compliance and control audit report - kslpa.org · formation about the audit's findings, ......

COMPLIANCE AND CONTROL AUDIT REPORT

STATE LIBRARY HISTORICAL SOCIETY

ARTS COMMISSION PUBLIC BROADCASTING COMMISSION

OBTAINING AUDIT INFORMATION

This audit was conducted by Randy Tongier, Financial-Compliance Audit Manager, and Roy Fitzpatrick, Auditor, of the Division's staff. If you need any additional information about the audit's findings, please contact Mr. Tongier at the Division's offices.

T ABLE OF CONTENTS

SUMMARY OF AUDIT FINDINGS

STATE LIBRARY HISTORICAL SOCIETY ARTS COMMISSION PUBLIC BROADCASTING COMMISSION

Background ....... . .................... . ............................................. 2

Did the Agencies Reviewed in This Audit Comply With the Legal and Procedural Requirements Applicable To Their Receipts, And Provide Adequate Internal Control Over Receipts? ........................ .4

Recommendations ........................................................ 5, 6

Follow Up of Prior Audit Findings and Recommendations .................... 7

Recommendation ............................................................ .7

APPENDIX A: Agency Responses ............................................ 9



Summary of Legislative Post Audit's Findings

The Legislative Division of Post Audit conducted compliance and control audit work at the State Library, Historical Society, Arts Commission, and Public Broadcasting Commission in partial fulfillment of the Legislative Post Audit Act's requirement that audit work be conducted at each State agency at least once every three years. This compliance and control audit addressed the area of receipts. The audit also followed up on prior audit findings and recommendations. The period covered by this audit was fiscal year 1990.

Did the agencies reviewed in this audit comply with legal and procedural requirement applicable to its receipts, and provide adequate internal control over receipts? With two exceptions, the agency complied with the legal and procedural requirements applicable to their receipts, and provided adequate internal control over those receipts. The Historical Society did not always deposit receipts in the State Treasury on a timely basis. In addition, the State Library could improve its internal control over receipts by improving its recordkeeping procedures.

The prior audit report addressed two recommendations to the State Library, one to the Historical Society, and three to the Arts Commission. All prior audit recommendations had been implemented except one addressed to the State Library. That recommendation is repeated.

The report recommends that the Historical Society deposit its receipts in the State Treasury on a timely basis. The report also recommends that the State Library include the date when it records receipts. Finally, the report recommends that the State Library reconcile its federal financial reports with its own grant accounting records. We would be happy to discuss these recommendations or any other items in the report with legislative committees, individual legislators, or other State officials.

Barbara J. Hint Legislative Post Auditor



The Legislative Post Audit Act requires that an annual financial statement audit be conducted of the State's general purpose financial statements. The Act also requires that audit work be conducted at each State agency at least once every three years. Audit work conducted as part of the annual financial statement audit partially fulfills the latter requirement. Also in partial fulfillment of that requirement, the Legislative Division of Post Audit has conducted compliance and control audit work at the State Library, Historical Society, Arts Commission, and Public Broadcasting Commission, covering fiscal year 1990.

To avoid duplication of audit work conducted as part of the annual, Statewide audit, our audit work focused on areas not covered by the Statewide audit. These areas generally include receipts and locally administered funds, although none of the agencies covered by this report had locally administered funds. In addition, we followed up on any prior audit findings and recommendations. The audit addresses the following specific question:

1. Did the agencies reviewed in this audit comply with the legal and procedural requirements applicable to their receipts, and provide adequate internal control over receipts?

We identified the applicable legal and procedural requirements by reviewing relevant statutes, administrative regulations, and sections of the Division of Accounts and Reports' Policy and Procedure Manual. We also interviewed agency personnel, reviewed written procedures, and examined related supporting documents to identify the agencies' procedures for handling receipts. We then compared those procedures with the applicable legal and procedural requirements. In addition, we identified the potential for loss or misuse of receipts, and we evaluated the level of control provided by the agencies' procedures in preventing and detecting loss or misuse of those moneys. Finally, we performed analytical tests of receipts, reviewed accounting records, and tested a sample of transactions at each agency.

