Office of the Chief Financial Officer

Executive Summary for Closed Reports

Original Report

Report No. IA:OTR:2911-C15: Final Report on the Review of Income Tax Secured Bond Fund at OTR and Related Agencies, dated August 2, 2010.

Current Status

Closed.

Chief Risk Officer’s Risk Assessment

The inherent risk associated with maintaining the integrity of the Income Tax Secured Bond Fund is categorized as High.  The OCFO takes seriously fraud risks and risks associated with misappropriation of District funds.  Further, the OCFO takes seriously its commitment to investors who invest in its income tax secured bonds.  As such, particular attention has been paid to all recommendations provided by the Office of Integrity and Oversight.

Overview of Recommendations

OIO offered nineteen recommendations.  Sixteen have been fully implemented to further strengthen existing internal controls.

• Each unit manager performs a monthly review of inventory receipt dates and also performs random employee quality assurance checks.  The findings of these reviews are discussed with unit employees and any necessary corrective action is taken.  A copy of the report is forwarded to the Branch Chief for further review.   This is included in the 2013 Manual of Tax and Revenue (MOTR).
• The root cause analysis for non-secure tax types recorded to the secure Bank ID (BID) was performed, and employee error when identifying the deposit designation was found to be the primary problem.  The Remittance Processing Unit has separate staging areas for items that need to be deposited.  Job Aids listing each tax type and their designated deposit location are posted in the unit.  A full listing of all tax types and deposit locations is also documented in the deposit section of the MOTR.    
• The Returns Processing Administration (RPA) has established a batch tracking process to track all payments from receipt to deposit.  All payment amounts listed on the original tape must be reconciled against the Return Routing Transmittal prior to daily deposit.    
• The monitoring of the segregation of duties is part of the unit business process performed daily by the manager.  The manager uses a daily schedule to assign key functions of the deposit process to different employees to segregate the functions and ensure the accuracy of all batches deposited.  This process eliminates the occurrence of misbalanced batches.  The daily schedule is maintained in the manager’s office. 
• The mail retrieval and extraction are performed in two separate locations with locked doors that are only accessible by key or keycard.
• The 48-hour Prompt Deposit guidelines for all clean payments have been established and are documented in the OTR/RPA MOTR.  The timeframe is measured daily during the preparation of RPA Prompt Deposit Reports.
• The procedure for alerting the staff supervisor of deposits containing payments for multiple tax types is documented in the OTR/RPA MOTR under the combination payments section and issued to all unit employees.
• The manager performs a monthly quality assurance review on deposits made on combination payments.  The manager randomly selects a day to review any combination payments that were received to ensure that the money is correctly allocated to the necessary tax type.  The results of this review is documented and maintained by the Branch Chief.
• OTR has developed policies and procedures regarding deposit reconciliations, which are performed by Revenue Accounting Administration (RAA) and forwarded to RPA.  These procedures include documentation of OTR's exemption from OFOS' bank reconciliation directive (relating to completion of disbursement reconciliations on these accounts, with the exception of Business Improvement District accounts).
• Upon receipt of an open reconciling item, RPA Accounting Unit performs the research and journal correction, where applicable, to conform with bank reconciliation findings.  Reconciliations are performed on a monthly basis and procedures are documented in the Accounting Manual.
• The Office of Financial Operations and Systems’ (OFOS) cash reconciliation unit retains responsibilities for preparing monthly bank reconciliations.  Procedures have been developed and established for the preparation of bank reconciliation to ensure compliance with requirements for the timely resolution of reconciling items and for effective supervisory reviews.
• RAA policies and procedures require that deposit reconciliations be completed 5 days after the end of the monthly closing period, or by approximately the 20th of the following month.  The procedures define timely resolution as being within the following period, while acknowledging that this is not always possible.  All reconciling items are tracked and monitored through to final resolution.
• Currently RAA forwards the completed reconciliation received from OFOS to the RPA managers to correct reconciling items between bank and SOAR.  Both RAA and RPA have procedures pertaining to reconciling issues.
• RAA monitors and reconciles these accounts monthly.
• This was resolved in subsequent reconciliations.  Any overfunding of the trustee account flows back to the District's Concentration Account.
• The Office of Finance and Treasury (OFT) has developed and established documented procedures for reviewing bank transfers performed by bank to ensure they reflect deposits net of return items.

The remaining three recommendations will not be implemented.

• An assessment of the new location was performed and the implementation of security cameras in RPA was recommended.   However, the funding for these cameras was not available due to budget constraints.  Other security system controls exist, including restricted areas and segregation of duties.  The most compelling rationale for not implementing the cameras is the significant decrease in in-house processing with the new lockbox contract; over 90% of the work comes through lockbox.
• Because the use of new cameras will not be implemented, new procedures for the security camera monitoring plan are not required.  
• The procedures for prompt Sales & Use and Real Property tax payments where there are issues that preclude automated processing have been implemented.  The deposits are made immediately into an exception bank account and research is then performed later from a copy of the payment.  A new exception bank account will not be implemented as the District is limiting the numbers of accounts. 

To view the full report Click:   Income Tax Secured Bond Fund Full Audit Report