparisons Prior to listing on A/P list Month-end Revenues Month-end Be considering need for budget amendment(s) near end of the 3 rd quarter. For any amendments made, be able to explain why they are needed. Ensure Department heads are properly monitoring financial position. 20

21 Don t sign blank checks Other Oversight Tips Don t keep counter-signed blank checks on hand for emergencies Keep your signature stamp Don t allow use of debit cards Limit use of credit cards 21

22 Red Flags Employees with a lavish lifestyle that doesn t match their salary Employees who don t take vacation Employees who routinely stay late and work on weekends Tips or complaints about an employee 22

23 An employee who is reluctant to share his/her job function Large number of write-offs in accounts receivable Employees who seem to feel the rules don t apply to them

24 Biggest Fraud Inhibitors Effective internal controls: o o cost/benefit relationship integrity of employees Appropriate governing board oversight: o Absolutely critical in small organizations o Equally effective in large organizations when they ask the tough questions 24

25 Tone at the top emphasize ethics importance o o Ethical atmosphere created by leadership Tone of management will have a trickle-down effect on employees Trust... but verify! In God we trust, everyone else we audit! 25

26 How do you set the right tone? o o o o Communicate to employees what is expected of them Lead by example Provide a safe mechanism for reporting violations/concerns Reward integrity, not the opposite.

27 Notification of the Office of Auditor of State is required for all governmental subdivisions by section 11.6(7) of the Code of Iowa. (Annette Campbell or Jim Cunningham, ) NOTE: The remaining steps must be tailored to each specific situation. Notify law enforcement Secure all necessary records

28 Consider need to: o Stopping access to bank accounts o Terminate network access o Stopping access to certain financial records and/or processes o Securing physical access to items at risk

29 Discuss with City officials advisability of placing individual on administrative leave Don t enter into a restitution agreement with the employee Take notes and write up any pertinent information

30 Questions? Annette Campbell, CPA, CIA, CGFM Deputy Auditor of State