REPORT OF INTERNAL AUDIT

Transcription

1 REPORT OF INTERNAL AUDIT PRESENTED TO AUDIT/TASK: #04-03, Cash Controls Review AUDIT CLIENT: Idaho Ice World / Boise City Parks & Recreation AUDIT DATE: March 17, 2004 REPORT DATE: April 9, 2004 AUDITOR: Steven R. Rehn CIA, CBA, CFSA APPROVAL: Steven C. Purvis CPA INTRODUCTION In accordance with Boise Municipal Code Title 1, Chapter 9, the Office of Internal Audit performed a review of the cash controls in place at Idaho Ice World. The review was conducted as an assessment, and consisted of work sufficient to obtain an understanding of the controls in place within the facility, and the potential for those controls to mitigate the risks inherent in cash-related activities. The Ice World facility is a sub-unit of Boise City Parks & Recreation. The City of Boise acquired the Idaho Ice World facility during the first quarter of 2004 and rolled it into the Parks & Recreation department as an additional program provided by the City. Services offered by Ice World remained relatively unchanged during the transition to public ownership; and today patrons can avail themselves of basically all the same programs that were available when the facility was under private ownership. The facility consists of two ice rinks that are supported by a Pro Shop, equipment rentals, and locker facilities. Also available are a video arcade, and two franchise fast-food concessions. A number of

2 programs are offered to the skating public. Hockey leagues are available for both youth and adults, with additional opportunities available for pick-up games and practice sessions. Figure skating is also supported, with learn-to-skate programs being offered at the facility. Ice World also offers open-ice time for general skating opportunities. On an annual basis, Ice World generates approximately $1.4mm in gross revenues. Consistent with the retail-nature of the business, those revenues are predominantly payments made via cash, check, and plastics. Given the dollar volumes flowing through the unit, Internal Audit undertook the review in order to determine whether cash control mechanisms were adequate, or whether opportunities for control improvements were immediately available. SCOPE AND METHODOLOGIES In order to gauge current practices, the review was restricted to cash handling processes and procedures in place as of the date of review. The audit work performed consisted of interviews, observations, and a review of specific documentation that was deemed to be sufficient to determine the existence and effectiveness of processes currently in place; and to provide support for recommendations provided within this report. EVALUATION AND COMMENTS Overall, the control environment surrounding cash handling processes currently in place appears to be Marginal. Reportable issues were noted to exist, and did not appear to be isolated in nature. Systems of internal control appear to be marginally adequate as of the date of review. Ice rink operations are supported by computerized systems developed specifically for the industry. Those systems capture all sales information and facilitate additional aspects of operations such as the scheduling of ice time, and the control of inventories in the Pro Shop. The system appears to be capable of effectively supporting on-going operations. However, indications are that some management oversight / monitoring capabilities resident in the system may have been overlooked, or are not regularly used. Full utilization of management reports and similar system data would serve to enhance the overall control environment. Management should determine if potentially useful, though un-used reports and data are available for use. 2

3 Internal Audit noted issues that present opportunities for immediate improvement with respect to the handling of receipts and deposits. Certain practices appear to have developed within operations that are not in line with best practice in a cash-handling environment and which are in need of corrective action. Some remedial efforts will involve the creation of new policy and procedures; some the enforcement of existing policy and procedures; others the enhancement of management monitoring and oversight efforts. Internal Audit believes that the recommendations and enhancements detailed below are readily achievable, and will, if implemented, result in an enhanced control environment surrounding cash-related activities in the facility. 3

4 FINDINGS AND RECOMMENDATIONS 1. FINDINGS: CASH DRAWERS Based on discussions with management, and on a review of supporting documentation, Internal Audit noted the following issues with respect to cash drawers and the related procedures: Typical to a cashiering environment, individuals should be assigned a drawer / till, and should retain sole control over the drawer during the work shift. Specific drawers are assigned to individual cashiers. However, procedures have not been actively enforced, resulting in the sharing of drawers by multiple cashiers and, at times the passing of drawers to employees working later shifts. Cashier tills are replenished daily with a beginning balance that is reasonable for the volume of activity the unit experiences. However, it appears that upper limits for the drawers have not been established. When excess amounts of cash accumulate in the tills during business hours, it is at cashier and / or supervisory discretion as to when excess cash is dropped or a fresh drawer is put in use. Upper drawer balances appear to be a judgment call. RECOMMENDATIONS: Respectively, Internal Audit recommends that management consider the following corrective actions: The two available tills at the skate counter should be readied for use each shift and assigned to specific cashiers. Further, cashiers should count out at the end of their shift, and new cashiers coming on duty should start with a fresh till. Sharing or passing of tills reduces accountability, and hinders management s ability to monitor individual employee performance. An upper drawer limit should be established, and required drop procedures put in place. Exposure is increased if large amounts of cash are allowed to accumulate in the tills. 4

