FINAL NATIONAL SOLID WASTE MANAGEMENT AUTHORITY MPM EXPENDITURE AUDIT CHEQUE PAYMENTS

FINAL NATIONAL SOLID WASTE MANAGEMENT AUTHORITY MPM EXPENDITURE AUDIT CHEQUE PAYMENTS INTERNAL AUDIT DEPARTMENT APRIL 2014

CONTENTS Page No 1.0 Introduction 3 2.0 Executive Summary 4 3.0 Audit Report 11 3.1 Failure to present essential records 11 3.2 Vehicle Maintenance----Garage 97 Hagley Pk Rd. 11 3.2.1 Lack of segregation 12 3.2.2 Splitting of Purchase, Breach of Procurement Process 14 3.2.3 Purchase Prepared after Service 16 3.2.4 No Documents seen to support Payments 17 3.3 Incorrect rates paid for meal and travelling allowance. 19 3.4 Lack of adequate payment verification control 20 3.5 Constituency Development Fund (CDF) payments 21 3.6 Payment made on behalf of NSWMA 23 3.6.1 Payment for Christmas Work 24 3.6.2 Payment for Special Project 25 3.7 No supporting Invoice for Payments 27 3.8 Inadequate Control over Cheque Disbursement 28 3.9 Inadequate filing and Storage of Payment Vouchers 29 3.10 Payment Vouchers not Uniquely Numbered 30 3.11 Lack of Control over closed of period in General Ledger 31 Internal Audit Department April 2014 Page 2

1.0 INTRODUCTION This audit was performed in accordance with the annual audit plan for the Financial Year 2013/14. The purpose of the audit was to examine and evaluate the adequacy and effectiveness of the system of internal control over the payment process. 1.1 Objectives and Scope The objectives of the audit were to determine whether: 1. A schedule of payment approval and cheque signing limits authorities exists, to ensure proper preparation authorization and approval for payment processing; 2. Bank Transfer and Cheque signing is restricted to authorized Manager/Executive; 3. Payments made to suppliers/contractors are legitimate with the required procurement documents; 4. Payees are the authorized persons and expenditure correctly classified and posted to the relevant general ledger accounts; 5. All expenditure vouchers are supported by the appropriate invoices/supporting documents and evidence seen that goods/services are received/rendered in a satisfactorily manner; 6. Adequate procedures are in place for processing cheque requests and prohibit cheques from routinely being returned by the payee or the bank; 7. Cheques were delivered to the bonafide payees or authorized agents and written acknowledgement secured. 1.2 Audit Approach a. Interviewing of relevant officers; b. Examination of documentation/records. 1.3 Auditor Assigned The audit was conducted by Auditors Karen Watson, Doranie Sergeant and Assistant Auditor Jelicia Barnett supervised by the Audit Manager. 1.4 APPROVED BY Vashti Wilson, Internal Audit Manager Internal Audit Department April 2014 Page 3

2.0 EXECUTIVE SUMMARY 2.1 Failure to present essential records Section 148(1) of The Financial Administration and Audit Act (The Financial Management Regulations 2011) was breached when internal audit was not presented with all the records and documents necessary, to carry out the audit. Internal control relating to record management was weak as the posting, filing, and storage of accounting documents did not allow for prompt retrieval. As a result, 2782 payment vouchers totaling $410,686,269.83 were missing from the files presented for cheques drawn during the period April 2012 to March 2014; and journal vouchers for bank transfers totaling 153,711,165.61 posted to the General Ledger were also, not presented. It is recommended that the Regional Operations Manager, Financial Accountant and Accountant ensure all documents not presented are accounted for and if impropriety is suspected for the missing vouchers the requirement of the MOF circular #6, dated 28/3/2000 regarding reporting of missing vouchers to the Auditor general and the Financial Secretary is complied with. In addition a proper records management system must be implemented. 2.2 Vehicle Repair and Maintenance----Garage 97 Hagley Park Road 2.2.1 Lack of Segregation There was clear evidence of a lack of segregation of duties in the procurement payment, receipt, storage and issue of parts for vehicle repairs and maintenance at the hagley park garage. The tasks carried out by the The Public Cleansing Administrator and store clerk currently lack segregation of duties which resulted in internal control weaknesses in the operation of the garage. In addition the stock records were not updated at the end of the financial year 31st March 2014. Audit recommends that the Regional Operations Manager improve the internal controls at the garage, ensuring that all procurement of parts is initiated by a Internal Audit Department April 2014 Page 4

job order which must be recorded on the purchase requisition for transparency and audit trail; The officer involved in the preparation and signing of procurement documents should not also collect suppliers cheque and the items purchase; and the GRN should be prepare and handover to the store clerk along with the items by another officer. 2.2.2 Splitting of Purchase, breach procurement process The Ministry of Finance circular#16 dated 14/5/2012 stipulates that for contract in the range of $500,000.00 to $1.5million, limited tender should be used with quotations received from three suppliers. On the 10/12/2013 three separate purchase orders each for $310,552.00 were drawn for the repair of three computer boxes by Cornwall Auto Supplies at a total cost of $931,656.00. The Purchase Orders were Zero Rated the cost price of $792,900 plus GCT of $138,756; without the required supporting job order, invoices or goods receival notes. The cheques were sign for by the Public Cleansing Administrator. Audit recommends that the Regional Operations Manager ensures adherence to the GOJ Procurement Process which require purchases above $500,000.00 to be subject to the limited tender process; and the $138,756.00 paid for GCT is recovered. The Corporate Service Director and Administration & Procurement Manager provide formal guidance to the various Departments on the procurement process. 2.2.3 Purchase Order Prepared After Service MPM was operating contrary to The FAA Act regulations 40 and Ministry of Finance circular#36 dated November 9, 2012 as purchase requisitions and purchase orders were seen prepared on or after the date of invoice, and on the date of payment. The entity s money could be misappropriated, as payments may be duplicated without detection when Purchase Orders are prepared and dated six months after invoiced date. Audit recommends that the Regional Operations Manager, Financial Accountant and Accountant ensure compliance to the FAA Act and The Internal Audit Department April 2014 Page 5

