HomeMy WebLinkAbout2223-8 FinanceTax Controls over receipts (Final 4-19-23)Finance/Tax Department – Controls over receipts #22/23-8 April 2023
Finance/Tax Department –
Controls over receipts
To request this information in an alternate format, please call (541) 330-4674 or send email to internal.audit@Deschutes.org
Deschutes County,
Oregon
The Office of County Internal Audit
David Givans, CPA, CIA – County Internal Auditor
Aaron Kay – Performance Auditor
internal.audit@deschutes.org
Audit committee:
Daryl Parrish, Chair - Public member
Jodi Burch – Public member
Joe Healy - Public member
Scott Reich - Public member
Summer Sears – Public member
Stan Turel - Public member
Patti Adair, County Commissioner
Charles Fadeley, Justice of the Peace
Lee Randall, Facilities Director
Take survey by
clicking HERE
Recommendations
4
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
TABLE OF CONTENTS:
1. INTRODUCTION .......................................................................................................................................... 1
1.1. BACKGROUND ON DEPARTMENT ................................................................................................................. 1
2. FINDINGS AND OBSERVATIONS ................................................................................................................ 4
2.1. FINDINGS ......................................................................................................................................................... 5
3. MANAGEMENT RESPONSE ....................................................................................................................... 11
Finance/Tax Department .................................................................................................................................. 11
APPENDIX A: OBJECTIVE, SCOPE, AND METHODOLOGY ............................................................................. 13
I. OBJECTIVES AND SCOPE .................................................................................................................................. 13
II. METHODOLOGY .............................................................................................................................................. 13
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
HIGHLIGHTS
Why this audit was
performed:
A periodic review of
internal controls over
receipts.
What was
recommended:
Recommendations
include:
• developing controls
over cash handoffs
between staff;
• exploring elimination
of a bank account
providing duplicate
services;
• resuming audits of
transient room
taxpayers; and
• implementing and
documenting periodic
management review of
property tax system
adjustment reports.
Finance/Tax Department – Controls over receipts
The focus of the review was on internal control over receipts.
What was found
Overall, the Finance/Tax department performed well in providing fiscal control over
receipts. Recommendations were developed to assist the Finance/Tax department comply
with County policy or prudent business practices for receipts.
The areas identified for further improvement include:
• accountability for the movement of funds between people;
• efficiency for daily bank reconciliations;
• audits of transient room taxpayers; and
• management review of adjustments to the property tax system.
The County could improve management of petty cash and change cash funds. Prior audit
recommendations to address these areas remain unresolved. County policy F-14, General
Financial Policies, increased the Finance/Tax departments authority to manage and approve
changes to bank accounts, but did not designate authority for petty and change cash.
Office of County Internal Audit
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
Page 1
1. Introduction
Audit Authority:
The Deschutes County Audit Committee authorized the review of fiscal controls for the Finance/Tax
Department in the Internal Audit Program Work Plan for 2022-2023. Internal audits of fiscal controls
are routinely performed for identified County departments. Audit objectives, scope, and
methodology can be found in Appendix A.
1.1. BACKGROUND ON DEPARTMENT
Graph I
Composition of
collection activities
FY22 (“Other” is
comprised of dog
licensing, tax fees, and
finance fees)
The Finance/Tax Department manages all financial activities of the County including annual budget
coordination, financial planning, internal and external financial reporting, general accounting,
payroll, capital asset records, distribution of property taxes to all taxing districts, cash management
and investments, dog licensing and administration, collection and administration of the transient
room tax and administration of the County’s long-term debt 1.
1 Deschutes County Adopted Budget FY23 Pg. 170
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
Page 2
Graph II
Five-year trend of
unsegregated tax
collections in
millions (FY2018-
FY2022 Actual)
Graph III
Seasonality of
quarterly tax
payment
collections for
Fiscal Year ending
6/30/2023
Property Tax
Collections
As seen in Graph I, the department receives a vast majority of its receipts in unsegregated tax
collections. Unsegregated taxes refer to the lump sum receipt of tax payments prior to
categorization and distribution to taxing districts. These tax payments are predominantly paid
by check, with a surge in volume typically observed leading up to tax payment deadlines. It is
worth noting, Deschutes County’s allocated portion is approximately 17% of the unsegregated
taxes, while passing on the remaining 83% to other taxing districts.
Seasonality
As previously discussed, unsegregated property tax collections
make up a majority of the receipts within the department.
Increased collection volumes align with tax deadlines in November,
February, and May. Graph III shows the highest volume of
payments occurring in November to take advantage of discounts
offered through the Oregon property tax system. The sharp
increase creates some challenges with the timing of payment
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
Page 3
Graph IV
Two-year average
composition of
property tax
payment methods
(FY2022-2023)
(E-checks and credit
cards were combined
within the credit card
category)
postings, leading to the department’s use of temporary staffing to assist in processing
payments received before the deadlines.
