HomeMy WebLinkAbout2019-12-19; August 2019 Citywide Cash Count, Report 2020-01; Okyere, BrigidTo the members of the:
CITY COUNCIL
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Dec. 19,2019
Council Memorandum
To: Honorable May Ha an Members of the City Council
d' r From:
Via:
Re:
Brigid Okyere, lnte
Scott Chadwick, Ci
August 2019 Citywi
{cityof
Carlsbad
Memo ID# 2019148
This memorandum provides information related to the August 2019 Citywide Cash Count, Report
2020-01.
Background
On Nov. 12, 2019, the City Council approved the Internal Audit Plan for fiscal year 2019-20 that
included a citywide cash count.
Discussion
The attached report summarizes the results of the August 2019 Citywide Cash Count, Report
2020-01. The scope of the audit included performing unannounced cash counts at city facilities
with cash funds during August 2019 and reviewing a selection of historical employee cash
reimbursement documents from fiscal year 2018-19 for compliance with city policies.
I would like to thank city management and staff for their cooperation during this audit.
Next Steps
I am available to discuss this report with you individually at your convenience. I plan to provide a
brief summary of the report results at the next City Council meeting I attend, likely in April 2020.
Attachment: A. August 2019 Citywide Cash Count
cc: Elaine Lu key, Chief Operations Officer .
Celia Brewer, City Attorney
Barbara Engleson, City Clerk
Laura Rocha, Deputy City Manager, Administrative Services
Kevin Branca, Finance Director
Kyle Lancaster, Parks & Recreation Director
Heather Pizzuto, Library & Cultural Arts Director
Neil Gallucci, Police Chief
Vicki Quiram, Utilities Director
Administrative Services Branch
Internal Audit Division
1635 Faraday Avenue I Carlsbad, CA 92008 I 760-602-2429 t
Attachment A
Citywide Cash Count
August 2019
REPORT
December 2019
Internal Auditor
Brigid Okyere, CPA
Report 2020-01
TABLE OF CONTENTS
INTRODUCTION
Scope and Objectives .......................... : ........................................................................................ 1
Methodology ................................................................................................................................ 1
Overall Conclusion ........................................................................................................................ l
Background .................................................................................................................................. 2
AUDIT RESULTS
Cash Count Results ...................................................................................................................... .4
Employee Cash Reimbursements Review ................... , ................................................................ 6
Conclusion .................................................................................................................................... 8
S U M M A RY O F R E C O M M E N D AT I O N S ........................................................... 9
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1
INTRODUCTION
Scope and Objectives
Perform unannounced cash counts at city facilities with cash funds during August 2019. Determine if
the petty cash and change funds issued to departments are properly accounted for. Identify if
additional procedures or best practices can improve current cash controls and safeguarding of cash.
Review city policies and test historical cash reimbursement documents from fiscal year 2918-19 for
compliance with those policies.
Methodology
Examined city records, including the June 2017 internal audit cash count and information
from the city's accounting system, to determine the amount of the city's petty cash and
change funds;
Performed unannounced cash counts at all city facilities with petty cash or change funds and
compared to city records to identify cash overages and shortages;
Obtained and reviewed applicable citywide and departmental policies and procedures;
• Interviewed city employees regarding petty cash and cash handling practices;
• Judgmentally selected sixteen cash reimbursements to review for compliance with city
policies and procedures; and
Followed up on recommendations from June 2017 internal audit cash count.
This audit was a limited review of controls over petty cash funds; accordingly, no conclusion is
provided on the overall adequacy of cash controls or internal controls in other areas of operations
within the departments reviewed.
Overall Conclusion
Three of the city's cash funds varied from the city's records. City departments can improve certain
aspects of their cash handling practices to better safeguard cash. Internal controls for cash
reimbursements were not always effective to ensure compliance with the city's policies. The Finance
Department's oversight of the city's cash funds could be further1 improved by updating policies and
providing training.
