DIRECTORATE OF AUDIT, RISK AND ASSURANCE Internal Audit Service to the GLA Appendix 1b REVIEW OF CHEQUE HANDLING PROCESS
DISTRIBUTION LIST Audit Team Prakash Gohil, Audit Manager Report Distribution List Colin Wilson, Senior Manager, Planning Decisions Unit David Gallie, Assistant Director Finance
CONTENTS EXECUTIVE SUMMARY Page Background 1 Audit Assurance 1 Areas of Effective Control 1 Key Risk Issues for Management Action 2 FINDINGS and RECOMMENDATIONS Review Objectives 3 Scope 3 Pre-planning Applications Income Collection 3 Reconciliation Process 4 Supervision and Record Keeping 5 Other Cheque Income 5 ACTION PLAN Assurance and Risk Rating Definitions 7 Action Plan 8 September 2012 Cheque Handling Process
EXECUTIVE SUMMARY 1. Background 1.1 This review has been carried out in addition to the 2012/13 GLA audit plan at the request of the Assistant Director of Finance following an investigation into an attempted fraud. The objective is to ensure that the Authority has adequate systems and procedures for cheque handling generally and in particular within the planning applications team. 1.2 We are looking to provide assurance that cheque handling is being managed effectively. At the outset of the review potential risks were identified as: Lack of accountability Non-compliance with regulations, policy and/or procedures Loss or misappropriation of funds Ineffective reconciliation of income due and collected Inadequate separation of duties 1.3 The GLA have received payments by cheque, primarily for pre-planning applications. According to the Records Management Tracking System (RMTS) computer spread sheet maintained by the Planning Department, the total of preplanning application fees amount to 2,016,080 for the period from 9 November 2007 to 15 August 2012. On 29 March 2007 the Planning Decisions Unit introduced a formal charge for pre-application meetings following the Mayor s approval MA2956. This was revised through MD717 on 1 March 2011 which set the current charge of 4k for an initial meeting and 1k for a follow up meeting. 2. Audit Assurance Limited Assurance The control framework for cheque handling has not operated effectively to mitigate key risks. A number of key controls were not being applied to meet business objectives. Recent management action has been taken to address system weaknesses. 3. Areas of Effective Control 3.1 As from August 2012, a revised process has been introduced and published on the GLA website with the aim of collecting all planning application fees through sales invoicing only. This will obviate the need for banking of cheques, whilst streamlining procedures and facilitating improved income control over preplanning fees. 3.2 Management have also proposed a number of changes to address system weaknesses in the handling of other payments by cheques. September 2012 Cheque Handling Process 1
EXECUTIVE SUMMARY 4. Key Risk Issues for Management Action 4.1 Adequate arrangements for the banking of pre-planning applications were not in place. The Records Management Tracking System (RMTS) computer spread sheet used to record expected and actual income has not been properly maintained and reconciled leading to a risk of loss or misappropriation of funds. 4.2 The Planning Team did not carry out regular checks to ensure that all invoices were raised correctly and that income was received for all pre-planning meetings in compliance with the Finance Regulations. 4.3 Effective reconciliation procedures have not been in place between the Planning and Finance Teams to ensure that all pre-planning income was accounted for locally and agreed with the entries on the General Ledger to account for all income due and actually collected. 4.4 A lack of adequate supervision and separation of duties has led to approved procedures not being followed and inadequate record keeping. Improved supervision and administrative arrangements, including record keeping, have now been introduced to ensure that planning administration procedures are followed properly and consistently. 4.5 Action is to be taken to reduce the number of cheque payments across the Authority. Adequate guidance and procedures will need to be put in place where cheque payments continue and for any other alternative method of payment that is introduced. September 2012 Cheque Handling Process 2
FINDINGS AND RECOMMENDATIONS 5. Review Objectives 5.1 We reviewed the adequacy of controls to mitigate the risks relating to the effective handling of cheque payments, with particular reference to planning applications. In particular, we are looking to provide assurance that:- 6. Scope Adequate arrangements are in place for dealing with income arising from preplanning applications. Effective reconciliation and supervision takes place to ensure that income due is collected and banked. Adequate supervision takes place and auditable records are maintained. 6.1 We reviewed the adequacy and effectiveness of the collection and banking of cheques where appropriate within the GLA. We reviewed the method of processing requests for meetings on pre-planning application and associated income. This included the revised process introduced in August 2012. We also considered any wider lessons to be learnt by the Authority from weaknesses identified in internal controls in the planning application process. 7. Pre-planning Applications Income Collection 7.1 Until August 2012, pre-planning application fees were mainly collected in cheque form. A revised process was recently introduced and published on the GLA website with the aim of collecting all planning application fees through sales invoicing only. This will obviate the need for banking of cheques, whilst streamlining procedures and facilitating improved income control over pre-planning fees. 7.2 Adequate arrangements were not in place for ensuring that all pre-planning application fees were collected as the Records Management Tracking System (RMTS) computer spread sheet was not being maintained properly. According to the RMTS the total income due from 9 November 2007 to August 2012 was 2,016,080 consisting of 809 entries. A total of 734 entries relate to cheque payments of 1,914,700. However, only 691 entries showed actual income (cheques) collected totalling 1,721,100. A full reconciliation is being completed by the new Senior co-ordinator in Planning, with support from Finance. 7.3 A further analysis of the RMTS identified 43 entries showing cheques amounting to 193.6k were still outstanding and a further 31 entries totalling 66k were left blank and without any commentary. A full reconciliation is being completed by the new Senior Co-ordinator in Planning, with support from Finance. 7.4 The Planning Team undertook an exercise in February 2012, to verify and establish the overall pre-planning income position for the period from 14 April 2011 September 2012 Cheque Handling Process 3