5 MANAGEMENT RESPONSE: 1. We have implemented the Procedures for Till Counts and Till Usage effective 4/5/04. Those procedures require each cashier to maintain his/her own till. They also prohibit the sharing of tills or system passwords. All cashiers have working passwords. We will continue to use our Cashier s Balancing Sheet form and will require signatures of the cashier going off duty, the cashier coming on duty and the supervisor on all balancing sheets. 2. We have set a $300 upper limit on each drawer. Any accumulation of cash in excess of $300 will trigger a drop to the safe and take the till total down to its base cash level. The drop amount will be logged on the Cashier s Balancing Sheet and be signed by the Cashier and Supervisor. The till will be balanced at the end of the cashiers shift. 5

6 2. FINDINGS: SECURITY / DEPOSIT PRACTICES Internal Audit noted the following issues that directly impact the degree of security that is exercised over cash received and / or held in the facility: The facility utilizes a total of 3 safes in separate locations to support operations. Varying levels of cash are maintained in each of those 3 safes. Keys and combinations have been assigned to members of the management team, and to supervisory personnel responsible for oversight of rink activity and cashiering stations. However, there is no written documentation as to who possesses which keys and combinations. Additionally, one key / combination safe is locked only with the combination half the key half is not utilized. Safes in the facility are fine-counted periodically to ensure that all funds are accounted for. However, those counts do not appear to be performed in the presence of all custodians having access to the cash, nor are they always properly documented. Receipts are processed, and deposits are prepared in a secured room. Once prepared, deposits are placed in locked bags and transported to Parks & Recreation s administrative offices for consolidation, posting, and deposit. Both hard- and soft-dollar costs are incurred as a result of the daily transport of the deposits. RECOMMENDATIONS: Respectively, the following recommendations are presented as a means to address the findings noted immediately above: All employees holding keys and/or combinations should be documented in management files; and all safes should be fully locked when not being accessed. Management should also consider the advisability of requiring each of those employees to sign an acknowledgement of the need to maintain security over the keys and combinations they possess. Where practical, fine counts of reserve cash balances maintained in the facility should be performed in the presence of all custodians having access to the cash fund in question. The counts should also be documented as to date, and those in attendance. There is a bank Night Drop facility located in close proximity to Ice World. Deposits could be dropped in this facility for deposit, and the supporting accounting records transmitted electronically to the administrative offices for posting and reconciliation. This procedure could result in savings of as much as $5,000 per year in combined costs. 6

7 MANAGEMENT RESPONSE: 1. All employees holding keys and safe combinations are documented. The documentation is maintained in a secure location in the General Manager s office. Generally, these items have been assigned as follows: Skate Counter-lower: Select members of the management team, and the supervisors. We will have the lower safe combination changed anytime there is a change in the above personnel. Skate Counter-upper: Select members of the management team only. Pro Shop: It is our recommendation that this safe be pulled out of service. All pro shop till money will be managed and maintained in a fashion that is similar to that which is utilized for other cashier tills. Business Office Safe: Select members of the management team only. We feel an acknowledgement of receipt form is appropriate, and will follow up with Parks & Recreation management on this issue. 2. Reserve cash balances are now being fine-counted in the presence of both designated custodians. The General Manager will also be present for the counts on a periodic basis. 3. We are very much in favor of using the Wells Fargo drop located near the Ice World facility. The savings are significant and the drops will be made during daylight hours, and in a safe environment. We are waiting for City direction. 7

