Internal Audit for Nueces Co. Justices of the Peace

8/10/2019 Internal Audit for Nueces Co. Justices of the Peace

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COUNTY

UDITOR

FFICE

OF

THE

DIANA ROSAS, M.A.M.

FIRST

ASSISTANT

November 7,

2014

DAlE ATCHLEY, C.PA

COUNTY

AUDITOR

901

LEOPARD STREET RM

304

CORPUS

CHRISTI,

IX

78401

PHONE: (361) 888-0556 FAX: (361)888-0584

ELV

FUENTES

INTERNAl AUDIT

SUPERVISOR

USA DAVIS,

c.w.

EXECUTIVE ACCOUNTANT

Honorable Joe Benavides, Justice

of

the Peace, Precinct 1 Place 1

Honorable Samuel Loyd Neal, Jr., County Judge

Re: Surprise Cash Audit performed on October 30 2014

We conducted this audit under the authority of Local Government Code

115.001

and

115.002.

We performed our

audit in accordance with generally accepted government auditing standards and included inquiries, examination

of

accounting records, and other audit procedures that we considered necessary under the circumstances.

Our

audit period of our testing was for October 24 2014 to October 30,2014. The objectives

of

this audit were to

perform a surprise cash count of funds on site and review cash handling and accounting procedures in place.

To

achieve these objectives, we:

Performed a cash count audit

Interviewed staff

Reviewed

till balance'and daily close out reports

for

the period of October 24, 2014.to October 30 2014

Reviewed cash receipts journal for the period of October

24,2014

to October

30 2014

Background

Judge

Joe

Benavides has served as JPl-1 since

he

was elected in 2013. His average

annual

budget is 222,538.

The average annual amount collected by this court over the past five years is 507,313. He currently has four

full-time employees (including

him)

and one temporary employee.

Conclusion

During the cash count and related review of accounting procedures, we observed the office did perform daily

closeout and prepared daily deposits. The office follows proper procedures to insure county monies are adequately

safeguarded.

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e

also identified three instances where internal controls were below minimum standards. Internal control

standards

establish the minimum level

of

quality acceptable in business operations. Internal controls help

to

ensure compliance with laws and regulations, as well as to help safeguard county assets against waste, loss, and

misuse. The internal control weaknesses present at the time of the audit were separation of duties regarding case

assignments, no printed documentation to verify that change fund

is

counted, and unreceipted mail receipts.

A complete and detailed explanation of each of the findings as well as recommendations for improvement are

presented in the section, Opportunities for Improvement, immediately follows this page. Several

of

the flDdings

require management's attention and a written response is necessary in order to evaluate compliance with your

action plan in the future.

We would like to express our sincere appreciation in providing our office full access and cooperation in order to

complete this audit

Sincerely,

Wx

Dale Atchley, CPA

Nueces County Auditor

cc: Commissioner

Joe

A. Gonzales

/Ms. Elva Fuentes, Internal Audit Supervisor

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Opportunities for Improvement

3


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,' ' ... UJ'UU.1t;S

cases.

_tit

Internal Control Weaknesses

The Nueces County Fraud Policy states that Every county official/department head shall develop and maintain

an internal control system that is to

be

clearly documented and readily available for examination in compliance

with this Policy. The internal control system should compose five standards: (1) control environment, (2) control

procedures, (3) risk assessment, (4) communication and reporting, and (5) monitoring. Objectives for each

of

these standards are to be identified or developed for each office/department activity and are to be logical,

applicable and complete. Documentation

of

the office/department's internal control system will provide an

organizational structure for management directives, administrative policy, accounting policies, procedures and

manuals, and audit reports.

The internal control standard

1 control environment is

where the environment is set to be committed in adhering

to the organizations policies and procedures and its ethical and behavioral standards.

The internal control standard #2

control procedures

indicates controls are performed at various levels to reduce

risks in achievement

of

fmancial reportiugobjectives. Controls can either be preventive or detective. The intent

of

these controls is different. Preventive controls attempt to deter or prevent undesirable events from occurring.

They are proactive controls that help to prevent a loss. Examples

of

preventive controls are separation

of

duties,

proper authorization, adequate documentation, and physical control over assets. Example

of

detective controls are

reviews, analysis, variance analysis, reconciliations, physical inventories, and self-audits.

ontrol Procedures Separation Duties

Attachment

of

the Fraud Policy states under Control Procedures - (3) a-b Separation

of

Duties states

as

follows:

Separation ofduties may be incorporated into the

job

descriptions. The main point of this is to heighten

awareness of those positions that have full control ofa transaction. Key duties and responsibilities that

show a separation

of

duties are:

a Having the custody of assets having authority to perform the transaction having the

responsibility to record the transaction

and

having the responsibility to reconcile

or

approve the

transaction cannot be performed

by

the same individual. In small offices where an employee is

out

sick

or on vacation and one individual has to perform all duties then a review has to be

completed by upper level management or upon return of the absent employee. Deliberate

procedures must be in place in such situations.

b The process receiving assets and-issuing assets has to be ccn:efully moni tored For example a

P

clerk who receives payments should not be responsible for issuing refunds without having

another person involved in the process.

14 01 Separation of

Duties

We observed that each court clerk has been designated to handle specific case types (Traffic, Juvenile,

Civil). Each clerk has authority in their assigned case type to assess fines/fees, make adjustments, and

Issue n other words, they have full control

of

the case.

and duties involving transactions and events should be separated among

to assessing fmes/fees, adjusting fmes/fees, collecting and receipting payments,

The fewer actions performed by a single employee the greater the

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separation

of

duties, thus the more effective the internal controls are (preventive control). When st ff is reduced,

managements close control and documented review becomes critical (detective control).

Control Procedures - Tzmeliness andPerformance Standards

Attachment I of the Fraud Policy states under Control Procedures - 2) Timeliness and Performance Standards

states:

ll transactions

nd

other significant events are to be promptly recorded clearly documented and

properly classified. Documentation of

a transaction or event should include the entire process or life

cycle ofthe transaction or event including:

a.

The initiation or authorization ofthe transaction or event

b All aspects ofthe transaction while

n

process

c. The final classification in summary records

14-02 Unreceipted Mail Payments

Nueces county accounting procedures requires that money received be deposited by the next business day

upon reaching $300 or by the seventh business day from when the funds were received

i f

less than $300.

Local Government Code 113.022 and Code

of

Criminal Procedures 103.004 state that a county officer

shall deposit the money with the county treasurer on or before the next business day after the date on

which the money was received. f the deadline cannot be met, the officer or person must deposit the

money, without exception,

on

or before the fifth business day after the day on which the money is

received.

t

is the fiduciary duty

of

the officer to safeguard county assets by complying with the state statutes and

county policy. Excessive accumulation of cash increases the risk of loss due to mishandling and theft.

At

the time

of

the audit, there were 20 checks totaling

$

421.25. Ten of the checks were received in

October and ten were received in July, August, and September. The checks for July, August, and

September ranged from

1

-

$ 5.

Most

of

the checks are mostly for civil cases. The office does maintain

a daily log of monies received and is maintained in a binder.

Recommendation: All payments should be timely receipted and deposited in accordance with County and state

statutes (Local Government Code.I13.0l2 and Code oferirrrinalProcedures 103.004).

14-03 Change

Fund

Count Not Properly Documented

All steps of the daily closeout procedure should be clearly documented from beginning to end. A

supervisor'S approval (manual or electronic) implies verification and validation. Proper documentation

provides an adequate trail for review by management and auditors.

This office does not have any documentation on daily closeout work papers indicating that

ll

monies

were counted. This office utilizes the Odyssey system by entering the starting balance (change fund) and

at

the end of the day they count all monies including change fund. This process is followed by most

P

offices we have visited. But the Odyssey system does not provide a detailed printout ofcounted monies.

Recommendation: That a simple calculator tape of the counted monies is attached to each clerks Odyssey

deposit report. The supervisor can then initial the tape so that they verify all monies including change fund were

counted by the clerk (preventive).

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D I A N A R OS AS , M A M .

