CHIEF EXECUTIVE’S DIRECTORATE
INTERNAL AUDIT SERVICE
FINAL REPORT
Petty Cash Systems and Procedures
2011/12
AUDITORS:
Ian Kent
February 2012
Table of Contents
Area of Report
Page Number
1.0
Introduction
1
2.0
Background
1
3.0
Scope and Objectives
1/2
4.0
Methodology
2
5.0
Findings
2
6.0
Conclusion
2
7.0
Recommendations
3
Appendices
Detailed Findings
Control Evaluation
Action Plan
Appendix A
Appendix B
Appendix C
1.0
Introduction
1.1
As part of the audit plan for 2011/12 a system review was undertaken of the
Petty Cash Systems & Procedures.
1.2
The system was examined using a GRACE matrix adapted by Internal Audit
to test the controls that should be in place within the Authority.
1.3
Sample testing was conducted for the 2011/12 financial year.
1.4
Acknowledgement is given to the staff concerned for their help and
assistance during the course of the audit.
1.5
Copies of this report have been sent to the Creditor Payments Supervisor,
Exchequer Services Team Leader, Assistant Director of Customer Services
and Director of Customer Services. A copy may also be passed to the Audit
Committee for them to monitor/comment upon recommendations made and
accepted.
1.6
The report is addressed to appropriate Councillors and Officers and may
contain confidential and/or privileged material. Any review, reproduction,
external distribution, dissemination or other use of, or taking of any action in
reliance upon, this information by persons or entities other than the
Authority is prohibited.
2.0
Background
2.1
MTCBC operates an imprest petty cash account system. The imprest
system ensures that you must document how the petty cash is spent. Petty
cash receipts are written for each amount issued. So, when all of these
receipts are totalled at the end of the month and deducted from the opening
petty cash float, the calculated value must agree with what is left in the petty
cash float. Under the imprest system, only that which is recorded as spent is
replenished. MTCBC currently operate over 60 petty cash accounts. The
imprest accounts are either operated from a cash tin held within the holding
department or in 6 cases, all relating to social services, in separate bank
accounts. The bank accounts were set up by the Accountancy Service.
3.0
Scope and Objectives
3.1
The objective of the audit was to evaluate the system of internal control with
a view to delivering reasonable assurance to the Authority over the
adequacy of the internal control environment. This is defined as the whole
system of controls, established by management, which help to ensure the
achievement of objectives, economy and efficiency, compliance with
policies and procedures, safeguarding of assets and the integrity and
reliability of information.
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Petty Cash Systems & Procedures
3.2
The system has been evaluated against the following control objectives:
•
•
•
•
•
Setting up a petty cash imprest account.
Reimbursement of petty cash imprest accounts.
Changes to the petty cash value.
Monitoring arrangements of petty cash imprest accounts.
Termination of accounts.
4.0
Methodology
4.1
The audit was undertaken using a risk-based auditing methodology. Actual
controls were evaluated against the expected controls within each control
objective. A risk assessment of the individual controls under each control
objective was undertaken and the level of testing decided upon. The system
evaluation and the results of compliance testing were then used as the
basis on which to draw conclusions and to form an opinion on the overall
effectiveness and adequacy of the internal control environment.
5.0
Findings
5.1
The detailed findings of the audit are included as Appendix A.
6.0
Conclusion
System of Internal Control
6.1
The system of internal control applied has been graded “C” – Satisfactory While there is basically a sound system of control, there are weaknesses,
which put some of the system's objectives at risk.
Testing Opinion
6.2
The assessment of compliance with established controls has been graded
“C” – Satisfactory - There is evidence that the level of non-compliance with
some of the controls may put some of the system's objectives at risk.
Overall Opinion on Internal Control Environment
6.3
The overall conclusion is that the internal control environment is graded “C”
- Satisfactory. Details of the evaluation of each objective are listed in
Appendix B.
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7.0
Recommendations
7.1
Details of the recommendations are shown in the action plan attached as
Appendix C.
Summary of Recommendations
7.2
The review made 10 recommendations that are categorised on the following
basis:
Priority
Category
Definition
1
Mandatory
- Urgent
2
Mandatory
- Less Urgent
3
Best Practice / Other
Recommendations
Action is imperative to ensure
that the objectives for the area
under review are met.
Requires
action
to
avoid
exposure to significant risks in
achieving the objectives for the
area under review.
Action is advised to enhance
control or improve operational
efficiency.
