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HomeMy WebLinkAboutMINUTES - 10051999 - C68 ........................ ................ ��pp p('��qq ss��qq pp''�� ((qqyy y'�gg� yy q��yyq g(,p'�q IOCa02 TO. F�VtS 3E6ld Sd 3` e�Vi�E:.fi 48.3 L.YE�S uontra INTERNAL OPERATIONS COMMITTEE St September 27, 1999County SUBJECT: EFFORTS TO PREVENT THE THEFT OF FUNDS FROM THE COUNTY SPECIFIC AEOUES(S)OR,RECOMMENDATFON(S)&BACKGROUND AND JUSTIFICATION RECOMMENDATIONS: 1. ACCEPT the attached report from the County Administrator, Auditor- Controller and Director of Employment and Human Services on the steps which have been taken to prevent the type of theft of funds which occurred recently in the Employment and Human Services(formerly the Social Service) Department. 2. DIRECT the County Administrator, Auditor-Controller and Director of Employment and Human Services to make another status report to the 2000 Internal Operations Committee during the month of April 2000, updating the Committee on the steps which have been taken since September 1999 to detect and prevent such thefts and for this purpose REFER this matter to the 2900 Internal Operations Committee. 3. REMOVE this item as a referral to the 1999 Internal Operations Committee. On April 6, 1999, the Board of Supervisors approved a repot submitted by Supervisor DeSaulnier that requested the Employment and Human Services Director to report on actions taken by the Department following the filing of fraud charges against two employees of the Department. The Board also directed the County CONTINUED ON ATTACHMENT: YES SIGNATURE: RECOMMENDATION OF COUNTY ADMfNfS ATOR RECOMMENDATION CF SSOARD COMMITTEE AP.PSOSiE t7T€?ER ACTION LE 8S?a€3D CSf4 ___ APP DIED AS R�COIIfJ4Ef�t1E°.3 . _ O7FdER VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE X UNANIMOUS{ABSENT m m m m ) AND CORRECT COPY OF AN ACTION TAKEN AYES...®... NOES:�---- — � AND ENTERER ON THE MINUTES Of:THE BOARD ASSENT: ABSTAIN: OF SUPERVISORS ON THE DATE SHOWN. aTTEST�D, oct��se� 5� I99� Contact: County y e�l�r3'trolltratcr PHIL BATCHELOR CLERK OF HE BOAR€?OF cc: AI,Iditcr-o�rl��iier sup€RvlsORs AND COUNTY AD�;;,N;sTRAToR Director, Employment and Human Services Julie Enea, Senior Deputy County Administrator BY- DEPUTY IOC-02 Administrator and Auditor-Controller to review all processes for the issuance of checks by County departments. This matter was referred to the Internal Operations Committee for further exploration. Our Committee met with the Auditor-Controller, Ken Corcoran; Jack Cooper, Principal Auditor for the Auditor-Controller's Office; Christine Sadika from the Employment and Furman Services Department; and Julie Enea$ Senior Deputy County Administrator, Pals. Enea presented the attached report on this subject, which was supplemented with comments from the others who were present. Our Committee is satisfied that appropriate steps are being taken to prevent and detect thefts of funds, as is outlined in the attached report. however, the report also rotes some additional steps which will require additional time to fully implement. We are, therefore, asking that staff continue to work on these issues and return an additional status report to next year's Internal Operations Committee. We are not in this report addressing the issue of petty cash as outlined in the attached report, We are still gathering information on that subject and will make a separate report on petty cash before the end of the year. -2- ..............._.. _ ........ ........... ......... ......... ....._ _ _ ............. _......._.. ................. . _ _ ..... ........_. _............_. _ . _ ......... __ ......................................... TO: INTERNAL OPERATIONS COMMITTEE Uontra Costa FROM: PHIL BATCHELOR, County Administrator County DATE: September 27, 1999 SUBJECT: REFERRAL OF CHECK WRITING AUTHORIZATION AND PETTY CASH PROCEDURES FROM THE BOARD OF SUPERVISORS SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION r� c- ��.• RECOMMENDATION: RECEIVE report from the Employment and Human Services Director, Auditor-Controller and County Administrator on: => actions taken by the Employment and Human Services Department following the filing of fraud charges against two employees, the check issuance procedures of all County departments, and accounting procedures currently in place to prevent inappropriate use of petty cash funds. BACKGROUND: On April 6, 1999, the Board of Supervisors approved a report submitted by Supervisor DeSaulnier that requested the Employment and Human Services Director to report on actions taken by the Department following the filing of fraud charges against two employees and directed the County Administrator and Auditor-Controller to review all processes for the issuance of checks by County departments. This matter was referred to the Internal Operations Committee for discussion, and was expanded by a request from Supervisor l..iil'kerna to include controls and accounting procedures related to the appropriate use of petty cash funds. The internal Operations Committee was to report back] to the Board of Supervisors in three to six months of the referral. CONTINUED ON ATTACHMENT: YES SIGNATURE: RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATIONARC?COMMITTEE OTHER t SIGNATURE(S): ACTION OF BOARD ON October 5. 