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Background
Departments use cash at various facilities located throughout the city. As of August 2019, the city had
sixteen facilities with recorded cash funds totaling $10,405, as shown in Table 1 below.1 The city uses
one account to record the total amount of cash funds outstanding at all facilities citywide, including
both petty cash and change funds. Prior internal audit records demonstrate how the total is divided
across city facilities. In general:
A change fund is a separate amount of funds used to make change during daily operations.
A petty cash fund is a small amount of cash kept at a city facility for minor expenditures,
such as office supplies. An employee submits a form with proper supporting documentation
signed by an approving official and is reimbursed by petty cash.
Table 1: City Departments and Facilities with Petty Cash and Change Funds as of
August 2019
City Department and Facility Petty Cash Fund Change Fund
City Manager1s Office
Carlsbad City Hall X
Community & Economic Development Department*
Tyler Court Senior Apartments X
Finance Department
City of Carlsbad Faraday Center (cashier) X
Library & Cultural Arts Department
Carlsbad City Library X
Carlsbad City Library Learning Center X
Georgina Cole Library X
Parks & Recreation Department
Alga Norte Aquatic Center X
Calavera Hills Community Center X
Harding Community Center X X
Leo Carrillo Ranch Historic Park X
Monroe Street Pool X
Pine Avenue Community Center X
Stagecoach Community Center X
Carlsbad Senior Center X
Police Department
City of Carlsbad Public Safety and Service Center X X
Utilities Department
Carlsbad Municipal Water District (CMWD) X
Total 5 13
Source: June 2017 cash count, August 2019 cash count, and the city's accounting system.
Privileged and Confidential Information: The dollar amount of cash held at each facility is withheld from the
report for security reasons.
*The Community & Economic Development Department is responsible for the contract with the management
company for Tyler Court Senior Apartments; the management company oversees its petty cash.
Because in certain cases it is neither practical nor desirable to use a purchase requisition, a city
employee may purchase an item that costs less than one hundred dollars and receive cash
reimbursement from either: 1) one of the departments1 petty cash funds or 2) the Faraday Center
1 Prior to any adjustments made as a result of the August 2019 cash count.
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cashier. In practice, employees also submit other employee expenses for reimbursement through
these two methods, such as for mileage costs to travel to other city facilities. The Finance
Department primarily administers the city's reimbursement process but relies on approving officials
in each department to perform decentralized reviews of purchases. For items that cost one hundred
dollars or more, or for costs incurred during a trip, employees submit reimbursement requests to the
accounts payable staff in the Finance Department (accounts payable) for review and payment. See
Figure 1 below for a description of these various employee expense reimbursement methods.
PETTY CASH FUND
Reimburse employee
through petty cash fund
for expense under $100
FARADAY CENTER CASHIER {
Reimburse employee
through Faraday Center
cashier for expense under
$100
ACCOUNTS PAYABLE
Reimburse employee
through accounts payable
for expense of $100 or
more, or costs incurred on
a trip*
, . . . . . , ,
•Employee submits form with proper backup signed by an
approving official and is reimbursed by petty cash .
•To replenish the fund, an approving official signs off on the
packet of col lected support and submits it to accounts payable.
•Accounts payable reviews the support and replenishes the petty
cash fund.
•Employee submits appropriate backup and slip signed by an
approving official to the cashier at Faraday Center and is
reimbursed using money from the cashier's change fund .
•Employee submits appropriate backup and documentation
signed by an approving official to accounts payable.
•Accounts payable reviews and processes employee's
reimbursement through electronic transfer or physical check.
Source: The city's Administrative Order No.12, purchasing policies and procedures manual, and the Finance
Department's cashier procedures.
*Employees may submit reimbursements under one hundred dollars to accounts payable at their discretion.
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AUDIT RESULTS
Cash Count Results
The internal auditor performed unannounced cash counts during August 2019 at city facilities with
cash funds. During each visit, the internal auditor physically counted the cash and compared it to the
city's records to identify overages and shortages. Additionally, the internal auditor performed work to
identify the cause of variances and asked about cash handling processes at each facility. See Table 2
for a summary of the results and subsequent report text for an explanation of each variance.