FIRST ASSISTANT

O F F I C E

O F T H E

C O U N T Y

AUDITOR

E L V A F U E N T E S

I N T E R N A L

A U D I T

SUPERVISOR

D A L E A T C H L E Y ,C P A

LISADAVIS, C I . O .

E X E C U T IV E A C C O U N T A N T

C O U N T Y

AUDI TOR

901 L E O P A R D S T R E E T

R M

304

CORPUS CHRISTI,

T X

78401

P H O N E : (361) 888-0556

FAX:

(361) 888--0584

November21,2014

Honorable

Lany

G . C o x ,

Justice

of

the Peace,Precinct

2

Place 2

Honorable

Samuel

L o y d

Neal,

Jr.,CounlyJudge

R e: SurpriseCash CountA uditperformed on October28, 2014

W e conducted this audit under the authorityo f L o c a lGovemment

Code

115.001and 115.002. W e performed our

audit

in

accordancewithgenerally accepted govemment auditingstandardsand includedinquiries,examination of

accounting records, and other audit proceduresthatwe considered necessary under the circumstances.

The audit covered

the

period

of

October 10, 2014

to

October 29, 2014. The objectives of this audit were

to

perform

asurprise cash count of

funds

on site and review cash handling and accountmg procedures in placeat

timeofthe audit.

T o achievetheseobjectives, we:

Performed a surprise cash count audit

Interviewed staff

Reviewedtillbalance anddailyclose outreportsforthe periodo fOctober 10,2014 to October2 9, 2014

Reviewedcash receiptsjournalf orthe periodo fOctober10,

2014

to October2 9,

2014

Reviewed

102

manual receipts

JudgeLarry C ox has served as JP2-2 since February 1, 1980. Hisaverageannualbudgetis $203,724. Judge C o x

served as presiding judge fo rthe

years

of2010 and

2011.

The

average

annual amount collected by this court over

the

past

fiveyearsis $285,989. He currently hasthreeful ltime employees and one temporary employee.

Overthe last coupleo fyears, this

office

has had turnover.

Clerk

turnover has been one each year fo rthe lastthree

years. The temporarypositionturnover is two tothreetimes every year.

Justiceofthe Peace2-2 Page

1

Background


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Conclusion

Duringthe cash count audit, the first thing noticed was the volume of manual receipts used by this particular

office.

It

appears

thatthis courtusesa higher volume of the manual receipts compared to other courts. The

inabilityto monitor

fhe

volume of manual receipts resulted in variousfindingsincludinga possible theft of

$672,

variances in amounts and

tender

types when transferring receipts to the Odyssey system along

with

delays in

transferring receipts. Due to the fact

that

therewas possible theft,there

w i ll

be a fullaudit scheduled in the

near

future.

Eight

instances wereidentifiedthatintemal controls were belowminimum standards. Intemal controlstandards

establish fhe minimumlevel of quality acceptable in business operations. Intemal controls help to

ensure

compliance

withlaws and regulations, asw ellas to help safeguard countyassetsagainst waste, loss, and misuse.

The intemal control weaknesses

present

at the

tune

of the audit were untimely deposits, untimely receipts, hot

check restitution monies not properly handled, manual receipts not used m sequential order or monitored, no

printed documentation diat change fund isverifiedand manual receipts not properly

filled

out. Other findmgs

include

comminglingo fmoniesforemployee group lotto ticket monieswithcounty monies and money orders not

restrictively

endorsed.

A complete and detailed explanation of each of the findings as wellas recommendations for improvement are

presented in the section, Opportunities for Improvement, immediately

follows

this page. Severalofthefmdings

requiremanagement'sattention and a written response is necessary in order to evaluate compliancewithyour

actionplaninthe future.

We would liketo express our sincere appreciation inprovidingouroffice

ful l

access and cooperation in order to

completefhisaudit.

NuecesCountyAuditor

cc: Honorable

Mike

Pusley,NuecesCounty Commissioner

Pet.

1

Honorable Joe A .Gonzalez,NuecesCounty CommissionerPet.2

Honorable Oscar

O .Ortiz

Nueces

County Commissioner

Pet.3

Honorable JoeM c C o m b ,Nueces CountyCommissioner

Pet.

4

M s.E l v aFuentes, Intemal

A udit

Supervisor

Sincerely.

JusticeofthePeace 2-2

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JusticeofthePeace2-2


9/36

14-01 Cash Missing (ManualReceipts)

There were four instances when manual receipts were not receipted in the Odyssey system. They were

processed by one particularclerkand were mostly cash. These receipts total to be $ 672.00.

There was one receiptthatwas marked out v o i d but also marked pd in

full .

This payment was never

receipted in the case. However, fhe ledger indicates various

subsequent

payments were made after the

date

o f

the manual receipt.

This

prompts further review on this

clerk's

transactions in afUtureaudit.

Recommendation: Management/supervisors must review manual receipts more thoroughly to

verify

receipts

have been transferred to the Odyssey system (preventive control).

Internal

ControlWeaknesses

The Nueces County FraudPo licystatesthat

Ever)'

county official/department head shall develop and maintain

an intemal control systemthatis to be clearly documented and readily available for examination in compliance

with

this

Policy.

The internal control system should compose

five

standards: (1) control environment, (2) control

procedures, (3) riskassessment,(4) communication and reporting, and (5) monitoring. Objectives for each of

thesestandardsare to be identified or developed for each office/department activity and are to be logical,

applicable and complete. Documentation of the

office/departmenfs

intemal control system

w i l l

provide an

organizational

structure for management directives, administrative policy, accounting policies, procedures and

manuals, and audit reports.

The internal control standard 1 control enviromiientis where the environment is set to be committed in

adhering

to the organizationspoliciesand procedures and its ethical and behavioral standards.

Intemal control standard #2con trol procedures is where controls are performed at various levels to reduce risks in

achievement offmancialreporting objectives. Controls can either be preventive or detective. The intent of

these

controls is diflferent. Preventive controlsattempttodeteror prevent undesirableeventsfromoccurring. They are

proactive controls

diat

help to prevent a loss. Examples of preventive controls are separation of duties, proper

authorization,adequatedocumentation, andphysicalcontrol overassets.O nthe other hand, example of detective

controls are reviews, analysis, variance analysis,

reconciliations,

physicalinventories, and self-audits.

internal control standard #5 Twow

^foWng-

is

determining-whether

intemal control is adequately designed, properly

executed and effective. Intemal control is adequately designed and properly executed ifall fiveintemal control

components are present and

flmctioning

as designed.

Monitoring

must be continuous and ongoing sothat

corrective action can be taken ina tunely manner.

Control Procedures: Timeliness and Performan ce S tandards

Attachment I of the Fraud Policystatesunder

Control

Procedures - 2) Timelmess and Performance Standards

states:

All transactions and other significant events are to hepromp tly recorded, clearly docum ented cmd

properly classified. Documentation of a transaction or event should includetheentire process or life

cycleofthe transactionorevent, including:

a. The initiation or authorization of the transaction or event

b. llaspectsofthe transaction while in process

c. The final classification in summa ry records

Justiceofthe Peace 2-2 Page 4


10/36

14 2 UntimelyDeposits

L o c a lGovermnent Code

(L G C )113.022

and Code of

CriminalProcedm-es ( C C P )

103.004

state that a

county officer shalldeposit the money withthe county

treasurer

on or before the next business day after

thedateon whichthemoney was received. If the deadline cannotbemet,theof ficerorperson must

deposit

the

money, without exception,

on or

before

thef i f t h

business

day

after

the

day on

whichthe

moneyisreceived.

Part of the cash audit plan is to examine the lastthreedeposits. Clerksclose their individual tillsevery

day, and then die administrative secretary

preparesa

deposit for all monies collected. One of the

three

depositstestedwasf o rseven (7) business days.

Recommendation:

Deposits be prepared

daily

to

avoid

accumulation of excess monies.

A l l

payments should

be

deposited in accordance withcountypolicyand

state

statutes( L G C113.022 andC C P103.004).

14-03

Untimely Receipting

of Manual

Receipts

to the

Odyssey System

There were ten receipts showing a delay transferring receipts into the Odyssey

w hichrangesfi'om

8

to 10

days. Then,

there

were

three

receiptsthat showed

a

delay

of

31 days

or

more. The two

of

the

three

receipts were cash transactions totaling $627. The third receipt did not indicateatendertype. Mos tof

these

receipts were prepared by the

same

clerk as mentioned

in finding

(14-01).