FINDINGS AND RECOMMENDATIONS to January 2012. The total expected income for the same period is shown as 615.6k and actual income 461k, a difference of 154.6k consisting of 115.4k unpaid and 39.2k was still to be processed. The 39.2k that was identified following the review exercise was subsequently processed, and the 115.4k comprising primarily large single payments for multiple meetings on large schemes are currently being processed. Risk and Recommendation There is a risk of loss or misappropriation of funds as the expected and actual income position has not been verified on a periodical basis. We recommend that the Records Management Tracking System (RMTS) computer spread sheet is reviewed and analysed fully to identify all unpaid preplanning fees and remedial action is taken accordingly. 7.5 There has been a failure to comply with the GLA Financial Regulations as proper processes were not in place for recording all sums due to the Authority nor was there prompt and proper accounting for all cash including its collection, custody, control and deposit. 7.6 As from August 2012, revised processes have been introduced and published on the GLA website with an aim to collect all the planning application fees through sales invoicing only and it is specifically stated, in a planning application letter, that cheques will not be accepted for planning applications as from 3 September 2012. This will obviate the banking of cheques and facilitate improved income control over planning fees. However, the success of embedding the process depends on clear lines of communication being established between the Planning Team and Finance. Checks will need to be carried out retrospectively after the planning process has started especially since delays are likely to result at the outset due to the requirement to set up vendor details and raising of invoices. Risk and Recommendation There is a risk that income due is unpaid resulting in bad debts. We recommend that the Planning Team undertakes regular checks to ensure that all invoices have been raised correctly and expected income has been collected for all pre-planning applications and any departure from the process is fully documented. 8. Reconciliation Process 8.1 There was no full reconciliation procedure in place within the Planning Team and Finance to ensure that expected planning income matches actual income and that any variance was identified and dealt with fully. Further action is being taken to September 2012 Cheque Handling Process 4
FINDINGS AND RECOMMENDATIONS reconcile past discrepancies as described above and ensure effective reconciliations take place in the future. Risk and Recommendation A lack of effective reconciliation arrangements could lead to a failure to track expected income with actual income to reveal any unpaid or outstanding preplanning fees resulting in loss of income to the Authority. We recommend that effective reconciliation procedures are put in place to ensure that all expected income is accounted for and action taken to ensure that actual income is correct. 9. Supervision and Record Keeping 9.1 There is inadequate supervision in place to ensure that all entries in the RMTS are made accurately and that records are being completed and maintained properly. This has meant that the various issues that have arisen over time have not been addressed. There was also a lack of separation of duties which could have assisted in identifying failures in the system. This led to incomplete and inconsistent records being maintained which has resulted in the issues described in section 7 above. 9.2 In mid-2011 it was agreed between planning and finance that the Sales Invoice Request Forms (SIRFs) would have an address description that would appear in the budget reports to ease reconciliation. This was not implemented correctly by planning admin, whilst site addresses were placed in the SIRFs they were not appearing on the budget reports. Risk and Recommendation A lack of adequate supervision and separation of duties could lead to processes not being fully completed and poor record keeping. We recommend that the administration functions relating to pre-planning applications are reviewed and clearly designated to ensure that there is adequate supervision and separation of duties with proper records being maintained. 10. Other Cheque Income 10.1 At the time of the review we could not readily identify the other sources of cheque payments. A review by the Finance Unit showed that non-planning application cheque payments received in 2011-12, totalled 51k and analysed as follows: 33k related to cheques from the Council s insurer which could readily be paid by electronic means; 8k related to cheques from Assembly Members and officers for reimbursement of phones, salaries, season ticket loans etc where payment by electronic means is possible but is not enforceable; and September 2012 Cheque Handling Process 5
FINDINGS AND RECOMMENDATIONS 10k related to other miscellaneous cheques from suppliers where again payment by electronic means could be encouraged but would be unlikely to be fully successful. Risk and Recommendation Ineffective cheque handling procedures could lead to misappropriation or loss of funds. We recommend that a policy and guidance is issued to all directorates stating that payments methods such as BACS should be encouraged. Where there is no alternative adequate controls are put in place to ensure that all cheques are banked using an approved Finance process. September 2012 Cheque Handling Process 6