Table 2: Summary of City Facilities with Cash Fund Variances
City Department and Facility Variance* Cash Fund Reason for City's Response
Type Variance
Parks & Recreation Department
Pine Community Center $200 Change Fund Unknown Adjusted Records
Stagecoach Community Center $(672) Change Fund Alleged Theft Investigated &
Adjusted Records
Senior Center $200 Change Fund Unknown Adjusted Records
Source: August 2019 cash count, June 2017 cash count, the city's accounting system, and department records.
*Noted variances greater than teri dollars.
Variances at the Pine Community Center and Senior Center
The Pine Community Center had an additional $200 change fund not identified in the city's
accounting or prior internal audit records. When asked about this variance, Pine Community Center's
current recreation supervisor asserted he took over management of this fund in September 2018, at
which point it contained $700. Of this amount, he kept $200 for Pine Community Center events and
deposited the rest. However, because there is no record that anyone established this fund in the
city's accounting records, this deposit incorrectly reduced the city's total account balance.
Additionally, a Parks & Recreation Department senior management analyst asserted that she counted
$1,020 in the fund now held at Pine Avenue two years prior in June 2017. Parks & Recreation
Department staff currently employed with the city could not provide an explanation for the apparent
$320 decrease from June 2017 to September 2018, when the current recreation supervisor took over
the fund. The personnel who previously managed this fund are no longer employed with the city.
Similarly, the Senior Center had an additional $200 change fund not identified in the city's accounting
or prior internal audit records. For both the Pine Community Center and Senior Center, it is unclear
who established the additional change funds, when, and using what cash. It is possible that staff
created the change funds by collecting cash receipts and not recording the revenue or depositing the
cash. This goes against the Parks & Recreation Department's policy requiring staff to immediately
record all revenue. Further, the fact that Parks & Recreation Department staff can potentially avoid
recording and depositing revenue, without the knowledge of the Finance Department, indicates a
larger problem-staff could also potentially misappropriate cash using the same process. Therefore,
leadership from the Finance and Parks & Recreation departments should meet to discuss whether
current controls over cas_h receipts are adequate and implement necessary improvements.
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Given the examples at both the Pine Community Center and Senior Center, the Finance Department
should also require that all departments obtain its approval to establish and make changes to cash
funds so it can monitor them and ensure proper recordkeeping. In the past, the internal auditor
maintained a list of facilities with cash funds and their associate balances. Moving forward, the
Finance Department should maintain this list to preserve the internal auditor's independence. To
increase accountability, the Finance Department should expand this list to track designated
custodians and ensure it is updated.
Variance at the Stagecoach Community Center
Stagecoach Community Center's change fund for special events contained significantly less cash than
recorded due to alleged theft by a part-time employee with safe access. Stagecoach Community
Center keeps its cash in two different safes: one for daily use and another for special events. The
recreation supervisor responsible for special events asserted she last counted the cash on May 20,
2019 after her last event with no issue. However, on Aug. 8, 2019, the recreation area manager
identified a small discrepancy in the cash used daily, prompting the recreation supervisor to count
the cash for special events and identify a significant $607 shortage. The following morning on Aug. 9,
2019 she identified an additional $65 missing from special events.
That morning, the staff notified both Parks & Recreation Department leadership and the internal
auditor of the shortage. The internal auditor counted the cash that afternoon and confirmed the total
shortage of $672 in special events. Together with the Human Resources and Police departments, the
city investigated the alleged theft and ended the suspected employee's appointment with the city
within a week of identifying the shortage. The Police Department submitted this case to the San
Diego District Attorney's Office. The excess cash not regularly used for special events at Stagecoach
· Community Center has since been deposited.
Although the Parks & Recreation Depart'ment employees who identified the shortage should have
immediately notified leadership the first day they identified it, as required by the.department's
policy, this incident demonstrates the city's overall swift response and cooperation. To ensure the
city reduces its overall risk exposure and encourages employees to promptly identify and report
suspected theft and loss, the Finance Department should do the following:
establish a citywide method for employees to report suspected theft or loss of cash;
prohibit departments from maintaining large cash funds not used in the normal course of
business; and
• require that appropriate staff count cash funds at least monthly and reconcile to their
authorized balances; records should be kept for a reasonable period.
