City of Beaumont

Finding 2020-001 - Cash Disbursements Process ? Segregation of Duties Criteria - Adequate segregation of duties between vendors? approvals, addition of authorized vendors into the payable system, and maintenance of vendors? accounts and files is a very important factor because the responsibilities for purchasing, receiving, recording into the accounting system, and disbursement should be separated as much as possible to create the best system of controls. Condition and Context - During our audit, we noted that the Senior Accountant approves vendor changes and also has access to change vendor information. Upon further review, we identified that several other employees in the finance department also have access to change vendor information. Effect - The lack of segregation of duties related to vendor files maintenance and cash disbursements processes could result in erroneous, fictitious, and/or fraudulent vendor payments. Recommendation - We recommend that the Finance Department segregates the responsibilities for approving vendors and adding/editing vendors information into the system and perform a regular risk assessments review to identify where segregation of duties issues need to be corrected. Management Response to Finding - The City concurs with this finding and has initiated corrective action. Effective December 1, 2020, the budget specialist position, which is not part of the payable process, will complete the entry of new vendors and have access to modify vendor records. The senior accountant over accounts payable will complete the review and approval of new vendors but will not have access to add or modify vendor records in the accounting system. Staff directly involved in payment transactions will no longer have access to add or modify vendor records. Additionally, audit logs that identify any changes in vendor records, including identifying the individual that made the change will be reviewed monthly to identify the changes in vendors and to verify the staff member who made the change.

Reference Number: Finding 2020-001 Cash Disbursements Process ? Segregation of Duties The Senior Accountant approves vendor changes and also has access to change vendor information. Upon further review, we identified that several other employees in the finance department have access to change vendor information. Year in which Finding Initially Occurred: Fiscal Year 2020 Status of Corrective Action: Corrective action has been implemented.

Finding 2020-002 - Payroll Process ? Segregation of Duties Criteria - A strong payroll internal control system can generally be implemented to cover potential threats of error and misappropriation with a reasonable effort. Payroll controls should include the following: ? Comparison of actuals to budget information and the review of any unexpected variances; ? Close review and supervision of reports prepared for filing with federal and state taxing authorities; and ? Separation of the payroll functions of employment, timekeeping, payroll preparation, and record-keeping; ? Review of change reports for each payroll period by personnel outside the payroll function with verification of changes. Condition and Context - During our audit, we noted that the Administrative Services Manager processes payroll and has access to change employees? data including pay rates. Effect - The lack of segregation of duties between payroll processes and human resources related functions could result in fictitious employees, or unapproved personnel rate changes. Recommendation - We recommend that the Finance Department segregates the payroll processing function from the employee data changes function and to perform regular risk assessments reviews to identify where segregation of duties issues need to be addressed in the payroll process. Management Response to Finding - The control procedure used by the City to process any changes in employee pay requires approval by the Director of Administration. That change is only prompted by a conditional job offer, satisfactory performance evaluation or an MOU contract obligation. That change is documented on an employee payroll change notice. These forms are submitted as part of the biweekly payroll packet that is reviewed by a senior accountant in the Finance Department. An audit report feature within the Paychex system named Employee Change Report is also submitted as part of the bi-weekly payroll packet, and is used to ensure all changes have the appropriate documentation attached. Effective October 20, 2020, the employee payroll change notice will be signed by the Director of Administration. In the absence of the Director of Administration, the Director of Finance will approve any changes. These approval forms will be submitted as part of the bi-weekly payroll packet that is reviewed by a senior accountant in the Finance Department prior to submittal. While the senior accountant initialed the employee payroll change form in the past, a signature line was added for ease of identification. The Administrative Services Manager has also begun to attach the back page of the employee evaluation, conditional job offer, MOU page or an email directing the pay rate change. An audit feature is available within the Paychex system currently utilized by the City. The audit feature allows for a report of all pay changes processed within defined time periods. This audit report will be reviewed quarterly by the Finance Department to determine if all pay changes have the required approvals.

Reference Number: Finding 2020-002 Payroll Process ? Segregation of Duties The Administrative Services Manager processes payroll and has access to change employee data including pay rates. Year in which Finding Initially Occurred: Fiscal Year 2020 Status of Corrective Action: Corrective action has been implemented.