Ministry of Finance circular#36 dated November 9, 2012. Hence at all times Purchase Orders must be prepared prior to, the commencement of services and payment for goods; In emergency procurement the relevant documents must be prepared promptly and in place before the work is completed or goods received; and payment made; and supplier s invoice and delivery note clearly marked 2.2.4 No Documents Seen To Support Payments MPM was operating contrary to The FAA Act Instruction 5.3 as majority of the cash on delivery (C.O.D) payments for motor vehicle parts, repairs and maintenance were not supported by the requisite invoice or goods receival note; From a sample of 20 payment vouchers 18 value at $3,209,392.92 were not supported by invoices and Goods receival notes. Real Oil Jamaica Limited was paid on cheque#1019751 dated September 5, 2013 for the purchase of 16 batteries but Only 14 batteries were received resulting in an over payment of $38,085.10 It is recommended that the Regional Operations Manager, Financial Accountant along with the Accountant ensure that the dictates of the FAA Act Instruction 5.3 is complied with. When cash on delivery payments are made, the invoice and goods received note should be returned by the designated officer to the accountant immediately after the purchase. The officers responsible should be asked to present the invoices and the overpayment of $38, 085.10 recovered from the supplier. 2.3 Incorrect rates paid for meal and travelling allowance. Base on the Ministry of Finance circular#19 dated 1/9/2009 concerning taxi and refreshment allowance, overpayment was seen made to two employees. Employee with trn#100271227 received overpayment of $300 for meal allowance and employee with (Trn # 114-749-060) overpayment for taxi fare of $6,300.00. Audit recommends that the Regional Operations Manager, Financial Accountant and the Accountant put controls in place to verify the accuracy of employee allowance claims based on the government approved rates. All other such payments to the employees must be examined and the full amount overpaid including the $6,600 identified above should be recovered. Internal Audit Department April 2014 Page 6

2.4 Constituency Development Fund (CDF) payments During the examination of the payment vouchers it was observed that December 19-20, 2013 payments totaling $10,985,000.00 was made from MPM account NCB#231038345: $4,050,000.00 vide cheques and $6,935,000.00 through electronic transfers for work done under the constituency development fund. No vouchers were presented for the payment made through neither electronic transfer nor any g/l intercompany transfer seen between Parks and Gardens Department and MPM although the CDF bank account is maintained under Parks and Gardens. Audit recommends that the Regional Operations Manager and Director of Finance ensure that: there is consistency in the accounting for the CDF fund hence, payment relating to the fund should be paid from the applicable bank account; to allow for timely and accurate reconciliation. The electronic payment vouchers relating to CDF are presented, and the general ledgers accurately updated with these transactions. 2.5 Payment made on behalf of NSWMA Payments amounting to $2,722,078.06 were made during the period 21/12/2013 to 27/1/2014 by MPM on behalf of NSWMA. The payments were made from the recurrent account NCB.. The cheques were seen posted to the MPM Ledger a/c..; however the Payment vouchers were prepared by NSWMA and kept in NSWMA accounts Department. Audit could not verify whether the general ledger was adjusted to correctly reflect the transactions as no journals were presented. It was also noted that the bank reconciliation was not up to date Audit recommends that the Regional Operations Manager and the Director of Finance and Financial Accountant update the accounting records to accurately reflect the transaction in terms of the entity and related general ledger accounts. Additionally ensure that the entity affairs and the expenditure of public funds is in keeping with proper accounting practices to provide accuracy, transparency, and accountability. 2.7 Payment for Christmas Work $ 4,295,000.00 was seen paid from MPM recurrent Bank Account for Christmas project done through MPM. Although the payments may be Internal Audit Department April 2014 Page 7

justifiable, audit was unable to examine and validate the payments vouchers, and supporting bills for the cashed cheques #1023008-1023046 &1023087 drawn 20-21/12/2013 since they were not presented at the time of audit. Christmas project was also seen paid by MPM form the recurrent bank account on behalf of NSWMA/Parks & Gardens for $5,041,750. Vouchers for these payments were prepared and stored by NSWMA, but cheques were seen posted to MPM general ledger. The Regional Operations Manager and the Accountant are reminded as outlined by the Financial Management Regulations 2011 that Accounting Officers or heads of departments shall ensure that internal audit has access to all books, records etc.; hence documents relating to the above must be presented. 2.8 Payment for Special Project $4,810,983.25 was expended from the MPM Recurrent account for Special Project. This included payment for clearing and cleaning of open lots using backhoes, labour and the carting of debris to the landfill. Audit examination revealed: 1. Similarities between work sheet and invoices submitted by two different payees, and one payee s TRN #120406071 is the same as an employee in MPM 2. Purchase requisitions and purchase Orders were all prepared after services were rendered and there was no signoff by MPM representative at the time when the work was effected. Instead invoices were stamped Goods/services received satisfactorily by the Regional Administrator Audit recommend that the Director of Finance, Regional Operational Manager and financial Accountant 1. Address the control weaknesses identified in the Validation of supporting documents, invoices and certification of goods received and service rendered. 2. Determine whether the employee and the contracted payee with the identical TRN is the same individual, and address this matter immediately, as conflict of interest is evident. 2.9 No Supporting invoice for payments Contrary to, the FAA Act instruction 5.3, cheques were drawn and disbursed without the appropriate supporting documents. Internal Audit Department April 2014 Page 8

