Douglas County Internal Audit

Transcription

1 Douglas County Internal Audit March 3, 2017 Douglas County Board of Commissioners 1819 Farnam Street, Suite LC2 Omaha, NE Attention: Mary Ann Borgeson, Mike Boyle, Jim Cavanaugh, Clare Duda, Marc Kraft, PJ Morgan, and Chris Rodgers Patrick Bloomingdale, Douglas County Administrator 1819 Farnam Street Omaha, NE Dear Mr. Bloomingdale: I have completed a performance audit of the County s policies and procedures for the County Fair Department s financial transactions. The purpose of the audit was to assess the adequacy and effectiveness of the County Fair Department s financial controls. Important financial controls over revenue and expense transactions were missing, including proper oversight. County Purchasing policies were not effectively enforced. Specific issues can be found in the Findings section of this report. Background Douglas County took on the financial responsibility of funding the 2015 and 2016 National High School Rodeo Championship (Rodeo) and the 2016 County Fair and Trail Challenges using money from the Visitor Improvement Fund VIF). The Aksarben Foundation had been operating the County Fair using VIF funds (through a separate agreement with the County), but chose to discontinue its association with the County Fair after the 2015 event. It was the understanding of County Administration that all of the revenue and expenses for all the events (i.e., the fair, rodeo, and trail challenges) would be collected and disbursed through Douglas County. As such, the County created a separate department for the rodeo, fair, and trail challenge events (Fair/Rodeo) and hired a Fair Coordinator. The total amount of expenditures submitted to the County from September of 2015 through January 2017 was $145, 867. This does not include the Fair Coordinator s salary. The total amount of revenue deposited with the County was $41,501 ($35,757 for FY 2016 and $5,744 for FY 2017). A separate non-profit corporation called the Douglas County Fair Association (Fair Association) had been established prior to the County taking on the responsibility of funding the Fair/Rodeo. (402) Suite LC 2 Civic Center 1819 Farnam Street Omaha, Nebraska (402) (FAX) Michael.Dwornicki@douglascounty-ne.gov

2 The Fair Association operated as a separate entity and set-up its own bank account in May of 2016 without the knowledge of Douglas County. In December of 2016 the Fair Association was granted 501 (c) (3) status retroactive back to June of 2015 when it initially filed as a non-profit corporation with the state of Nebraska. Now that the Fair Association has 501 (c) (3) status, it is expected that it will go through the application process as other non-profits do to receive VIF funds. Objective The purpose of the audit was to assess the adequacy and effectiveness of the County Fair Department s financial controls to determine that: Scope There are appropriate controls over cash receipts and disbursements including the proper segregation of duties. Cash is adequately safeguarded. Receipts are promptly deposited in a County bank account. Financial transactions are recorded completely and accurately. All transactions are properly authorized. The scope of the audit included an examination of the transactions for the 2015 & 2016 Rodeo and the 2016 County Fair and Trail Challenges. Methodology Internal Audit (IA) interviewed the County Fair Coordinator (Fair Coordinator) and other County personnel to determine what controls were in place for the Fair/Rodeo. IA also examined the event revenue received and a sample of the expenditures from the period indicated above in the scope to see if the transactions were properly accounted for and County policies over cash receipting and purchasing were followed. Specific findings for the audit are included in the Findings section below: Findings. Douglas County Fair and Douglas County Fair Association Organizational Structure Criteria: The County should conduct due diligence before taking on additional functions and responsibilities for another entity and obtain written agreements when it is needed to protect the interests of the County. Condition: The County took on the responsibilities of operating and financing the Douglas County Fair and National High School Championship Rodeo. The County did not have the appropriate expertise in staging the events and did not obtain agreements or an adequate understanding of the processes needed to protect the interests of Douglas County. 2