A l l

thesereceipts should have been transferred immediately into

the

Odyssey system.

Thispresentsan

opportunity forfraud, misuse, theft, orloss. If

there

were questions that delayed fheclerk f r om

fransferring die receipts

to

the Odyssey system,

the

fimds should

be

have been deposited

as a

separate

deposit. As issues get

resolved,

then transfer receipt into the Odyssey system.

Recommendation:As infinding

14-02,

all payments should be deposited in accordance withcounty policyand

state statutes

(L G C

113.022 andC C P103.004).

Control Procedures: Monitoring Adequate and Continuous Supervision

Attachment IoftheFraudPolicy

states

underMonitoringstates:

Adequateandcontinuous su pervisionis acritical component to the prevention

of

fraud. Supervisors are

responsible

for

maintaining operating levels, meeting

or

exceeding goals

and

objectives

and

implementing changes. Some examples of documentationtohave

on

hand

to

show that monitoringis

being performed are:

J W^at evidence exists that supervisory review

has

occurred? Where

in

the process doesasupervisor

sign off and

how

often?

What

do they sign off on?

i.e.

timesheets, performance

reports

exceptions,

etc. ?

14-04

Hot CheckRestitutionMoniesNot Properly Handled

Currently,theprocess ofhandlinghotcheckcasesisnormallythatthedefendant brings inseparate

payment for

tiie

county portion and

a

separatepayment for the merchant. Theseparatepayment for the

merchant is normally payable to the merchant and is receipted

as a

restitution to merchanf type in the

Odyssey systemtodocument thosemonies was received. Thenthecourt wil l mailout thepayment

directlyto the merchant. There are some

cases

where the defendant has the money order payable or has

paidin cashto thecourt. Whenthathappens, italso receipted intheOdyssey system with appropriate

tender

type and deposited. Then the court

requests

a check

f r om

the auditors

office

to be forwarded to

tiie

merchant.

JusticeofthePeace 2-2

Page5


11/36

T M s

court has a bank bag

thatholds

checks payable to the merchant. Once a week, the checks are

mailed

tothemerchants.

A tdie

tuneof the audit, diere were two checks payable the Judge Cox and one check

was payabletoJenny Craig. One of

those

checks was dated 4/13/12 had not been receipted;thenext

check

is arefundfromPeter Piperclaimingthecheck they received was not theirs. The money order

payable to Jenny Craigstateditdid not belong to them. There was noindicationoffollow-upaction on

thesemoney orders. These items werei nthe possessiono ftheclerkmentioned infmding

14-01.

Recommendation:

Management/supervisors must review each employees work

to ensure

procedures

are

properlyfollowed.Management/supervisors mustreviewthatchecks submitted to the proper merchant.

14-05 ChangeFund

There is no documentation on

daily

closeout work

papers

indicatingthatal lmonies were counted.

This

departmentutilizesthe Odyssey system toenterthe starting balance (changefimd). Thisseemsto be fhe

norm for mostJPofficeswehave

visited.

Clerkscount their moniesand

enter

theamounts in the

Odyssey system.

But

die Odyssey system

does

not provide a detailed printouto fcounted monies.

Recommendation:

That

simple

calculatortapeo fthe counted monies is attached to each clerks Odyssey deposit

report.

This

wouldprovide foradequatedocumentationthatal lmonies were counted by clerkmcludingchange

fund.

14-06

ManualReceiptsNot

Used

InSequentialOrder or Monitored

Part of the cash audit istotake inventory of manual receipt books on hand. We reviewed the

past

two

years

because

thatis when the new Odyssey software was put m place. We perform random testingto

confirmpayments were transferred (receipted) to the

Odyssey

system.

This office

usesmanual receipts in times when fhe Odyssey system is down or whenthereisaquestion

onthe

case

and the supervisor is not

available.

There is

a

manual receipt book assigned to eachclerk.

It

appearsthatthis courtusesa higher

volumeo f

the manual receipts compared to other courts. There were

129 manual receipts used m the last two

fiscal

years. There were some instances where blank receipts

were not

voided

out and/or

missing

onepart

o f

the3-partreceipt.

We

performedrMidom

testing

o f

receipts on each manual receipt

book.

Randomtestmg

o f

one the clerk's

manual receipt book triggered questions and mdicated some

o f

the receipts had not been receipted into the

Odyssey system.

This

ledto 100% testing on this particular

clerk's

receipts.

Best business practice

is

lhatmanual receipts

be

used

in

sequential dateand number order for easy

reconcilement. Duetothisofficenot having controlormonitoringthemanual receiptshasledtocash

missing(Refer to

14-01).

Recommendation: That manual receiptsbeused one bookat atimeand

ui

sequential order. If areceiptis

inadvertentlyskipped,the unused receiptneedsto be immediately marked V O I Dand not used andinitialedby

supervisor

(preventive control). Just like all voids shouldbemarked

V O ID ,

initialedbysupervisorwitha

reason for

the

void .

Remaining

receipt books should

be

kept in

the

safe. Management must

ensure

receipts

are

properlyutilized. L o c a lGovemment Code103.11indicates the county auditor has authority over receipt books.

The

county auditor canrequestreceipt books be

turned

over

i f

not

utihzed

properly.

Justice o fthe

Peace

2-2

Page6


12/36

Other Manual Receipt Findings

Codeo fCrimmalProcedures( C C P )A r t.103.010.R E C E I PT

B O O K

states:

(b) Anofficerwho collects fines or fees in acrimmalcaseshallgive the person paying the money a

receiptfi -omthe receipt book. The receipt must show: (1) the amount of money paid;(2) thedatethe

money was paid; (3) the style and number of the case in

which

the costs were accrued;(4) the item of

costs;(5)

the name

o f

the person

paymg

the money; and(6) the

of f ic ial

signature

o f

theofficerreceiving

the money.

(c) Instead of a receipt book, eachofficer collectingfmes or fees incriminalcasesfor

die

county may

maintain

the information hsted in Subsections (b)(l)-(5) m a computerdatabase. Theofficer shall

provide a receipt

to

each personpayingafineor fee.

ThefoUovmigare

findings

pertaming to manual receipts:

14-07 Variancesof

Amounts

in Manual andOdyssey

System

Receipts

There werefiveinstances where the amounts shovra on the manual receipt

did

not match the amounts m

the Odyssey computer receipts. Three receipts were combmed

with

an over the counter payment because

the

plaintiff

had not submitted the proper

eviction

filingfee. The other two had unexplained differences.

14-08 Variancesof Tender Type in Manual andOdyssey SystemReceipts

There werethreeinstances inwhichthe manual receipt indicated cash was received but when it was

transferred to the Odyssey system; it reflected either money order or check tender method.

14-09 Manual

Receipts

notCompletelyFilled Out

There were thirteen instances where the receipts were not completely filledout. Four receipts did not

have thedate,threedid not have

fhe

style ofcase,direedidnot have the name

o f

the payer, andthreedid

not have the signature of the clerk acceptmg the money. Two of those instances above had multiple

issues.

Recommendation:That staffneedsbe further trained in the Odyssey system m effort tominimizethe use of

manual receipts.

However,

the

staff

needs

to be trained to

fill

out manual receipts properly and

comply

with

C C P

103.010(b).A l s o , it is recommendedthatthe manual receipt number be referenced in the comment data

field

of

the

Odyssey

computer receipt.

Other Findings

14-10 Commingling of Funds - Lotto TicketMoniesKept inCounty sSafe

Whena

fiduciary,

a person entrusted withthe management of

funds

other than his or her own in tmst

mixes

trust moneywiththatof others, the

fiduciary

iscommmglingfunds and thereby breaching his or

herfiduciaryduty.

A tthe

tuneo f

the audit, monies were not

found

but it

appears

that

staff

keeps monies

collected

for group

lotto ticketsinthe safe.

Recommendation: That itemsthatare not county property be removedfromthe safe. Thatonlycounty property

and monies be kept in the safe. The purpose of the safe is to safeguard countyassetsonlynot personal property.