ACTION PLAN RISK AND AUDIT ASSURANCE STATEMENT - DEFINITIONS Overall Rating Substantial Adequate Limited No Assurance Criteria There is a sound framework of control operating effectively to mitigate key risks, which is contributing to the achievement of business objectives. The control framework is adequate and controls to mitigate key risks are generally operating effectively, although a number of controls need to improve to ensure business objectives are met. The control framework is not operating effectively to mitigate key risks. A number of key controls are absent or are not being applied to meet business objectives. A control framework is not in place to mitigate key risks. The business area is open to abuse, significant error or loss and/or misappropriation. Impact There is particularly effective management of key risks contributing to the achievement of business objectives. Key risks are being managed effectively; however, a number of controls need to be improved to ensure business objectives are met. Some improvement is required to address key risks before business objectives can be met. Significant improvement is required to address key risks before business objectives can be achieved. RISK RATINGS Priority Categories recommendations according to their level of priority. 1 Critical risk issues for the attention of senior management to address control weakness that could have significant impact upon not only the system, function or process objectives, but also the achievement of the organisation s objectives in relation to: The efficient and effective use of resources The safeguarding of assets The preparation of reliable financial and operational information Compliance with laws and regulations. 2 Major risk issues for the attention of senior management to address control weaknesses that has or is likely to have a significant impact upon the achievement of key system, function or process objectives. This weakness, whilst high impact for the system, function or process does not have a significant impact on the achievement of the overall organisational objectives. 3 Other recommendations for local management action to address risk and control weakness that has a low impact on the achievement of the key system, function or process objectives ; or this weakness has exposed the system, function or process to a key risk, however the likelihood is this risk occurring is low. 4 Minor matters need to address risk and control weakness that does not impact upon the achievement of key system, function or process or process objectives; however implementation of the recommendation would improve overall control. September 2012 Cheque Handling Process 7
ACTION PLAN Ref. Findings and Risk Priority Recommendations Accepted Management Response and Responsibility 7.4 The Planning Team undertook an exercise in February 2012, to verify and establish the overall pre-planning income position for the period from 14 April 2011 to January 2012. The total expected income for the same period is shown as 615.6k and actual income 461k, a difference of 154.6k consisting of 115.4k unpaid and 39.2k was still to be processed. There is a risk of loss or misappropriation of funds as the expected and actual income position has not been verified on a periodical basis. 2 The Records Management Tracking System (RMTS) computer spread sheet is reviewed and analysed fully in order to identify all unpaid preplanning fees and remedial action is taken accordingly. Agreed A more robust financial management and monitoring process is to be put in place. Effective checks and balances to be implemented to ensure monitoring and reconciliations are robust and accurate. Target Date Immediate Responsibility: Assistant Director Planning & Assistant Director Finance, with effective liaison and working processes to be in place. September 2012 Cheque Handling Process 8
ACTION PLAN Ref. Findings and Risk Priority Recommendations Accepted Management Response and Responsibility 7.5 7.6 There has been a failure to comply with the GLA Financial Regulations as proper processes were not in place for recording all sums due to the Authority nor was there prompt and proper accounting for all cash including its collection, custody, control and deposit. There is a risk that income due is unpaid resulting in bad debts. 2 The Planning Department undertakes regular checks to ensure that all invoices have been raised correctly and expected income has been collected for all pre-planning applications and any departure from the process is fully documented. Target Date Agreed As above Immediate 8.1 There was no formal reconciliation procedure in place within the Planning Team and Finance to ensure that expected planning income matches actual income and that any variance was identified and dealt with fully. A lack of effective reconciliation arrangements could lead to a failure to track expected income with actual income to reveal any unpaid or outstanding preplanning fees resulting in loss of income to the Authority. 2 Effective reconciliation procedures are put in place to ensure that all expected income is accounted for and action taken to ensure that actual income is correct. Agreed As above Immediate 9.1-9.2 There is inadequate supervision in place to ensure that all entries in the RMTS are made accurately and that records are being completed and maintained properly. This has meant that the various issues that have arisen over time have 2 The administration functions relating to preplanning applications are reviewed and clearly designated to ensure that there is adequate supervision and separation of duties with proper records being maintained. Agreed Admin systems within the team are currently being reviewed by the new Senior November 2012 September 2012 Cheque Handling Process 9
ACTION PLAN Ref. Findings and Risk Priority Recommendations Accepted Management Response and Responsibility not been addressed. There was also a lack of separation of duties which could have assisted in identifying failures in the system. This led to incomplete and inconsistent records being maintained. A lack of adequate supervision and separation of duties could lead to processes not being fully completed and poor record keeping. Co-ordinator. Responsibility: Assistant Director - Planning Target Date 10.1 At the time of the review we could not readily identify the other sources of cheque payments. A review by the Finance Unit showed that non-planning application cheque payments received in 2011-12, totalled 51k which was broken down into payment types. 2 A policy and guidance is issued to all directorates stating that payments methods such as BACS should be encouraged. Where there is no alternative adequate controls are put in place to ensure that all cheques are banked using an approved Finance process. Agreed Guidance to be issued. Responsibility Assistant Director - Finance Immediate Ineffective cheque handling procedures could lead to misappropriation or loss of funds. ##ISA4D87D77654C404A9A924F78FE705525##Finding September 2012 Cheque Handling Process 10