Internal Audit Report

Cash Audit Report

FY 2008-09
December 21, 2009
Presented To The
Jackson County Board of Commissioners
By The
Internal Audit Program
Audit Team
Debbie Taylor, County Auditor
Tanya Baize, Senior Auditor
Audit Authority
We conducted our audit in accordance with Codified Ordinance 218 pertaining to
the County Auditor. The audit was included in the fiscal year 2009-10 Internal Audit
Plan as part of the work performed annually in support of the County’s external
audit and ongoing internal control and risk assessment work.
Audit Background
As of October 16, 2009, there were 1,309 accounts payable checks totaling
$89,795.27 that had been issued prior to July 1, 2009 that had not cleared the bank.
The County’s Finance Department annually turns over unclaimed accounts payable
checks to the Oregon Department of State Lands in accordance with Oregon
Revised Statute (ORS) 98.352 Report of abandoned property.
As of June 30, 2009 the County had 58 petty cash and change funds at various
locations throughout the County totaling $61,358.77. Departments must report
balances for these funds to Accounting as of the end of the day on June 30th.
The County has 20 separate bank accounts at various banks. June 30, 2009 bank
statement balances reflected a total of $25,295,873.13 for these accounts. These
accounts include investment accounts, payroll zero balance accounts, health
insurance and workers compensation accounts, etc. Funds in two of these accounts
are not County funds, but are held by the County for clients. This audit reviewed the
Health and Human Services Emergency Payment Fund, Fair Board Account,
Community Justice Transition Center Work Program Account, and Sheriff’s Prisoner
Trust Fund.
Audit Objectives
The objectives of the audit were to determine if:
1. Outstanding accounts payable checks are handled appropriately and in
accordance with laws and best practices.

2. Petty cash and change fund balances agree to amounts recorded in the financial
system.

3. Internal controls over the Health and Human Services Emergency Payment Fund,
Fair Board Account, Community Justice Transition Center Work Program Account,
and Sheriff’s Prisoner Trust Fund are adequate to prevent or detect abuse or illegal
acts.

Compliance with Government Auditing Standards

We conducted this performance audit in accordance with generally accepted
government auditing standards. These 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.
Privileged and Confidential Information
We did not withhold any information from this report for privileged or confidentiality
reasons.
Audit Findings
Outstanding Checks
Jackson County’s main bank account is in compliance with ORS 98.336 regarding
unclaimed checks.
There were 1,309 accounts payable checks totaling $89,795 issued prior to July 1,
2009 that were still outstanding on October 16, 2009. The following table shows an
aging of these accounts payable

Aged Count % of Count Amount % of Total

Outstandin Amount
g Accounts
Payable
Checks
Days
Outstandin
g
0-365 580 44.31% $47,402.47 52.79%
366-730 414 31.63% $23,270.53 25.92%
731-1,095 311 23.76% $15,180.61* 16.91%
1,096-1,460 2 .15% $3,245.16* 3.61%
1,461-10,000 2 .15% 696.49* .78%
Totals 1,309 100% $89,795.27 100%

Petty Cash and Change Funds

Surprise cash counts revealed the following:
1. A Development Services photo copy change fund of about $100 is not reflected
in the financial system and another Development Services change fund of $200
may not be adequate for operational needs;

2. Six fund balances did not match the authorized amount, with the variances
ranging from $8.50 short to $3.60 over; and

3. A $2 overage in the Payment Center was the result of a customer paying $2 more
than the amount

Internal Controls over Checking Accounts

Checking account reconciliations revealed the following:

The Health and Human Services Emergency Payment Fund, Fair Board account, and
Community Justice Transition Center Work Program account were successfully
reconciled and balanced. The Sheriff’s Prisoner Trust Fund was off by $120 due to a
known database issue which they are currently working on to resolve.

2. Internal controls over the Community Justice Transition Center Work Program
Account and Prisoner Trust Fund could be improved by separating the duties for
check writing and bank statement reconciliation.