No. Of
Recs
3
1
3
Risk may be viewed as the chance, or probability, of one or more of the
Authority’s objectives not being met. It refers both to unwanted outcomes
that may arise, and to the potential failure to realise desired results.
Management agreed to the implementation of all 7 recommendations.
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Petty Cash Systems and Procedures Control Evaluation
Audit conclusions are graded using the following grading structure:
LEVEL OF CONTROL
GRADE
EVALUATION OF SYSTEM OF INTERNAL CONTROL
OPINION
GRADE
VERY GOOD
A
There is a sound system of internal control designed to
achieve the Authority's strategic aims.
A
The controls are being consistently applied with no errors identified.
GOOD
B
B
The controls are being consistently applied with a small number of
minor errors identified.
SATISFACTORY
C
There is a sound system of internal control designed to
achieve the system/Authority or establishment
objective(s).
While there is basically a sound system of control, there
are weaknesses, which put some of the
System's/Authority's or establishment objectives at risk.
C
There is evidence that the level of non-compliance with some of the
controls may put some of the system's objectives at risk/may leave the
Authority or establishment open to risk.
UNSATISFACTORY
D
D
The level of non-compliance puts the system's objectives/Authority or
establishment at risk.
POOR
E
E
Significant non-compliance with basic controls leaves the
System/Authority or establishment open to error or abuse.
Weaknesses in the system of controls are such as to
put the System's/Authority's or establishment objectives
at risk.
Control is generally weak leaving the System/Authority
or establishment open to significant risks.
TESTING OPINION
Risk may be viewed as chance, or probability, of one or more of the Authority's objectives not being met. It refers to both unwanted outcomes that may arise, and to the potential failure to
realise desired results.
OVERALL OPINION ON THE INTERNAL CONTROL ENVIRONMENT
On completion of the audit the auditor will need to provide an evaluation opinion and a testing opinion, both these opinions will then be used to formulate an overall opinion of the
system/establishment/area etc audited. The overall opinion will be formulated and arrived at by using the lower of either the evaluation opinion or testing opinion.
Conclusion for the Petty Cash Systems and Procedures Audit: Overall Evaluation
The system of internal control applied has been graded Satisfactory. While there is basically a sound system of control, there are weaknesses, which put some of the system's objectives at
risk.
The assessment of compliance with established controls has been graded Satisfactory. There is evidence that the level of non-compliance with some of the controls may put some of the
system's objectives at risk.
Therefore the overall conclusion is that the internal control environment is graded Satisfactory.
Appendix B
Page 1 of 6
Petty Cash Systems and Procedures Control Evaluation
AREA OF AUDIT
1-2
SETTING UP A PETTY CASH IMPREST ACCOUNT
CONTROL
GRADE
TEST GRADE
OVERALL
GRADE
B
C
C
REASONS
All petty cash accounts are set up in accordance with the Financial
Rules.
Petty cash accounts will only be set up if the Creditor Payments
Supervisor has received an appropriate written request from the
budget holder demonstrating a justified need for an account.
All petty cash account holders are made aware of the requirements
set out in the Authority's Financial Procedure Rules regarding the
operation of a petty cash account.
There isn't a standard form to request the creation of a petty cash
account. We confirmed that appropriately authorised 'official' requests
had been received via other medium e.g. e-mails, written requests.
The introduction of a standard form/email would improve efficiency
when creating accounts.
A record of all petty cash accounts created is maintained centrally. We
found 16 accounts that were not included on the central record.
Management were able to provide an explanation for their noninclusion i.e. they were created before the incumbent officer was
appointed and it is this officer that created the record. To improve the
current system it is advised that periodic reconciliations are
undertaken between the central record and existing accounts.
Appendix B
Page 2 of 6
Petty Cash Systems and Procedures Control Evaluation
AREA OF AUDIT
3-4
REIMBURSEMENT OF PETTY CASH IMPREST ACCOUNTS
CONTROL
GRADE
TEST GRADE
OVERALL
GRADE
B
C
C
REASONS
Official re-imbursement forms are used when requesting reimbursement of petty cash.
There is provision for requesting employees to sign the reimbursement forms as certification of validity. Officers signing the
forms must be authorised to do so. Authorised officers appear on the
Authority's 'Authorised Signatory List'. From a sample of 20 claims
tested it was found that 17 had been certified by officers on the
'Authorised Signatory List' and 3 had been certified by officers not on
the list.