Payment Methods
Methods of property tax payments include cash collected at the
counter, checks (both mailed-in and counter), e-checks, credit
cards, lockbox services, and electronic transfers from mortgage
companies. Graph IV indicates more than half of the payments
received come in as checks. According to a recent survey 2
“received check payments cost between $1-$2 and have the highest
labor cost of all payment methods”. The department has made
some efforts to encourage taxpayers and mortgage companies
towards lower cost methods of payment and should continue
to promote the benefits of electronic payment.
Transient Room Tax (TRT) Collections
Transient room taxes are applicable to any hotel, motel, inn, tourist home or accommodation,
lodging house, dormitory, private home, mobile home space, trailer park, or camp site in the
unincorporated areas of the County 3. The tax rate for Deschutes County is 8% of the total
gross rent. Owners must file regular reports of gross rent either monthly or quarterly
depending on the guidelines set forth by the County. Reporting is required even if the tax was
collected and remitted by a third-party intermediary such as Airbnb or VRBO.
TRT revenues have increased over the last two fiscal years from the growth in tourism.
Currently, there are 3,270 active TRT accounts registered with the County. The requirements
2 Association of Financial Professionals 2022 Payments Cost Benchmarking Survey
3 Deschutes County Transient Room Tax FAQ Webpage
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
Page 4
Graph V
Five-year trend of
TRT revenues in
millions (FY2018-
FY2022 Actual)
to administer these tax accounts have grown with the activity, leading to the approval of
additional staff in the FY23 budget for the Finance/Tax department.
Organizational Cooperation
Finance/Tax staff have created a shared informational repository between both the Assessor’s
Office and the Finance/Tax Department. The repository contains individual tax account
records of any adjustments to account calculation, refunds, exemptions, and appeals over the
last three years. The information is updated regularly and used when discussing property
taxpayers’ inquiries for both assessment and taxation. This type of collaboration between
department and office leads to better customer service and should be commended.
2. Findings and Observations
The audit included limited procedures to understand the systems of internal control around
revenues. No significant deficiencies were found in this audit. A significant deficiency is defined as
an internal control deficiency that could adversely affect the entity’s ability to initiate, record,
process, and report financial data consistent with the assertions of management in the financial
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
Page 5
statements. The findings noted were primarily compliance and efficiency matters.
Audit findings result from incidents of non-compliance with stated procedures and/or departures
from prudent operation. The findings are, by nature, subjective. The audit disclosed certain policies,
procedures and practices that could be improved. The audit was neither designed nor intended to
be a detailed study of every relevant system, procedure, or transaction. Accordingly, the
opportunities for improvement presented in the report may not be all-inclusive of areas where
improvement may be needed and does not replace efforts needed to design an effective system of
internal control.
Management has responsibility for the system of internal controls, including monitoring internal
controls on an ongoing basis to ensure that any weaknesses or non-compliance are promptly
identified and corrected. Internal controls provide reasonable but not absolute assurance that an
organization’s goals and objectives will be achieved.
2.1. FINDINGS
Overall, the Finance/Tax department performed well in providing fiscal controls over collected
monies. Each department in the County has unique work environments. The following observations
and recommendations are tailored to the Finance/Tax department with consideration of staffing
levels, business demands, and operational challenges and are intended to further improve the
procedures put into place.
Additional controls are needed over cash receipts.
Cash is not recounted during turnover of daily collections in the presence of both the accounting
technician and the tax specialist. An effective control during cash handoffs is having both employees
or an independent witness present when cash is recounted.
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
Page 6
For the internal controls to work effectively, they need to be monitored periodically and designed to
handle the types of transactions encountered. The County’s cash handling policy (F-11) indicates
that there should be adequate accountability for the movement of funds between people.
In the absence of sufficient cash controls, if a discrepancy occurred, it would be a matter of each
staff person’s opinion.
The last update to the departmental procedure used to reconcile receipts and prepare the deposit
occurred in 2018. The Finance/Tax department has consolidated technician duties and customer
payment windows in recent years but has not revised written procedures to reflect the changes.
It is recommended the Finance/Tax department develop and document controls over cash
handoffs.
This could include either the technicians or an independent party witnessing the specialist’s recount
of cash at the time of turnover.
Bank account duplicates existing controls.
A bank account was created to control refund or return transactions from the room tax and
property tax accounts. It limited the County’s exposure of the larger tax collection accounts to any
attempts at fraud. The account had unreconciled daily transactions from November and December
within the January reconciliation documentation.
