INFORMATION ITEM
GM Memo No. 03-153
AC TRANSIT DISTRICT
Board of Directors
Executive Summary
Meeting Date: May 15,2003
Committees:
Executive Committee
External Affairs Committee
Operations Committee
Finance Committee
Paratransit Committee
Planning Committee
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D
H
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Board of Directors
SUBJECT:
Internal Audit 3rd Quarter Status Report
RECOMMENDED ACTION:
El Information Only
□ Briefing Item
□ Recommended Motion
Fiscal Impact:
None
Background/Discussion:
AC Transit Administrative Regulations require that the Internal Audit Department report
quarterly to the Board of Directors on the status of the audit program. This report
BOARD ACTION:
Approved as Recommended
[x]
Approved with Modification(s) [ ]
Other
MOTION: BISCHOFBERGER/WALLACE to receive report as presented (7-0-0-0).
Ayes:
Noes:
Absent:
Abstain:
Director Bischofberger, Vice President Wallace, Directors Harper,
Jaquez, Kaplan, Peeples, President Piras - 7
None - 0
None - 0
None - 0
The above order was passed on June 4,2003
Rose Martinez, District Secretary
By
GM Memo No. 03-153
Subject: Internal Audit 3rd Quarter Status Report (2002/2003)
Date: May 15, 2003
Page 2 of 6
summarizes the status of all audit activities for through the 3rd quarter of fiscal year
2002/2003.
Through the 3rd Quarter of fiscal year 2002/2003, two audits were completed with
department management responses, and two audit reports were issued to department for
management response. Additionally, three audits were in progress. The two audits
completed with department management responses were: the Liability Claims Processing
System Follow-up Review and the Unclaimed Property Audit. The two audits with reports
issued to management for response included the Bank Reconciliation Audit and the Farebox
Revenue Audit. The following three audits were in progress: the San Francisco Ticket Office
Follow-up Audit, the Oakland Ticket Office Follow-up Audit, and the Materials Inventory
System Implementation Advisory Review.
The following is a summary of completed audits, audits awaiting responses, and audits in
progress.
COMPLETED AUDIT PROJECTS:
Liability Claims Processing Review Follow-up
primary purpose of this audit is to perform a follow-up review of our previous Liability
Claims Processing Audit. The objective of this audit was to evaluate the adequacy of
internal controls over our liability claims processing system. Specifically, to determine if the
system is functioning properiy and as intended, and that claims disbursements are controlled
to help ensure compliance, accuracy, and propriety of claims payment transactions. The
focus of audit work is to determine the implementation status of prior audit
recommendations.
The audit found that the Claims Department has made substantial progress to implement
operational improvement recommendations from our last report. Numerous process
improvement and quality assurance procedures have been put in place, are being
developed, or have been partially implemented. A large percentage of our major
recommendations have been implemented or addressed. The few recommendations left
have been thoroughly discussed with the department. Implementation for those will be
considered by the department when a new risk mangement system is put in place.
The audit was completed with a response by department management in January 2003.
Unclaimed Property Funds Audit
The purpose of this audit is determine if there are any funds in the State Controller's
Jnclaimed Property Account that belong to AC Transit. Information obtained at Internal
GM Memo No. 03-153
Subject: Internal Audit 3rd Quarter Status Report (2002/2003)
Date: May 15, 2003
Page 3 of 6
Audit Conferences has indicated that some cities and agencies have found varying amounts
of monies belonging to them. These are monies (e.g. Unretumed deposits, interest income,
etc.) that go the State because the holder of these funds, for unknown reasons, failed to
effectively report them or otherwise get them to their rightful owners. Other Internal Audit
Departments have reported 4 or 5 figure amounts that have been recovered by government
agencies, thus making it worthwhile to occasionally search the California State Controller's
Office Unclaimed Property website database (at www.sco.ca.gov). This audit entails
searching the State Controller's Unclaimed Property Account database, using a wide variety
of keyword searches in an attempt to locate monies that might belong to the District.
Our audit found that there were 6 funds that had various forms of the name AC Transit
associated with it, and thus could potentially belong to the District in the total amount of
$9,022, plus accrued interest.
At the end of the 3rd Quarter, audit work was completed with an exit conference held.
Department management reviewed the audit report and indicated that they plan to submit
unclaimed funds request forms to the State for processing.
AUDITS AWAITING RESPONSE:
Bank Reconciliation Audit
The purpose of this audit was to determine that controls surrounding the bank reconciliation
process are adequate. Bank reconciliations are an important component of internal controls
to protect cash. Specifically, audit staff reviewed the bank reconciliation processes to
ensure that they were properly performed, approved, and documented. Other internal control
aspects of the process were also reviewed.
Overall, it was found that the current bank reconciliation process is property handled, and the
internal control practices sound. A few recommendations focused on improving the storage
of cancelled checks, and enhancing segregation of duties by changing where the bank
statements are mailed. Other internal control matters were discussed and resolved with
department management.
After discussions with district management, the audit report was issued to management for
response in the 3rd quarter of 2003. The final department response was received early in the
start of the next quarter.
Brinks & Farebox Revenue Audit
The primary purpose of the review was to evaluate Brinks compliance with provisions of their
contract with the District, and the adequacy of our farebox revenue handling procedures.