1. Payments totaling $345,645.00 was made to two suppliers for meals provided at the Riverton Landfill during a fire in March 2014, no supporting invoice or goods receival note seen; 2. 70 payments totaling $7,929,617.41 were seen made, but vouchers had not supporting invoice or goods receival note. 3. Copy invoice#5042 dated 23/1/2014 was used to support a payment of $311,639.00 made on the 13/3/2014 to A & L Transport& Tours vide cheque#1023286 for hydraulic oil purchase. this payment contravene the Ministry of Finance circular#11 dated 16/3/2010 which outlines that payment should only be made on the original of supporting document. Audit recommends that the Regional Operations Manager, Director of Finance, Financial Accountant and Accountant locate and attach the supporting invoices valuing $8,608,501. to the payment vouchers. The responsible officer must be required to provide the invoice. To strengthen internal control the accounting staff provided with checklist of the checks necessary when validating supporting invoice before preparing voucher and payment. 2.10 Inadequate Control over Cheque Disbursement Examination of the disbursement register, revealed control weaknesses as cheques were collected and signed for by individuals other than the payee, and No written letter was seen authorizing the bearer to collect cheques on behalf of the respective payees; and The Regional Operations Manager and the Accountant should ensure All cheques are signed for by the authorized payees and where representatives are used written instructions are obtained granting such authority to collect cheque on behalf of the payee 2.11 Inadequate Filing and storage of Payment Vouchers The filing and storage of documents was inadequate. This could result in the loss of government records by deliberate or accidental damage. It was observed that files are stored on the floor; and bank remittances and other payment vouchers were loosely placed in boxes beside and behind the accounting clerk s desk on the floor. In addition Cheque payment vouchers did not have unique number to identify each payment; instead the cheque numbers were used as the voucher number, a non-compliance to MOFP circular 6, instruction 4.8. Internal Audit Department April 2014 Page 9

Audit recommends that the Regional Operations Manager, Accountant and Regional Administrator ensure that: 1. The dictates of the Ministry of Finance and Planning is implemented and adhered to, hence each payment voucher must have a unique identification number 2. Filed in ascending order in a chronological manner. Any break in the sequence should be properly noted; and 3. The filing room allows for proper storage and easy retrieval of document/vouchers. Internal Audit Department April 2014 Page 10

3.0 AUDIT REPORT Cheque payment vouchers along with supporting documents, encashed cheques, cheque transaction listing, general ledger extracts and cheque disbursement registers were examined for periods between April 2012 and March 2014. For discretionary reasons the names of individuals, contractors and companies are not included in the report; instead NCC, TCC or TRN numbers were substituted. 3.1 Failure to present essential records Criteria Section 148(1) of The Financial Administration and Audit Act (The Financial Management Regulations 2011) states Accounting Officers or heads of departments shall ensure that internal audit has access to all books, records, documents, files, working papers, reports, plans whether held physically or electronically and any other relevant material for the purpose of carry out an audit. Audit Observations The system of internal control relating to record management was weak as the posting, filing, and storage of accounting data along with other relevant supporting documents /information was inadequate and did not allow for prompt retrieval of document and accurate accounting data. MPM Accounting Unit s fail to present to Audit following records/documents requested both verbally and in writing. 1. 2782 vouchers totaling $410,686,269.83 which were missing from the batches received for payments made by cheques during the period April 2012 to March 2014;and 2. Journals vouchers for bank transfers to substantiate expense totaling 153,711,165.61 seen posted to the General Ledger. Audit was therefore unable to examine the above vouchers to determine whether: The appropriate supporting documents and evidence that goods/services were received/rendered in a satisfactorily manner were in place; and They were properly prepared, authorized and approved before payment. Internal Audit Department April 2014 Page 11

Implication MPM in breach of Section 148(1) the Financial Management Regulations 2011 Recommendation The Regional Operations Manager, Financial Accountant and Accountant are reminded that they are charged with the responsibility of ensuring that guidelines issued by the Ministry of Finance are implemented and an effective system of internal control exists. Hence: 1. All payment vouchers and other documents not presented should be accounted for. 2. The requirement of the MOF&P circular#6 dated 28/3/2000 which state that if impropriety is suspected regarding the missing payment vouchers, the matter should be reported to the Auditor general and the Financial Secretary be Comply with. Regional Operations Manager Financial Accountant Accountant (MPM) We have accepted the auditor s recommendation. We will present the 2782 vouchers available for audit inspection by June 30, 2014. However, we are faced with major challenges as the high staff turnover and shortage of staff has delayed our progress in locating documents easily. 2. We will present the Journal Vouchers for bank transfer and the RTGS for audit inspections by June 18, 2014. 3.2 Vehicle Maintenance----Garage 97 Hagley Park Road Motor Vehicle repairs and maintenance cost for 2013/2014 have increase by 100% from $16 million in the financial year 2012/2013 to over $33 million This cost did not include expenses for Fuel. Examination of payments vouchers relating to the procurement of goods and services for the garage revealed the following: 3.2.1 Lack of Segregation The internal controls at Hagley Park Garage must be strengthened, in the area of procurement and payment of items for the garage. There was clear evidence of a lack of segregation of duties in the process. The following observations were made: 1. The Public Cleansing Administrator currently : Internal Audit Department April 2014 Page 12