3. The Sheriff’s Prisoner Trust Fund and Community Justice Transition Center Work
Program Account have not been turning over stale dated checks to the Department
of State Lands.

4. The Health and Human Services Emergency Payment Fund has also not been
turning over stale dated checks, but it is not clear if these checks would have to be
turned over, as the funds do not belong to the client.
Appropriate controls over checking accounts include:
1. Preparing monthly reconciliations in a timely manner;

2. Separating the duties of writing checks and reconciling the bank statements;

3. Safeguarding blank check stock; and

4. Restricting check signing authority.

Management Response
This report has been reviewed by the Director of Health and Human Services,
Exposition Park Director, Director of Community Justice, and Captain Terry Wilson of
the Sheriff’s Department. They agree with the recommendations and are working on
implementation.

C. Findings & Recommendations

1. Budgeti
ng
a. Finding: Vehicle purchased despite
budget cut
Despite the fact that funding for a
replacement vehicle requested by the
WPCA had been cut by the Town
Council, a truck was purchased on
August 31, 2006. In looking into the
circumstances of this transaction, it
appears that the Assistant Sewer
Administrator was unaware that this
 item had specifically been cut from the
WPCA’s budget. Because this purchase
was necessary due to safety issues with
the vehicle being replaced, the Assistant
Sewer Administrator has decided to
postpone another capital expenditure in
order to stay within budget.
Recommendation(s):
It is imperative that administrators with
budgetary responsibilities monitor their
requests throughout the entire budget
approval process. Further, administrators
should review the status of each budgetary
line item frequently (monthly, at minimum), so
that any errors are detected and addressed in
a timely manner.
It is the opinion of this auditor that all capital
expenditures should be subject to the
approval of the Town’s Director of Finance as
Purchasing Authority.
2. Procur
ement
a. Finding: Purchase Orders dated after
invoice dates
In the beginning of the current fiscal
year, the Director of Finance
communicated to all Department Heads
that there were to be no more
Emergency Purchase Orders issued by
the Purchasing Department. The intent
of this change in procedures was to a)
put a halt to Town personnel having
advanced authorization to directly
purchase goods or services and b)
address the recurring observation of the
external auditors regarding Confirming
Purchase Orders (invoices dated prior to
the issuance of purchase orders).
In an attempt to determine whether this
change in procedure had reduced the
number of confirming purchase orders,
a number of Public Works transactions
were selected and tested. The results of
this testing were that 76% of the
payment packages contained confirming
purchase orders.

INTERNAL AUDIT PROGRAMME

(Construction Audit) Company: Prepared By:
Date: Checked By:

Exceptions Remark Initial & Ref

Yes/No
1. Preliminaries
Review: -
a) Refer to the Audit Programme SCH VI
b) Ascertain the projects is economically justified, approval at a higher level and based on sound
assumptions.
c) Ascertain the projects are supported by feasibility studies, cost-benefit analysis,
environmental studies, and projections, budgets approved by the Boards.
d) Identified any regulatory requirements research conducted and review for compliance to
reduce litigation exposure.
e) Monitoring or attending the relevant management meeting.

2. General Procedures
Review: -
a) Contract written policies and procedures for completeness, adequacy and proper approval.
b) Take note of the special contract provision, rates, clauses, etc.
c) Review the approval process including project initiation, budgeting and changes.
d) Verify the construction administration control issues are adequately addressed: -
�Review the management oversight matter and legal involvement.
�Project documentation and reporting process.
�Construction administration process, including charge order, substitutions, project overruns
and lien waivers.
�At least a staff must be based at the construction site to assist/ monitor the contractor work
and to report weekly the work done by the contractors, their work force and construction
equipment used.