Reconciliation between the accounting systems used for room tax, property tax, the County’s
general accounting system, and the bank statement is an effective control to identify inconsistencies
between systems and ensure the accuracy and integrity of the accounting systems.
This bank account has added an additional step to both the accounting and the reconciliation of the
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
Page 7
room and property tax funds. It combines refunds/returns from the two tax fund accounts into a
summary account. One contracted third-party payment processor was identified who does not
provide any identifying information to determine which account the refund/return was generated.
During high volume payment activity in November thousands of payments are received, so efforts
to identify and investigate individual refund/return transactions is made more difficult.
The account was opened at least 23 years ago, prior to the creation of positive pay as a banking
service. The County now has positive pay on its accounts as a fraud prevention measure. Positive
Pay works by matching the dollar amount of each check, the check number and the account number
that is presented for payment against checks that have been previously authorized and issued by
the business. Based on today’s bank relationships and accounting system this bank account may no
longer be needed.
It is recommended the Finance/Tax department explore elimination of the bank account providing
duplicate services.
The County should resume audits of transient room taxpayers.
External audits of entities who make transient room tax report filings and payments have not
occurred since 2020. The County contracts with an outside firm to audit entities on a rotational basis
to evaluate both large taxpayers and individuals equally. These could include individual
homeowners, property management companies, or short-term rental providers.
The objective of the audit is to assess adherence to County Code 4.08, including reporting
requirements, tax calculation, and record keeping. Past audits have led to the identification of
underpayments and, in some cases, overpayment.
In the absence of regular audits, it becomes challenging to assess compliance. The County is reliant
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
Page 8
Graph VI
Ten-year trend for
the number of
transient room
taxpayers audited
by fiscal year.
on taxpayers to self-report rental activity, which makes it problematic to verify whether these
entities are accurately accounting and reporting all collected rent and fees.
The tax collection software vendor has changed in recent years. The new software has been well
received and now provides some comfort towards expected collection efforts. The software
identifies taxable entities in the County through a combination of geomapping and a search of
internet rental listings, providing a more reliable expectation.
It is recommended the Finance/Tax department resume audits of transient room taxpayers.
County Internal Audit and the Finance/Tax department are discussing whether internal audit could
perform these audit services.
Additional oversight needed for adjustments to the property tax system.
The review process for property tax system adjustment reports was lost during transitions in
department heads, resulting in the current CFO being unaware of its existence.
During the February 2005 audit report (#04/05-5), Finance Department – Review of Internal Controls
Over Receipts and Investments, a recommendation was made to develop reports which list unusual or
exception type transactions, including adjustments and system changes, which would be reviewed
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
Page 9
by the Finance Director (now the CFO). The prior Finance Director had established a review process
for adjustments within the tax software system along with supporting documentation to satisfy the
audit recommendation, but the process was not included in the written department policies and
procedures.
Communication is an essential component of internal controls. Written policies and procedures are
effective controls over accounting and financial matters. Well-designed and maintained policies and
procedures enhance accountability and consistency.
The lack of comprehensive written accounting procedures can lead to inadequately planned
controls, inadequate supervision, poor and inadequate training, and lack of adherence to stated
control procedures.
The Finance/Tax department has undergone several personnel changes since the 2005 audit. In this
case, the review process was not continued due to lack of documentation. All examined adjustments
were well supported through documentation and found to be appropriate.
It is recommended the Finance/Tax department implement and document periodic management
review of property tax adjustment reports.
The review could include unusual type transactions, exceptions, reversals, and changes to the tax
system.
Prior audit recommendations on change cash funds and petty cash have not been
addressed.
Authority for petty cash and change cash funds could be addressed more clearly by the County.
Currently, the petty cash policy (F-8) requires a Board of County Commissioners order for the
establishment or increase of funds, but it does not have a provision for closing them. Additionally,
the County does not have a policy in place that addresses the administration of change cash funds.
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
Page 10
County policies do
not address
change funds or
the conversion
between types.
While the County's policy (F-14) authorizes the Finance/Tax department to manage and approve
changes to bank accounts, it does not provide any guidance on managing cash funds. County
Internal Audit has issued two prior unresolved audit report recommendations developed with the
Finance/Tax department to address these issues with two departments:
1. Community Development Department – Cash Handling #19/20-10 (issued June 2020)
It is recommended the County consider updating fiscal policy to allow Finance the
authority to manage increases and decreases in petty cash.
2. 2021 County Fair – Ticketing and selected areas #21/22-1 (issued September 2021)
It is recommended for Finance to develop a change policy (possibly through an amendment
to the petty cash policy F-8) to address the requirements for change cash issuance and its
accountability.
