Department of Management Services OFFICE OF INSPECTOR GENERAL Review of Cash and Revenues Collection Procedures EXECUTIVE SUMMARY In accordance with Section 20.055, Florida Statutes, we evaluated the Department of Management Services (Department) cash and revenues collection procedures 1. The objective of our review was to determine if adequate controls exist to safeguard cash, checks, and receipts from loss, errors, and irregularities. RESULTS OF REVIEW Our review showed that the Department needs to improve controls over cash and revenues collections to help deter potential theft, loss, fraud, or the misuse of public funds. Specifically, the Department s policies and procedures have not been revised since 1995 and do not reflect the Department s current organizational structure. The procedures do not address requirements regarding segregation of duties, restrictive endorsement of checks, or 1 On July 1, 2005, the Department assumed the operational responsibilities of the State Technology Office (STO) and renamed the program Enterprise Information Technology Services (EITS). Although the audit began prior to the assumption of the STO responsibilities, STO was included in the scope of this review. verification of the accuracy of petty cash accounts. Internal controls could also be strengthened by establishing a central location for collecting payments for public records. During the review, we noted that the Division of Fleet Management, Federal Property Assistance & Correctional Privatization had made arrangements to have vehicle auction proceeds electronically deposited. Payment by electronic means improves controls over collection procedures by removing many of the processing steps required for handling revenue receipts. RECOMMENDATIONS We recommend that the Division of Administration update and publish Departmental policies and procedures that require each Division to conform to accepted cash and revenue management procedures. We also recommend that payment for public records be collected at one central location and that offices that receive regular payments from vendors arrange for electronic payments. Page 1 of 8
BACKGROUND Revenues are collected by staff within various Department support and program offices. Revenues include remittances for paid parking fees, settlements in legal cases, and payments for public records requests. The Bureau of Financial Management Services (Bureau) is responsible for receiving and depositing all monies remitted directly to the offices. Office staff are responsible for maintaining a log of receipts, endorsing checks, completing a Revenue Transmittal Form and hand-delivering the transmittal form and receipt items to the Bureau on the same day of receipt, if possible. Revenues are generally not collected by offices within MyFloridaMarketPlace, People First! or the Division of Retirement. Instead, vendors, clients and other parties remit funds directly to the Bureau by mail, electronic, or other means. However, these program offices may also receive some revenues outside of their regular transaction channels. 2 Most Enterprise Information Technology Services (EITS) revenues are paid directly to the Bureau. However, EITS offices also handle large payments directly from vendors. During Fiscal Year 2004-05, the Bureau received nearly $5.5 million in transmittals from DMS offices as shown in Table 1. Fiscal Year 2004-2005 Revenue Transmittals Division Amount Enterprise Information Technology Services $4,405,492.87 Fleet Management, Federal Property Assistance & Correctional Privatization $1,015,660.62 Facilities and Building Construction $53,967.76 State Purchasing $8,054.84 Americans with Disabilities Act Working Group $5,000.00 Administration $2,656.98 State Group Insurance $302.20 Retirement $4.05 Total $5,491,139.32 Table 1 2 All cash and revenues received by the Division of State Group Insurance are handled outside of the Bureau by the Division s own accounting office. Page 2 of 8
Organizations establish internal controls to safeguard cash and revenues from unauthorized access or use and to timely detect errors or fraud. Internal controls generally require: Logging of checks, cash and other receipts at the point of collection Restrictive endorsement of checks at the point of collection to limit their negotiability should they be lost or stolen Reconciliation between amounts received and amounts deposited A separation of duties and responsibilities such that one individual is not in the position to perpetrate and conceal errors or fraud DISCUSSION ISSUE The Department Needs to Improve Controls The Department s existing procedures for cash and revenues collection were last updated in 1995 and refer to an organizational structure that no longer exists. Existing procedures do not establish sufficient internal controls to safeguard cash and revenues collected by support and program offices. For example, the procedures do not include requirements for the separation of duties, restrictive endorsement of checks, reconciliation of amounts received by the offices and deposited by the Bureau, or supervisory review within individual offices. In addition, the procedures do not address control requirements for petty cash accounts. 3 Staff Surveyed We surveyed staff regarding receipting practices in the 16 offices we identified as receiving cash, checks and other monetary instruments. In seven of the offices, more than one employee is designated to collect cash, checks and other revenues. Seven of the 16 offices do not restrictively endorse checks at the point of collection. Only six offices routinely deliver receipts to the Bureau on the same day received and four offices make weekly deposits. We also determined that only one office maintains a log of cash and revenues collected. Thus, staff in the remaining 15 offices cannot reconcile collections with receipts recorded on the Revenue Transmittal Form. This reconciliation procedure helps ensure that all monies received were delivered to the Bureau and that none were misplaced, lost or stolen within the office. Further, four offices reported they do not receive a copy of the signed transmittal form from the Bureau. Without a copy of the signed form, the office cannot determine whether the Bureau received all funds delivered. 3 In 2004, the Auditor General reported that the Department s internal controls for handling revenues and cash receipts should be strengthened to deter potential theft, loss, fraud or the misuse of public funds. See Office of Auditor General Report No. 2005-035, September 2004, Department of Management Services Operational Audit of Selected Administrative Functions. Page 3 of 8