Claims must be supported by receipts and where this is not possible
an official form must be completed and certified in place of the
receipts this form is the 'Record of Expenditure made without
Receipts'. We found that receipts are provided with claims, however,
where receipts had not been provided the official form had not been
used, instead e-mails or notes are being accepted.
Procedures ensure that all claims are checked by an independent
employee and processed by staff in the Payments Team. From
inspection of completed claims we found instances where employees
had used their private supermarket loyalty cards when purchasing
items with petty cash and also an instance where petty cash was
being used as an office 'tea fund'. We reported all of these instances
to the Creditor Payments Supervisor for appropriate action to be
taken.
Procedures require that claims are checked and processed by staff in
the Exchequer Services Payments Team. Checked claims are then
entered into the Agresso payments system for reimbursements to be
processed. It was found that claims had been checked and processed
promptly, however, we also found a number of examples (5 out of 20)
where the VAT had been treated incorrectly on the claim forms, this
had not been identified during the inspection and checking process
and had resulted in the claims being processed with incorrect
information.
Appendix B
Page 3 of 6
Petty Cash Systems and Procedures Control Evaluation
AREA OF AUDIT
5
CHANGES TO THE PETTY CASH VALUE.
CONTROL
GRADE
TEST GRADE
OVERALL
GRADE
C
A
C
REASONS
Changes to petty cash account values will only be actioned once the
Creditor Payments Supervisor receives written notification from the
appropriate budget holder or member of staff. A standard request
form/e-mail does not exist. The introduction of a standard form/email
would improve efficiency when amending accounts.
The Creditor Payments Supervisor maintains a record of changes
made to petty cash accounts. This record dates back to 2007. The
record is in the form of an Excel spreadsheet and is manually updated
with the details of any amendments to petty cash accounts.
Transaction logs of the alteration are also maintained within the
Authority's financial system Agresso.
Appendix B
Page 4 of 6
Petty Cash Systems and Procedures Control Evaluation
AREA OF AUDIT
6-9
MONITORING ARRANGEMENT OF PETTY CASH IMPREST
ACCOUNTS.
CONTROL
GRADE
TEST GRADE
OVERALL
GRADE
REASONS
C
C
C
A record of all petty cash accounts created is maintained centrally. We
found 16 accounts that were not included on the central record.
Management were able to provide an explanation for their noninclusion i.e. they were created before the incumbent officer was
appointed and it is this officer that created the record. To improve the
current system it is advised that periodic reconciliations are
undertaken between the central record and existing accounts.
Petty cash account values are recorded in the financial systems and
accounts of the Authority i.e. Balance Sheet.
All payments made in respect of petty cash are recorded within the
Authoritys payments and financial system Agresso.
Reconciliation's between the centrally maintained record of petty cash
accounts and the Authority's financial systems are not undertaken.
All claims for reimbursement are checked and processed by the
Payments Team. The Creditor Payments Supervisor queries items of
expenditure with the budget holder if it is felt they should not be
processed via petty cash.
We confirmed that claims are used for re-imbursing minor
expenditure. We also found instances where petty cash was being
used for non-approved uses e.g. as a tea fund for staff, the Creditor
Payments Supervisor was informed of these for appropriate action to
be taken.
Ad-Hoc monitoring is undertaken to ensure accounts are not being
over or under utilised. Appropriate action is undertaken if any
instances are identified.
Appendix B
Page 5 of 6
Petty Cash Systems and Procedures Control Evaluation
AREA OF AUDIT
10
TERMINATION OF ACCOUNTS.
CONTROL
GRADE
TEST GRADE
OVERALL
GRADE
A
A
A
When a petty cash account is terminated processes are in place to
ensure that sufficient documentation is retained and all outstanding
monies banked.
-
-
No previous recommendations.
C
C
The Authority's Financial Procedure Rules provide the framework for
the operation and control of petty cash accounts.
PREVIOUS RECOMMENDATIONS
OVERALL OPINION
C
REASONS
Overall the management of existing controls and compliance with the
controls has been assessed as satisfactory.
Appendix B
Page 6 of 6
- Petty Cash Systems and Procedures 2011/12 -
Recommendations are categorised on the following basis:
Priority / Key
Category
1
Mandatory - Urgent
2
Mandatory - Less
Urgent
Requires action to avoid exposure to significant risks in achieving the objectives for the area under review.
3
Best Practice / Other
Recommendations
Action is advised to enhance control or improve efficiency.
Key Rec No. Recommendation /Action
3
1
Title
Recommendation
3
2
Recommendation
Action
Action
1
Definition
Action is imperative to ensure that the objectives for the area under review are met.