Managementneedsto ensurefhesafe is usedstrictly for counlypurposes.

JusticeofthePeace2-2

Page 7


13/36

14-11

Money Order and Check notRestrictivelyEndorsed

Two money orders were not restrictively endorsed upon receipt (Refer to 14-03). To safeguard the

county's

assets,

money orders and checks should be stamped immediately

with

a restrictive endorsement.

Checks

that

are notrestrictivelyendorsed upon receipt are at a

greaterrisk

o f

misappropriation.

Recommendation:

Thata llchecks and money orders be

immediately

restrictivelyendorsed upon receipt.

JusticeofthePeace

2-2

Page 8


14/36

O F F I C E

O F

D I A N A

R O S A S ,

M A M .

F I R S T

A S S I S T A N T

T H E

C O U N T Y

AUDITOR

D A L E A T C H L E Y , C P A

C O U N T Y

A U D I T O R

901 LEOPARD STREET, RM 304

CORPU S

CHRISTI,

T X 78401

E L V A

F U E N T E S

I N T E R N A L A U D I T S U P E R V I S O R

L I S A D A V I S C I . O .

E X E C U T I V E

A C C O U N T A N T

PHO N E: (361) 888-0556 FAX;(361) 888-0584

October 17, 2014

Honorable Robert Balderas, Justice o fthe Peace Precinct 1, Place 3

Honorable Samuel

L o y d

N e a l ,

Jr., County Judge

R e: Justice o fthe Peace Precinct 1Place 3

A u d it

(JPl-3)

O n the moming ofMonday, October6 2014, the coimty auditor's off ice was notified ofatfaeftthat occurred

during the early moming hours ofSimday, October 5, 2014 at the

B i l l

Bode County

B u i ld i n g .

This

faci l i ty

is

currently occupied by Justice of the Peace Precinct 1 Place 3 (JPl-3) and Constable Precinct

1.

The Corpus

Chr i s t i

Police Department conducted an investigation. On Tuesday, October 7, 2014, the coimty auditor's office

conducted

a

cash audit and a review

o f

the

faci l i ty

to

determme

the loss incurred by the county.

W e

conducted this audit under the authority

o f L o c a l

Govemment Code

115.001

and

115.002.

We performed our

audit in accordance

vrith

generally accepted govermnent auditing

standards

and included inquiries, examination of

accounting records, and other audit procedures

that

we considered necessary under the circimistances.

O ur

audit period of our testing was for October 1, 2014 to October 7, 2014. The objectives of

ihiis

audit were to

determine; the amount ofloss due totheftand related property damage; review security in place to safeguard

county funds and property; perform a cash count of

fiinds

on site; review cash handling and accounting

procedures in place.

T o

achieve

these

objectives, we;

.

_]nspected the

premises;;

Inspected

damage

at the facihty

Performed

a

cash count audit

Interviewed staff

Inventoried

fixed

assets

Reviewed

t i l l

balance and daily close out

reports fo r

the period of 10/1/14 through 10/6/14

Reviewed cash receipts journal for the period of 10/1/14 through 10/7/14

Obtained a copy o fthe police report

Background

The JPl-3

office

is located m the B i llBode County

B u i ld i n g

at 11408 Leopard

Street,

CorpusC h r i s ti ,

T X

78410.

Constable Precinct 1 previously maintained an officespaceat the B i l l Bode B u i ld i n g but has since moved tiie

primary

office

to the Nueces County Courthouse. Currently, the constable utilizes the

space

primarily as

storage.

1


15/36

The

building was also the secondary otFicefor Commissioner Precinct1, M i k ePusley, but he has moved his

office

to the H i l l t o p Community Center, located across

die street from

the B i l l Bode

B u i ld i n g .

The space

formerlyused by theCommissioneris now used as a secondary ofSce area for the

JPl-3

administrative secretary,

w ho

also maintains a primary workstation in theJPl-3 area.

T he B i l l

BodeB u i ld i n gis managed by thePublicWorks department. The average annual budget for thisbuildiog

is

$ 63,445. There is one employee under this budget.

Judge Robert Balderas has served as X P l -3since he was elected in 2003 and has served as Presiding Judge for the

term of

2005-2007.

His average annual budget is $ 217,549. He currently has four

full-time

employees and two

temporary employees. The average annual amoimt collected by this court over the

pastfive

years is $ 195,382.

T he

county suffered a cash loss of

$300,

whichwastiieapproved change fund amount, as w e llas addition costs

related to damage to property and the

faci l i ty itself

We observed

that

the

loss could

have been avoided if

adequate

building

securities

would

have been put in place at the

B iU

BodeCountyB u i ld i n g .

T he

f i x e dassets

were inventoried andidentified.

During

tibe cash count and related review of accounting procedures, we observed the

office

did

f o l l o w

timely

deposit procedureswhich minimizedthe amount of the cash loss. However, weidentifiedseven Instances where

intemal controls were below minimum standards. Intemal control standards estabhsh the minimum

level

of

qualityacceptable in business operations. Intemal controls help to ensure compliance

with

laws and regulations,

as w e l l as to help safeguard county assets against waste, loss, and misuse. The internal control weaknesses

present at the time of the audit were a lack of separation of duties, insufficientauthorization of reductions in

Odyssey system, insufficient documentation of v o i d authorization in Odyssey system, password integrity

compromised,

clerk ID not adequatelyidentifiedon Odyssey receipts, overpayments are not receipted, and change

f i m dkept in safe during business hours.

A

complete and detailed explanation of each of the

findings

as

w e l l

as recommendations for improvement are

presented in the section.Opportunities for Improvement, immediately

follows

this page. Several of the findings

require management's attention and a written response is necessary in order to evaluate compliancewithyour

action planin the future.

W e

would

l iketo express our sincere appreciation in

providing

our

officef u l l

access and cooperation in order to

complete this audit

Conclusion

Sincerely,

Dale Atchley,

C P A

Nueces CountyAuditor

2


16/36

3


17/36

14-01 Building notAdequately Secured

The county suffered a loss ofassetsat JPl-3 and damage to property attiie B iU Bode Countybuilding

resulting

from a theft tiiat

occuired

on the early moming of Sunday, October 5. The county's loss of cash

totaled $300 and the costs of

aU

of the

damages

to the

building

and tbe contents

within

have yet to be

detemiined.

Loss

due to theft and destmction of county property are costly to both the county and the taxpayers.

Whena theft occurs, the coimty suffers the immediate loss ofassets(such as cash and property) and the

cost of repairs due to damages. The county also suffers a long term on-going expense as the cost of

insurance may increase as a result

o f

the theft for years to come.

W e observed multiple security issuesthatmay have contributed to the loss incurred.

The B i l lBodebuildinghas four access doors: public, employees, constable, and judge. The public front

entry way is a double-door entry

with

clear glass panels framed in metal

which

hasonlysingle

lock.

H i e

glasspanes of the doors do not have security f i l m to prevent possible burglars from lurking. We also

observed

thatthere

was an approximatelyV2 gap between the two doors

which would allow

sufficient

roomfor any large metaltoolto be used as leverage to break the doors open and gain access.

There is no monitored alarm system on thebuilding, whichprovided ample time forassetsto be taken and

damagesto occur. There is aC C T V system at thisbuilding,but it is notadequateas itdoesnot provide a

clear

visual o f

what is being videoed and the placement

o f

the cameras

does

not monitor

aU entrances

and

exits.

Recommendation:

Measures should be taken to adequately safeguardassetsandfacihty.We recommendthatan

alarm

system be installed. We recommend a security review be performed on the facihty on a regular basis. This

review

w i l l ensuresecurity of the buildingand safety of employees and the public, therefore, minimizing the

future

possibility

ofloss.

Internal

ControlWeaknesses

XherNuecesCounty Fraud P o l ic ystatesthat-"Every county official/department head shall develop and-maintain

an intemal control system thatis to be clearly documented and readily available for examination in compliance

with

this P o l i cy . The internal control system should compose

five

standards: (1) control environment, (2)

confrol

procedures, (3) risk

assessment,

(4) communication and reporting, and (5) monitoring. Objectives for each of

these standards are to be identified or developed for each office/department activity and are to be

l o g i ca l ,

applicable and complete. Documentation of the office/department's intemal control system

w i l l

provide an

organizational

stmcture for management directives, administrative policy, accounting policies, procedures and

manuals, and audit reports."

