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Table of Contents
Transmittal Letter .................................................................................................................. 1
Executive Summary ......................................................................................................... 2 - 3
Background ...................................................................................................................... 4 - 6
Objectives and Approach ................................................................................................. 7 - 8
Observations and Recommendations ............................................................................ 9 - 15
Appendix:Process Maps
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March 15, 2012
The Audit Committee of the Board of DirectorsEnterprise Florida, Inc.800 N. Magnolia Ave., Suite 1100
Orlando, FL 32803
Pursuant to the approved 2011/2012 internal audit plan, we hereby submit our internal audit report ofpurchases, payables and cash disbursements. We will present this report at the next regularly scheduled
Audit Committee meeting on April 10, 2012.
Our report is organized in the following sections:
Executive Summary - This provides a summary of the issues related to our review of thepurchases, payables and cash disbursements process.
Background - This provides an overview of the purchases, payables and cash disbursementsfunctions.
Objectives and Approach - The internal audit objectives and focus are expanded upon in thissection as well as a review of the various phases of our approach.
Observations and Recommendations - This section gives a description of the observations andrecommended actions.
Appendix This section includes the following documentation, as validated by management:
o Process maps depicting the flow of in-scope processes.
As described in our objectives and procedures outlined on pages 7 and 8 of this report, the findings andconclusions are based on our analysis of the processes, documents, records and information provided tous by management. If our scope were to have been expanded, including performance of additionalprocedures and/or sample sizes in the time period under review, it may have resulted in additionalfindings.
We would like to thank EFI and all those involved in assisting us in connection with the review of thepurchases, payables and cash disbursements processes.
Respectfully Submitted,
McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
7351 Office Park PlaceMelbourne, Florida 32940-8229O 321-751-6200 F 321-751-1385www.mcgladrey.com
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Executive Summary
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Purchases, Payables and Cash Disbursements Enterprise Florida, Inc.
EXECUTIVE SUMMARY
The Risk Assessment initially prepared for Enterprise Florida, Inc. included Purchases, Payables and
Cash Disbursements as a high risk process due to the nature of the risks involved and the volume/dollaramount of transactions associated with the processes. Each internal audit that has been performed to-date has included relative controls and testing around purchases, payables for the in-scope processesincluded with that report, including Follow Up (issued June, 2008), Contract/Grant Compliance (issuedJune, 2008), International Offices Review (issued October, 2007), and the SAS 112 Readiness ControlDesign Analysis (issued September, 2007). This report expanded the scope of those previous audits toencompass all types of disbursements made by the company. Where practical, we have relied upon thedesign and effectiveness analyses performed during those audits for the purposes of this report.
We reviewed the design adequacy and operating effectiveness, including detailed testing of transactions,of the internal control structure in place over the purchases, payables and cash disbursementsprocesses. Where included in our random sample selections, we performed limited testing of payrolldisbursements and contract approval documentation. During the course of our work, we discussed thecontrol design and operating deficiencies with management. Our observations and recommendations forimproving controls are described in detail in this report, along with managements response.
We have assigned relative risk factors to each issue identified. This is the evaluation of the severity ofthe concern and the potential impact on the operations. Items rated as High are considered to be ofimmediate concern and could cause significant operational issues if not addressed in a timely manner.
Items rated as Moderate may also cause operational issues and do not require immediate attention, butshould be addressed as soon as possible. Items rated as Low could escalate into operational issues,but can be addressed through the normal course of conducting business. There are many areas of risk toconsider including financial, operational, and/or compliance as well as public perception or brand riskwhen determining the relative risk rating.
A summary of observations is provided below.
Observation SummaryRelative
Risk1. Segregation of Duties
Two employees of the Finance and Accounting team have conflicting duties over cashmanagement, purchasing and accounts payable. The company has attempted over thelast two fiscal years to reduce the impact of these conflicts. We noted compensatingcontrols in place to monitor activities under conflicting duties, including review of thefinancial statements and check registers by senior leadership.
High
2. Conflict of Interest and Related-Party Conf irmation
There is no monitoring control that requires employees to certify on a periodic (i.e.,
annual) basis that no related-party or other conflicts of interest exist. We also noted thatthe company did not have copies or complete information about whether the Boardmembers had filed the State required Full and Public Disclosure of Financial Interestsinformation with the Florida Commission on Ethics, in order to evaluate any knownrelated party interests. Due to the nature of the entitys Board as a publicly-appointedbody and the nature of Enterprise Floridas business, we expected to, and did noteknown relationships with Board members reflected in the entitys vendor listing.
