Internal Audit Department

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1 Exhibit G, Page 1 of 8, Board Date: 7/28/09 FINAL CLOSE OUT FIRST FOLLOW-UP AUDIT: O C B o a r d o f S u p e r v i s o r s Internal Audit Department O R A N G E C O U N T Y INTERNAL CONTROL REVIEW OF CLERK-RECORDER SOUTH COUNTY BRANCH OFFICE CASH RECEIPTS PROCESS ORIGINAL AUDIT NO AS OF JUNE 10, 2009 Our First Follow-Up Audit found that the Clerk-Recorder implemented all six (6) of the recommendations from our original audit report dated August 28, The Clerk- Recorder s South County Branch Office received $927,458 in cash receipts during the original audit period. AUDIT NO: 2829-N REPORT DATE: JUNE 16, 2009 County Internal Auditor: Dr. Peter Hughes, CPA Deputy Director: Eli Littner, CPA, CIA Sr. Audit Manager: Michael Goodwin, CPA, CIA Audit Manager: Kenneth Wong, CPA, CIA RISK BASED AUDITING Peer Review Compliant 2001, 2004, Association of Certified Fraud Examiners Hubbard Award For the Most Outstanding Article of the Year 2008 Association of Local Government Auditors Bronze Website Award 2005 Institute of Internal Auditors Award for Recognition of Commitment to Professional Excellence, Quality, and Outreach

2 Exhibit G, Page 2 of 8, Board Date: 7/28/09 Independence Objectivity Integrity Peer Review Compliant , 2004, 2007 Providing Facts and Perspectives Countywide RISK BASED AUDITING Dr. Peter Hughes County Internal Auditor Ph.D., MBA, CPA, CCEP, CITP, CIA, CFE Certified Compliance & Ethics Professional (CCEP) Certified Information Technology Professional (CITP) Certified Internal Auditor (CIA) Certified Fraud Examiner (CFE) peter.hughes@iad.ocgov.com Eli Littner Deputy Director Michael Goodwin Senior Audit Manager Alan Marcum Senior Audit Manager Autumn McKinney Senior Audit Manager CPA, CIA, CFE, CFS, CISA Certified Fraud Specialist (CFS) Certified Information Systems Auditor (CISA) CPA, CIA MBA, CPA, CIA, CFE CPA, CIA, CISA, CGFM Certified Government Financial Manager (CGFM) Hall of Finance & Records 12 Civic Center Plaza, Room 232 Santa Ana, CA Phone: (714) Fax: (714) To access and view audit reports or obtain additional information about the OC Internal Audit Department, visit our website: OC Fraud Hotline (714)

3 Exhibit G, Page 3 of 8, Board Date: 7/28/09 Letter from Dr. Peter Hughes, CPA Transmittal Letter Audit No N June 16, 2009 TO: Tom Daly, Clerk-Recorder FROM: Dr. Peter Hughes, CPA County Internal Auditor SUBJECT: First and Final Close Out Follow-Up Audit: Internal Control Review of the Clerk-Recorder South County Branch Office Cash Receipts Process, Original Audit No We have completed a First Follow-Up Audit of internal controls over the Clerk-Recorder South County Branch Office s cash receipts process. Our audit was limited to reviewing, as of June 10, 2009, actions taken to implement six recommendations in our original audit. We conducted this Follow-Up Audit in accordance with the FY Audit Plan approved by the Audit Oversight Committee. The results of our Follow-Up Audit are discussed in the County Internal Auditor s Report following this transmittal letter. Because satisfactory corrective action has been taken for the audit recommendations, this report represents the close-out of the original audit. Each month I submit an Audit Status Report to the BOS where I detail any material and significant audit findings released in reports during the prior month and the implementation status of audit recommendations as disclosed by our Follow-Up Audits. Accordingly, the results of this audit will be included in a future status report to the BOS. ATTACHMENT Other recipients of this report are listed on the County Internal Auditor s Report on page 4. i The Internal Audit Department is an independent audit function reporting directly to the Orange County Board of Supervisors.

4 Exhibit G, Page 4 of 8, Board Date: 7/28/09 Table of Contents First and Final Close Out Follow-Up Audit: Internal Control Review of the Clerk-Recorder South County Branch Office Cash Receipts Process Audit No N As of June 10, 2009 Transmittal Letter i County Internal Auditor's Report 1

5 County Internal Auditor s Report Exhibit G, Page 5 of 8, Board Date: 7/28/09 Audit No N June 16, 2009 TO: FROM: Tom Daly Clerk-Recorder Dr. Peter Hughes, CPA County Internal Auditor SUBJECT: First and Final Close Out Follow-Up Audit: Internal Control Review of the Clerk-Recorder South County Branch Office Cash Receipts Process, Original Audit No. 2723, Scope of Review We have completed a First and Final Close Out Follow-Up Audit of the Clerk-Recorder South County Branch Office s cash receipts process. Our audit was limited to reviewing actions taken as of June 10, 2009 to implement the six (6) recommendations from our original audit report. Background The original audit assessed controls over the Clerk-Recorder South County Branch Office s cash receipts process. In the original audit, the Clerk-Recorder s South County Branch Office was involved with receiving $927,458 during the audit period. The original audit identified six recommendations involving accounting for transfer of mail receipts; physical inventories of bank note paper; transfer of bank note paper; voided bank note paper; physical inventories of handwritten receipts; and automation of deposit orders. Results Our First Follow-Up Audit indicated that the Clerk-Recorder implemented all six recommendations from our original audit. As such, this report represents the final close-out of the original audit. Following is the implementation status of the six original recommendations: 1. Accountability for Transfer of Mail Receipts Recommendation: The Clerk-Recorder implement a procedure to identify mail receipts transferred from the Civic Center Office to South County Branch Office for processing; to document transfer of accountability when exchanging mail receipts between locations; and to ensure the mail receipts were processed. First Follow-Up Audit Clerk-Recorder South County Branch Office Cash Receipts Process Audit No N Page 1