Prepares and signs on the purchase requisitions, purchase orders and Procurement Reporting Form; He is the contact person between the garage and the suppliers. This is detailed in the Request for Tender document; Collects the suppliers cheque evidence by the signature in the payment disbursement book; Collects the goods from the suppliers from time to time; and Occupies office space with the store clerk. 2. The Store Clerk currently: Receive goods purchase either from suppliers or person who collects; prepares the goods receival note; performs safekeeping and distribution of goods; and Updates the inventory stock records. Audit noted that the stock records were not updated at the end of the financial 31st March 2014. Implications The lack of separation of duties could result in unauthorized purchase and payment. Recommendation The Regional Operations Manager must improve the internal controls by ensuring that there is segregation of duties. Hence: A service requisition must only be prepared from a service order (job order) and the job order number must be recorded on the requisition at all times for transparency and audit trail. The officer involved in the preparation and signing of procurement documents should not also collect suppliers cheque and the items purchase. The custodian and issuer of store items should not also receive the good and prepare the GRN. The GRN should be prepare and handover to the store clerk along with the items by another officer this will minimize collusion. This officer should not be involved in preparing procurement documents or have contact with the supplier. Regional Operations Manager Financial Accountant We have accepted the auditor s recommendation and have implemented the recommendation with immediate effect. Define roles and Internal Audit Department April 2014 Page 13

responsibilities are given in conforming to the audit recommendation in order to mitigate the risk identify. 3.2.2 Splitting of Purchase, breach procurement process The Ministry of Finance circular#16 dated 14/5/2012 stipulates that for contract in the range of $500,000.00 to $1.5million, limited tender should be used with quotations received from three suppliers. Audit findings On the 10/12/2013 three computer boxes for compactor trucks were repaired by Cornwall Auto Supplies at a total cost of $931,656.00. Audit noted that: 1. Three separate purchase orders were drawn to Cornwall Auto, each for $310,552.00 and the Procurement Reporting Forms stated direct contracting as the method used; 2. The Purchase Orders were Zero Rated by the Inland Revenue Department; However MPM paid $931,656.00 the unit cost of $792,900 plus GCT of $138,756;. 3. The Public Cleansing Administrator prepares and signs the purchase requisitions, purchase orders, procurement reporting form; and collects the supplier s cheque; and 4. No job order, invoices or goods receival notes were seen, to support the payment. Implications 1. Breach of the GOJ procurement guidelines and the lack of separation of duties, increase control weakness and may result in unauthorized transaction. Recommendations The Regional Operations Manager should ensure that: 1. The GOJ Procurement Process is adhered to at all times and not circumvented. Therefore for the purchases which are above $500,000.00 the limited tender process should be used. 2. The duties assigned to the Public Cleansing Administrator should allow for segregation duties, in order to strengthen the internal controls and allow for transparency. ( see recommendation at 3.2.1 above) In addition this officer should be required to present the missing invoices. Internal Audit Department April 2014 Page 14

The Regional Operations Manager, Financial Accountant and Accountant must ensure that: 3. The goods receival note and the invoice which represent the supporting documents for such payments, are attached to the expenditure voucher at all times; and 4. Cornwall Supplies Limited should be contacted with the aim of recovering the sum of $138,756.00 paid for GCT. Because the purchase orders were zero rated, Cornwall would not be required to pay over the GCT to Inland Revenue. Ministry of Finance circular#14 dated 2/12/2011 clearly outlined the procedure to follow whenever there is a case of overpayment. The Corporate Service Director and Administration & Procurement Manager should provide formal guidance to the various Departments on the procurement process. This should include periodic review to ensure that the dictates of the Procurement guidelines are followed. Regional Operations Manager Financial Accountant Accountant (MPM) 1. We have accepted the auditor s recommendation and will seek guidance on all procuring matters before engagements are done for completion of work.. 2. The Public Cleansing Administrator has been given clear and defined roles in conducting the daily task and we have made it cleared to all responsible persons involve in purchasing of goods this will strengthen the segregation of duties. 3. Good receival notes are now attached and duly signed by the person receiving the goods. 4. We have written to Cornwall Auto Supplies requesting the overpayment of one hundred and thirty eight thousand seven hundred and fifty six dollars ($138,756.00) also, a meeting have been requested to settle this amount. Corporate Service Director Administration & Procurement Manager A series of training in Procurement is being embarked upon beginning July 16, 2014. All members of staff involved in the procurement process will be trained across the Authority and within the region. Internal Audit Department April 2014 Page 15

3.2.3 Purchase Order Prepared After Service Criteria The FAA Act regulations 40 stated that where a service is undertaken by a private person, firm or other private enterprise the price and other terms and condition of the service shall be clearly understood and agreed upon prior to implementation and shall be in writing. The Ministry of Finance circular#36 dated November 9, 2012 also outlined the importance and usage of a Purchase order. It states that the Purchase order is a document sent by the buyer to a supplier or vendor, authorizing the supply of goods or service. Audit Findings MPM was operating contrary to government regulation as purchase requisitions and purchase orders were seen prepared on or after the date of invoice, and on the date of payment. MPM was operating contrary to government regulation as purchase requisitions and purchase orders were seen prepared on or after the date of invoice, and on the date of payment. The following are examples: Date Cheque# Amoun t Payee TRN# 7/1/2014 1023095 346,500. Kevin Thompson Trn# 108481905 24/12/2013 1023072 300,000. Andrean Larmond Trn# 120-358-115 18/3/2014 1023350 568,820. Stewart Industrial Trn#000-081-841 Purpose Invoice Date Purchase Order Date Provide backhoe service on the 21, 23, 24, 27 & 28/12/2013 To clean roadway Repair burnt out battery terminal 20, 27 and 31/12/2013 #031766 31/12/2013 8/12/2013 031763 24/12/2013 412608 22/8/2013 030439 27/2/2014 Purchase Requisition Date #003049 dated 31/12/2013 003046 23/12/2013 6128 27/2/2014 Implication 1. Breach of the FAA Act regarding the purchase of good/service; and 2. The entity s money could be misappropriated without detection when Purchase Order is prepared and dated six months after invoiced received, resulting in financial loss to entity. Recommendation Internal Audit Department April 2014 Page 16