GM Memo No. 03-153
Subject: Internal Audit 3rd Quarter Status Report (2002/2003)
Date: May 15, 2003
Page 4 of 6
Our examination of revenue handling procedures included review and testing of farebox
pulling, probing, reporting, and revenue depositing procedues. Audit staff also reviewed the
District's oversight of Brinks' farebox handling. For background information, Brinks provides
protective services, transportation, revenue counting, and revenue deposit services for the
District's farebox revenues.
In the audit, staff found that the District has made significant improvements in farebox
revenue reporting and handling. It was also noted that Brinks had made improvements in the
internal controls of their own operations. Overall, the most significant improvements found
were in the areas of farebox revenue reporting by the District, and the reduction of farebox
revenue variances between amounts reported by the District and Brinks. Much of this
improvement was due to the new GFI farebox system, which reported farebox revenues with
greater accuracy, and with greater fare handling controls. All of these improvements
contributed to a stronger internal control environment over farebox revenues. Audit staff has
presented to department management a few recommendations to further improve internal
controls and security.
Exit conferences were held and the report has been issued. Department is currently
performing a final review of the report. Response is expected next month.
\UD1TS IN PROGRESS:
Oakland Ticket Office Follow-up Audit
The purpose of this audit was to perform a follow-up audit to determine if internal controls
over the handling and accounting of ticket stock and ticket revenues were adequate to
safeguard them against loss, improper handling and accounting. The audit continued to
focus on the evaluation of the on-going constant improvement efforts of the department to
ensure the adequacy of internal controls over ticket and cash handling.
A count of cash and ticket inventory, and review of internal controls over cash handling was
completed in February 2003. The audit found improvements in the internal controls over
ticket seller drawers, and other operational areas. Opportunities for further strengthening of
such areas as controls over central ticket stock, and formalizing and establishing stronger
cashiering procedures were discussed, and were either being planned or in progress.
In late February 2003, fieldwork was completed and findings discussed. The audit report has
been issued for response.
S.F. Ticket Office FoIIow-ud Audit
GM Memo No. 03-153
Subject: Internal Audit 3rd Quarter Status Report (2002/2003)
Date: May 15, 2003
Page 5 of 6
The purpose of this audit was to perform a follow-up audit to determine if internal controls
over the handling and accounting of ticket stock and ticket revenues were adequate to
safeguard them against loss, improper handling and accounting. The audit continued to
focus on the evaluation of the on-going constant improvement efforts of the department to
ensure the adequacy of internal controls over ticket and cash handling.
A count of cash and ticket inventory, and review of internal controls over cash handling was
completed in March 2003. The audit found improvements in the internal controls over ticket
seller drawers, and other operational areas. Opportunities for further strengthening of such
areas as controls over central ticket stock, and formalizing and establishing stronger
cashiering procedures were discussed, and were either being planned or in progress.
At end of March 2003, the audit report was issued for response.
Materials Inventory System Implementation Advisory Review
The purpose of this review was to evaluate and assist the District with the on-going
implementation of the new EAMS materials inventory system. Our purpose was to help
ensure that the new system contain the appropriate internal controls that promote accurate
record keeping, reporting, and safeguarding of parts and materials. The scope of this review
will focus on selected critical controls and procedures that help to ensure accurate financial
reporting of inventory transactions and year end balances. Our review will evaluate the
process and controls related to the movement of data from the EAMS system into the
general ledger system, and other issues relevant to accurate financial reports.
At the end of the 3rd quarter, the advisory was continuing.
NEXT QUARTER SCHEDULED AUDIT PROJECTS (4th QUARTER FY 2002/2003):
For the 4th Quarter of FY 2002/2003, the following audits are expected to be completed with
department management responses: Brinks & Farebox Revenue Audit, Bank Reconciliation
Audit, Oakland Ticket Office Follow-up Audit, Materials Inventory System Advisory Review,
and the S.F. Ticket Office Follow-up Audit. The planned audits include: Kaiser Health
Insurance Benefits Audits, Wire Transfer Audit, and the P.G.&E Utility Bill.
Prior Relevant Board Actions/Policies:
Board Policy #334 requires that the Internal Audit Department submit a quarterly status
report of audit activities to the Board of Directors.
GM Memo No. 03-153
Subject: Internal Audit 3rd Quarter Status Report (2002/2003)
Date: May 15, 2003
Page 6 of 6
Attachments:
FY 2002/2003 Audit Plan Status Report
Approved by:
Rick Fernandez, General Manager
Prepared by:
Jim Gleich, Deputy General Manager
Tom Wong, Manager of Internal Audit
Date Prepared:
April 18, 2003
Page 7 of 8
AC TRANSIT DISTRICT
INTERNAL AUDIT DEPARTMENT
FY 2002/2003 AUDIT PROJECTS STATUS REPORT
Through the 3rd Quarter of FY 2002/2003
Page 8 of 8
AC TRANSIT DISTRICT
INTERNAL AUDIT DEPARTMENT
FY 2002/2003 AUDIT PROJECTS STATUS REPORT
Through the 3rd Quarter of FY 2002/2003