Further, departments should implement stronger controls around access to cash funds. In general,
there is no requirement that departments maintain an updated list of staff with access to areas
containing money (i.e. keys to petty cash boxes, codes to safes). This increases the risk that current
staff can access money inappropriately and terminated staff may retain access to restricted cash. As
an example of a good practice, an administrative employee with the Library & Cultural Arts
Department maintains a comprehensive list of staff with access to each area of safekeeping and
require staff to sign safe confidentiality agreements that are kept on file. The Finance Department
should require that all facilities with cash implement a similar practice for those with safe access.
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Additional Observations
Internal controls for the Library & Cultural Arts Department's copy and self-check machines could be
improved. These machines operate separately from the city's cashiering system; thus, library staff
must manually track and record cash transactions. One administrative employee at each library
collects, tracks, records, and deposits cash receipts from these machines. However, the. principle of
segregation of duties recommends dispersing critical functions of a process to more than one person
to help manage fraud and error risks. Therefore, the Library & Cultural Arts Department should create
procedures to ensure cash receipts from its libraries' copy and self-check machines are recorded and
deposited appropriately. As of October 2019, the Library & Cultural Arts Department had started
creating procedures to strengthen internal controls for this process.
Employee Cash Reimbursements Review
The city's records indicate the city reimbursed employees in cash for over $10,500 through three of
its four departmentally-managed petty cash funds and over $9,700 through the Faraday Center
cashier during fiscal year 2018-19.2 These petty cash funds may be used to reimburse employees
from various departments. For example, the Police Department's petty cash fund at the Safety
Training Center may process reimbursements for both the Police and Fire departments. The internal
auditor judgmentally selected four reimbursements processed at each of the three departments'
petty cash funds and the Faraday Center cashier, for a total of sixteen, and assessed compliance with
the city's policies and procedures. Although all sixteen items appear reasonable and for city business
purposes, there were several areas of noncompliance with city policies:
A Utilities Department employee received reimbursement through the department's petty
cash fund for over $50 to pay for·lunch with a new employee as part of the city's peer
advisor liaison (PAL) program; however, a flyer for this program states that the maximum
reimbursement allowed is $30. An employee from the City Manager's Office asserted she
sends an email containing this flyer to employees when assigning them a PAL.
Despite the city's purchasing policies and procedures manual limiting cash reimbursements
to items that cost less than $100, three reimbursements exceeded this threshold. For
example, a Police Department employee received a reimbursement of $99.99 through the
Police Department's petty ca.sh fund for sunglasses that cost $101.05. Additionally, the
Utilities Department used its petty cash fund to reimburse an employee for $200 for food for
an all-hands meeting {60+ attendees) but split the reimbursement into multiple
reimbursements.
An employee of the City Manager's Office twice received an incorrect reimbursement for
mileage costs through the petty cash fund maintained at City Hall. The city's travel guidelines
and procedures state that mileage reimbursement requests should not cross calendar years
to avoid issues with changing reimbursement rates. However, the employee's mileage
reimbursements crossed calendar years and were partially calculated using the wrong year's
mileage rate. The dollar amount of the miscalculation was insignificant.
2Tyler Court Senior Apartments' petty cash fund is managed by an outside management company.
Therefore, it is excluded from this review. Additionally, Harding Community Center obtained its petty
cash fund at the end of fiscal year 2018-19; therefore, it had no reimbursements during the review
period.
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Three Police Department employees attended the Pala shooting range and received
reimbursement through the Police Department's petty cash fund for these training costs.
Although the amount reimbursed agrees with the prices posted on Pala's website, the
employees did not include a valid receipt or appropriate documentation as required. One of
these employees also inappropriately signed as the approver of his own expense
reimbursement. This indicates the employee processing the reimbursement did not verify
the appropriateness of the approving signature.
• Three Police Department employees received reimbursement for out-of-state travel
expenses through the Police Department's petty cash fund, despite the city's travel
guidelines and procedures requiring that these expenses be processed through accounts
payable and with an appropriate travel log form.