3
Recommendation
Inspection Agency and Inspection/Audit Report Title
Petty Cash Systems & Procedures 2011/12 - Internal Audit Report
To aid efficiency and to ensure that all required information is provided it is advised that a standard document or email template
be introduced. Creations and amendments should only be actioned if they have been submitted on the standard document.
The Chief Finance Officer must approve any new forms etc before they are introduced to ensure compliance with the Authority's
Financial Procedure Rules.
End Date
Lead Officer
Dec-11
Huw Sims
Ongoing
Huw Sims
Immediate
Huw Sims
Agreed. The Creditor Payments Supervisor will design a standard document.
The Creditor Payments Supervisor should carry out periodic reconciliations to ensure that up-to-date and accurate records are
maintained of existing petty cash accounts. Any discrepancies identified by these reconciliations must be investigated and
appropriate action taken as per the Authority's Financial Procedure Rules.
Agreed. This will be an ongoing exercise and will be picked up when the Creditor Supervisor has spare capacity.
Existing controls surrounding the administration of the petty cash system should be more strictly adhered to. Exchequer
Services staff should remind petty cash account holders that:
· Claims authorised for payment by staff not appearing on an official signatory list will be rejected and returned to the
submitting department.
· The proper procedures must be followed when submitting reimbursement claims this must also include reminding them
of the requirements of the Authority's Financial Procedure Rules regarding the use and management of petty cash.
· Petty cash monies are not for personal use nor are they to obtain any personal benefit from the use of petty cash
monies.
Exchequer Service's Service staff should be instructed that claims that have been certified by a member of staff not on
the authorised signatory list should be referred to the Creditor Payments Supervisor. For the instances identified during
the audit the Creditor Payments Supervisor must establish whether those claims had been signed by a member of staff
authorised to certify petty cash claims.
Action
Start Date
Agreed. The Creditor Payments Supervisor will send an email to all applicable staff. The authorised signatory list has been
updated recently. In the future when claims are identified, as being signed by an Officer not on the authorised signatory list staff
will be refer the claim to the Creditor Supervisor for investigation.
Action Plan
Page 1 of 2
- Petty Cash Systems and Procedures 2011/12 Key Rec No. Recommendation /Action
2
4
Title
Recommendation
Action
1
5
Recommendation
1
6
Recommendation
Action
3
7
Inspection Agency and Inspection/Audit Report Title
Petty Cash Systems & Procedures 2011/12 - Internal Audit Report
The practice of accepting substitute emails/notes instead of the appropriate system forms must be stopped and petty cash holders
reminded that they must use the official appropriate forms when making a claim for reimbursement, this includes the 'Record of
Expenditure Made without Receipts' form.
Start Date
End Date
Lead Officer
Nov-11
Huw Sims
Dec-11
Huw Sims
Nov-11
Huw Sims
Nov-11
Huw Sims
Agreed. Electronic copy of the 'record of expenditure made without receipts' will be sent to all petty cash holders.
Exchequer Services staff must modify their checks for processing petty cash reimbursement claims to reflect
contemporary purchasing practices e.g. the use of reward/loyalty cards, buy one get one free offers etc. in addition to the
current checks. The robustness of the checking process needs to be improved to ensure that errors on VAT treatment
and incorrect completion of official forms is identified.
Agreed.
Where instances of personal gain from the use of petty cash have been identified the appropriate line manager and the
Counter Fraud team must be notified immediately.
Action
Agreed. The Creditor Payments Supervisor will contact the Head of Leisure, Culture and Environment for investigation of the use
of petty cash as a tea fund in the Tourist Information Centre.
Recommendation
To improve the accuracy of records maintained and to further strengthen existing controls it is advised that periodic or annual
reconciliation’s between the petty cash accounts operated throughout the Authority and the centrally maintained Payments Team
spreadsheet record be conducted.
Action
Agreed. The Creditor Payments Supervisor will assess the benefits of carrying out an exercise against the limited time resource
available.
We the undersigned accept the Petty Cash Systems and Procedures Audit 2011/12 report findings and agree to the implementation of the recommendations outlined above.
Signed: ________________________________________________________________
Creditor Payments Supervisor
Date: ________________________
Signed: ________________________________________________________________
Business Services Co-ordinator
Date: ________________________
Once completed please return to Internal Audit, Room 420, Civic Centre, Castle Street, Merthyr Tydfil. CF47 8AN
Action Plan
Page 2 of 2