The Regional Operations Manager, Financial Accountant and Accountant should ensure that: 1. The FAA Act and GOJ procurement guideline are adhered to. Hence at all times Purchase Orders must be prepared prior to, the commencement of services and payment for goods; 2. In instances where emergency procurement is necessary, the relevant documents must be prepared promptly and in place before the work is completed or goods received; and payment made; and 3. The supplier s invoice and delivery note is clearly marked with the reference number and date of the purchase order for transparency and audit trail. Regional Operations Manager Financial Accountant Accountant MPM We have accepted the auditor s recommendation, and have planned training in procurement in an effort to sensitize all persons involve in the procuring of goods and service. 1. Purchase service requisition are now done and duly signed before the purchase orders are prepared and issued to the customer before the commencing work. 2. Supplier s invoices and delivery notes are now clearly marked with reference number for audit trail. 3.2.4 No Documents Seen To Support Payments Criteria The FAA Act Instruction 5.3 (clearly states that Each payment of public money must be supported by a Payment Voucher or a claim which incorporates details required for a Payment Voucher. (Point 8) The supporting bills/invoices should be stamped paid. Audit Findings MPM was operating contrary to government instructions as noted in the under-mentioned findings: 1. Majority of the cash on delivery (C.O.D) payments examined for motor vehicle parts, repairs and maintenance were not supported by the requisite invoice or goods receival note; hence audit was unable to determine whether MPM had actually received the goods/services paid for. Internal Audit Department April 2014 Page 17

A sample of 20 payment vouchers were examined, and 18 were not supported by the requisite invoices and Goods receival notes. The 18 payments amounted to $3,209,392.92 2. Payment of $268,868.04 was made to Real Oil Jamaica Limited on cheque#1019751 dated September 5, 2013 for the purchase of 16 batteries. Only 14 batteries were received resulting in an over payment of $38,085.10 to Real Oil Jamaica for two batteries. A credit memo was not seen on file, neither any evidence that MPM attempt to collect the remaining goods or cash. 3. Audit also was unable to determine how MPM satisfied itself as to the quality of services provided by supplier as it relates to repairs to company vehicles. No certification was not seen to confirm whether service received was satisfactory. The following are examples: DATE CHEQUE# PAYEE AMOUNT 2/7/2014 1023222- GENERAL DIESEL SUCCESSORS 187,600.00 ISUZU GARBAGE TRUCK LIC#: 30-4081 Repair trunions no 2/7/2014 1023211 GENESIS PROACTIVE LTD. invoice seen 149,564.04 TO REPAIR SUZUKI JIMMY LIC# 203219 Repair no invoice seen 2/7/2014 1023212 GENESIS PROACTIVE LTD 2/19/2014 102322 GENESIS PROACTIVE LTD 16,300.00 TO REPAIR SUZUKI JIMMY LIC#: 203219-195,250.00 REAPIR DONE TO Unit licence#303154/ no invoice seen 3/18/2014 1023351- DR. GLASS LIMITED 11,120.00 GLASS FOR LANDFILL MANAGER VITARA No invoice seen Implication 1. Accuracy of payments cannot be validated when there are no supporting invoices or goods receival note and no evidence seen to confirm that service was performed; and 2. Possibility exists for duplication of payment when there is delay in presenting invoices to Accounts. Recommendation The Regional Operations Manager, Financial Accountant along with the Accountant need to ensure that the dictates of the FAA Act Instruction 5.3 is adhered hence: Internal Audit Department April 2014 Page 18

1. In cases where cash on delivery payments are made, the invoice and goods received note should be returned by the designated officer to the accountant immediately after the purchase. 2. The officers responsible should be asked to present the invoices identified above, and provide evidence that the goods/services were received; 3. The overpayment of $38, 085.10 must be recovered from the supplier. Regional Operations Manager Financial Accountant Accountant (MPM) 1. We have accepted the auditor s recommendation. The Accountant is charged with the responsibilities to ensure that all invoices and delivery slips are attached and return to the accounts department within 24 hours of the purchase made. 2. The officer responsible is asked to present all invoices that were identified and provide evidence that service and goods were received. 3. The amount of ($38,085.10) will be recovered from the supplier has we have written to the supplier to recover same. 3.3 Incorrect rates paid for meal and travelling allowance. Criteria The Ministry of Finance circular#19 dated 1/9/2009 stipulates that: The rate for taxi allowance is $550.00 per occasion however for distances to Spanish Town, Portmore and in the rural areas which is 15 kilometer or more from base, the rate is $900.00 Refreshment allowance which is payable on weekend is $1,000.00 Audit Observation 1. Employee with TRN #100271227 received 6 payment totaling $32,400.00 for meal allowance, but all relevant vouchers were not presented. Examination of the two payment vouchers presented revealed that the officer received payment of $1100.00 for three (3) Saturdays worked instead of the correct rate of $1000.00 resulting in overpayment of $300. 2. Employee (Trn # 114-749-060) whose address was stated as Kingston received $1800.00 per trip for taxi fare instead of the stated amount of $1100.00. Payment totaling $88,200.00 was made to him during the reviewed period, but all relevant vouchers were not presented Internal Audit Department April 2014 Page 19

Examination of the payment made on the 6/12/2013 vide cheque#1022933 for $25,200.00 disclosed that included in this payment was taxi fare for 9 days of $16,200.00 instead of $9900.00 an overpayment of $6,300.00. Implication Non- adherence to government guidelines resulted in overpayment to the two employees. Recommendation The Regional Operations Manager, Financial Accountant and the Accountant should: 1. put controls in place to verify the accuracy of employee allowance claims based on the government approved rates; and 2. Ensure that payment vouchers for all payments made to the two employees are located and examined for accuracy 3. The full amount overpaid including the $6,600 identified above is recovered from the employees. Financial Accountant Regional Operations Manager Accountant (MPM) 1. We have accepted the auditor s recommendation and have implemented internal control system, to verify all meals and supper allowance are paid by the approved rate. The Regional Administrator will check all claims submitted. This is in effect immediately. 2. We have identify the two employees that were overpaid and have written to them that the amounts will be deducted from their current months salary s 3.4 Lack of adequate payment verification control Criteria The FAA instruction 5.4 states that the signature of the officer authorized to certify the voucher for payment is a guarantee of the accuracy of every detail on the voucher. Audit Findings Authorized Officers did not always exercise due care when certifying payment vouchers relating to salary remittance: 1. During examination of the cheque payment vouchers audit observe two occasions of overpayment totaling $245,104.93. The amounts paid exceeded the amount on payroll print-out The details as follows: Company Remittance Amount Amount Date Internal Audit Department April 2014 Page 20