T b e intemal control standard #1 control environment is where tbe environment is set to be committed in adhering

to the organizationspoliciesand procedures and its ethical and behavioral standards.

T b e

intemal control standard #2

control procedures

indicates controls are performed at various levels to reduce

risks in achievement offinancialreporting objectives. Controls can either be preventive or detective. The intent

o f thesecontrols is different. Preventive controls attempttodeteror prevent undesirable eventsfrom occurring.

4


18/36

They areproactive controlsthathelpt o prevent a loss.

Examples

o f preventive controls are

separation

o f duties,

proper

authorization,adequate

documentation, and physical control

overassets.

Example o f

detectivecontrols

are

revievi's, analysis,varianceanalysis, reconciliations,physical inventories,an dself-audits.

Control Procedures Separation

of

Duties

Attachment

I

o f

the

Fraud

P o l ic y

states

underC o n t ro l

Procedures

(3) a~b

Separation o f

Duties

states

as fo llovi s:

Separation of duties m ay be incorporated into the job descriptions. The main point of this is to heighten

awareness of those positions that have fiill control of a transaction. Key duties and responsibilities that

show a separation of duties are:

a. Having the custody of assets, having authority to perform the transaction, having the

responsibility to record the transaction and having the responsibility to reconcile or approve the

transaction cannot be performed by the same individual. In small offices where an employee is

out sick or on vacation and one individual has to perform all duties then a review has to be

completed by upper level managem ent or upon retum of the absent employee. Deliberate

procedures mmt be in place in such situations.

b. The process of receiving a ssets and issuing assets has to be carefully monitored. For example a

JP clerk who receives payments should not be responsible for issuing refunds without having


14-02 Separationof

Duties

W e observed.thateach comt cleric has been

designated

to

handle

specific

case

types ( T r a f f i c ,Juvenile,

an d

C i v i l ) .

E ach clerk has authorityi n their assignedcasetypeto assessfines/fees,make adjustments, and

issue receipts.I n other

words,they havef u l l

control o f th e case.

Recommendation:

Responsibilities an d

duties

i n v o l v i n g

transactions

an d

events

should b e separated among

different employeesvvdthrespect to assessingfines/fees, adjusting fines/fees, co l lect ing and

receipting

payments,

an d maintauiingcustody o f the cases.

D i e

responsibility f o r

opening

m a i l should b e assigned to individuals w ho

have n o

responsibility

to

assess

fmes/fees.

T he

fewer actions perfonned

b y a

single

employee

the

greater

the

separation

o f

duties,

thus the more

effective

the

intemal

controls are (preventive

control).

W h en staff is reduced,

managements

close

control an d documentedreview

becomes

critical

(detective

control).

Control Procedures Proper A uthorization

Attachment

I of the Fraud P o l i c y states

under

C o n t ro lProcedures - (1)

Proper

Authorizat ion states"Transactions

an d other significantevent are to be authorized an d executed o n l y by persons acting w i t i iin th e

scope

o f their

authority. Authorizations should be clearly communicated to managers, supervisors an d

employees

an d should

include the sp ecific

conditions

an d terms

under

w h ic hauthorizations are to be

made."

14-03

Insufficient

Authorization

of

Reductions

in

Odyssey

Currently, Odyssey

does

n o trequire an authorizationto

make

a

reduction

in the

fees

assessed, an d

there

is

n o notation from thejudge to approveth e reduction.W h en authorization is not required fo r the reduction

o f

fines

an d

fees,

i t

reduces

the effectiveness

ofthe

intemal controls.

5


19/36

14-04

Insufficient

Documentationof

Void

AuthorizatiousinOdyssey

Currently at J P l - 3 ,

there

are two clerksthathave the approval rights in Odyssey to v o i d transactions.

Those two clerks have the authority to issue a receipt and v o i d the same transaction. Per interview, the

two clerks stated

that

they get a verbal approval

from

each other tov o i dthe receipt

thattiiey

issued. There

is no written evidence (audit trail) tiiat the autiiorization occurred and this reduces effectiveness of

intemal

controls.

Recommendation:For 14-03 and 14-04, current practices in place should bemodifiedto be in agreement with

county intemal control pohcies. The Odyssey system

needs

to be default

setup

thatthe person who issued the

receipt cannot be the same userwhichapproves (review) the

voiding,

adjusting, or reversing ofthats ^e receipt

(preventive control). It is preferred

that

a supervisor authorize a v o i d , adjustment, or reversal. But it is not

necessary i f a dual-control principle is put in place this waythereis another personconfirmiagthe action in the

event the supervisor is not available.

Control Environment Adhere to County Policies

The intemal control standard

#i control environment

is where the enviromnent is set to be committed in adhering

to the organizationspoliciesand procedures and its ethical and behavioral standards. Managementneedstoassure

tbat

employees are

w e ll

acquainted

with

County and departmental

policies

and procedures

that

pertain to their job

responsibilities.

14-05 PasswordIntegrity

Per

tiie

Nueces County Network CommunicationsP o l i cy ,

Violations

and Prohibited

Used,

3.2.2., it is

strictlyprohibited to "adopt the identity of another person on any electronic message, attempting to send

electronicm a i lanonymously, or using another person's password."

During

interview

w i ti i

staff, it was disclosed

that

passwords have been compromised.

This

compromises

the integrity o f the audit

trail

and the accountability of the system.

This

occurred because the employees

d id not have access to electronic files.

Recommendation: Documents should be saved on a shared network so designated employees w i ll have access

to those

files

as needed. Management-needs to make sureeanpJoyees..are.cross-trained and,_tiiatthej each

have

proper access (with their own sign in) to files needed in effort to perform job duties without compromising

intemal

controls.

14-06 Clerk notAdequatelyIdentifiedonOdyssey

Receipts

System software security controls are an integral part of intemal control activitythat helps ensure

managements directives to mitigate risks. System softw^e security controls provide for assigned access

and documented use of system software. There should be consistency in setting up security roles for

users

and assurancethatsystem output is also consistent.

During

the cash count audit, it was determined

that

at least two of the clerks Odyssey receipts did not

identifythe clerkthatissued the receipt. However, the systemfmancialledger of those

cases

did reflect

the clerk ID on the transactionlineitem.

6


20/36

Recommendatioii:

Nueces County Information Technology department should be contacted and instructedthat

receipts for

departmentsut i l iz ing

Odyssey bestandardised.

It should be notedthatwhen it was discovered duringtiiecourseoftheauditthatOdyssey was not indicatingthe

clerkID on the receipts of two of the clerks, the staff at

JPl-3

contacted the county's infonnation technology

department

and

this issue has been corrected for

those

two clerks.

Control Procedures Timeliness and Performance Standards

Attachment I of the Fraud Pohcystatesunder ControlProcedures - 2) Timeliness and Performance Standards

states:

All transactions and other significant events are to be promptly recorded clearly documented and

properly classified. Documentation

of a

transaction

or

event should include

the

entire process

or

life

cycle of the transaction

or

event including:

a

The

initiation

or

authorization ofthe transaction

or

event

b.

ll

aspects of the transaction while in process

c. The final classification

in

summary records

14-07

Overpayments

are NotReceipted

Nueces county accounting procedures requiresthatmoney received be deposited by the next business day

upon

reaching $300 or by the seventh business day

from

when the funds were received if less than $300.

L o c a lGovemment Code 113.022 and Code of C r i m i n a l Procedures 103.004statethat"a coimtyofficer

shalldeposit the moneywith the countytreasureron or before the next business day after tiiedateon

which

the money was received. If the deadline cannot be met, the

officer

or person must deposit the

money, without exception, on or before the fifth business day after the day on

which

the money is

received."

It is the fiduciary duty of the officerto safeguard countyassetsbycomplying

with

thestate statutesand

countypolicy. Excessiveaccumulation of cash increases theriskof loss due to

mishandling

and theft.