Moderate
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Purchases, Payables and Cash Disbursements Enterprise Florida, Inc.
EXECUTIVE SUMMARY -CONTINUED
Observation SummaryRelative
Risk4. Master Vendor Listing
We noted there is no formal, periodic review of the vendor master listing for items suchas duplicate or inactive vendors, comparison to employee addresses for unusualactivity, or a cross-check for related parties with employee names/known relationshipsor Board members. As such, we identified duplicate and idle vendors in the activevendor listing.
Moderate
5. Employee Federal Income Tax Withho lding Errors
Federal income tax withholdings for 2 of 10 employees selected for testing were
improperly calculated in the payroll system because the rate of withholding did notmatch the employees Form W-4 Employees Withholding Allowance Certificate on file.Moderate
6. Contract Review Procedures
Contract review procedures for 4 of 10 contracts tested were not completely followedand included exceptions to policy related to the date of approval (3 of 4) and therequired conflict of interest certifications by the reviewers (1 of 4). The contracts wereapproved by all required parties and we noted the approvers were part of the contractreview process prior to final execution and signoff.
Low
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Background
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Purchases and Cash Disbursements Enterprise Florida, Inc.
BACKGROUND
Enterprise Florida, Inc. (EFI) is considered the States economic development arm, receiving funds from
the State to perform economic development duties in accordance with an agreement with the State. Asof July 1, 2011, the Florida Department of Economic Opportunity (DEO) administers the contract with EFI.Prior to that, it was administered by the Office of Tourism, Trade and Economic Development (OTTED).
The Risk Assessment initially prepared for EFI included Purchases, Payables and Cash Disbursementsas a high risk process due to the nature of the risks involved and the volume/dollar amount oftransactions associated with the processes. Total expenditures reported in the companys auditedfinancial statements for the year ended June 30, 2011, were $19.6 million. The total expenditures for theyear ended June 30, 2010, were $22.1 million. The categories of expenditure for the years ended June30, 2011, and June 30, 2010, were as follows:
Category June 30, 2011 June 30, 2010
Payroll and related costs (including benefits) $ 6,630,436 $ 6,148,837General and administrative 5,816,148 4,909,431Grants to sub-recipients (pass-throughs) 2,988,711 8,282,323Professional fees 4,009,099 2,552,983Other (including non-cash depreciation) 160,486 245,682
Total $ 19,604,880 $ 22,139,256
Each internal audit that has been performed to-date has included relative controls and testing aroundpurchasing for the in-scope processes included with that report, including Follow Up (issued June, 2008),Contract/Grant Compliance (issued June, 2008), International Offices Review (issued October, 2007),and the SAS 112 Readiness Control Design Analysis (issued September, 2007). This report expandedthe scope of those previous audits to encompass all types of disbursements made by the company.Where practical, we have relied upon the design and effectiveness analyses performed during thoseaudits for the purposes of this report.
PurchasingEFI is not a state agency as defined by Florida Statute 287.012 and as such, is not required to followstatutory requirements for purchasing and competitive selection. EFI has developed internal policies andprocedures using statutes as a guideline where practical. The Purchasing and Cash DisbursementsPolicy requires that a competitive selection process be followed for total purchases greater than $25,000.The State has thresholds starting at $20,000. As part of their agreement with the State, EFI is required tofurnish copies of the purchasing and contract policies and procedures for the States review. EFI has notreceived notification from the State that the policies are not adequate or acceptable.
Non-Economic Development Goods and ServicesEFI prepares an annual budget that is approved by senior leadership and presented to the Finance andCompensation Committee, Executive Committee, and Board of Directors. The budget includes significantpurchases, such as planned trade shows and events or missions, as well as budgeted line items for eachdepartment. Purchase orders are initiated and prepared by business unit personnel, and approvedaccording to the Purchasing and Cash Disbursements Policy as follows:
$
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Purchases and Cash Disbursements Enterprise Florida, Inc.