National Housing Trust ISP Finance Services Limited Cheque date Paid Overpaid Recovered 2/9/2013 285,859.86 145,104.93 29/10/2013 Cheq#1022740 cheq#1022882 8/7/2013 Cheq#1022605 933,861.96 100,000.00 21/8/2013 Cheq#1022694 TOTAL $245,104.93 Although the $245,104.93 was recovered this findings continues to highlight clear evidence of a lack of internal control in respect of payments made by the MPM 2. In addition electronic payment of $36,553.89 was made on the 7/1/2014 to Guardian Life limited, but examination of the supporting documents revealed that the correct amount should be $35,212.25, difference of $1,341.61. No evidence was seen of this amount being recovered Implication Weak internal control for the payment validation process resulted in overpayment.. Recommendation The Regional Operations Manager and the Accountant need to ensure that 1. Internal controls are strengthened to verify the accuracy of invoice and payment voucher before payment is made, in order to avoid such overpayment in future; and 2. The sum of $1,341.61 is recovered from Guardian life. Regional Operations Manager Accountant (MPM) 1. The Accountant is reminded of his responsibility that he should ensure the accuracy of all payments and reconciliations must be done before any payment can be process. 2. We have written to Guardian Life requesting a refund of the overpayment in the sum of $1,341.61 on or before end of June, 2014. 3.5 Constituency Development Fund (CDF) payments The CDF account BNS #801500 is maintained by the Parks and Garden Department and is the account from which payments relating to work done re Constituency Development is made. Internal Audit Department April 2014 Page 21

During the examination of the payment vouchers it was observed that December 19-20, 2013 payments totaling $10,985,000.00 was made from MPM account NCB#231038345: $4,050,000.00 vide cheques and $6,935,000.00 through electronic transfers for work done under the constituency development fund. No vouchers were presented for the payment made through neither electronic transfer nor any g/l intercompany transfer seen between Parks and Gardens Department and MPM Implication The possibility for duplication in payments exist when payments are made from different bank accounts and entities Difficulty in reconciliation of expenditure under the Constituency Development Fund Recommendation The Regional Operations Manager and Director of Finance should ensure that: there is consistency in the accounting for the CDF fund hence, payment relating to the fund should be paid from the applicable bank account; to allow for timely and accurate reconciliation. The electronic payment vouchers relating to CDF are presented, and the general ledgers accurately updated with these transactions. Financial Accountant Regional Operations Manager We note the observation of the Internal Auditors. In December eleven (11) Members of Parliament elected to use the subsidiary companies (MPM, WPM, NEPM and SPM) as the executing agencies for Christmas work they sought to undertake in their respective constituencies. Seven (7) of the constituencies related to MPM. The subsidiary companies were the actual executing agencies for the projects and not the Parks and Garden Division as is customary. It was for that reason that the funds were transferred to MPM Waste management Ltd to fund the payment as they would have been the ones who could give account for engaging the workers, supervising the work and certifying that the work was done satisfactory. As observed by the internal auditors, the payments were made by MPM as they were the executing agency. It has been discussed and agreed that the Parks and Garden Division will be responsible for executing all CDF work irrespective of the Geographic location of the work to be done. As a corollary the CDF funds will be deposited into the CDF account from which payments will be made. Specialized cheques have Internal Audit Department April 2014 Page 22

been printed to ensure the payments are made directly from the CDF accounts. Director of Finance We note the observation of the Internal Auditors. In December, eleven (11) Members of Parliament elected to use the subsidiary companies (MPM, WPM, NEPM and SPM) as the executing agencies for Christmas work they sought to undertake in their respective constituencies. Seven (7) of the constituencies related to MPM. So that the subsidiary companies were the actual executing agencies for the projects and not the Parks and Garden Division as is customary. It was for that reason why the funds were transferred to MPM Waste management Ltd to fund the payment as they would have been the ones who could give account for engaging the workers, supervising the work and certifying that the work was done satisfactory. As observed by the internal auditors, the payments were made by MPM as they were the executing agency. It has been discussed and agreed that the Parks and Garden Division will be responsible for executing all CDF work irrespective of the Geographic location of the work to be done. As a corollary the CDF funds will be deposited into the CDF account from which payments will be made. Specialized cheques have been printed to ensure the payments are made directly from the CDF accounts. 3.6 Payment made on behalf of NSWMA Payments amounting to $2,722,078.06 were made during the period 21/12/2013 to 27/1/2014 by MPM on behalf of NSWMA. The following were observed: the payments were made from the recurrent account NCB# 231038345 The cheques were posted to the MPM Ledger a/c 4008; The Payment vouchers were for NSWMA and kept in NSWMA accounts Department. Audit could not verify whether the general ledger was adjusted to correctly reflect the transactions as no journals were presented. It was also noted that the bank reconciliation was not up to date Implication Internal control weakness and poor accounting practice highlighted in this observation. Overstating of MPM expenditure in the General Ledger resulted. Recommendation The Regional Operations Manager and the Director of Finance and Financial Accountant should ensure that: Internal Audit Department April 2014 Page 23