Several reimbursements either did not have an approving signature or had a signature from
someone not designated as an approving official, as required by the city's purchasing policies
and procedures manual. According to the Finance Department, approving officials are those
who have filled out an authorization form that accounts payable maintains for each
department.
Several mileage reimbursements for employees in the City Manager's Office and City Clerk's
Office did not include support for the mileage claimed-such as a printout from Google
Maps-for non-standard travel destinations, as required by the city's travel guidelines and
procedures. For these items, the mileage claimed appears reasonable.
Based on assertions from employees; the noncompliance may have occurred because employees did
not know the actions were noncompliant, thought it was acceptable because the Finance Department
did not take issue in the past, and been uncertain as to who is considered an approving official. For
the items reviewed, it appears requiring an approving official to review and sign off on a
reimbursement request was not an effective internal control to ensure reimbursements complied
with city policies and procedures. Additionally, there is evidence that the Faraday Center cashier
processing employee cash reimbursements did not have an updated list of approving officials to
reference prior to August 2019. Therefore, the cashier could not verify reimbursement requests were
signed by an approving official before processing them.
To ensure the city continues to reimburse employees for appropriate and allowable business
expenses, the Finance Department should train staff who oversee cash funds, approving officials, and
Faraday Center cashiers, at least annually. As illustrated throughout this report, cash transactions are
inherently risky and susceptible to theft and errors. The Finance Department stated it has considered,
but not implemented, a comprehensive cash training program because it relies on departments to
train their employees and the Finance Department has historically trained employees as it
implemented new systems or system upgrades. However, this training could reinforce that only
approving officials designated through the list maintained by accounts payable can approve expense
reimbursements and that petty cash fund custodians are responsible for ensuring employees submit
appropriate documentation before processing reimbursements. If instances of policy noncompliance
continue, the Finance Department can consider whether it will instead eliminate or consolidate petty
cash funds as appropriate.
Further, given the complexity of the city's travel guidelines and procedures and noncompliance noted
above, the Finance Department should disallow petty cash reimbursements for these costs. Instead,
it should require that emplqyees submit all reimbursements for costs covered under the travel
policy-including miscellaneous meals and mileage-to accounts payable.
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Conclusion
A citywide cash policy covering the findings and recommendations throughout this report could
strengthen cash controls. Although some departments have their own cash handling policies, without
one comprehensive city policy staff at different facilities may diverge in how they handle cash and
risk doing so inappropriately. The Finance Department stated it has provided informal cash handling
guidance to departments and does not have a citywide policy, allowing departments to establish their
own practices. However, the Finance Department should create a formal policy covering both petty
cash and general cash handling to ensure that important internal control processes are established
and communicated .to departments.
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RECOMMENDATIONS SUMMARY
SUMMARY OF CURRENT RECOMMENDATIONS
Finance Department and Parks & Recreation Department
Recommendation #1: To ensure that cash receipts are appropriately collected, recorded, and
deposited at Parks & Recreation Department facilities, leadership from both the Finance and Parks &
Recreation departments should meet to discuss whether controls are adequate and implement
necessary improvements by March 2020.
Management's Response:
Finance Department: We agree and will implement the recommendation.
Parks & Recreation Department: We agree with the report and will implement the following:
• Maintain a comprehensive list of staff with access to each area of safekeeping.
• Have those staff with access to each area of safekeeping sign a safe confidentiality
agreement that will be kept on file.
• Meet with the Finance Department to discuss whether controls are adequate and
implement necessary improvement(s) by March 2020.
Finance Department ,
Recommendation #2: The Finance Department should create one policy covering both petty cash and
general cash handling procedures to strengthen internal control and address the findings and
recommendations mentioned throughout this report, as summarized below, by the end of fiscal year
2019-20:
Require that all departments establish and make changes to cash funds with the approval of
the Finance Department.
Establish a citywide method for employees to report suspected theft or loss of cash.
Prohibit departments from maintaining large cash funds not used in the normal course of
business.
Require that appropriate staff count cash funds at least monthly, reconcile to their
authorized balances, and keep a record for a reasonable period.
