final internal audit report - worcestershire.gov.uk€¦ · this report is not for reproduction...

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Final

Internal Audit

Report

Central Debtors –

Revenue Section

Document Details:

Reference: 1.1 2014/15 Senior Manager, Internal Audit & Assurance: Dave Jenkins ext. 6567 Date: 17th December 2014

Internal Audit Report – Central Debtors

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www.worcestershire.gov.uk

Executive Summary 1.

Introduction

An audit of the Central Debtors Section within the Revenue Section at County Hall

was included as part of the 2014/15 Internal Audit plan. The Audit examined the

systems and procedures in operation with regard to the Central Debtors which is

based within the Revenue Section at Worcestershire County Council and accounts

for a significant part of the Council's Income.

The total of the Council's short term Debtors recorded in the Statement of

Accounts as at 31.03.14 was £43 million.

With regard to the HR/Finance and Technology (SAP) commissioning process

which includes the Debtor's function, Internal Audit has focused on both risks and

the control environment going forward. This has been facilitated by Internal Audit

being represented on the HR/Finance Steering Group and commenting on risks

and controls as the process progresses and also involvement in the writing of the

contract and formulation of KPI's. The Debtors' service specification was also

reviewed and no significant omissions were identified.

Overall Opinion

It is pleasing that the overall opinion of this review is ‘significant assurance’.

There are a number of areas of good practice within the Council which have led to

the significant assurance opinion, including:

There are adequate segregation of duties between those responsible for the collecting of income and raising of invoices along with the officers responsible for the recording of income and posting of the receipt of income;

Arrears recovery procedures are clearly defined and have been implemented in all cases and within appropriate timescales for the sample of 20 open billing documents examined;

Debts relating to income were raised appropriately and not prior to the date of the provision of goods or services for the sample of 20 cleared billing documents examined;

Appropriate action had been taken to remove VF04 transactions which are open sales items which have not been paid;

Income received in relation to the payment of debtor invoices had been allocated to the correct account and invoice number for the 20 cleared billing documents examined.

http://www.worcestershire.gov.uk/


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Whilst some progress has been made towards implementing the recommendations

made in the previous report there are still some areas where progress is ongoing.

This review identified the following areas:

Directorates are still receiving credits automatically against debtor invoices resulting in no incentive to chase down unpaid debtor invoices;

Reasons for cancellations/amendments to invoices not always being provided;

Customer accounts which have a dunning block placed on them to stop reminders being sent out in respect of debtor accounts in dispute are not supported by appropriate evidence;

Ten out of twenty of the accounts tested were found to have no supporting evidence or inadequate supporting evidence on the SAP system to suggest they were being subject to investigative action and for four items in the sample there were no backing documents for the cancellation/amendment;

Revenue Section staff do not have their roles within SAP reviewed on a regular basis to ensure appropriate segregation of duties and appropriate access;

Credit memos were not always countersigned by the AR team or had not been signed by an authorising officer independent of the issuing officer.

Overall Audit Opinion

Full assurance Full assurance that the system of internal control meets the organisation’s objectives and controls are consistently applied.

Significant assurance

Significant assurance that there is a generally sound system of control designed to meet the organisation’s objectives. However, some weaknesses in the design or inconsistent application of controls put the achievement of some objectives at some risk.

Limited assurance

Limited assurance as weaknesses in the design or inconsistent application of controls put the achievement of the organisation’s objectives at risk in some of the areas reviewed.

No assurance No assurance can be given on the system of internal control as weaknesses in the design and/or operation of key control could result or have resulted in failure(s) to achieve the organisation’s objectives in the area(s) reviewed.



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Summary of Conclusions 2.

2.1. The conclusion for each control objective evaluated as part of this audit was as follows:

Control Objective Assurance

Full Substantial Moderate Limited

CONTROL OBJECTIVE 1: Previous audit recommendations have been implemented.

CONTROL OBJECTIVE 2: To ensure that debtor service objectives, policies and procedures have been established and properly communicated.

CONTROL OBJECTIVE 3: Authorities, roles and responsibilities have been identified, allocated, recorded and communicated to the relevant officers and training provided.

CONTROL OBJECTIVE 4: Debtor Accounts are coded correctly in a timely manner and reflected accurately in the general ledger, with adequate segregation of duties over processes and appropriate collection and amendment procedures.

CONTROL OBJECTIVE 5: Management information, in respect of income from debtors, is prepared and reported in a timely manner and action taken when deemed appropriate by Management.