3 Effect: The finances of the Douglas County Fair Association and the Douglas County Fair Department were intermingled. There was no policy in place that guided the entities to determine which particular revenues and expenses were to be handled by each entity. Cause: County personnel were unaware that the Douglas County Fair Association existed as a separate legal entity prior to making it a County Department. Douglas County management did not anticipate the issues that were to arise from taking on the responsibilities of running a fair and rodeo with two separate entities. Recommendation: Sever the County s business relationship with the Douglas County Fair Association to restore independence to both entities. Immediately eliminate the Douglas County Fair Department within the County. Consider eliminating the Douglas County Fair Board. Management Response: Administration is in the process of eliminating the Fair department. The County Attorney s Office will need to provide guidance on whether the Fair Board can be eliminated. Cash Receipt Controls and Reporting Criteria: All County cash should be adequately safeguarded. Adequate safeguarding of assets includes proper segregation of duties. All cash receipts should be accounted for completely and accurately. The Douglas County Cash Handling policy distributed by the County Clerk/Comptroller office requires that all cash receipts be deposited in the Treasurer s office within 24 hours. Condition: IA examined all of the revenue sources and their reporting for the 2015 & 2016 Rodeo and the 2016 County Fair. The findings related to cash handling controls and reporting of the revenue are shown below: There was no segregation of duties over any of the events held by the Douglas County Fair/Rodeo. Specifically: o The Fair Coordinator received all of the funds and prepared the financial records related to the revenue for all events. Additionally, supporting documentation was not provided to the Treasurer s accounting personnel to support the revenue transactions. o The personal Constant Contact account of the Fair Coordinator was used by customers to purchase 2016 Rodeo tickets on-line. Internal Audit was unable to access this account to independently obtain documentation of the Rodeo on-line ticket sales. o For the 2016 Rodeo, there was no separation of duties in place for receiving money for the same-day ticket sales, issuing the tickets, and receiving tickets for entry. At the end of the event, there was no independent accounting for the ticket proceeds provided to the Fair Coordinator for subsequent bank deposit. The ticket sales documentation and information provided by Rodeo personnel indicated that $580 of the proceeds from the 2016 Rodeo provided to the Treasurer for deposit was missing. 3

4 A $250 change fund provided to the Fair Coordinator for the 2015 Rodeo was not returned to the Treasurer. The scholarship and sponsorship donations delivered to Douglas County were kept in the Fair Coordinator s home in a locked file cabinet for 2-3 weeks before being given to the County Treasurer for deposit. The total amount of these funds was $2500. Additional funds from the Trail Challenges and the County Fair were not deposited but kept and used for prize awards and for reimbursement purposes. The total amount of revenue related to the County Fair was $625 and $660 for the Trail Challenges. Effect: Not depositing cash in a timely manner increases the risk that money could be lost or stolen. Not adequately segregating duties provides an opportunity to convert assets to personal use and possibly avoid detection. Consequently, County funds were either lost, misappropriated, or improperly documented and recorded. Cause: The County did not provide adequate oversight over the Fair Coordinator function. The Fair Coordinator was not aware of the County s Cash Handling policy. The change fund was accounted for as an expense, and therefore was not tracked as an asset which would have required periodic validation. Recommendation: Ensure that all persons responsible for handling cash are aware of the County s Cash Handling policy prior to starting their duties. Establish policies that require that all County on-line activity occur only with oversight from County IT personnel. Consider taking the proper steps to recover the missing money. Management Response: This was an unusual situation. Persons responsible for cash handling are normally trained on the Cash Handling policy prior to handling cash. The CAO will discuss with the appropriate County personnel. Expenditures Criteria: The Douglas County Fair Board Bylaws requires that the Fair Board and its employees must comply with the County Purchasing Act and the Douglas County Purchasing Manual. County Purchasing policy and state statute require that all purchases of goods and services be made through and require the approval of the Douglas County Purchasing Agent or designee. Condition: IA examined 45 County Fair and Rodeo expenditures. Testing of the expenditures resulted in the following findings: There were three invoices paid that did not clearly list what specific services were provided for the 2015 Rodeo. One was a $12,500 invoice for rodeo production. There was no other detail on the invoice nor was there a contract detailing what services were to be provided. One invoice for $150 was from an entity that was not in the advertising business. It did not list where the advertising was placed. There was one $50 invoice for advertising that did not list the date or where the advertising appeared. There was one vendor obtained to provide concessions at the 2016 Rodeo. According to the Fair Coordinator, the vendor was to provide 10% of their revenue to the County. The vendor stated that it was to pay $100 to the Fair to provide concessions. The vendor 4