3. Bidding Procedures
Review: -
a) Bid & award process, including project size, contractor solicitation, reference and selection and
control of the over bid opening.
b) Selected a sample and perform the following:
�Verify and obtained a least three bids for the job prior to awarding the contract.
�Verify the lowest bid was selected.
�If the general contractor was hired, verify at least three bids from subcontractors and were
approved by the management
�Verify that documentation specifying the terms and conditions of work performed are
adequate, with proper evaluation and before approval can be obtained.
c) Conducted a checklist of the bids proposal as following:

Verify the description of the work performed such as the labors rate, hours and materials, good
purchase and etc.
� Verify the agreement of the purchase materials by third party where there are conflicts of
interest with anyone in the company.
� Consider a bid package that requires the contractor to attach a formal written safety program
and make the safety program a condition of awarding the bids and poor safety records may take
unnecessary risks or allow poor work habits that could adversely affect the projects schedule and
increase the risk of litigation.
� Determine whether contractors performing work are registered with the state.
� Since the construction industry is cyclical and volatile is important to confirm that the
contractor financial vialability was investigated before the contractor bid awarded.
5. Accounting record/ Book keeping
Review: -
a) Account department must keep proper records on the progress
claim.
b) Review how the project are being coded in GL and determine
whether the project should remain active.
c) Variation orders for amount more than RM 50,000 must be
properly reviewed and approved.
d) Verify the construction project management reports.
e) Review whether any omission of misstatement concerning
financial reporting.
f) Review the contracted amounts, paid-to-dates, cost-to-completion
to determine whether all liabilities have been properly records.
g) Review the payment of stored materials and whether all the
payment has made for materials.
h) Verify against Delivery order and the good received note.

8. Human Resource
Review: -
a) Refer to Audit Programme P/L3
b) Check on the whether any discrepancies on conflict of interest
including issues related to fraud, acceptance of gifts and indirect
gifts.
c) Review the regulation and policies.
d) Ascertain the observation should also be made to determine
whether employees are performing in assigned job.
e) Review the evaluation report of Q/A Officer, side supervisor and
etc. To check on the performance (highly changes to commit fraud
in the project side).
f) Documentation regarding overtime and whether or not it was
authorized
g) Safety procedure and policies that required by the government
regulation

9. Performance Bond
Review: -
a) The performance bonds to ensure the correct dollar amounts and
dated prior to the start of the contactor work.
b) Check on the policies of performance bonding whether it based
on the management acceptance of risk.
10. Release of Retention
Sum/Lien
Review: -
a) The policies and guidelines that involve amounts that defined the
release of retention sum.
b) Are payments made after deducting the necessary costs on
behalf, retention sum and penalties.

11.

Review: -
a) Policies of the claim expenses
b) Verify the payment voucher and invoice
c) Check on the following issues:
�The details of the claim and the purpose
�The range of the amount can be reimburse or claim

13.
Review: -
a) Coverage for compliance with the company required policies:
�General liability coverage limit are appropriate
�Worker compensation coverage limits are appropriate
�Verify who is the certificate holder
�Verify whether the insurance coverage minimum or limits stated
in the bid and contract documents reasonable.

14.

a) Test the revenue and contract receivable for existence, verify the
contract receivable as the balance sheet and selected a sample
testing for most material covering more than 50 % of the total
receivable balance.
b) Sample selected where specific requesting uncollected balance as
of balance sheet date, specifically including a statement of account.
c) Verify against:

�Original contract price

�Total approved changes order
�Total billing
�Total payments
�Total unpaid balance
�Details of the claims
�Estimated completion date

d) Review the final certification and agree figures to accounting

records, and possible to obtain document from owner certifying the
work was performed or acknowledging the liability.