In general, we found that the agencies complied with the applicable requirements, and provided adequate internal controls. However, the Historical Society did not always deposit its receipts on a timely basis, and the State Library needs to improve its recordkeeping procedures to help ensure that receipts are deposited on a timely basis. We also found that the State Library did not implement a prior audit recommendation regarding the accuracy of federal grant recordkeeping and reporting. That recommendation is repeated.

In conducting this audit work, we followed all applicable generally accepted government auditing standards set forth by the U.S. General Accounting Office.

1.

Background

This audit report covers four State agencies-the State Library, Historical Society, Arts Commission, and Public Broadcasting Commission. The operations of each agency are briefly described below.

State Library

The State Library provides informational services to the various branches of State government. In addition, it provides consultation services to libraries in the State, coordinates local and regional library information services, and administers grants to public libraries and the seven regional systems of cooperating libraries. The State Librarian, appointed by the Governor, is the head of the agency.

The operations of the State Library are funded by appropriations from the State General Fund, federal grants, and service fees. During fiscal year 1990, the Library collected more than $1.2 million. According to the Governor's Budget Report, the Library's fiscal year 1990 expenditures totaied $4.5 million, about $3.0 million (67 percent) of which was for aid to local and regional libraries.

Historical Society

The Historical Society was chartered as a nonprofit organization in 1875. In 1879, it became the official trustee for the State historical collections. Since then, the Society has operated both as a nonprofit organization and as a State agency. The Historical Society identifies, collects, preserves, researches, and interprets materials pertaining to Kansas and regional history. An executive director, elected by the Society's Board of Directors, manages the operations of the organization.

The operations of the agency are funded by appropriations from the State General Fund, with additional moneys provided from federal grants and fees collected. During fiscal year 1990, the Society collected more than $500,000. According to the Governor's Budget Report, the Society's fiscal year 1990 expenditures totaled $5.9 million, about $3.9 million (66 percent) of which was for salaries and wages.

Arts Commission

The Arts Commission distributes State and federal moneys to promote the development of the arts in Kansas. The Commission comprises 12 members appointed by the Governor. The Commission designates an executive director to administer the agency's activities.

Operations of the Commission are funded by appropriations from the State General Fund, federal grants, statutory transfers from the Department of Commerce, and donations. During fiscal year 1990, the Commission collected about $1.2 million. According to the Governor's Budget Report, the agency's fiscal year 1990 ex-

2.

penditures totaled $1.7 million, of which $1.2 million (70 percent) was for aid to arts projects.

Public Broadcasting Commission

The Public Broadcasting Commission is responsible for planning for public television and radio stations in unserved areas of the State, providing the local share of construction and equipment costs necessary to obtain federal funding for new broadcasting facilities, assisting in constructing and equipping new stations when federal funds are not available, and planning and providing funds for interconnecting new and existing stations.

The Commission comprises seven members-the Secretary of Administration, a member of the Board of Regents, a member of the Board of Education, a member of the Senate, a member of the House of Representatives, and two members appointed by the Governor to represent the general public.

Operations of the Public Broadcasting Commission are funded by appropriations from the State General Fund and a transfer from the Department of Commerce. For fiscal year 1990, the transfer from the Department of Commerce amounted to $30,000. According to the Governor's Budget Report, the agency's fiscal year 1990 expenditures totaled $1.0 million, essentially all of which was for aid to new and existing public broadcasting facilities.

3.

Did the Agencies Reviewed in This Audit Comply With the Legal and Procedural Requirements

Applicable To Their Receipts, and Provide Adequate Internal Control Over Receipts?

For fiscal year 1990, our review showed that these agencies complied with legal and procedural requirements applicable to receipts, except that the Historical Society did not deposit receipts in the State Treasury on a timely basis. In addition, the agencies' procedures provided adequate internal control over receipts, except that the State Library's procedures did not ensure that its receipts were deposited in the State Treasury on a timely basis. Our conclusions were based on the following.