8 3. FINDINGS: MANAGEMENT MONITORING / OVERSIGHT Internal Audit noted several issues that require additional attention or oversight from management: The facility s Business Manager will terminate employment at Ice World on or about March 25, As of the date of the review, no plans had been formulated to facilitate the change-over of cash custodian duties, nor were plans in place to change keys and combinations currently in this Manager s possessions. In light of the shortened timeframe, Audit verbally recommended that a complete, documented count-out / count-in process be followed in order to ensure that cash turned over to new primary custodians was verified by those custodians. Further, Audit recommended that all combinations in the Business Manager s possession be changed as soon as practical subsequent to termination. The facility maintains a level of cash that is adequate to support operations during cyclical peaks in their business cycle. However, those cash levels apparently have not been reduced to more reasonable levels during the offseason, resulting in a certain amount of cash laying idle for a portion of each fiscal year. No-sales are possible on the tills, with no restrictions in place over this activity. All cashiers, supervisors, and managers possess this authority. The data processing system does produce a report that details voids and no-sales on command. However, the report is not ordered or reviewed on a regular basis. Management will monitor the report only if red-flags are detected in the performance of individual cashiers. As represented by management, there is no effective way to prevent walk-ins from utilizing the ice without paying. Internal Audit noted a peel and stick badge system in place within the facility that can produce a badge for each paid admission. However, it apparently is not routinely utilized. Current procedures result in a weekly back-up tape being made of the DP system utilized in the facility. Tapes are changed out weekly and retained onsite, on a shelf in the server cabinet. Four weeks of back-up tapes are retained, resulting in approximately a month of data stored on-site. 8

9 RECOMMENDATIONS: Respectively, the following recommendations are presented as a possible means to address the findings noted immediately above: Management was responsive to Internal Audit s suggestions with respect to both count-out / count-in, and with respect to combination changes and concurred with the verbal recommendations presented. Management should review the level of funding maintained in the facility during the off season, and reduce it to a level that is commensurate with seasonal business swings if such reduction is possible. Additionally, management should examine the wisdom of maintaining separate, small change funds in the facility when those funds are not routinely accessed or used. Overall, cash funds should be reduced to more realistic levels that are based on demonstrated need. Management should regularly review the no-sale report that is produced by the data processing system. Doing so will enhance management s ability to detect patterns or practices that may not be evident in more readily-observed aspects of staff performance. Methods should be developed that serve as a deterrent to those attempting utilize the ice free of charge. This may include consistent use of the badge system, with periodic observation of those on the ice and verification that only those that have paid admission are utilizing the facility. Methods should be developed that capture as much revenue as possible. Management should review current practice and ensure that data back-ups are adequate to support the business. Consideration should be given to storing backed-up data away from the server to enhance recoverability should a destructive event occur in the server suite. 9

10 MANAGEMENT RESPONSE: 1. The recommended count-out and count-in was performed. The appropriate cash custodians were present and signed off on the counts. Additionally, the combinations to all safes in the facility were changed the same day the Business Manager terminated employment at the facility. 2. We have cut the number of cashier tills maintained at Ice World in half. Additionally, we have reduced the amount of back-up change that is maintained on hand. Overall, these changes have reduced the amount of cash maintained on site by approximately 42%. We will also work with our leaseholders and inform them that we will no longer be their banker and provide change to them except in emergency situations. 3. The No-Sales report will be run each Monday AM with copies to select members of the management team. We will look for trends and review as needed with the cashiers. Currently, no-sales are a result of having to give token refunds, vending machine refunds, change, to open and close out the till for the shift and for recording non-prepaid coupons. The cashiers have been advised of this routine and they will be responsible to explain any extraordinary no-sales activity. 4. We discussed the pros and cons of several options to control free users of our ice, and will be making a recommendation to Parks & Recreation. We discussed wrist bands, stickers, neck lanyards with a pass, wire clips similar to Bogus Basin and all have pros and cons. We will be making a recommendation on something that is highly visible, less prone to unpaid transfer, etc. In the meantime, the peel and stick system is being put back into service and will continue to be used until another system is approved. 5. We have moved the DP back up tapes to the business office safe. We are backing up 5 weeks. 10

11 MANAGEMENT PARTICIPANTS Pepper Reese, General Manager Rose Eggers, Office Manager Leslie Deason, Director of Skating Operations Ryan Nevins, Rink Operations Manager 11