Ending

GENERAL CONDITION
SUBJECT:- SELECTION OF
FIRMS OF CHARTERED
ACCOUNTANTS IN
CHHATTISGARH UNDER
PMGSY SCHEMES FOR
INTERNAL AUDIT.
1. B ackground of
Project:-
· The Government of
Chhattisgarh has
constituted Chhattisgarh
Rural Road
Development Agency
(CGRRDA) as an
independent agency for
execution of PMGSY
road works in the State.
This agency is responsible
for "Construction &
maintenance of
Rural Roads”. It is a
registered body under
“Chhattisgarh Societies
Registration Act
1973”.
· The work is being
implemented through 17
Project Implementation
Units (PIU) as
field formation existing in
every district of the state.
Quantum of work for audit
may
vary from district to
district. Apart from this at
present 8 Project Circle is
also working
as a Regional Offices.
Number of offices may vary
from time to time.
· It is proposed to engage
firm of Chartered
Accountants with proven
relevant
experience of
implementing the Project of
similar nature and size viz,
Banks, PSU’s,
Registered Agencies under
any Act.
· The Chhattisgarh Rural
Road Development Agency
(CGRRDA) will be the
employer
and executing agency of
this work acting through
Chief Executive Officer,
CGRRDA,
Civil Lines, Raipur.
· The audit is to be done in
each district PIUs, circle
office and CGRRDA
incurring the
expenditure to the
programme funds (PMGSY),
ADB Fund administrative
fund,
Maintenance fund and
State fund and.
· The quantum of audit in
CGRRDA will vary from Rs.
500 to 1500 Crores against
PMGSY funds about Rs.20
to 45 Crores for state fund.
· Please note the
following :
· All Costs of preparing
the proposal including
visits to the Employer
and
the PIU headquarter are
not reimbursable as a
direct cost of the
assignment.
· The Employer is not
bound to accept any of the
proposals submitted.
· The every page of the
proposals must be properly
signed by the partner
holding
Power of Attorney.
2. PREPARATION OF
THE PROPOSAL : -
CA Firms are requested
to submit a Expression of
Interest. The EoI shall be
in
English language.
2. Sub- Contract:-
· The successful Chartered
Accountant firm shall not
be allowed to sub-contract
the
audit work. If the firm is
found sub-contracting the
work allotted, the matter
will be
reported to the ICAI for
disciplinary action as per
code of conduct.
· The firm of Chartered
Accountants will be allotted
the districts for audits by
Chief
Executive Officer, CGRRDA,
Civil Lines, Raipur.
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Detailed Document Selection of CA for
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· The audit works can be
allotted only to those firms
which will be successful
against
the norms fixed by
CGRRDA.
3. Written
Articles/Correspondence
:-
· Any articles pertaining to
CGRRDA/PMGSY activities
written by you or jointly
with
any other person during
the course of this
assignment with us and all
correspondence
that you may have written
to other organizations in
connection with our
activities shall
become the sole property
of CGRRDA and you shall
have no claim over the
same.
· All the records for CA’s
audit will be provided by
the Concerned Executive
Engineer,
PIU of the district and CEO,
CGRRDA, Raipur.
4. CGRRDA Property:-
· You shall be responsible
for the safe keeping and
return in good condition
and order
all the Organization’s
property which may be
issued or assigned to you
or which is in
your custody. Also any
material collected by you
during the course of this
audit will
be the sole property of
CGRRDA and will have to
be returned before the
release of
the payment.
5. Divulging of
Information:-
· During the course of the
contract period or
thereafter you shall not
share with or
divulge to any person or
persons any of the
organization’s affairs
without written
authorization from the chief
Executive Officer, CGRRDA,
Raipur.
6. Early Termination of
the Contract:-
· If for any reason, CEO,
CGRRDA, Raipur
determines that the
contract should be
terminated; he can do so at
his own discretion.
· If for any reason, you
decide to terminate the
contract prior to
satisfactory completion
of the task, you may do so
at your discretion but only
after handing over all
unused
funds and assets created
out of the specific task
agreement, handing over
all notes,
worksheet and drafts
prepared to date and after
a thorough debriefing with
the CEO,
CGRRDA, Raipur.
· In either case, the CEO,
CGRRDA , Raipur will be
the sole authority to
determine the
reduced amount of
remuneration to be paid to
you.
· All the disputes so
occurred will be decided by
the CEO, CGRRDA, Raipur
and his
decision will be final.