With Two Exceptions, the Agencies Complied With Applicable Requirements And Provided Adequate Controls

In the area of receipts, we identified the agencies' procedures for handling receipts, determined whether those procedures met applicable legal requirements, evaluated the internal controls provided by those procedures, and tested a sample of transactions, records, and reports to determine whether the applicable procedures had been followed. In particular, we determined whether:

o amounts due the agencies were properly assessed and collected

o amounts collected by the agencies were deposited in the State Treasury on a timely basis

o the agencies' receipts procedures provided adequate controls to limit to an acceptable level the risk of loss or misuse of receipts and the risk of noncompliance with legal and procedural requirements

With the exceptions discussed in the following section, we found that amounts due were properly assessed and collected, amounts collected were deposited on a timely basis, and agency procedures provided adequate controls.

The Historical Society Did Not Deposit Receipts As Often as Required by State Law

State law requires State agencies located in Topeka to deposit receipts in the State Treasury on a daily basis, unless the Pooled Money Investment Board grants an exemption to that requirement. In testing for compliance with this requirement, we found that the Historical Society did not deposit receipts as frequently as required.

The Pooled Money Investment Board exempted the Historical Society from the daily deposit requirement. Instead, the Board required the Society to deposit its receipts in the State Treasury weekly. The individual receipts items comprise mainly fees for services.

4.

In testing for compliance with the requirements for timely deposit of receipts, we found that the Society collected receipts during each of the 52 weeks of fiscal year 1990. However, the agency deposited receipts in only 42 of those weeks. That means that the Historical Society complied with the timely deposit requirement only about 80 percent of the time.

Timely deposit of receipts not only achieves compliance with legal requirements, but it also reduces the risk of loss or misuse because moneys in the State Treasury are more secure than moneys on hand at a State agency's offices. In addition, those moneys are not available for the Pooled Money Investment Board to invest, and the State loses the interest it could be earning on those moneys. Although information was not available to allow us to estimate the loss, it appears that the amount of interest lost was very small. However, even this loss could have been avoided.

Recommendation

The Historical Society should ensure that it meets the State's requirements for timely deposit of moneys in the State Treasury.

The State Library Should Ensure That It Deposits Its Receipts on a Timely Basis

The Pooled Money Investment Board also exempted the State Library from the daily deposit requirement. Instead, the Board required the agency to deposit its receipts in the State Treasury weekly or when receipts on hand totaled $50 or more. The individual receipts items comprise mainly fees for services. To document that the $50 limit requirement was met, and to allow for agency management review to ensure that this requirement was met, the Library's receipts records should have shown the date that each receipt was collected.

In testing for compliance with this requirements, we could not determine if the Library met the $50 limit requirement because receipts were dated according to when they were recorded in the cash receipts book rather than when they were collected. As a result of this practice, the agency was not able to document its adherence to the $50 limit requirement. In addition, the agency's management could not ensure that the requirement was met.

5.

Recommendation

To document adherence to the timely deposit requirement, and to allow its management to ensure adherence to that requirement, the State Library should date its receipts according to when they are collected.

6.

Follow Up of Prior Audit Findings and Recommendations

As part of this audit, we followed up on prior audit findings and related recommendations. The prior audit reports made three audit recommendations to the State Library, one audit recommendation to the Historical Society, and three audit recommendations to the Arts Commission. Our review indicated that six of the seven prior audit recommendations had been implemented. The remaining recommendation is repeated. The individual findings and recommendations are discussed in the following sections.

State Library

The prior audit report recommended that the State Library ensure that its property records are updated on a monthly basis, and that its annual property reports are prepared and filed in accordance with State requirements.

We found that this recommendation had been implemented.

The prior audit report recommended that the State Library reconcile amounts shown on federal financial reports to the State's central accounting system and to its own grant accounting records.

We found that the State Library reconciled federal financial reports to the State's central accounting system. However, we also found that the Library did not reconcile those reports to its own grant accounting records.