CONTROL OBJECTIVE 6: Risks have been identified and, where appropriate, can be transferred to any new provider.

2.2. The recommendations arising from the review are ranked according to their level of priority as detailed at the end of the report within the detailed audit findings. Recommendations are also colour coded according to their level of priority with the highest priorities highlighted in red, medium priorities in amber and lower priorities in green. In addition, the detailed audit findings include columns for the management response, the responsible officer and the time scale for implementation of all agreed recommendations.

2.3. Where high recommendations are made within this report it would be expected that they should be implemented within three months from the date of the report to ensure that the major areas of risk have either been resolved or that mitigating controls have been put in place and that medium and low recommendations will be implemented within six and nine months respectively.



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Limitations Regarding The Scope of The Audit 3.

3.1. The following areas did not form part of this audit:

Write-offs, which was recently covered as part of a separate audit.

The litigation process undertaken by Legal Services.

Ensuring that income is being received from all expected sources.

Acknowledgements 4.

4.1. Audit would like to thank all involved for their assistance during this review



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Detailed Audit Findings 5.

Ref. Priority Findings Risk Arising/ Consequence

Recommendation Management Response Responsibility and Timescale

Recommendation Implemented

(Officer & Date)

CO1: Previous audit recommendations have been implemented.

1

Medium

Of the six recommendations contained in the previous Audit report dated February 2014, three of the recommendations had not been fully implemented:

Directorates are still receiving credits automatically against debtor invoices resulting in no incentive to chase down unpaid debtor invoices.

Reasons for cancellations/ amendments to documents are still not provided in all cases.

Known areas of weakness have not been addressed.

Management should aim to successfully implement all the previously accepted recommendations detailed in the 2013/14 Audit report.

The AR Team has consistently advocated the review of this process where Services receive a credit before income is received. However, a standardised consistent approach towards the recovery of debt across the Authority (delivered through co-ordinated and standardised training) would help to raise the profile of the recovery of debt throughout the organisation, raising awareness of individual's responsibilities within the process. This is disappointing from the AR Team's perspective – the cancellation/amendment form has been designed (by the team) specifically

AR Officer – Implemented

9 February 2015 Nicky Hardman



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(Officer & Date)

Customer accounts which have a dunning block placed on them to stop reminders being sent out in respect of debtor accounts in dispute are not always being supported by appropriate evidence.

to capture this information. Going forward the Team will strive to ensure that all requests have stated a reason for cancellation – this will checked by the team member processing cancellations and then verified by the team member authorising the cancellations The AR Team are aware of the procedures around placing blocks on debtor invoices and providing appropriate supporting evidence, so again this is disappointing from the team's perspective. The findings of the Audit have been shared with the team and they are therefore aware that improvements need to be made in this area. However, It should also be noted that some blocks and notes are placed directly on accounts by members of DASH – this is not something that the AR


9 February 2015 Nicky Hardman



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(Officer & Date)

Team are entirely comfortable with as this obviously increases the risk of inconsistencies within the process - also AR's ability to monitor and control this is limited if access (to do this) has been given to users in DASH - this was originally put in place for Fairer Charging Customers only – however, DASH are also now applying blocks and notes to general customers - is this likely to be picked up within a DASH Audit at some point? Would also appreciate Audit's viewpoint on this as all other Directorates instruct AR to block invoices rather than having direct access to this functionality in SAP

C02: To ensure that debtor service objectives, policies and procedures have been established and properly communicated.

2

Low

Current policies and procedures do not reflect current working practices.

Current working practices will not be reflected.

It is acknowledged that revisions to current policies and procedures

The AR Procedures Manual update is now complete but will obviously

AR Officer – completion by end of



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(Officer & Date)

are being undertaken at present.

continue to be regularly reviewed to ensure it remains up to date and reflects current practices and procedures. Job descriptions for the AR Team will be reviewed within the given timescale and forwarded to HR for approval

June 2015

CONTROL OBJECTIVE 3: Authorities, roles and responsibilities have been identified, allocated, recorded and communicated to the relevant officers and training provided.

3

Medium

Revenue Section staff do not have their roles within SAP reviewed on a regular basis to ensure appropriate segregation of duties and appropriate access.

Unauthorised access to the SAP system.

Revenue Section staff user’s roles within SAP should be reviewed on a regular basis to ensure appropriate segregation of duties and appropriate access.