7. Payments:-
A. Advance payment
The employer will make
mobilization advance
payment up to 10% of the
contract
value against provision of
an unconditional Bank
Guarantee in a form and by
a
scheduled commercial
bank acceptable to the
employer in amounts equal
to the
advance payment.
B. Routine Payment
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Detailed Document Selection of CA for
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On submission of audit
report 80% payment of the
bill amount will be
released. Rest
20% shall be released after
acceptance of the audit
report by the employer or
after 3
month from the date of
submission of the audit
report which ever is earlier.
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Annexure-2
TERMS OF REFERENCE (TOR)
Selection of Chartered Accountant firms for the Internal
audit of Accounts of
CGRRDA, Project Circles & PIU of PMGSY
Expression of Interest is invited from Chartered Accountants firms in the
prescribed
format for short listing for the engagement of internal audit of the accounts
of CGRRDA & PIU
of PMGSY Programme being implemented in the State of Chhattisgarh as
per the enclosed
Terms of Reference.
1. The last date for receipt of expression of interest in the specified format in
sealed envelop by
29th November, 2009 up to 3.30 PM. Incomplete format/formats received
after the prescribed
last date will not be entertained.
2. The Expression of Interest must be submitted in the prescribed format
given in the
attachment. Only the Expression of Interest in the prescribed format
accompanied with all
requisite documents would be considered.
3. The period of internal audit would be for financial year 2008-09 and 2009-
10 running
concurrently with the year during which the audit is done, except for some
overlap. The audit
is to be carried out in Two phases of six months each ending 30th September,
and 31st March.
4. O BJECTIVE OF INTERNAL AUDIT:
a. To ensure that the accounting and financial management systems remain
and effective
in design and to assess the extent to which they are being followed;
b. To review the efficacy, adequacy and application of accounting, financial
and
operating controls and thereby ensuring the accuracy of the books;
c. To verify that the system of internal check is effective in design and
operation in order
to ensure the prevention of and early detection of defalcations, frauds,
misappropriations and misapplications;
d. To identify areas of significant inefficiencies in existing systems and to
suggest
necessary remedial measures:
e. To confirm the existence of financial propriety in all decisions and verify
compliance t
Government and statutory requirements;
f. To review the performance of various functions in the light performance
budgeting;
g. To associate with Superintending Engineers, Executives Engineers of the
CGRRDA,
and Vigilance etc. in their surprise checks and inspections in one of their
visits to the
unit whenever asked for;
h. To ensure that the units have obtained confirmation and prepared
statements of
reconciliation of balances as on 30th June, and 31st January, under outstanding
advances to contractors, and of creditors;
In this context, internal auditors shall analyze the advances to the
contractors into (1) good and fully recoverable, (2) requiring adjustment
entries to be
passed, (3) doubtful of recovery, and (4) bad with supporting
documents/explanations
and reasons as for each and every account. The analysis will be of the
accounts as per
the ledgers and schedules to the accounts as at beginning of the year whose
audit is
taken up. This analysis shall be furnished along with the Phases I audit report
for the
first six months;
i. To report compliance of guidelines issued from time to time by the Ministry
of Rural
Development, Government of India, National Rural Roads Development
Agency, the
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Detailed Document Selection of CA for Internal Audit NIT No. 160.doc
State Rural Development Department, Executive Agency and the State Rural
Roads
Development Agency;
j. To report compliance of Internal audit observation outstanding as at the
end of year;
k. To review the performance guarantee provided by contractor/consultants.
l. To report that tax deduction at source are being made in all cases, as
applicable under
the Income Tax Act, 1961, and other statues at prescribed rates and TDS
deposits are
being made within the prescribed time and also that the unit is complying
with all
statutory requirements under Income Tax Act and other laws; and