5 provided food in lieu of the $100 fee. There was no contract in place detailing the duties of the parties. Per the Fair Coordinator, there were no contracts made with any of the County Fair and Rodeo vendors. There were 28 expenditures tested where purchase orders (POs) were used for the 2016 County Fair and Rodeo. Fifteen of the Oracle POs were created after the purchases were already made. Two scholarship payments were made using POs. Scholarship payments are not ordered by the Purchasing Agent; direct pay forms instead of the POs should have been used to authorize the payments. Effect: Without there being contracts in place, the agreeing parties could not be sure that the best interests of each were properly protected. Without the involvement of the Purchasing Department, the County could not be sure the best prices and quality were obtained. Oracle POs were created after the fact or without the need to do so resulting in needless work and meaningless information. Cause: There were a number of reasons for the findings noted above. The County Purchasing Policy does not clearly state when a contract should be obtained. The County Fair Coordinator did not initially receive comprehensive direction on following pertinent County policies. The County did not enforce its own purchasing policies once direction was provided. Recommendation: Include clear instructions within the Douglas County Purchasing Manual that clearly state when a contract is needed. Train all new employees and users on the proper use of the County Purchasing Manual and document that the training was provided. Enforce the County Purchasing Policy. Do not pay invoices where there is no contract or clear explanation as to what goods or services were provided to the County. Management Response: The CAO will be meeting with the Purchasing Agent to give due consideration to this recommendation. Douglas County Fair Association Operations Criteria: The County should provide Visitor Improvement Funds to entities that follow prudent business practices including appropriate oversight and stringent requirements for proper business documentation. Condition: Internal Audit requested access to the Douglas County Fair Association bank account to substantiate the on-line ticket revenue amount for the 2016 Rodeo. Examination of the account and related documentation brought forth the following issues: Fifty-one disbursements were made to vendors over a seven month period without either adequate explanations or supporting documentation. The total amount of the undocumented transactions was $8,291. The proceeds from WePay for the 2016 Rodeo on-line ticket sales were not deposited in the Douglas County Fair Association bank account. However, a check written from the Fair Association account for the proceeds in the amount of $ was made out to Douglas County and deposited in a County bank account. 5

6 Note: There were a number of smaller deposits into the Fair Association bank account totaling $ The amounts were not adequately explained and did not correspond to the ticket prices less the commission charges (i.e., $10 each less a $.35 commission). Effect: The Douglas County Fair Association paid for goods or services without proper substantiation. There was no explanation as to why the on-line ticket sales proceeds were not properly deposited in the Fair Association bank account. Cause: The Douglas County Fair Association did not provide proper oversight (including proper segregation of duties) over their accounting function and the person in charge of their financial records. The person who initiated and prepared their financial records also worked as the Douglas County Fair coordinator. Recommendation: Terminate the employment of the County Fair Coordinator. Withhold all future Visitor Improvement Funds from the Fair Association until it can demonstrate that it has appropriate controls over its financial operations. Management Response: Her employment has been terminated. Administration will discuss the second part of the recommendation with the County Board. Internal Audit conducted this audit in accordance with Generally Accepted Government Auditing Standards and the International Standards for the Professional Practice of Internal Auditing. Those standards require that the audit is planned and performed to obtain sufficient, appropriate evidence to provide a reasonable basis for the findings and conclusions based on the audit objectives. Internal Audit believes that the evidence obtained provides a reasonable basis for its findings and conclusions based on the audit objectives. This report was reviewed with the Douglas County Administrator. **************************************************************** Internal Audit appreciates the cooperation provided by the managers and staff of the various offices/departments throughout the County and the Douglas County Fair Association. If you have any questions or wish to discuss the information presented in this report, please feel free to contact me at (402) Sincerely, Mike Dwornicki Internal Audit Director cc: Mark Rhine Jude Lui Richard File Lenny Swanger 6

7 Dan Esch Sheri Larsen Jodi Campbell Diane Carlson Joe Lorenz Eric Carlson Catherine Hall Scott Olander Theresia Urich Zackary Carlson 7