Finding 2020-003 - Payroll Process ? Personnel Action Forms Criteria - A strong payroll internal control system can generally be implemented to cover potential threats of error and misappropriation with a reasonable effort. Payroll controls should include the following: ? Comparison of actuals to budget information and the review of any unexpected variances; ? Close review and supervision of reports prepared for filing with federal and state taxing authorities; and ? Separation of the payroll functions of employment, timekeeping, payroll preparation, and record-keeping; ? Review of change reports for each payroll period by personnel outside the payroll function with verification of changes. Condition and Context - During our audit, we noted that several personnel action forms were not approved by the employee or appropriate supervising personnel. Effect - Changes to personnel records such as wages increases, promotions, status changes, etc., need to be documented in a Personnel Action Form with formal acknowledgment by the employee and a supervisory personnel as well. Failure to formally document the changes substantially increases the risk of unauthorized changes in payroll data such as pay rates, hours worked, etc., which significantly weakens internal control. Recommendation - We recommend that the Finance Department have all personnel action forms signed by the affected employee and by a supervisory personnel as well; and to perform regular risk assessments reviews to identify where lacks of internal controls issues in the payroll process need to be addressed. Management Response to Finding - Management concurs that employee payroll change forms have not been signed by employees and supervisors. Effective October 20, 2020, all employee change forms will be required to be signed by the employee and a supervisory position. As noted in the finding above, these documents are only completed in conjunction with a conditional job offer, satisfactory performance evaluation or an MOU contract obligation. The copy of the form is routed to the employee for their record. The form is included as part of the bi-weekly payroll file and reviewed by a senior accountant in the Finance Department. Management notes that mitigating controls have been in existence, in that while employee payroll change forms have not been signed by employees and supervisors, employee pay modifications generally occur at an anniversary date and an evaluation that is signed by the employee and supervisor usually precedes any modification in pay. In those instances where an evaluation is not completed, the personnel policies of the City provide that an employee is entitled to a merit increase. As a result, increases in pay are driven by policies and procedures of the City and can be tied to the employee?s anniversary date.

Reference Number: Finding 2020-003 ? Payroll Process ? Personnel Action Forms Several personnel action forms were identified that were not approved by the employee or appropriate supervising personnel. Year in which Finding Initially occurred: Fiscal Year 2020 Status of Corrective Action: Corrective action has been implemented.

Finding 2020-004 - Segregation of Duties for Business License Process Condition: During our audit, lack of segregation of duties was noted in the City's Business Licenses process. The permit technician, who accepts payments for business licenses, has the ability to issue and distribute business licenses. There is no independent reconciliation of the business licenses issued from the HdL system with the amounts collected and posted in the Incode cash receipts system. This finding was previously reported in 2019 as finding 2019-001 and in 2018 as finding 2018-005 - Segregation of Duties for Business Licenses Process. Criteria: The same individual should not have access to the payments from customers and the ability to issue business licenses unless an appropriate mitigating control has been implemented. Cause: The City does not perform an independent reconciliation for business licenses between the HdL system and the Incode cash receipts system due to system reporting limitations within Incode that were not evident prior to purchasing the system. Effect: Business licenses could be issued without a corresponding cash receipt being recorded in the City's general ledger and ultimately deposited into the City's bank account. Recommendation: We recommend the City implement a procedure to generate reports from the HdL business license program, periodically (i.e. daily, weekly, monthly), and have someone independent of the business license issuance and collection functions review and reconcile the amounts from these reports to the revenues posted in the City's general ledger. In addition, the permit and fees process should be integrated into the accounting software to limit the number of manual entries posted to the general ledger system. Management's Response: Reports of transactional activity will be generated from the HdL business license system that details business license collection activity. An Accounting Technician in the Finance Division will compare these reports to the deposits submitted to the Finance Department and entered into the City's general ledger. This reconciliation will be completed weekly. Any discrepancies will be brought to the attention of the Administrative Services Manager for resolution. Effective February 1, 2021, the Finance Department will complete a reconciliation of funds collected from business license activity to the license activity in the HDL system.

Reference Number: Finding 2020-004 ? Segregation of Duties for Business License Process The City does not perform an independent reconciliation for business licenses between the HdL system and the Incode cash receipts system. Year in which Finding Initially occurred: Fiscal Year 2018, 2019, and 2020 Status of Corrective Action: Corrective action has been implemented.

2019-001