Currently,theoffice:doesnot receipt overpayments received-bymai l .They contact the defendant

to^notify

tiiem

and instmct them to

pick

up the overpayment. The payment remains in the

office until

defendant

picksit up.

Anotherscenario isthatwhen a defendant brings in a paymentwhichis over the amount due, theoffice

does

not receipt it. They instmct the defendant to bring back the check, money order, or cashier's check

for the correct amount. This is inconvenient for the defendant. The current policy is, if

there

is an

overpayment for $5.00 and under, it becomes county revenue. If payment is $5.00 and over the amount

due, a check is issued to the party tibat overpaid. The Odyssey software is set up for this overpayment

procedure and otiier JP courts are currently

ut i l iz ing

it.

Recommendation: A l l payments should be receipted and deposited in accordance

with

County andstate statutes

( L o c a lGovermnent Code 113.022 and Code ofC r im i n a lProcedures 103.004). In the event

that

an overpayment

isreceived and a refund is due to the payer, it

needs

to be properly receipted in the Odyssey software. Then, an

7


21/36

order to pay disbursementrequestalso referred to as a

check

requestshould be prepared, an d thensigned by the

judge. T he request and the supporting documentation, including acopy o f receiptindicatingthat a

refund

is due,

shouldb e submitted to the county auditor'so f f i c e .

Control Procedures SafeguardingofAssets

Attachment I of the Fraud P o l i c ystatesunder C o n t r o l Procedures (4)

Safeguarding

o f

Assets (Preventive

and

Detective controls)

states:

What physical controls are in place to protect assets? Who has the keys to the vault and is access to the

vault limited?

Is money left on top of desks unattended?

Restrictions on access to resources will depend upon the vulnerability of the resource and the

perceived risk ofloss, both of which shall be periodically assessed Preventive).

Periodic comparison shall be made between the resources and recorded accountability of the

resources to reduce the risk of unauthorized me or loss and protect against waste and wrongful

acts. The vulnerability and value

ofthe

county resources shall determine the frequency of this

comparison Detective).

14-08 Clerk'sChange

Fund

Keptin

SafeduringBusiness

Hours

T hecurrent practice at the

JPl-3

o f f i ce i stiiat clerks w o u ld

keep

their

change

f i in d in the safe during the

business d ay . A sfunds werereceived an d

change

w as

needed,

th e clerksw o u l d go t o t h e

safe

to put the

money in

then

t i l l an d

make

change as needed. T h i s practice

caused increase

in traffic to and from the

safe,

w h il ecustomers

waited,

w h i ch i n t u m increasedth e customers

exposure

to the lo cation o f the

safe.

I t w as

also

confirmed

that

the

change

fimd iscounted

every

day, but

there

is no documentationassuch o n

theirdailycloseoutworkpapers.

Recommendation:

E a c h

clerk's

designated

change

fundshould

b e

retrieved

from the safeat the

beginning

o f

the

work day and kept in a locked drawer m their

workstation

duringthe day. A t the end o f the

business

dayafter the

till/change fund is reconciled; w e then recommendthat the changefund be retumed to the safe f o rsafekeeping

ovemight. C l erk s should count their change fund at the beginning and end o f their shift t o v er i fy

amount

is

correct

(preventive)-and-needs-to

b edocumented

m-tlieir

daily closeoutwork

papers.

8


22/36

OFFICE OF

THE

COUNTY

UDITOR

DIANA RoSAS, MAM

ElVA FUENTES

FIRST ASSISTANT

INTER. lAl

AUDIT

SUPERVISOR

D lE ATCHLEY C.PA

LISA DAVIS, I O

COUNlY AUDITOR

EXECUTM ACCOUNTANT

901

LEOPARD STREET,

RM

304

CORPUS

CHRISTI, TX 78401

PHONE: (361) 888-0556

FAX

(361) 888-0584

November

17,2014

Honorable Duncan Neblett, Justice

of

the Peace, Precinct 4

Honorable Samuel Loyd Neal, Jr., County Judge

Re: Surprise Cash Audit performed

on

October 29, 2014

We conducted this audit under the authority ofLocal Government Code 115.001 and 115.002. We performed our

audit in accordance with generally accepted government auditing standards and included inquiries, examination

of

accounting records, and other audit procedures that we considered necessary under the circumstances.

The audit covered the period

9115114

to

10/24/2014

The objectives

oftbis

audit were to perform a surprise cash

count

of

funds on site and review cash handling and accounting procedures in place.

To achieve these objectives, we:

Performed a cash count audit

futerviewed staf f

Reviewed till balance and daily close out reports for the period 9115114 to

10 24 14

Reviewed cash receipts journal for the period 9115114 to

10/24/14

ackground

JP4 is located in the city

of

Port Aransas, Texas. Judge Neblett has been

the

justice of the peace since January 3,

1993. Judge Neblett has managed an average budget of 161,121 and has two full time employees: administrative

secretary and a court clerk. The average overall collections for the past five years are 244,102. From the date

of the last audi t in 2009, cases filed declined by 48.3% and cases disposed declined by 39.65% in comparison to

FY2013. Office of Court Administration (OCA) data is not complete for this court; last report submitted to OCA

was in May 2014. As a result of the decline in court activity, overall collections declined by 39% and revenues

have declined by

21

% from 2009 in comparison to FY2014

This office has had turnover in the last couple of years. The court clerk position has had a new hire each year.

There were

two

new temporary hires in the current year and two new temporary hires in the prior year.

The new Odyssey software was implemented in June 2012. All files from the FullCourt (previous software) were

converted

to

the new Odyssey software. This software has many

of

the same capability as FullCourt as to OCA

reporting, Omnibase reporting, Linebarger collections, etc.

Justice

of the

Peace 4 Cash Audit

Page 1


23/36

The last audit o this office was the investigative audit o December 9, 2009. This audit revealed seventeen

[mdings: six fraudulent [mdings, eight weakness in internal controls, and three general findings. These [mdings

contributed to the theft o 85,532 by the administrative secretary. The case was prosecuted by the district

attorney's office and the employee was convicted in 2014. Loss due to this theft was costly to the county and the

taxpayers. In addition, the county insurance costs increased for five years due to the county being considered a

risk.

onclusion

During this cash audit, a total o fourteen [mdings were noted: eleven weaknesses in internal controls; one was

non-compliance in OCA reporting, and two general [mdings. The internal control weaknesses include: lack o

management review/supervision, administrative secretaIy has full control o office operations, lack

o

separation

o duties, daily closeout documentation not retained, administrative secretary maintains key to clerk's cash box.

passwords are shared, untimely deposits, untimely receipts, administrative secretary does not follow required

Odyssey deposit procedures, monies not kept in safe overnight, and safe which is in need o repair or replacement.

Other [mdings were change fund not utilized and money order and check were not restrictively endorsed.

Internal controls help to ensure compliance with laws and regulations,

s

well as to help safeguard county assets

against waste, loss, and misuse. The level

o

internal controls has weakened even further since the theft audit.

t

clearly indicates a disregard to compliance o audit recommendations, laws and regulations, and county policies.

Red flags on top o the already severely weak internal controls are the drastic decline

in

overall collections and

revenues corresponding to the decline in cases filed and cases disposed since the last audit five years ago.

The [mdings in this cash audit have set the tone for the environment

o

the office. This situation places the county

at an extraordinary risk for history to repeat itself and the county to suffer another substantial loss. A full audit

will be scheduled in the near future.

A complete and detailed explanation

o

each

o

the [mdings as well as recommendations for improvement is

presented in the section, Opportunities for Improvement, which immediately follows this page. Several o the

[mdings require management's attention and a written response is necessary in order to evaluate compliance with

your action plan in the future.

We would like to express our sincere appreciation in providing our office full access and cooperation in order to

complete this audit.

ale Atchley, CPA

Nueces County Auditor

cc: Nueces County Commissioners

Ms. Elva Fuentes, Internal Audit Supervisor

Justice

o

the Peace 4 Cash Audit Page 2


24/36

Opportunities for Improvement

Justice the Peace 4 Cash Audit Page 3


25/36

Internal Control Weaknesses

The Nueces County Fraud Policy states that "Every county officiaVdepartment head shall develop and maintain

an internal control system that is to be clearly documented and readily available for examination in compliance

with this Policy. The internal control system should compose five standards: (1) control environment, (2) control

procedures, (3) risk assessment, (4) communication and reporting, and (5) monitoring. Objectives for each

of

these standards are to be identified or developed for each office/department activity and are to be logical,

applicable and complete. Documentation

of

the office/department's internal control system will provide

an

organizational structure for management directives, administrative policy, accounting policies, procedures and

manuals, and audit reports."