Require that facilities with cash maintain a current list of all employees with access to cash
(i.e. lock box or safe) and have employees sign safe confidentiality agreements kept on file.
As part of this requirement, instruct managers with responsibility for cash funds to limit safe
access and avoid granting access to part-time employees.
• Establish that only approving officials as designated by accounts payable's signature
authorization form have the authority to sign both petty cash and expense reimbursements
and custodians m(Jst ensure employees have received appropriate approvals before
processing reimbursements using petty cash.
Require that employees submit all reimbursements for costs covered in the travel guidelines
and procedures, including miscellaneous meals and mileage, to accounts payable.
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Management's Response: We agree and will implement the recommendation.
Recommendation #3: The Finance Department should maintain a comprehensive list of all facilities
with authorized cash funds, their authorized amounts, and their designated custodians by January
2020 to strengthen departmental accountability and its ability to monitor cash funds.
Management's Response: We agree and will implement the recommendation.
Recommendation #4: The Finance Department should coordinate cash training at least annually for
those who oversee cash funds, cash fund custodians, departments' approving officials, and Faraday
Center cashiers, by the end of fiscal year 2019-20.
Management's Response: We agree and will implement the recommendation.
Library & Cultural Arts Department
Recommendation #5: The Library and Cultural Arts Department should implement controls to help
ensure that cash receipts from the self-check and copy machines are recorded and deposited
appropriately by February 2020.
Management's Response: We agree and will implement the recommendation.
SUMMARY OF PRIOR RECOMMENDATIONS FROM JUNE 2017
Previously, the city's internal auditor reported audit results informally to members of city ·
management. A formalized process did not exist to ensure the internal auditor's recommendations
were implemented. However, the recommendations included in the prior internal auditor's most
recent June 2017 citywide cash count were relevant to the conclusions made in this report.
Therefore, the current internal auditor followed up on all four recommendations from the previous
June 2017 report and included the results below.
Prior Recommendations Not Implemented
Prior Recommendation #1: The prior cash count report for June 2017 recommended that Alga Norte
Aquatic Center implement controls to ensure that entrance fees are collected and immediately
entered into the recreation activity management software system for all individuals using the facility.
The recommendation suggested that because the facility already has ticket booths with turnstiles
available, using these features and then comparing the number of patrons entered per the turnstiles
to the total fees collected could be one way of evaluating whether total fees per the system agrees to
the total of people that entered the facility. The recommendation suggested that pre-numbered
wristbands could also be used for this purpose. In its June 2017 response, Parks & Recreation
Department staff stated that it would not use the ticket booths and turnstiles for this purpose due to
undesirable environmental conditions within the ticket booths, such as the temperature within the
booth.
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Follow-up Assessment: During the cash count visit in August 2019, the internal auditor noticed staff
using the ticket booth. The facility's recreation area manager stated that the air conditioning was
repaired approximately May 2018 and Alga Norte Aquatic Center uses the ticket booths for inflatable
rentals and large special events. Additionally, she asserted that pool staff perform reconciliations and
issue wristbands for inflatables. Given this information, the Finance and Parks & Recreation
departments should consider this new information and what impact it could have in the
recommended meeting to strengthen controls around cash receipts.
Prior Recommendation #2: The most recent prior cash count report for June 2017 recommended
that citywide cash handling policies and procedures be issued and that all individuals handling cash
be trained on these policies and procedures.
Follow-up Assessment: As of August 2019, the city does not have formally documented citywide
policies and procedures and has not provided training to all individuals handling cash. This is included
in the list of current recommendations based on the con·clusions reached in this report.
Prior Recommendations Implemented
Prior Recommendation #3: Library & Cultural Arts Department management appropriately adjusted
the recorded cash balance at the Carlsbad City Library to reflect the amount of cash on hand, as
recommended in the June 2017 internal audit cash count.
Prior Recommendation #4: Library & Cultural Arts Department management reduced the amount of
cash in all the self-service machines at the city's three libraries based on their needs, as
recommended in the June 2017 internal audit cash count.
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