BACKGROUND -CONTINUED
Statist ical Data Fiscal Year 2010/2011
The tables below show the disbursements by account, including the average and median dollar amountsper transaction and the totals. The master account has been further broken down into checks versus wiretransfers.
Fiscal 2010/2011
Disbursements Data by Account*
Checking Account Name NumberTotal Dollar
AmountAverage
DollarAmount
Median DollarAmount
Master account 1689 $ 13,176,669 $ 7,801 $ 904
Corporate / Private funds 110 $ 199,571 $ 1,814 $ 140
Employee Benefit FSA 92 $ 30,753 $ 334 $ 192
Grants and other Administered Programs 235 $ 11,761,915 $ 165,493 $ 39,854
Investments and Capital Programs 75 $ 2,079,756 $ 125,301 $ 24,067
*These amounts vary from the total audited expenditures noted on page 4 due to difference in cash and accrual basis accounting aswell as pass-through activities that are not recognized on the companys financial statements.
Master Account Information Fiscal Year 2010/2011
Number of checks written 1414
Total dollar value of checks written $5,526,016
Average dollar value of checks written $3,908
Median dollar value of checks written $693
Number of wire transfers/ACH 276
Total dollar value of wire transfers/ACH $7,650,653
Average value of wire transfer/ACH $27,720
Median value of wire transfer/ACH $14,980
Organizational Chart Finance and Accounting
Vice President,Finance & Accounting
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Objectives and Approach
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Purchases and Cash Disbursements Enterprise Florida, Inc.
OBJECTIVES ANDAPPROACH
ObjectivesObjectives of the internal audit of Purchases, Payables and Cash Disbursements include the following:
Document the purchases, payables and cash disbursements processes and related internalcontrols.
Assess the risks and existing key controls against benchmark controls for similar processes. Evaluate access controls and segregation of duties within the processes. Determine if there are controls for monitoring purchases and expenditures for compliance,
authority and accuracy. Determine if there are controls for monitoring related party transactions and conflicts of interest. Determine and evaluate if records and documentation are sufficient to establish an audit trail for
all transactions involving disbursements. Evaluate compliance with applicable Florida Statutes and EFI policies & procedures. Determine the adequacy and operating effectiveness of the control structure over purchases,
payables and cash disbursements; and make recommendations when considered necessary.
ApproachOur audit approach consisted of three phases:
Phase I - Understanding and Documentation of the ProcessDuring the first phase of our approach, we met with those involved with the purchases, payables and
cash disbursements processes to discuss the scope and objectives of the processes and obtainpreliminary data. In order to obtain an understanding of the process and identify related controls, weconducted interviews, obtained detailed documentation and documented the processes. We reviewedFlorida Statues and EFI policies and procedures related to purchases, payables and cash disbursements.We also reviewed our previously issued internal audit reports for relevant processes and controls relatedto those functions.
Phase II - Detailed TestingThe purpose of this phase was the execution of applicable tests of compliance and controls around thepurchases, payables and cash disbursements processes. Each internal audit that has been performedto-date has included relative controls and testing around purchasing for the in-scope processes includedwith that report, including Follow Up (issued June, 2008), Contract/Grant Compliance (issued June,2008), International Offices Review (issued October, 2007), and the SAS 112 Readiness Control Design
Analysis (issued September, 2007). Where practical, we have relied upon the design and effectivenessanalyses performed during those audits for the purposes of this report.
We performed sampling techniques on disbursements made between July 2010 and December 2011.We utilized sampling and other auditing techniques as follows to meet our audit objectives outlined aboveand performed the following:
We utilized computer assisted audit techniques to perform the following:o Reviewed vendor master listing to active employee listing.o Reviewed vendor master listing for duplicate names and addresses.o Reviewed purchase order listing for sequence and duplicated purchase orders.
We reviewed segregation of duties over user access within Great Plains. We selected a sample of disbursements and verified the following:
o Bid/quote procedures were followed where applicable under policy.
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Purchases and Cash Disbursements Enterprise Florida, Inc.
OBJECTIVES ANDAPPROACH -CONTINUED
Approach - cont inued
Phase II - Detailed Testing
We selected a sample of expense reimbursement disbursements and verified the following:o Disbursements were properly authorized according to policy.o Authorization form was on file and properly signed by employee and approved by a
supervisor according to policy.o Expenditures presented for reimbursement were properly supported with documentation.
