Controller-Treasurer Department Internal Audit Division

Transcription

1 nty f Santa Clara Cntrller-Treasurer Department Internal Audit Divisin David G. Elledge Cntrller-Treasurer Bill Penne, CIA Supervising Internal Auditr May 4,2007 Assignment T: Distributin List Subject: Internal Audit Reprt - Bank Accunts' Psitive Pay Usage We have cmpleted an audit f the bank accunts' psitive pay usage. We cnducted the audit in January 2007 fr the pen bank accunts existing n December 31, We thank the Cntrller-Treasurer's staff fr their cperatin. Specifically, we want t thank the Treasurer/Investment Divisin wh expended a significant research effrt n key details. Their assistance cntributed significantly t the successful cmpletin f the audit. Respectfully submitted, (signature n file) Bill Penne, CIA Supervising Internal Auditr Distributin List: David Elledge, Cntrller-Treasurer Jacqueline Flippin, Investment Officer Jhn V. Guthrie, Directr, Finance Agency Peter Kutras, Jr., Cunty Executive Lesha Luu, Divisin Manager - Accunting, Cntrller-Treasurer Department Bard f Supervisrs Civil Grand Jury

2 INTERNAL AUDIT REPORT Bank Accunts' Psitive Pay Usage Assignment r16 May 4,27

3 Table f Cntents Page Executive Summarv Cnclusin...1 Audit Objective...1 Audit Scpe Audit Backgrund Findings and Recmmendatins Certain special districts can inapprpriately withdraw cash frm the cmmingled fund There are 12 special districts maintaining checking accunts all under ne bank accunt...4 Respnse frm the Cntrller-Treasurer - Investments Divisin...5 Respnse frm the Cntrller-Treasurer - Accunting Divisin...6

4 Bank Accunts' Psitive Pay Usage Page I Executive Summarv Cnclusin The psitive pay methd is nt being applied t all bank accunts linked t the Cunty's main cncentratin accunt. Fr the Cunty f Santa Clara, this is an imprtant feature as there are 33 bank accunts that withdraw funds frm the Cunty's main cncentratin accunt. Fr the 27 bank accunts under the direct cntrl f the Cunty, all have the psitive pay feature. Of the six bank accunts under the direct cntrl f special districts r jint pwers authrities, six d nt have psitive pay based n the "bank analysis statement." Based n additinal input frm the bank and users, five f these six bank accunts have psitive pay and it is being used. There is agreementhat the ne bank accunt with the 12 special districts des nt have psitive pay. One f these bank accunts has l2 special districts, with 18 checkbks, drawing funds frm the cmmingled pl, which links t the Cunty's main cncentratin accunt. While still being permitted t invest any surplus funds in the cmmingled pl, the 12 special districts shuld btain their wn bank accunts apart frm the Cunty's banking relatinship. T minimize the risk f unauthrized withdrawals, the Cntrller-Treasurer shuld btain the psitive pay feature fr all accunts drawing dwn frm the Cunty's main cncentratin accunt. The Cntrller-Treasurer is in agreement with all ur findings and recmmendatins cntained in this reprt Audit Objective Audit Scpe The audit bjective is t assure that the psitive pay methd is applied t all bank accunts linked t the Cunty's main cncentratin bank accunt. The scpe f the audit included: Identifuing all bank accunts within the Cunty's banking relatinship ldentising thse accunts with the psitive pay feature Analyzing thse accunts withut psitive pay t determine the apprpriateness f their lack f this feature. Analyzing the risks assciated with maintaining a unique bank accunt fr certain special districts. Identiffing any warrants paid by the bank but nt listed n any issuance reprts sent t the bank. Audit Backgrund Psitive pay is a methd used by a bank t detect fraudulent checks. The bank custmer transmits check issued infrmatin t the bank; the bank matches checks presented fr payment against this infrmatin and ntifies the custmer f any checks presented fr payment that are nt n any previusly submitted issuance recrd.

5 BankAccunts' Psitive Pay Usage Page 2 This audit is the result f an bservatinted in an audit being perfrmed cncurrently. Since the bservatin's nature was utside the ther audit's scpe, the Intemal Audit Divisin pened this audit t address the cncem. Details abut ur findings and recmmendatins are prvided belw. (signatures n file) Bill Penne, CIA Supervising Internal Auditr Brian P. Mark, CIA Senir Internal Auditr