Failure to maintain a log of receipts at the collection point shows that the offices generally do not maintain the appropriate separation of duties. We recognize that some offices have too few staff to allow for complete separation of duties. In theory, however, one person should receive and log in monies, a second person should complete the transmittal form and deliver funds to the Bureau, and a third person should reconcile receipts and deposits. Offices cannot establish an appropriate separation of duties when receipting procedures break down at the initial point of fund collection. The failure to follow generally accepted controls for cash and revenues collections also indicates that supervisors are not reviewing their office s internal controls. Public Records Requests Department offices regularly receive requests for public records. These requests are reviewed and approved by the Office of General Counsel (OGC) and the appropriate office compiles the records. The requesting party then obtains the records from, and remits payment to the responding office. 4 The Department s internal controls could be strengthened by designating the OGC as the central location for release of public records and receipt of payment for costs incurred by the responding office. Electronic Payment In Fiscal Year 2004-05, DMS offices transferred $5,491,139 in cash and revenues to the Bureau. Requiring vendors to make electronic payments directly to the Bureau could substantially reduce the number of financial transactions handled by program and support office staff. Some Divisions have made significant progress in reducing the amount of money handled by office staff. For example, auction proceeds totaling approximately $1 million which were formerly paid to State Fleet Management are now paid directly to the Bureau by electronic means. Given that collections remain relatively constant in the next few years, we estimate that DMS offices, net of EITS, will continue to collect about $115,000, annually. EITS offices processed $4,405,493 (80%) of the total Department receipts in Fiscal Year 2004-05. 5 EITS has increased the number of transactions paid electronically to a total of about $1.3 million. Based on current collections, EITS offices will still continue to handle nearly $2.1 million, annually. We noted that about $1.75 million of the $2.1 million consists of refunds from one vendor, BellSouth. Therefore, continued efforts to increase the use of electronic payments could significantly reduce the amount of revenues processed by EITS staff. 4 DMS offices rarely receive cash and most offices do not accept cash payments. Any cash received is generally for copies of public records. 5 Included a one-time payment of $1 million. Page 4 of 8
Petty Cash Controls The Department maintains two active petty cash accounts in accordance with procedures established in Section 216.271, Florida Statutes. The Bureau of Federal Property Assistance (FPA) uses its petty cash account for small purchases, such as tolls and gas for day trips. The OGC pays subpoena filing fees, witness fees and other costs from its fund. Both funds require that two parties sign checks written from the account. However, neither fund is reconciled with the monthly bank statement. We reconciled FPA s bank statements with all transactions made over a 44- month period and determined that all transactions were accounted for and accurately recorded in the bank records. The OGC verifies the accuracy of its transactions but does not reconcile internal records to bank statements as the Bureau receives the statements and does not forward them to the OGC. RECOMMENDATIONS 1. We recommend that the Division of Administration update and publish policies and procedures for revenue and cash management and that the procedures include requirements for: Collection procedures, including logging cash and other monetary instruments, and endorsing checks at the point of collection Procedures for reconciling amounts received with amounts delivered to the Bureau Supervisory review of revenue and cash collection procedures Reconciliation of petty cash accounts 2. We recommend that the Office of General Counsel be the designated office for collecting payments for public records requests. 3. We further recommend that offices that receive regular payments from vendors and other parties arrange to have payments made directly to the Bureau by electronic means. DIVISION RESPONSE The Divisions concurred with all findings and recommendations. The Division s complete response is attached in Exhibit A. Separation of duties and responsibilities among office staff Page 5 of 8
OBJECTIVES, SCOPE, AND METHODOLOGY The scope of this audit focused on evaluating the Department s cash and revenues collection procedures. Our specific objective was to determine whether adequate controls exist to safeguard cash and revenues from loss, errors, or irregularities. We also reviewed whether the Department s petty cash funds were properly stated and expenditures made in accordance with established policies. Department offices collect reimbursements from staff for personal use of cell phones. As these collections total less than $1,000 annually, and are generally paid by check rather than in cash, we excluded such collections from the scope of our review. In conducting this audit, we interviewed appropriate Department personnel, reviewed the Department s Administrative Policies and Procedures, and researched applicable Florida Statutes and Florida Administrative Code, and other documentation as appropriate. Page 6 of 8
Page 7 of 8
To promote accountability, integrity, and efficiency in government, the Office of the Inspector General makes audits of the Department of Management Services programs, activities, and functions. This audit was made in accordance with applicable standards contained in the International Standards for the Professional Practice of Internal Auditing, issued by the Institute of Internal Auditors. Other audit reports prepared by the Office of Inspector General of the Department of Management Services can be obtained on our Web site (http://dms.myflorida.com/administration/inspector_general); by telephone (850 488-5285); or by mail (4040 Esplanade Way, Suite 135, Tallahassee, Florida 32399). Page 8 of 8