We reviewed the controls over cash disbursements, including wire transfers. We reviewed a sample of the monthly accounts payable reconciliations to general ledger. We reviewed a sample of the monthly bank reconciliations. We reviewed the aged accounts payable detail listing for vendors with debit balances. We verified financial reports were presented to the Finance and Compensation Committee and
Executive Committee. We selected a sample of contracts and verified the following:
o Grantee selection process was properly documented on ranking sheets.o Executive Committee pre-approved and/or reviewed contracts where required by policy.o Conflict of interest statements were obtained from proposal evaluators and contract
approvers.o Contract review sheet was signed by contract approvers prior to execution of the
contract. We selected a sample of employee pay disbursements and performed the following testing
relating to the payroll and human resource functions:o Tested payroll for accuracy by verifying the time reported and pay rate to properly
approved supporting documentation.o Verified accuracy of tax and benefit withholdings.o Verified that personnel information was properly input into the human resource and
payroll systems.o Verified that the employees offer letter was properly approved and the personnel file was
organized.o For terminated employees, verified that the termination date was input accurately,
employee did not receive a paycheck after their termination date and access to systemsand corporate credit card usage was properly removed.
o Reviewed overall organization of sampled employee file. We verified that a completed State required financial disclosure and conflict of interest
information was on file for all board members.
Phase III - Reporting
At the conclusion of our audit, we summarized our observations related to the purchases, payables andcash disbursements processes for EFI. We conducted an exit conference with management anddiscussed the details of the report with them. Managements responses to our observations andrecommendations are included with this report.
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Observations and Recommendations
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OBSERVATIONS ANDRECOMMENDATIONS
Page 9
Rating Observation Recommendation Management Response
High 1. Segregation of Duties
Two employees of the Finance and Accountingteam have conflicting duties over cashmanagement, purchasing and accounts payable.
The company has attempted over the last twofiscal years to reduce the impact of theseconflicts; however the schedule on the followingpage shows the conflicts which remain.
We noted compensating controls in place tomonitor activities under conflicting duties,including review of the financial statement andcheck registers by senior leadership outside of the
Accounting and Finance department. The bankused for wire transfers also has built in controlsrequiring dual users on every transaction.
During our fieldwork, it was also noted thatAccounting was actively interviewing for a staffposition, and the new Chief Operating Officer had
just been brought on board. These additions tothe organizational structure should allowmanagement to more fully segregate and/orexpand monitoring related to the risks of lack ofsegregation of duties.
Due to staffing limitations in the Finance andAccounting department, access cannot be fullysegregated. With the expansion of personnel, werecommend the duties be segregated as follows: The Senior Accountant should setup vendors
(upon approval See Issue #3) and processapproved invoices.
The Senior Accountant should initiate wires, andprepare cash and G/L account reconciliations fortheir respective areas.
The VP of Finance and Accounting shouldapprove checks/wires, review reconciliations, andprepare financial statements with analysis forreview and approval by the leadership team andBoard. Ideally, the VP of Finance and
Accounting should have read-only access to theGreat Plains system. If this is not practical,manual segregation of duties should be strictlyfollowed.
Journal entries should not be prepared andposted by the same individual. Managementshould consider batch-posting journal entries sothat one person can enter and another personreview and post the entries.
We also recommend that management review thetransaction limits within the online banking systemand set them appropriately for what is needed givenexpected activity after the proposed banking servicecontract is awarded.
Response: During the period of timeunder audit, the Finance and
Accounting team consisted of threepeople: Vice President, Finance and
Accounting; Senior Accountant, andAccounts Payable Clerk. Propersegregation of duties was not possibledue to the limited resources. Anadditional accountant has recentlybeen added and we are working tocross-train her among the variousfunctions.
Management has evaluated theserecommendations and is willing toaccept these risks as we believeadequate compensating controls arealready in place.
Any changes to the online bankingsystem will be made after the bankingservices contract has been awarded.