The variety and volume of tasks carried out within AR function requires the team to have knowledge of many processes and access to many AR SAP transactions – this gives the team flexibility and allows the service to be unaffected by unplanned team absences or unexpected/unplanned increases in workload. The team always ensure that (where required) work is checked, authorised and approved by one or more team members (in addition to the person carrying out

AR Officer - Ongoing



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(Officer & Date)

the transaction/task) – All additional SAP transaction access requests for the team are made by the AR Officer and therefore they are assessed (in terms of their appropriateness regarding segregation of duties) at this point.

4

Medium Ten out of twenty of the accounts tested were found to have no supporting evidence or inadequate supporting evidence on the SAP system to suggest they were being subject to investigative action.

Incomplete audit trail.

Ensuring all customer accounts with a dunning block applied are supported with information to evidence why they are blocked and what action is being taken to recover this debt or write it off.

See response to CO1.point 3

AR Officer - Implemented

10 February 2015

5

Low One out of twenty of the accounts tested did not have an appropriate dunning block placed on the account to show it was subject to the appropriate investigation.

Incomplete audit trail.

All accounts which are subject to investigation should have the appropriate dunning block placed on them.

See response to CO1.point 3

AR Officer - Implemented

10 February 2015

CO4: Debtor Accounts are coded correctly and raised in a timely manner and are reflected accurately in the general ledger, with adequate segregation of duties over processes and appropriate collection and amendment procedures.

For four items in the sample Incomplete audit Reasons for cancellations/ See response to AR Officer - 10 February



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(Officer & Date)

6 Medium tested there were no backing documents for the cancellation/ amendment.

trail.

amendments to documents must be provided in all cases

CO1.point 2 Implemented 2015

7

Medium

For two of the items, a memo rather than the standard Debtor Invoice Cancellation/Reduction Request form had been used. These memos had not been signed by an authorising officer independent of the issuing officer. Furthermore, there is still no up to date record of issuing officers or authorisers. The practicalities of this are recognised and it is understood that the workflow solution previously agreed for credit memos has not gone live or been rolled out within the agreed timescales due to resources in S&CA.

Lack of segregation on duties. Inability to verify issuing officer or authoriser's signature.

Cancellations/ amendments to debtor invoices should be signed by an authorising officer independent of the issuing officer. Issuing officers should be reminded to use the standard form when requesting a cancellation or reduction of a debtor invoice. The workflow solution should be introduced as soon as possible.

The AR Team will reject any cancellation/amendment requests that are not made using the standard cancellation/amendment request form and the issuing officer will be requested to submit the standard form. The AR Team have considered the practicalities of compiling a master list of authorisers (budget holders/managers) for the cancellation and amendment of debtor invoices however this would be very difficult to compile and keep up to date, particularly in the current climate of commissioning where the


10 February 2015



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(Officer & Date)

organisation is constantly changing . SAP does not always accurately reflect the changing structure of the organisation (for example, where the responsibility for a cost centre lies) and therefore it would be difficult for the AR Team to compile and maintain a relevant and up to date record in these circumstances. The workflow solution is obviously the preferred option here but is still in progress. The AR Officer has raised the issue that rollout of this will take considerable time and effort (due to the number and location and location of people involved) and currently it is unclear where the responsibility for training lies. This will be discussed further with S&CA

AR Officer to meet with S&CA Team representative on 26 Feb 2015 to discuss progress

8

Low

For one of the items, the Debtor Invoice

Lack of segregation on

Cancellations/ amendments to

The AR Team will continue to try to ensure


23 February 2015 – AR



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(Officer & Date)

Cancellation/Reduction Request form had not been countersigned by the AR team in accordance with their process and procedures. It is noted that the standard form does not have a space for it to be countersigned.

duties. Lack of verification of Credit Memos.

documents should be countersigned in all cases by an appropriate officer. Consideration should be given to revising the standard form so that there is a designated place for it to be countersigned.

that all cancellation and amendment (paper) requests are countersigned by the member of the AR Team that has authorised the request via workflow in SAP. The AR Officer will give consideration to revising the form so that there is a designated place for it to be countersigned.

AR Officer – 30 April 2015

Officer

Key to Priorities

High

This is essential to provide satisfactory control of serious risk(s)

Medium

This is important to provide satisfactory control of risk

Low

This will improve internal control

Limitations relating to the Internal Auditor's work

The matters raised in this report are limited to those that came to our attention, from the relevant sample selected, during the course of our audit and to the extent that every system is subject to inherent weaknesses such as human error or the deliberate circumvention of controls. Our assessment of the controls which are developed and maintained by management is also limited to the time of the audit work and cannot take account of future changes in the control environment.



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