1999 APPROVE AS RECOMMENDED OTHER VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS Is A TRUE AND CORRECT"COPY OF AN ACTION TAKEN UNANIMOUS{ABSENT — _ 1 AND ENTERED ON THE MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE AWES: NOES: SHOWN. ABSENT: ABsTAI N: ATTESTED PHIL BA I CH ELOR,CLERIC OF"THE BOARD OF SUPERVISORS AND COUNTY ADMINISTRATOR CC: COUNTY ADMINISTRATOR EMPLOYMENT AND:HUMAN SERVICES DIRECTOR AUDITOR-CONTROLLER B. DEPUTY ........................ ................ .......................... _.... ....................................................... INTERNAL OPERATIONS COMMITTEE September 7, 1999 Wellfare Fraud,Check Issuance, Petty Cash Page 2 Actions Taken by the Employment and Human Services Department Following the l'ilin of Fraud Charges,against Two Employees. The Department continues to implement specific actions as detai'l'ed in Its August 1998 Internal Security Flan, which specifies steps to be taken to enhance and improve its internal security environment. Specific actions that have been implemented include: I, Restrict Access to Closed Cases on the Case Data System (CDS)I. The department has implementedspecial programming changes on the CICS to restrict staff's computer access to re-open cases or tape any action on closed cases. This restriction will lower the overall exposure to fraud and enable Monitoring to be focused on open cases. To further reduce exposure on open cases, the Internal Security and Compliance Unit monthly reviews selected open cases to identify any cases that should be dosed'. 2. The Internal Security and Compliance unit monthly monitors payments and food stamps issuances for Baud alerts. Examples of fraud alerts include out-of-County addresses, multiple payments to the same payee, or snatches between payee and employee addresses. These fraud alerts do not necessarily indicate that fraud has occurred, but are possible indicators of fraud that should' be investigated. It was through this monitoring process that the recent incidences of fraud'were detected. 3. The Department has implemented second-level approval of emergency benefits that requires supervisors to approve, on-line, emergency benefits (immediate 'Meed Warrants) submitted for issuance by caseworkers. 4. The Department has conducted a review of CDS security access and has reduced by 350 the number of employees with payment issuance access and/or ability to open new eases,thereby reducing potential fraud exposure. The Department also identified and removed 380 obsolete users from the system. Security standards have been applied more uniformly, based on security clearance models that are consistent with employees' duties and the security system is now being managed closely. 5. The Department has restricted caseworkers' ability to input or change their case assignments on CICS to firmly establish accountability for cases, as assigned by supervisors. 6. The Department implemented new programming to reliably record the user ID for CDS transactions in order to establish an audit trail and provide for chase monitoring of transactions. 7. On a temporary basis, the Department has continued limited use of a rubber authorization stamp that enables recipients an average ten per month) with inadequate identification to cash a County Warrant. Use of the stamp is being monitored until arrangements are made to suspend it permanently. The Department continues to work on remaining objectives geared to improving and enhancing internal financial security. These objectives include- 1. Expansion of the training curriculum for first-line supervisors to specifically address internal security procedures, and the roles and responsibilities of supervisory staff in monitoring, detecting and preventing internal fraud. This would include reinforcement of the zero fraud tolerance policy and password confidentiality issues through instructional memoranda and possibly an instructional video. 2. Formation of an Internal Security Committee comprising Department program operations, auditing, fiscal and information technology department staff. The mission of this Committee will be to provide liaison and technical support to assist the department in establishing and maintaining a secure internal control environment consistent with the Department's and{County's zero fraud tolerance policy, and help to promote employee accountability and uniform compliance with departmental, INTERNAL OPERATIONS COMMITTEE September 27, 1999 Welfare Fraud,Check Issuance, Petty Cash Page a County, State and Federal policies and procedures. 3. The Department maintains as a key objective the development of a structured internal review process of cases by supervisors. It is expected that supervisors will be held accountable for performing and documenting this function, which would be formalized in written guidelines. 