Internal control standard #1 control environment is where the environment is set to be committed in adhering to

the organizations policies and procedures and its ethical and behavioral standards.

Internal control standard #2

control procedures

is where controls are performed at various levels to reduce risks in

achievement

of

fmancial reporting objectives. Controls can either be preventive

or

detective. The intent

of

these

controls is different. Preventive controls attempt to deter or prevent undesirable events from occurring. They are

proactive controls that help

to

prevent a loss. Examples

of

preventive controls are separation

of

duties, proper

authorization, adequate documentation, and physical control over assets.

On

the other hand, example

of

detective

controls are reviews, analysis, variance analysis, reconciliations, physical inventories, and self-audits.

Internal control standard #5

monitoring

is determining whether internal control is adequately designed, properly

executed and effective. Internal control is adequately designed and properly executed if all five internal control

components are present and functioning as designed. Monitoring must be continuous and ongoing so that

corrective action can be taken in a timely manner.

Control Procedures: Monitoring - Adequate nd Continuous Supervision

Attachment I of the Fraud Policy states under Monitoring states:

Adequate nd continuous supervision is a critical component to the prevention offr ud Supervisors are

responsible for maintaining operating levels meeting or exceeding goals nd objectives nd

implementing changes. Some examples of documentation to have on hand to show that monitoring is

being performed are:

1 What evidence exists

th t

supervisory review has occurred? Where in the process does a supervisor

sign off ndhow often? What do they sign offon? i.e. timesheets petformance reports exceptions etc.?

14--01 Lack ofManagement

SupervisioniReview

Lack

of

supervision was a finding in the prior audit. Lack of supervision continues to be an issue wi th this

court. This displays a disregard to prior audit recommendations, the Nueces County Fraud Policy, and

other county policies.

Currently, there is no evidence

of

management review in the daily cash management procedures. This

gives all authority to the supervisor (administrative secretary). The lack of management review increases

the opportunity to commit and conceal fraud. Therefore, represents a high risk to the county overall.

Recommendation

t is imperative that management comply with prior audit recommendations and county

policies. Management should be more involved in everyday cash management review.

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Control Procedures Separation Duties

Attachment I

of

the Fraud Policy states under Control Procedures (3) a-b Separation ofDuties states as follows:

Separation

of

duties may be incorporated into the job descriptions.

The

main

point

of this is to heighten

awareness

of

those positions that have

full

control

of

a transaction. Key duties

and

responsibilities that

show a separation ofduties are:

a Having the custody of assets having authority to perform the transaction having the

responsibility to record the transaction

nd

having the responsibility to reconcile or approve the

transaction cannot be performed by the same individual. In smal l offices where an employee is

out sick or on vacation and one individual has to perform all duties then a review has to be

completed by upper level management

or

upon return of the absent employee. Deliberate

procedures must be in place in such situations.

b

The process ofreceiving assets nd issuing assets h s to be carefully monitored. For example a

P

clerk who receives payments should

not

be responsible

for

issuing refunds without having


14-02 Administrative Secretary has Full Control

n the prior audit, the administrative secretary has breached internal controls by assuming all

responsibilities. Currently, the administrative secreta:ty has the password log-in for the clerk's access to

Odyssey software (Refer

14-06)

and the key to the c lerk's cash box (Refer to

14-05).

With all this access,

an employee has the capability to manipulate the fmancial system, therefore, presenting a high risk for

data integrity to be jeopardized. The previous audit presented this situation and the administrative

secretary was able to manipulate a significant amount of system data.

There s a memo issued to staff written by the administrative secretary prescribing procedures and jo

duties but there is no indication or reference ofmanagement approval.

Recommendation:

t is imperative that management comply with prior audit recommendations and county

policies. Management should be more involved and ensure that supervisor is appropriately supervising staff and

complying with management approved procedures and county policies.

14-03 Lack

o

Separation

o

Duties

This office has been reduced to one staff

at

various times

of

the year due to turnover. There is no

evidence that management has reviewed any

of

the daily operations because there is no documentation

retained

of

closeout (Refer to

14-04).

Since this is a small staffed office, it is important that management closely monitor all aspects

of

the daily

operation.

Recommendation:

Duties and responsibilities involving transactions and events should be separated among

different employees with respect to assessing fines/fees, adjusting fmeS/fees, collecting and receipting payments,

and maintaining custody of the cases. The fewer actions performed by a single employee the greater the

separation of duties, thus the more effective the internal controls are (preventive control). When staff is reduced,

management's close control and documented review becomes critical (detective control).

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14-04 Daily

Ooseout

Work

Papers

not Retained

All steps of the daily closeout procedures should be clearly documented from beginning to end. A

supervisor's approval (manual or electronic) implies verification and validation.

s stated in the written job duties, the administrative secretary is responsible for auditing the daily

closeouts, but there is no evidence of what her process is or that all monies were counted and verified.

Odyssey closeouts and deposit procedures have reports associated with every step. During the audit, the

administrative secretary ran new till reports, which indicates the reports are either not printed or printed

reports are tossed. Destruction of documentation can lead to concealment of fraud.

Recommendation: That Odyssey reports for closeout and deposit procedures be retained for record. Proper

documentation must be kept on file as it provides an adequate trail for review by management and auditors.

In

addition, it is recommended that a simple calculator tape

of

the counted monies be attached to each clerks

Odyssey Deposit Report with the initials of

the supervisor on the tape indicating they verified all monies

including change fund were counted by the clerk (preventive).

14-05

Supenisor Maintains

Key to

Clerk s

Cash Box

It was observed that the Administrative Secretary had the key to the clerk's cash box.

Recommendation: Each clerk keep their cash box key in their possession at all times once it is assigned to them.

Control Environment dhere to County Policies

The internal control standard 1

control environment

is where the environment is set to be committed in adhering

to the organization's policies and procedures and its ethical and behavioral standards. Management must see to it

that employees are well acquainted with county and departmental policies and procedures that pertain to their job

responsibilities.

14-06 Password Integri ty Compromised

Per the Nueces County Network Communications Policy, Violations and Prohibited Used, 3.2.2., it is

strictly prohibited

to

"adopt the identity of another person on any electronic message, attempting to send

electronic mail anonymously, or using another person's password."

During interview with the clerk, it was disclosed that the supervisor knows her Odyssey log-in passwords.

s a result, the integrity

of

the audit trail and the accountability

of

the system have been compromised.

It was further noted that the clerk has only been with the department only a couple of weeks. She was a

transfer from another department. Clerk indicated that she shared her login password with her previous

supervisor also.

Recommendation: Management ensures supervisors and employees are following the Nueces County Network

Communications Policy and that they each have proper access (with their own sign in) in effort to perform job

duties without compromising internal controls. Management may contact Information Technology to request

password change for clerk's log-in passwords.

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Control Procedures: Timeliness andPerformance Standards

Attachment I

of

the Fraud Policy states under Control Procedures - 2) Timeliness and Performance Standards

states:

ll

transactions

and

other significant events are to be promptly recorded clearly documented and

properly classified Documentation of a transaction or event should include the entire process or life

cycle ofthe transaction or event including:

a The initiation

or

authorization ofthe transaction or event

b ll aspects of the transaction while in process

c The

final

classification in summary records

14-07 Untimely Deposits

Local Government Code 113.022 and Code of Criminal Procedures 103.004 state that

a

county officer

shall deposit the money with the county treasurer on or before the next business day after the date on

which the money was received. f the deadline cannot

be

met, the officer or person must deposit the

money, without exception, on or before the fIfth business day after the day on which the money is

received."

