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Home My WebLink AboutCAO-10-009 - Accts Payable payments auditREPORT REPORT TO: Mayor Carl Zehr, Chair and members of the Audit Committee DATE OF MEETING: March 22, 2010 SUBMITTED BY: Corina Tasker, Internal Auditor PREPARED BY: Loretta Alonzo, Internal Auditor WARD(S) INVOLVED: All DATE OF REPORT: March 10, 2010 REPORT NO.: CAO-10-009 SUBJECT: ACCOUNTS PAYABLE PAYMENTS AUDIT RECOMMENDATION: For information only. BACKGROUND: The accounts payable system was converted from FAMIS to SAP on December 1, 2008. Since conversion, work processes have changed significantly and the approval process is now highly automated. The Director of Accounting requested this review to ascertain whether payments were being made in compliance with established policy and to determine if the level of audit being performed on payments is appropriate. REPORT: Scope Evaluate current accounts payable approval process to determine areas of highest and lowest risk Determine appropriate level of payment audits to minimize risk while optimizing efficiency Recommend improved processes wherever possible Methodology • Interview 8 staff, including manager and supervisor • Review random selection of over 350 payable invoices processed from January 1, 2009 to July 31, 2009 to validate payment authority • Review random selection of payables transactions through SAP to validate payment authority • Review existing procedures, documentation, policies and work practices 4-1 Review Summary The following table lists the audit findings, the auditor's recommendations, and the response from the Director of Accounting. FINDINGS RECOMMENDATIONS ACCOUNTING RESPONSE Volume of work has not None changed, work flow is different; troubleshooting is now done at back end of process instead of front end as before (now searching for invoices in SAP and good receipts). Current split of AP between clerks appears to be working efficiently. No processes, procedures or Procedure manual should be Lack of process work flows have been developed documenting work documentation has been documented since conversion. practices, limits, authorities, identified and will be No reference manuals exist business processes etc. addressed as part of the (paper or electronic versions) Impact Analysis work plan for staff training or reference. Currently no back fill for AP Consider cross-training other Accounting does not have the staff vacations, sick leave staff for temporary coverage. staff to fill in while an AP staff creating significant backlog of member is on vacation. Any work critical payments required continue to be paid. Cross training has been done (Supervisor/Analysts/AP assistant) for critical tasks only. Inconsistent practice of All suppliers should be It is not possible for all receiving all supplier invoices instructed to forward invoices invoices to be sent directly to in accounts payable. directly to accounts payable Finance. Opinions differ widely whether ONLY. invoices should go directly to SAP is set up for Cityworks to user departments or come enter any invoices directly to exclusively to accounts SAP for invoices <$500 and payable. Current practice is for other locations to set up variable. cheque requisitions for payments <$2,500. As well, Engineering invoices are reviewed to determine account allocation prior to payments. Accounting will send a reminder notice to ALLDEPTS requesting invoices be to 4- 2 directly to Finance Most user departments are not entering invoices and goods receipts into the system on a timely basis. Reasons include insufficient training or knowledge of system, lack of resources assigned to this task, no back-up for staff assigned to this task and issues of backlogs when staff are sick or on vacation. Provide additional support/training for user departments in entering AP- Purchasing documents. Require departments to have alternates assigned to cover staff functions during vacation/leave Training has been identified in the Impact Analysis work plan. One on one training is available if requested Staffing level has been reduced from 4 to 3 (3~d person is also SAP "super user" providing user support so only %2 time on AP functions) and one contract position ended in October, increasing workloads for existing staff. Level of 1St audit: < $2500 - 25% audit, no PO required > $2500 - 100% audit, PO required > $100,000 - Requires council approval < $500 - Admin staff can post direct to payment process, no approval, often no documentation provided Level of 2nd audit: All cheques -randomly audit every 5th cheque Level of audit appears to be excessive. Reduce level of audit. Continue to audit 25% -risks are higher in this dollar range Reduce audit to 25% -POs are approved by management, entered in system; costs are reflected in financial statements, should be monitored by directors (**see comments in "Conclusions"). Continue as per purchasing by-laws Changes have made for the Trades Payable audit Continue to audit every 4tn payment under $2,500 Reduced audit to every 4tn payment over $2,500 -all legal payments (typically large dollar items) continue to be audited 100% by Supervisor of Accounting No other changes made at this time Documentation must be provided with authorized staff signature as assigned by director. Continue current practice Note: Actual practice: Each 2nd level auditor (3 individuals) randomly select 5 payments to review (total of 15 cheques reviewed each week) 4-3 **AIl conferences and Continue current practice - employee expense claims risks are higher in this and cash advances -audited category 100% Research possible options to **Note: highly manual automate this process -not process, labour intensive undertaken in this review Electronic payments are Remove EFT upload function Supervisor of Accounting will audited 100% although SAP from this individual's duties. perform first audit on EFT controls are improved over payments (grants and leases) previous system. only. One staff person has total system access in SAP, also Remove authority to create All banking-related changes to performs bank reconciliations, AP vendors. vendor accounts are reviewed writes journal entries (all and approved in SAP by types), creates AP vendors, System reports should be Manager of Accounting. sends EFTs (no limits), audited by management at accesses bank accounts least quarterly to review Supervisor of Accounting will online. changes to authorization take over bank reconciliation Separation of duties major tables, approval limits, user from Accounting Analyst issue. profiles. responsible for transmitting EFT file. Bank reconciliation should be performed by alternate staff person at least twice per year. Certain directors and Unable to prevent Accounting will send managers have shared their management from continuing communication to Directors system passwords with staff this practice but all managers and Managers to remind them so that staff can approve and should be cautioned that this of the procedures for the enter purchasing documents is non-compliant with approval of documents. on their behalf. Already noted established purchasing by many users and policies and by-laws. management that purchasing approvals are increasingly being made at lower levels of authority in the organization. Ordering cheque stock, Management should review security of cheques, storage existing process and ensure of keys, and access to locked that controls are sufficient. cabinets may lack sufficient Not within scope of this controls. review. Dollar limits for cash Consider changing policy to Accounting will review the advances may be as low as $100 minimum for employee dollar amount allowed for $15 creating increased cash advances. Employees advances manual processing and requiring less should claim unnecessary workload. repayment on expense claim forms. There has not been a second Provide advanced training for Accounting will look at round of SAP training for AP - this group of specialists. providing additional training to 4-4 Finance staff and they are AP staff ready to "take it to the next Also identified in the Impact level". They require more Analysis work plan advanced training to fully utilize the system's capabilities. Still a high volume of paper Vendors should be asked to Accounting will review this transactions being processed. submit invoices electronically option and determine a No increase in vendor whenever possible and new process to implement the electronic transactions. tenders should require receipt of electronic invoices. vendors to submit invoices electronically if they are able to do so. Consider putting a notice in vendor payment envelopes for a period of time. No fraudulent or suspicious None transactions were identified in review of 350 payments. No issues have been noted by AP staff or management from time of conversion and authorization levels appear to be working effectively. Deposit Slip system has still Escalate this issue through not been converted to SAP the general manager and set and the GL codes have not a realistic timeline for been mapped over. This is conversion of the deposit slip creating significant duplication system with the I.T. division. of workload for accounting analysts doing bank reconciliations. This is highly manual and wastes valuable time that is required for analyses, auditing and troubleshootin in AP. FINANCIAL IMPLICATIONS: None. ACKNOWLEDGED BY: Carla Ladd, CAO 4-5