m. Routine errors of omissions or noticed during the course of internal audit
may be got
rectified on the spot.
5. E XTENT AND SCOPE OF INTERNAL AUDIT:
The extent and scope of internal audit will be as follows: This is only
indicative. The auditor
is free to extend any area and to any extent to cover within his review as
required or as may
be necessary to achieve the objectives.
a. Award of Contracts:
· Award of contracts for construction of new roads : 100 per cent;
· Award of contracts for up-gradation of roads : 100 per cent;
· All other contracts : 20 per cent:
b. Accounts:
i. 100% Vouching of Cash Payment Vouchers, Bank Adjustment Vouchers and
Transfer
Vouchers. Cheques payments may be vouched to cover 50% of the
transactions in
each of the months selected.
ii. Works: A list of the cases audited should be mentioned in the report while
in cases
“Accounts” (vouching of cash, bank and transfer entry), the name of the
months for
which vouching has been reviewed shall be mentioned in the report.
6. S ubmission of Internal Audit Report:
The reports are to be submitted in triplicate for the year 2009-10 for each
half yearly
phase of audit to the Chief Executive Officer of the SRRDA, with two CDs of
the report.
Internal auditor will send two copies to the Divisional Officer. Within a month
of
completion half yearly phase. Audit report for year 2008-09 to be submitted
once for the
whole year within two months from the date of issue of work order.
7 . E ligibility Criteria: For Internal Auditors
· The Firm should have to be registered with Institute of Chartered
Accountants of India,
New Delhi;
· The firm should have to be registered with comptroller and auditor General
of India, New
Delhi;
· The CA Firm’s registered with ICAI, New Delhi before 01.10.2001 is only
eligible to
apply.
· The CA Firm should have experience of conducting Internal Audit.
· The CA firms should have at least -
a. 10 Partners
b. 05 FCA
c. 01 ISA Qualified
d. At least one of the partner of the firm should have experience of 20 years
(be in
practice since 01-01-1989) as propriter/partner.
· The CA Firm’s average annual turnover for the last 3 year should be
Rs.15.00 lacs or
more than that.(as per annexure A-2A)
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· The CA Firm should have adequate no of Chartered Accountants, Articles
and Staff to
conduct audit of 17 PIU and 1 CGRRDA in a month and produce report for the
same
within that period.
· The CA Firms have experience in same type of organization i.e. works
accounting shall
be given preference.
· The C.A. firm should have Head Office or Branch Office at Raipur
(C.G.)
· Those C.A. firms who have conducted the external (Statutory)/ Internal
audit of
C.G.R.R.D.A., Project circle & PIU of PMGSY for continues three year are not
eligible
for appointment as External/Internal auditor for year 2008-09.
Note: -
a). Same firm can not simultaneously be an internal and External (Statutory)
auditor.
b). Similarly a firm having a common partner will not be allotted
simultaneously
internal audit to one firm and External audit to another firm.
c). The fees quoted should be commensurate/ appropriate with the work
volume for
work allotment the least quoted fees may/ may not be the criteria if the fee
quoted
is not justifiable.
8. All firms are required to enclose the following document along with the
expression of
Interest.
(A) A copy of constitution certificates of firm issued by the ICAI containing
inter-alia.
i. Date of formation of the firms with a full time FCA
ii. Details of Partners/CA Employees as on 1st January of the relevant year,
date of joining
the firm, date of becoming FCA, their other interest, if any.
(B) Copy of Latest Partnership deed.
(C) A copy of registration certificate issued by C&AG.
9. It is also decided to file quarterly ETDS return, in electronic media, of all
the PIU, Project
Circle & CGRRDA through Internal Auditor. After preparation of the E-TDS
returns the
same shall have to be filed with NSDL TIN-FC. Filing fee shall be paid extra. A
hard copy of
the TDS return shall be delivered to the PIU alongwith the receipt from NSDL
for filing of
TDS return.
10. The Expression of Interest must be delivered by post (in a sealed
envelope)/or by hand in the
CGRRDA, Civil Lines, Raipur, Chhattisgarh. The Expression of Interest must
be addressed
to:
The Chief Executive Officer
Chhattisgarh Rural Road Development Agency
Vikas Bhavan, Civil Line, Raipur, (C.G.)
11. Please clearly marked on envelope "Expression of Interest for
Internal Audit" in bold