6 Bank Accunts' Psitive Pay Usage Page 3 Findings and Recmmendatins Finding I Certain special districts can inapprpriately withdraw cash frm the cmmingled fund. There is ne bank accunt whereby certain special districts can draw upn the Cunty's main cncentratin accunt. This bank accunt shuld, but des nt have, the psitive pay feature. The cunent cash handling plicy des nt require psitive pay be a feature f bank accunts that draw upn the Cunty's main cncentratin accunt. In ur audit f the pening and recnciliatin f bank accunts, we recmmended the Cntrller-Treasurer update its cash handling plicies and prcedures manual t include mdern practices such as psitive pay. The Cunty cannt withhld a check r warrant payment drawn n any f these specific bank accunts because the Cunty des nt becme aware f these payments until after these accunts' checks r warrants clear the bank. Additinal cntrl weaknesses nted with these bank accunts include: With ne exceptin, the Cntrller-Treasurer is nt a signatry n the checks r warrants issued thrugh these bank accunts. Emplyees with access t the check r warrant stck are nt Cunty emplyees thus are nt bliged t cmply with the Cunty' s r the Cntrller-Treasurer' s plicies. The Cunty has n cntrl ver the physical security f the check r warrant stck. The Cntrller-Treasurer des nt receive cpies f checks r warrants issued by the jint pwers entities. The Cntrller-Treasurer des nt receive the bank statements fr these entities' accunts. The phrase, "Cunty f Santa Clara Warrant" is imprinted n each warrant issued by the special districts. Misuse f these warrants culd implicate the Cunty. The Investment Divisin's cash frecasting can be undermined since these districts' checkins accunt activities are nt knwn in advance. By requiring the psitive pay feature be attached t all bank accunts drawing frm the Cunty's main cncentratin accunt, the Cunty can minimize the risk f districts withdrawing mre than their cmmingled pl cntributin. Withut this feature, the Cunty's nn-invested cash

7 balance is at risk f inapprpriate withdrawals. Bank Accunts' Psitive Pay Usage Page 4 Recmmendatin 1.1 The Cunty shuld immediately require the psitive pay feature be attached t all bank accunts drawing frm the Cunty's main cncentratin accunt. [Pririty 1] Recmmendatin 1.2 The Cunty shuld prhibit any check r wanant t be imprinted with the wrds, "Cunty f Santa Clara Warrant" r "Santa Claru Cunty Warrant" unless the Cunty has cntrl ver the usage, access and issuance f the particular checks r warrants. [Pririty 1] Finding 2 There are 12 special districts maintaining checking accunts all under ne Cuntv bank accunt. Twelve special districts, nne that are blended districts fr the Cmprehensive Annual Financial Reprt (CAFR) purpses, are issuing checks frm l8 checkbks all under ne bank accunt. This bank accunt is within the Cunty f Santa Clara's bank relatinship with the Bank f the West which means that the checks draw dwn the Cunty's funds withut any preventive cntrls such as psitive pay. The Cntrller-Treasurer is nt an authrized signatry n the accunt; the signatries are nt Cunty emplyees. These special districts shuld still be permitted t invest surplus cash in the cmmingled pl. Recmmendatin 2.1 The special districts shuld be instructed t btain bank accunts that d nt link t the Cunty's main cncentratin accunt. The special districts shuld be permitted t replenish their cash frm their cntributins t the cmmingled pl via a requesthrugh r sme ther acceptable cmmunicatin methd. [Pririty l] Recmmen datin 2.2 Upn Cmpletin f Recmmendatin 2.1, the Cntrller-Treasurer shuld clse this bank accunt. fpririty 1]

8 Bank Accunts' Psitive Pay Usage Page 5 Cunty f Santa Clara Finance Agency Cntrl ler-treasurer Department Cu nty Gvernment C'enter 70 West Iledding Street. E,ast Wins. 2"d flr San Jsc. Califbrnia 95 I l FAX (408) Respnse t Psitive Pay Audit (Investment's Divisin) Recmmendatin 1.1 Histrically, with the exceptin f accunt216, all accunts that exist as sub-accunts t the Cunty's depsitry accunt has had the benefit f prtectin frm psitive pay prtcl. Given that accunt 216, is shared by a number f entities, psitive pay culd nt be efficiently and effectively implemented. Hwever, it is imprtant t nte, unlike ther subaccunts, a designated staff persn frm the Cunty's General Accunting Unit recnciles accunt 216 daily and individually inspects each paid check. Clearly, the benefit f fraud prtectin extended by psitive pay is highly desirable; nevertheless, accunt 216 didreceive review and was mnitred fr aberratinal activity. Recmmendatin 1.2 Based n my current knwledge, thse bank accunt users wh are nt subject t the cntrl f the Cunty and wh als draw upn checks with the "Cunty f Santa Clara Warrant" imprinted upn them is a cntained grup and is limited t accunt 216. It is my expectatin that with the clsure f accunt 216, access and use f Cunty warrant check stck by such entities shuld cease. Recmmendatin 2.2 Upn ur instructins, Bank f the West can clse accunt2l6 within a 48-hur time frame. Bard f Supervisrs: Dnald F. Cage^ Blanca Alvarad. Pete McHugh, Ken Yeager, Liz Kniss Cunty Executive: Peter Kutras, Jr.

9 Bank Accunts' Psitive Pay Usage Page 6 Cunty f Santa Clara Finance Agency Cntrl ler-treasurer Department Cunty Gvernment Center 7() V\ cst I ledding Strcct. l:ust \\'ing. 2"r llr San Jse. C'alifbrnia 95 I l0- I705 FAX (408) Respnse t the Internal Audit f Bank Accunts' Psitive Pay Usage (Accunting Divisin) Recmmendatin 2.1 The Cntrller-Treasurer will immediately wrk with each special district impse the psitive pay requirement n the bank accunts and/r btain new bank accunts. We anticipate cmpleting the implementatin f this recmmendatin by the end f August. Bard f Supervisrs: Dnald F. Gage. BlancaAlvarad, Pete McHugh, Ken Yeager. Liz Kniss Cunty Executive: Peter Kutras, Jr.