ECD: June 30, 2012
Responsible Person:Pamela Murphy,
VP of Finance and Accounting
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OBSERVATIONS ANDRECOMMENDATIONS
Page 10
Segregation of Duties Matrix:
A B C D
Custody
Access to enter wire transfers with SunTrust * X X X
Access to release wire transfers with SunTrust * X X
Recording
Access to maintain/modify vendor master file X X X
Access to enter and post vendor invoice X X X
Access to enter and post credit memo X X X
Access to post disbursement to vendor account X X X
Access to post journal entries X X X
Reconciliation
Perform accounts payable reconciliation XPerform cash account reconciliations X
Aut horizat ion
Approve accounts payable reconciliation X
Approve cash account reconciliations X
Invoice or purchase approval X
Vendor approval X
Access to modify general ledger X X X
Investments (Capital Programs)
Perform investment bank account reconciliations X X
Signature authority on investment account checks/wires X X
Approve investment bank account reconciliations X
A = Vice President, Finance and Accounting
B= Manager, Capital Programs
C= Senior AccountantD= Accountant
*Note: SunTrust user controls require a personal identification number (PIN), and the same PIN cannot be used for initiating andreleasing the same transaction.
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OBSERVATIONS ANDRECOMMENDATIONS
Page 11
Rating Observation Recommendation Management Response
Moderate 2. Conflict of Interest and Related Party Confirm ation
We noted the Company Ethics policy (located inthe Employee Handbook) includes a section onConflicts of Interest and states that they shouldbe avoided, even in appearance. There is nomonitoring control that requires employees certifyon a periodic (i.e., annual) basis that no suchconflicts exist.
Further, we noted that the company routinelyfollows IRS guidelines for family and businessrelationships as required when filing their annualtax return. These guidelines suggest thattransactions that occur in the ordinary course ofbusiness and at an arms length are not required tobe disclosed. However, we noted the company
was unaware of whether the Board members hadfiled the State required Full and Public Disclosureof Financial Interests information with the FloridaCommission on Ethics. We were able to verify withthe State that these were up-to-date throughDecember 31, 2010 reporting requirements, whichwere due by July 1, 2011. The December 31, 2011disclosures are not due yet. Due to the nature ofthe entitys Board as a publicly-appointed body ofinfluential business executives, and the nature ofEnterprise Floridas business, we expected to see,and did note known relationships with Board
members reflected in the entitys vendor listing.These relationships should be compiled andpresented annually to the full Board fortransparency and full disclosure.
The existence of conflicts or related party interestsis common in business. Without a formal protocolfor disclosure and evaluation of the relationshipsboth internally and by the Board, the risk ofnegative public perception related to the improperuse of funds increases.
In addition to the recommendations in observation #3for a formalized vendor approval process, HumanResources should administer an annual certification toemployees via email or internet survey stating thatthere are no conflicts of interest with any of thevendors in the active vendor listing, including pass-through agencies.
Further, management should obtain copies of the Fulland Public Disclosure of Financial Interestsstatements filed by Board members each year.Known relationships should be compiled andcompared against the active vendor listing for possibleconflicts or related-party transactions.
Any existing and/or newly identified relationships mustbe disclosed and appropriate steps taken, includingbut not limited to further disclosure to seniorleadership, the Board or the State; properdocumentation and evaluation of the relationship; andpossibly refraining from doing business with therelated person or entity.
Response: Rather than annuallypoll all employees to disclose if aconflict of interest exits,management would like to know if aconflict exists prior to executing acontract or processing a payment toa vendor. The contract policiesalready include required disclosuresfor key personnel involved inexecuting a contract, and will beextended to include the contractscoordinator and contract manager.This disclosure will be added to allpurchase orders and requestsformats in the future.
Management will request copies ofthe Full and Public Disclosure ofFinancial Interests statements in thefuture and forward to accounting toverify against the vendor list.
Relationships within the normalcourse of business and conducted atarms length with the same terms asoffered to the general public neednot be disclosed.
ECD: June 30, 2012
Responsibl e Person:Pamela Murphy,VP of Finance and Accounting
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OBSERVATIONS ANDRECOMMENDATIONS
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Rating Observation Recommendation Management Response
Moderate 3. Vendor Setup and Approval
The organization has several operational triggersfor new vendor relationships. Contract review
sheets, grant applications, purchase orders, checkrequests, vendor invoices and otherdocumentation are used to set up a vendor in theGreat Plains system. This can occur after thepurchase has already been completed. TheFinance and Accounting department obtains aForm W-9 Request for Taxpayer IdentificationNumber and Certification in order to track whetherto issue certain tax forms to vendors at the end ofthe calendar year.