4. The Department is poised to implement a gaud hotline and has developed guidelines for staff regarding referral protocol and confidentiality. The Department will consider extending the Fraud Hotline to the County Home Page. 5. The Department is planning to augment internal security staff to increase detection and deterrent capabilities, assist in targeted site reviews, and handle anticipated "hotline" and other referrals. 6. The Internal Security and Compliance Unit continues to monitor through periodic on- site audits, the distribution of warrants and ATPs (Authorizations to Purchase) within district offices. On-site audits of other functions are planned n the future as staffing increases. 7. Possible development, in the longer terra, of added CDS programming and operational changes that would require some level of second level approval of high-risk transactions (such as vendor payments, payee name and address changes, supplemental issuances, and edits on dollar limits). However, it is clear that these modifications will require a significant financial investment for programming, widespread organizational changes, and support of staff using CDS. The County Auditor-Controller's Office has reviewed the Department's progress in addressing control weaknesses identified in the 1996 Audit Report. While it appears the Department has made much progress in limiting potential exposure and strengthening preventative controls, significant improvement can be achieved only with the training and: endorsement of supervisory staff, and a re-definition of some job duties of staff. These steps take time. In the interim, the Department continues to develop detective control's such as activity reports and exception reports to flag unusual activity for administrative follow-up. Check Issuance Procedures of All County Departments. Until 1994, the focus of the work by the Auditor-Control ter's Internal Audit Division was primly on collections and the fiduciary activities of County departments. Most of the at-risk disbursements were funded with federal and state moneys and there were aggressive audit efforts by those agencies to monitor them. These moneys were also auditedannually by independent Certified' Public Accountants. Around 1994, the routine monitoring efforts by the federal and stag agencies were significantly reduced. In response, the County's Internal Audit Division specifically included the examination of these disbursement activities it its scope of work. Major projects in this area included the Community Services Department in 1994, the Social Service Department in 1996 and the District Attorney (including Family Support) currently nearing completion. Of course, the Division completed many other examinations during this time including quarterly reviews of the Treasurer's accountability and annual reviews of the Treasurer's financial controls and investment activities. In response to the Board's direction, the Internal Audit Division will continue to emphasize reviews of disbursement activities until all significant areas have been covered at least once. However, because the risk of loss is at least as great for collection; activities, once disbursement activities have been reviewed, the Division plans to return to a comprehensive program to include reviews of procedures and controls for all the of the County's financial activity. It is important to note that even with an on-going control evaluation program, absolute immunity to fraud or embezzlement is not possible. Collusion by two or more dishonest staff can defeat the best of controls. For example, the San Francisco Chronicle reported on INTERNAL OPERATIONS COMMITTEE September 27, 1999 Welfare Fraud,Check Issuance, Petty Casty Page 4 September 15, 1999 that workers in Sara Francisco's General Assistance Program are under investigation by the district attorney's office and the Department of Human Services for alleged welfare fraud. The Chronicle reported that, "It's one of those cases where one person couldn't have been doing it alone." Investigators are looking into a scare in which a worker or workers invented phony clients to get general assistance;the workers or their accomplices then cashed the checks. Accountin Procedures Currently in Place to Prevent Inappropriate Use of Pgq Cash Funds. The Internal audit Division reviews requests for fund increase and for relief of shortages. The Division also performs an accounting of petty cash and a review of petty cash expenditures when it does a departmental audit. Although there is no established County policy defining appropriate purchases using: petty cash, the Boardof Supervisors specifies by Carder permissible uses when it authorizes each new petty cash fund. When reviewing petty cash expenditures, auditors look for the purchase of items that should have been obtained from Central Supply or through Purchasing and for inappropriate "gifts of public funds" such as birthday cafes for employees, etc. The transactions of the Employment and Human Services Department Immediate Need Imprest Fund are reviewed concurrently with public assistance disbursements. Attached is a list of petty cash funds and their balances as of April 12, 1999 for information purposes.