Unclear County fiscal policies led to interpretation by the prior CFO. The Finance/Tax department
currently has $1,400 in change funds, which exceeds the amount approved by past Board
resolutions for both change funds and petty cash. It appears the petty cash fund was converted to a
change cash fund, and there was an increase of $100 using Munis approval workflow. While the
prior CFO cited County policy (F-14) to support the authorization of this increase, it was not formally
approved by the Board. Nonetheless, all balances are accurately recorded and maintained in the
County's accounting system.
The County has long-established practices for departments to receive authorization of petty cash
and change funds through the Board. The conversion of petty cash to change cash was not
anticipated in policy, but transitioning from one fund type to another is not consistent with past
practice.
The audit recommendations were made during the tenure of the prior CFO. The current CFO is
currently working to update County fiscal policies. Resolution of both prior audit recommendations
through revision of policy (as recommended above) will address the authority to manage cash
funds, closing petty cash funds, and noted conversion between fund types.
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
Page 11
3. MANAGEMENT RESPONSE
Finance/Tax
Department,
Robert Tintle,
Chief Financial
Officer
Date: April 18, 2023
To: David Givans, County Internal Auditor
Aaron Kay, Performance Auditor
From: Robert Tintle, Chief Financial Officer
Re: CFO Response to Audit Report #22/23-8
Thank you for the internal audit of the Finance/Tax Department controls over receipts. I appreciate
your effort in this area as we work together to address the results of the audit.
Below are responses to the internal audit recommendations.
1) It is recommended the Finance/Tax department develop and document controls over cash
handoffs.
Agree. Finance will review department procedures used to reconcile receipts and prepare the
deposit, and update as necessary. Witnessing the specialist’s recount of cash at the time of turnover
was implemented immediately after the audit. Documentation update anticipated completion date
of June 2023.
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
Page 12
Finance/Tax
Department,
Continued
2) It is recommended the Finance/Tax department explore elimination of the bank account
providing duplicate services.
Agree. Finance will review the controls on the bank account, consider merging the transactions with
the associated revenue type bank account (room or property tax), and determine if eliminating the
account is cost beneficial. Anticipated completion date of June 2023.
3) It is recommended the Finance/Tax department resume audits of transient room taxpayers.
Agree. Finance will resume audits of transient room taxpayers. Depending on the auditor selected
to perform the examinations (internal or external), the anticipated start date is October 2023, if not
sooner.
4) It is recommended the Finance/Tax department implement and document periodic
management review of property tax adjustment reports.
Agree. Finance will review department procedures and update as necessary. The CFO will begin
reviewing and signing off on the “Voucher Summary Report” monthly, as provided by the Tax Office,
beginning May 2023.
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
Page 13
Appendix A: Objective, Scope, and Methodology
The Office of County Internal Audit was created by the Deschutes County Code as an independent
office conducting performance audits to provide information and recommendations for
improvement.
“Audit
objectives” define
the goals of the
audit.
i. OBJECTIVES and SCOPE
Objectives included:
1) Review of internal controls over receipts within the Finance/Tax Department as outlined in
the County Finance policy for cash handling (F-11). Additionally, review management of any
change cash, petty cash, receipts, credit cards and billings, as applicable.
2) Be aware of identifying areas for improvement.
3) Be aware of any issues with compliance with federal and state regulations and requirements,
as may be applicable.
Scope and timing:
The audit occurred in February 2023 and included a review of fiscal controls for the Finance/Tax
Department primary operating in Fund 630 and 11-850. The audit also included collection of monies
for Fund 350, Dog Control, Funds 801& 805, Tax Distribution and Fiduciary, and Funds 160 & 170,
Transient Room Tax. The department has change funds and checking accounts, but no petty cash.
The scope of the audit did not include all aspects of the internal controls employed. Investment
receipt controls were reviewed as part of the Treasurer Transition report (#21/22-12) and were not
included in this audit.
ii. METHODOLOGY
Audit procedures included:
Finance/Tax Department – Controls over receipts #22/23-8 April 2023
Page 14
“Audit procedures
are created to
address the audit
objectives”
• Analyzing transaction detail for various revenue sources;
• Reviewing departmental policies and procedures;
• Reviewing tax system reports and supporting documentation;
• Observing handling of receipted payments; and
• Interviewing departmental staff.
We conducted this performance audit in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and conclusions based on our
audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
(2018 Revision of Government Auditing Standards, issued by the Comptroller General of the United States.)
{End of Report}
Please take a survey on this report by clicking on the attached link:
https://www.surveymonkey.com/r/2223-8
If you would like to receive future reports and information from Internal Audit or
know someone else who might like to receive our updates, sign up at http://bit.ly/DCInternalAudit.