In reviewing this situation, we compared the Library's federal financial reports to its grant accounting records. We found that the Title I grant's available balance according to federal financial reports was about $30,000 more than the available balance shown in the Library's grant accounting records.

Recommendation

The State Library should reconcile its federal financial reports to its own grant accounting records. Any differences found should be promptly resolved. This is a repeated recommendation.

Historical Society

The Historical Society should ensure that unallowable Central Motor Pool charges are not included in reimbursement claims on federal grant programs. The Society should adjust for past incorrect charges.

7.


Arts Commission

The Arts Commission should ensure that federal financial reports agree with its own accounting records, that sources of all information are clearly shown, and that the method of allocating administrative expenses to federal programs is fully documented.


The Arts Commission should ensure that federal financial reports are filed on a timely basis. In cases where circumstances beyond the Commission's control prevent compliance with this requirement, the agency should either file preliminary reports or request an extension of the due date.


The Arts Commission should ensure that its final descriptive report for the Basic State Operating Grant is accurate.


Public Broadcastint: Commission

This agency had no prior audit findings and recommendations.

8.

Appendix A

Agency Responses

On December 17, we provided copies of the draft audit report to the State Library, Historical Society, Arts Commission, and the Public Broadcasting Commission. Their responses are included as this Appendix.

9.

Kansas State Library Capitol Building

January 6, 1992

Barbara J. Hinton, Legislative Post Auditor Legislative Division of Post Audit Merchants Bank Tower 800 SW Jackson, Suite 1200 Topeka, Kansas Building Mail

Dear Ms Hinton:

Topeka 66612

, I ,

6 1992

Thank you for the opportunity to respond to the draft copy of the FY 1990 compliance and control report for the State Library.

We concur with the findings of the report and make the following comments on the two recommendations:

1. Recommendation on proper dating of cash receipts -

Subsequent to the comment of the auditor during the audit process, the agency has changed the method of dating of cash receipts as the auditor recommended. The current method of dating will enable the auditor to verify the timely deposits of cash receipts.

2. Recommendation on the reconciliation of the federal financial report to the agency's internal accounting record -

The agency's accountant is working to reconcile the federal financial reports with the agency accounting record. We recognize the importance of locating and correcting the error which apparently occured in FY 1989 and are devoting as much time to this search as the maintenance of current financial controls allows. As stated in the previous audit response, the improved procedure for completion of reconciliations for current reporting is being used.

Sincerely,

~(~ Duane F. Johnson State Librarian

J O.

913-296-3296 800-432-3919 fax - 913-296-6650

KANSAS STATE HISTORICAL SOCIETY CENTER FOR HISTORICAL RESEARCH 120 West Tenth • Topeka, Kansas 66612-1291 913/296-3251

FAX #913/296-1 005

KANSAS MUSEUM OF HISTORY 6425 South West Sixth • Topeka, Kansas 66615-1099 • 913/272-8681

Ms. Barbara J. Hinton Legislative Post Auditor Legislative Division of Post Audit 800 S.W. Jackson, suite 1200 Topeka, Kansas 66612-2212

Dear Ms. Hinton:

December 31, 1991

JAN 2 1992

We have received the draft copy of the compliance and control audit report for state fiscal year 1990. A review of our records indicate that in four of the eight weeks for which we were sited for not making a weekly deposit the amount of receipts totaled less than $1,000. We have enclosed a copy of a letter from James Cobler, dated December 22, 1980, in which he approved the Society to make deposits on a weekly basis "or until the amount of receipts on hand total $1,000, whichever occurs first." We also know that during FY 1990, there was no backup to the employee who is responsible for making all deposits, therefore, if that person was sick or on annual leave, the deposits were not made during that period of time. This problem has since been alleviated and a review of deposits for FY 1991 and FY 1992 indicate that this occurred only four times in FY 1991 and twice in FY 1992. We continue to have some problems with the period during year end closing due to the need to have all staff helping with the accounts payable process, however we will attempt to correct that as well.