Part of the cash audit plan is to examine the last three deposits. Two of the three deposits were for the

administrative secretary's till. One deposit dated 9 3012014 was for transactions dated

9 15 2014

through

9 30 2014

(12 business days). This was an accumulation of

$

3,880.40,

$

691 was cash and $3,189.40

was checks and money orders. The next deposit for the administrative secretary's till was

10 20 2014

for

transactions dated 10 1 2014 through 10 20 2014 (14 business days) which totaled to be $ 805.00, $ 498

was cash and $ 306.10 was checks and money orders.

Untimely deposits were also an issue in the prior audit. The previous administrative secretary would hold

on to monies in effort to apply the various schemes.

Recommendation:

Daily closeout procedures must be followed and deposits prepared in a timely manner. All

payments should be deposited in accordance with County and state statutes (Local Government Code 113.022 and

Code of Criminal Procedures 103.004). It is imperative that management comply with prior audit

recommendations and county policies.

14-08 Odyssey Deposit Procedures not Followed

This office does not follow the Odyssey procedure to document that a deposit has been processed. Staff

had copies of the procedures on hand that were provided to all P staff at the Odyssey training. Following

this procedure is an important tool for deposit analysis. The Odyssey Deposit report is one in which the

supervisor can use for verifIcation against the actual deposit form.

Administrative secretary made a decision to not follow this procedure without management approval.

Recommendation: That the Odyssey Deposit procedures be followed for consistency in reporting for all P

offices.

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29/36

14-09 Overpayment Not Receipted

There was one check on hand for $97 that was dated back to 9/11114. The check was being held until a

replacement check for the correct amount is received. The check was not restrictively endorsed (Refer to

14-13) and the pay

to

order line was left blank. Checks not restrictively endorsed can increases the risk of

loss due to mishandling and theft.

Recommendation: All payments should be receipted and deposited in accordance with County and state statutes

(Local Government Code 113.022 and Code of Criminal Procedures 103.004). In the event that an overpayment

is received and a refund s due to the payer, it needs to be properly receipted in the Odyssey software. Then, an

order to pay disbursement request also referred to as a check request should be prepared, and then signed by the

judge. The request and the supporting documentation, including a copy of receipt indicating that a refund is due,

should be submitted to the county audi tor's office.

Control Procedures: Safeguarding Assets

Attachment I

of

the Fraud Policy states under Control Procedures (4) Safeguarding

of

Assets (Preventive and

Detective controls) states:

What physical controls are in place to protect assets? ho has the keys to the vault and is access to the

vault limited? Is money left on top ofdesks unattended?

Restrictions on access to resources will depend upon the vulnerability of the resource and the perceived

risk ofloss, both ofwhich shall be periodically assessed preventive).

Periodic comparison shall be made between the resources and recorded accountability of the resources

to reduce the risk of unauthorized use or loss and protect against waste

nd

wrongful acts. he

vulnerability and value of the county resources shall determine the frequency of this comparison

Detective).

14-10

Cash

Boxes Not

Kept

In Safe Overnight

Currently, both staff member keep their cash box in their locked drawer

at

their desk overnight. This

office does have written office policies which addresses this issue. #6 Cash n Office states, "All monies

located in any desk are to be limited to county funds only. All payments cash or otherwise, are to be

locked securely in the safe when not in the direct care of staff. Monies should be locked up anytime when

left for extended periods of time, inclusive of lunch and office closure. Payments receipted are the

responsibility of receiving clerk until deposited."

Recommendation: That all monies be kept in safe overnight. Locking money bags can be ordered from treasury

for which each employee can lock it and place t in the safe at night.

14-11 Safe In Need of

Repair

or Replacement

The safe s n an adequate location. Currently, the handle comes

off

but combination is still needed to

access it.

Recommendat ion: The safe is n poor condition needs to be replaced in order to better safeguard monies.

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ompliance Finding

14-12 Office of Court Administration (OCA) Reports are Past Due

Section 71.035(b) of the Texas Government Code (GC) states that The council may require a state

justice, judge, clerk, or other court official, as an official duty, to comply with reasonable requirements

for supplying statistics pertaining to the amount and character

of

the civil and criminal business transacted

by the court or other information on conduct, operation,

or

business of his court

or

the office of the clerk

of his court that s within the scope of the functions of the council". In addition, Section 171.2

of

the

Texas Administrative Code (TAC) states that "District clerks, county clerks, justice

of

the peace,

municipal judges shall submit a summary-level court activity report each month to the Office

of Court

Administration (OCA) using the methods required by this chapter no later than 20 days following the end

of the month reported".

In preparing audit reports, it is standard to provide background information including revenues, budget

and statistical information of the office being audited. According to the OCA reporting website, the last

report submitted to OCA was in May 2014.

Recommendation:

That the office file reports immediately to become in compliance with GC 71.035(b) and

TAC 171.2. The Odyssey system has the capability and procedures are in place to expedite this reporting. It is

management's responsibility to ensure required reporting is submitted n a timely manner.

Other Findings

14-13 Change Fund Not Utilized

This office does not use the change fund. They only give change if they have it in their till. Defendants

are asked to bring exact monies. Turning away defendants because they do not have the exact payment

amount may discourage them from coming back. Therefore, a collection effort has failed. A long term

consequence is lower collections and revenues.

Excess cash on hand can lead to possible misuse, loss, or theft.

Local

Government Code Section 103.902 states,

"On

the recommendation

of

the county auditor, the

commissioners court may increase or decrease the change fund at any time".

If this office chooses to not utilize the change fund, then they need

to

inform the county auditor.

Recommendation:

If this office chooses to not utilize the change fund, then the county auditor will recommend

to

the commissioners court that the change fund be turned in.

14-14 Money Order

and

Check

not

Restrictively Endorsed

The administrative secretary had one check

n

her till that was not restrictively endorsed. There was one

money order dated 9/11114 which was unreceipted (Refer to 14-09) and it was not restrictively endorsed.

Recommendation: That all checks and money orders be immediately restrictively endorsed upon receipt.

Justice of the Peace 4 Cash Audit Page 9


31/36

D I A N A R O S A S M A M .

FIRST A S S I S T A N T

O F F I C E O F

C O U N T Y

AUDITOR

E L V A

F U E N T E S

I N T E RN A L A U D I T

S U P E R V I S O R

D A L E A T C H L E Y , C P A

L I S A

D A V I S

,

c.i.o.

E X E C U T I V E A C C O U N T A N T

C O U N T Y

A U D I T O R

901 LEOPARD STREET RM304

CORPUS CHRISTI,T X78401

PHONE: 361) 888-0556 FAX:361) 888-0584

November?,2014

Honorable RobertGonzalez,Justice

of

the Peace, Precinct

5

Place 1

Honorable SamuelL o y dNeal,Jr.,CountyJudge

R e:

Surprise

Cash

A u d it

performed on October

29,

2014

W e

conducted this audit under the authority

of L o c al

Government

Code

115.001and 115.002.

W e

performed our

audit inaccordancewithgenerally accepted government auditingstandardsand includedinquiries,examination of

accounting records, and other audit proceduresthatwe considered necessary under the circumstances.

Our audit periodo four testmg wasfo rOctober2 4, 2014 to October2 9,2014. The objectiveso fthis audit were to

perform

a surprise cash count offunds on site and review cash handling and accounting procedures inplace.

Toachievetheseobjectives, we:

Performed a surprise cash count audit

Interviewed

staff

Reviewedtillbalance and

daily

close outreportsforthe periodofOctober 24, 2014 to October2 9, 2014

Reviewedcash receipts

journal

for fhe periodo fOctober24, 2014to October29,2014

Judge RobertGonzalezhas served as JP5-1 since hew elected in 2001. He has served as

presiding

judge

siace

2012. His

average

annual

budget

is $ 212,123.T he judge currently has

fourfull-time

employees(includinghim)

and one temporary employee. Theaverageannual amount collected by this court over thepastfiveyears s

$ 787,193. Thisaverageis high due to a large class action suit against Transunion

involving

69,607

cases

which

was

filed

in this court in

F Y 2 0 1 0 .

This suit brought in $1,740,175 in

local

revenues.

Excluding

this suit, the

averagecollectionsare $

355,631.

The

office follows daily

closeout procedures and

preparesdaily

deposits.

A l l

monies are promptly receipted.

Procedures are inplace toensurecounty monie