1. The accounting records is updated to accurately reflect the transaction in terms of the entity and the related general ledger accounts 2. The management of the entities affairs and expenditure of public funds is in keeping with proper accounting practices to provide accuracy, transparency, and accountability. Regional Operations Manager Financial Accountant We note the observation of the Internal Auditors. In addition to the projects executed by the subsidiary companies, the Parks and Garden Division executed several Christmas Projects as well. The volume of contractors who insisted on cheque payments were more than the NSWMA cheques available. In this regard the Finance Director took the decision that (given the intercompany relationship) monies should be transferred from the NSWMA to MPM so that the remaining contractors could be paid on-time. Errors were made in not cancelling the NSWMA vouchers and replacing same with MPM vouchers. The error will be corrected and going forward we will seek to manage the stock of cheques more closely so as to prevent the outages in addition to continuing to encourage contractors to accept payments electronically. Director of Finance (also for 3.6.1 and 3.6.2) (a) Payment made on Behalf of the NSWMA We note the observation of the Internal Auditors. In addition to the projects executed by the subsidiary companies, the parks and Garden Division executed several Christmas Projects as well. The volume of contractors who insisted on cheque payments were more than the NSWMA cheques available. In this regard the Finance Director took the decision that (given the intercompany relationship) monies should be transferred from the NSWMA to MPM so that the remaining contractors could be paid on-time. An error was made in not cancelling the NSWMA vouchers and replace same with MPM vouchers. The error will be corrected and going forward we will seek to manage the stock of cheques more closely prevent them running out in addition to continuing to encourage contractors to accept payments electronically. 3.6.1 Payment for Christmas Work Audit noted the following: Internal Audit Department April 2014 Page 24

1. Direct payments of $ 4,295,000.00 were seen made by MPM for Christmas project from the NCB recurrent Bank Account #231038345 Although the payments may be justifiable, audit was unable to examine and validate the payments vouchers, and supporting bills for the cashed cheques #1023008-1023046 &1023087 drawn 20-21/12/2013 since they were not presented although requested. 2. Christmas project was also seen paid by MPM for the recurrent bank account on behalf of NSWMA/Parks & Gardens for $5,041,750. Vouchers for these payments were prepared and stored by NSWMA, but cheques were seen posted to MPM general ledger. Implication Failure to present payment vouchers and supporting documents is a Breach of Section 148(1) the Financial Management Regulations 2011 and could conceal irregularity. Recommendation The Regional Operations Manager and the Accountant are reminded as outlined by the Financial Management Regulations 2011 that Accounting Officers or heads of departments shall ensure that internal audit has access to all books, records etc.; hence documents relating to the above must be presented. The Regional Operations Manager The Accountant ( MPM) Same as 3.6 above 3.6.2 Payment for Special Project It was noted that $4,810,983.25 was expended from the MPM Recurrent account for Special Project. This included payment for clearing and cleaning of open lots using backhoes, labour and the carting of debris to the landfill. The following weakness were identified during examination of the payment vouchers: 3. Similarities were seen between invoices submitted by two different payees, in addition one payee s TRN #120406071 is the same as an employee in MPM The similarities between invoices were: Invoices and daily work sheet appeared to have been taken from the same book as the numbers on invoices and the work sheets attached to different cheques were in sequential order. Internal Audit Department April 2014 Page 25

The handwriting on the invoices appeared to have being written by the same person although services were performed at different location throughout Kingston. The signature of one of the Payee which was affixed to the invoice and work sheets did not correspond with the payee named on the payment voucher as the first initial differ. The daily work sheet did not have the signature of representative from MPM affixed verifying that the work was performed; The signature seen on the invoices did not always correspond with the signature affixed to the cheque disbursement book nor to the reverse of the cash cheque 4. Purchase requisitions and purchase Orders were all prepared after services were rendered, based on the invoice date and cheques drawn date 5. The daily work sheets were not signed by MPM representative who should be present at the time when the work was effected, instead invoices were stamped Goods/services received satisfactorily with the signature of the Regional Administrator affixed. 6. Not all vouchers were received for examination at the time of audit although requested. Implication Failure to implement adequate internal verification control in the accounting process will provide opportunity for unauthorized activities. Recommendation The Director of Finance, Regional Operational Manager and financial Accountant must 1. Address the control weaknesses identified in the Validation of invoices and supporting documents as noted in findings, 2. Ensure Certification of goods received and service rendered is carried out by an officer at the point of delivery. The reason for certification by the officer mentioned should be determined. 3. Determine whether the employee and the contracted payee with the identical TRN is the same individual, and address this matter immediately, as conflict of interest is evident. Director of Finance Same as 3.6 Regional Operations Manager Financial Accountant Internal Audit Department April 2014 Page 26

Same as 3.6 3.7 No Supporting invoice for payments Audit Findings Contrary to, the FAA Act instruction 5.3, cheques were drawn and disbursed without the appropriate supporting documents. 4. Payments totaling $345,645.00 was made to two suppliers for meals provided at the Riverton Landfill during a fire in March 2014. Audit saw no supporting invoice or goods receival note to confirm that the stated meals were received. The details as follows: 5. 70 other payment totaling $7,929,617.41 were not supported by invoice or goods receival note. Although the payments may be justifiable, the weaknesses identified are clear evidence of a lack of internal control over the payment process, which exposes the entity to irregularity. 6. Copy invoice#5042 dated 23/1/2014 was used to support a payment of $311,639.00 made on the 13/3/2014 to A & L Transport& Tours vide cheque#1023286 for hydraulic oil purchase. The payment contravene the Ministry of Finance circular#11 dated 16/3/2010 which outlines that payment should only be made on the original of supporting document. In exceptional case, the acceptance of duplicate may be allowed by way of an honor certificate, duly prepare and signed. 4. An advance of $21,600.00 was seen made to an employee # 810 being expense for I.D pictures and police records for 6 crew members, the requisite invoice was not attached to the payment voucher. Implication Weak internal control, poor supervision of accounting activities, as well as ignorance regarding the requirements of the MOFP. Recommendation The Regional Operations Manager, Director of Finance, Financial Accountant and Accountant must ensure that: 1. The supporting invoices valuing $8,608,501.41 are located and attached to the payment vouchers. The responsible officer must be required to Internal Audit Department April 2014 Page 27