We appreciate this opportunity to respond to the audit findings. If you need additional information, please contact me at 296-3283.

enclosure

Sincerely,

C2)<_~o, ~ ~~~

11.

Ruth A. Sherrer Associate Director

STATE OF KANSAS

DEPARTMENT OF ADMINISTRATION DIVISION OF ACCOUNTS AND REPORTS

JOHN CARLIN Governor

JAMES R. COBLER Director of Accounts and Reports

Mr. Robert W. Richmond

December 22, 1980

Kansas State Historical Society Memorial Building 120 West Tenth Street Topeka, Kansas 66612

Dear Mr. Richmond:

State Office Bui lding Topeka, Kansas 66612 (913) 296-2311

We have now completed our review of your request for authorization to make deposits less frequently than daily to the State Treasurer. Our review of your deposits for four months reveals that your average weekly deposit is $3,668.03, not including federal grants or other donations. The procedures you outlined in your letter of December 9, 1980 would seem adequate to assure proper control and accountability for these receipts.

In view of this, I will approve deposits of receipts on a weekly basis or until the amount of receipts on hand total $1,000, whichever occurs first. This authorization is limited to receipts from other historical sites, items the Society offers for sale, and for services rendered. Large receipts will continue to be deposited immediately with the State Treasurer. All receipts should be deposited intact.

JRC:DLI:eme

cc: Harold Gibbon

Very truly yours,

,.) . ,J. " II '-,'\·-/rl." , I

- ". 1 L 'V ... • '-. //\ . _ ~ l .,. ',- \

James R. Cobler, Director Division of Accounts and Reports

12 .

DOROTHY L. ILGEN - EXECUTIVE DIRECTOR

COM MIS S ION SUITE 1004 - JAYHAWK TOWER

January 13, 1991

Rand y Tangier Legislative Post Audit 800 Jackson, Suite 1200 Topeka, KS 66612

Dear Mr. Tangier:

913-296-3335

700 JACKSON TOPEKA, KANSAS 66603-3731

JAN I 4

Thank you for giving the Kansas Arts Commission an opportunity to respond to the draft audit of the Kansas Arts Commission's fiscal records.

The Kansas Arts Commission, with a fiscal staff of one person, strives very hard to comply with state and federal laws and regulations regarding maintenance of fiscal records and filing financial statements. We will continue to ensure good fiscal control and accurate reporting for the agency.

sintJ~Jl __ f ~ Dorothy L. Ilge] '~ Executive Direcfor

cc: Linda Lee Woodbury, President Kansas Arts Commission

13.

State of Kansas

blic Broadcasting Commission XXXXX~OO»K~XKOO~X~~~«~X~~H~~~~xNX~~~~~~~X

Room 751-S, LSOB, 900 Jackson, Topeka, KS 66612 (913)296-3463

January 14, 1992

Randy Tongier Legislative Division of Post Audit 1200 Merchants Bank Tower 8th and Jackson Topeka, KS 66612-2212

Dear Mr. Tongier:

JAN I 4

Thank you for the opportunity to review a draft copy of your compliance and control audit report on the Public Broadcasting Commission for Fiscal Year 1990. Since the report presents no audit findings or recommendations addressed to the Public Broadcasting Commission, I am happy to accept the draft report as written and I have no additional comments to make.

VFB:ee vbl1392

Sincerely,

iJ~F.JJ~ Virgil F. Basgall Chairman Public Broadcasting Commission

cc: James R. Cobler, Secretary Department of Administration

Jean Turner, Director, DISC

14.

State Library Historical Society Arts Commission

Public Broadcasting Commission

ABSTRACT PARAGRAPH

The agencies complied with legal and procedural requirements, and provided adequate controls over receipts, with several exceptions. The Historical Society should deposit its receipts in the State Treasury on a timely basis. The State Library should include the date when it records receipts. Finally, the State Library should reconcile its federal financial reports with its own grant accounting records.

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