6 County Internal Auditor s Report Exhibit G, Page 6 of 8, Board Date: 7/28/09 established a written procedure to identify checks received by mail at the Civic Center Office and sent to the South County Branch Office for processing. Checks transferred to the South County Branch Office are now logged and tracked by both locations and are verified as deposited in the Financial Unit. Our review of daily logs for checks sent to the South County Branch Office during the week of March 23, 2009 disclosed satisfactory documentation evidencing the transfer of accountability and verification of processing of the respective mail receipts. Therefore, we consider this recommendation implemented. 2. Physical Inventories of Bank Note Paper Recommendation: The Clerk-Recorder perform documented, periodic physical inventories of Bank Note Paper at the South County Branch Office. Any discrepancies in the inventories should be documented and reported to management. established written procedures for performing periodic physical inventories of Bank Note Paper at the South County Branch Office. The Clerk-Recorder s office completed a physical count record on May 28, 2009 with a reconciliation showing the difference between the physical count and inventory records. An explanation for the difference was documented on the reconciliation and approved by management. Therefore, we consider this recommendation implemented. 3. Transfer of Bank Note Paper Recommendation: The Clerk-Recorder ensure there is documented transfer of accountability by the persons exchanging blank Bank Note Paper at the South County Branch Office. established procedures to document transfer of accountability of Bank Note Paper and modified their Bank Note Paper Log to include a Received By line for staff to sign at the South County Branch Office. Our review of Bank Note Paper Logs for the week of March 23, 2009 disclosed staff members signing the logs to evidence the transfer of accountability. Therefore, we consider this recommendation implemented. 4. Voided Bank Note Paper Recommendation: The Clerk-Recorder should ensure the South County Branch Office marks as void or defaces all voided Bank Note Paper. First Follow-Up Audit Clerk-Recorder South County Branch Office Cash Receipts Process Audit No N Page 2

7 County Internal Auditor s Report Exhibit G, Page 7 of 8, Board Date: 7/28/09 established procedures to require cashiers to stamp void on any voided Bank Note Paper. Our review of Bank Note Paper transactions during the week of March 23, 2009, found that the word void was ink stamped on the voided documents. Therefore, we consider this recommendation implemented. 5. Physical Inventories of Handwritten Receipts Recommendation: The Clerk-Recorder perform documented, periodic physical inventories of handwritten cash receipt forms at the South County Branch Office. Any discrepancies should be documented and reported to management. established written procedures for performing periodic physical inventories of handwritten cash receipts at the South County Branch Office. The Clerk-Recorder s office completed a physical count on May 28, 2009 with the quantity of handwritten cash receipts documented. An explanation was documented that the quantity of handwritten cash receipts will serve as the beginning balance for the next physical inventory of forms. The physical count records showed the signature approval by management. Therefore, we consider this recommendation implemented. 6. Automation of Deposit Orders Recommendation: The Clerk-Recorder Information Systems partner with Auditor-Controller Information Technology to develop a process for transmitting Deposit Order information via an electronic file that will replace the current manual process. worked with the Auditor-Controller and an outside contractor to develop a program within the new Clerk-Recorder cashiering system to prepare an electronic deposit order that will interface with the CAPS+ Upgrade. The Clerk-Recorder s office also received authorization from the Board of Supervisors on May 19, 2009 to upgrade the current cashiering/fee accounting software used to manage the recording transactions and payments. Since the Clerk- Recorder partnered with the Auditor-Controller to develop a process for transmitting Deposit Order information for the CAPS+ Upgrade, we consider this recommendation implemented. We appreciate the cooperation and assistance extended to us by the personnel of Clerk-Recorder s office during our First Follow-Up Audit. If you have any questions, please contact me directly or Eli Littner, Deputy Director at , or Michael Goodwin, Senior Audit Manager at First Follow-Up Audit Clerk-Recorder South County Branch Office Cash Receipts Process Audit No N Page 3

8 County Internal Auditor s Report Exhibit G, Page 8 of 8, Board Date: 7/28/09 Distribution Pursuant to Audit Oversight Committee Procedure No. 1: Members, Board of Supervisors Members, Audit Oversight Committee Renee Ramirez, Assistant Clerk-Recorder Dana Ohanesian, Director of Administration, Clerk-Recorder Paul Lanning, Administrative Manager, Clerk-Recorder Foreperson, Grand Jury Darlene J. Bloom, Clerk of the Board of Supervisors First Follow-Up Audit Clerk-Recorder South County Branch Office Cash Receipts Process Audit No N Page 4