provide the invoice. This is in compliance with the FAA Act and MOFP circular # 11d/d16/3/2010. 2. The payment process is strengthened. Hence a checklist of the verification controls necessary for validating the supporting invoice and document before preparation of payment voucher and effecting payment is provided to the accounting staff. Director of Finance Regional Operations Manager Financial Accountant Accountant MPM 1. The supporting invoices to the value of $8,608,501.41 will be located and attached to payment vouchers and made available for audit inspection by June 30, 2014. 2. The Accountant will do the necessary checks of all invoices and ensure that the correct payee and amounts are paid. 3.8 Inadequate Control over Cheque Disbursement Examination of the disbursement register, revealed several occasions where: 1. cheques were collected and signed for by individuals other than the payee, and No written letter was seen authorizing the bearer to collect cheques on behalf of the respective payees; and 2. The signatures on the payees invoices and the signatures in the disbursement register were not identical. Implication Failure to obtained written instructions, in instances when cheque is not disbursed to payee may result in disbursement to unauthorized individuals. Recommendation The Regional Operations Manager and the Accountant should ensure that: 1. All cheques are signed for and dated by the authorized payees 2. Where representatives are used written instructions are obtained granting such authority to collect cheque on behalf of the payee 3. Proper identification is provided by the payee and their representative when collecting Internal Audit Department April 2014 Page 28

Regional Operations Manager Accountant MPM All cheques are issued on the ground floor where the records of authorized letters are kept for disbursement. 3.9 Inadequate Filing and Storage of Payment Vouchers The filing system currently in place was also a matter of concern as audit noted: 1. Remittances and other payment vouchers s were observed loosely placed in boxes beside and behind the accounting clerk s desk on the floor. These payment vouchers were also not filed in any order; and 2. More than one file jacket was maintained for vouchers with the same cheque sequence, and these were not filed in order. Implication Lack of control over the filing and storage of payment vouchers may aid in removal and destruction of records and concealing unauthorized transactions. Loss of government records by deliberate or accidental damage when files are stored on the floor. Recommendation The Regional Operations Manager, Accountant and Regional Administrator need to ensure that the dictates of the ministry of Finance and Planning is instituted and adhered to: 1. Each payment voucher must be filed in ascending order in chronological manner. Any break in the sequence should be properly noted. 2. Payment vouchers should be properly secured in files, with new volumes open as soon as possible to prevent protrusion. Place in protective binders to safeguard from damage. 3. The filing room allows for easy retrieval of document/vouchers. 4. File and documents should be kept in a raised position from the floor, as a protective measure from damage by water. Regional Operations Manager Regional Administrator (MPM) Accountant (MPM) Internal Audit Department April 2014 Page 29

We have accepted the auditor s recommendation. We are currently in the process of reorganizing the filling room to accommodate these payment vouchers. However, we are short on resources. Inadequate staffing and space are some of the challenges we have to enable complete and proper filing system to be updated. 3.10 Payment Vouchers not uniquely numbered Criteria The Ministry of Finance and Planning circular No.6 dated March 28 th, 2000 instruction 4.8 states that each payment voucher must have a unique number per financial year and must be filed in ascending voucher order. A proper notation must be made to explain any gap or break in the sequence of voucher number. Audit Findings MPM was operating contrary to the requirement of the Ministry of Finance and Planning. 1. Cheque payment vouchers did not have unique number to identify each payment; instead the cheque numbers were used as the voucher number, a non-compliance to MOFP circular 6, instruction 4.8. 2. There were numerous gaps and break in the cheque sequence, which was attributed in many instances to cancelled cheques or change in cheques sequence. The audit progress was prolonged as it was time consuming to ascertain the reason for the sequence gaps. Implication Failure to implement a unique numbering system could result in the inability to readily identify unauthorized transaction. As a missing vouchers would not be easily identified. Recommendation The Regional Operations Manager and the Accountant need to ensure that the dictates of the Ministry of Finance and Planning is implemented and adhered to, hence each payment voucher must: 1. Have a unique identification number, in terms of financial year 2. Be filed in ascending order in chronological manner. Any break in the sequence should be properly noted. Regional Operations Manager Accountant (MPM) We note the observations of the Internal Auditors. We have discussed and agreed that each company will maintain a log book for each electronic payment Internal Audit Department April 2014 Page 30

using the prefix BT and six digits starting from BT000001. The cheque vouchers will use the cheque number sequence which will also be logged. Director of Finance We note the observations of the Internal Auditors. We have discussed and agreed that each company will maintain a log book for each electronic payment using the prefix BT and six digits starting from BT000001. The cheque vouchers will use the cheque number sequence which will also be logged. 3.11 Lack Of Control Over Closed Off Period In General Ledger Audit noted that there was a lack of control over the closed off periods in the General Ledger, since officers could make adjustments to prior year periods which were previously closed. Audit was told by I.T personnel that adjustments can be done up to six prior year period. Implication The integrity of the data may be compromised when officers are allowed to make adjustments to financial years already closed. Recommendation The Regional Operations Manager and Financial Accountant in collaboration with the I.T Manager, need to ensure that controls are put in place whereby at the end of the financial year the general ledger is reconciled and closed off, on a timely basis. That access to make changes to prior year ledger account is restricted and once closed no further entry allowed. Regional Operations Manager Financial Accountant We note the observations of the Internal Auditors. We hasten to point out that this is normal given the fact that the audited accounts are not yet available. The accounts are not finally closed off until the final audit adjustments for each of the outstanding years are available. Director of Finance We note the observations of the Internal Auditors. We hasten to point out that this is normal given the fact that the audited accounts are not yet available. The accounts are not finally closed off until the final audit adjustments for each of the outstanding years are available. Internal Audit Department April 2014 Page 31