We noted the following in relation to vendor setup:
There is no formal vendor approval processand policy. We reviewed the processsurrounding the setup of new vendors anddetermined there is an informal procedure inplace, but it is not consistently applied.
During our testing, we noted there was no W-9or adequate substitute (with propercertifications from the vendor on the validity ofthe information) available for 10 of 35 vendorsselected for testing. For 1 of these, we alsonoted the taxpayer identification number wasnot captured in the Great Plains system.
Without formal vendor approval, the risk ofunauthorized, duplicated, or related-party vendorsincreases. Coupled with observation #2 forvendor master file review, the risk is moresignificant. Without adequate documentation ofvendors certification of their taxpayer status (i.e.,individual, corporation, etc.), required IRS taxforms may not be filed appropriately.
We recommend that management develop a formalvendor approval process which includes approval of
vendors before purchases are made and a vendorform, including completion of a W-9 form for all newU.S.-based vendors.
Steps of the approval and verification process shouldinclude: If a Florida corporation, validate the vendor's
status as an active corporation on theDepartment of States website atwww.sunbiz.org.
Compare the vendor name/address to existingvendor names/addresses.
If the above is performed during the vendor set upprocess, the risk of setting up fictitious and/orduplicate vendors is reduced.
In addition to the above, periodic review of thevendor master file (see observation #4) and annualcertification of conflicts of interest or related parties(see observation #2) will help to ensure vendors arereal and appropriately classified for tax reportingpurposes, and purchases are occurring at arms-length.
Response: With recent proposedchanges by the IRS to 1099 reporting
over the past two years accountinghas already implemented morevigorous procedures requiring W-9sfor all new US based vendors prior toprocessing payments. All new W-9sare matched to the IRS tax payeridentification system. All contractsrequire that all new vendors submit aW-9 with their contract.
In addition to the above, accountingwill implement a new procedure to
verify if a Florida corporation is activeon the Department of CorporationWebsite prior to processing payment.
The vendor master file is alreadyreviewed prior to processing everypayment to verify addresses.
ECD: June 30, 2012
Responsible Person:Pamela Murphy,
VP of Finance and Accounting
http://www.sunbiz.org/http://www.sunbiz.org/http://www.sunbiz.org/ -
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OBSERVATIONS ANDRECOMMENDATIONS
Page 13
Rating Observation Recommendation Management Response
Moderate 4. Master Vendor Listing
We noted there is no formal, periodic review of thevendor master listing for items such as duplicate orinactive vendors, comparison to employeeaddresses for unusual activity, or a cross-check forrelated parties with employee names/knownrelationships or Board members.
We performed computer assisted audit techniquesto identify potential duplicate and inactive vendorsas of 12/31/2011. The total population of activevendors was 3,012. We noted the following withrespect to the vendor master file in Great Plains:
Duplicate Vendors:
Similar vendor name and sameaddress 25
Same vendor name and similaraddress
19
Inactive Vendors:
Vendors with no disbursementssince 2009 that have not beeninactivated
2,570
Vendors with no disbursements thathave not been inactivated 196
Duplicate and inactive vendors in the master filecould lead to inefficiencies, possible delay inpayment of invoices, and increase the likelihood ofduplicate payments or mismanagement. Note wedid not find any duplicate payments orinappropriate expenditures in our testing ofdisbursements. Delays in processing could lead tofinance charges on purchases.
As recommended in Issue # 3, controls should beimplemented over vendor setup to reduce thelikelihood of creating duplicate vendors in the systemin error. An annual review of the vendor master fileshould also be conducted to identify potentialduplicate vendors for inactivation. This reviewshould include a review for unusual patterns, such asnames that may be similar, but not identical to thenames of approved vendors and vendors withmultiple addresses and other irregularities.
Also, vendor master file activity should beperiodically reviewed to identify vendors forinactivation. Vendors without a recent history ofpurchases, or who are no longer approved for use,
should be inactivated.
See also observation #4 for related-party checks.
Response: Although Accountingmakes every effort to reduceduplicate vendors, Duplicatevendors may often need to be createdor retained as a means to separatepayments. For example, anemployee who leaves the companybut is later retained as anindependent contractor would besetup as a vendor-employee classfor all expense reimbursements, thena new vendor-1099 class for allpayments made as an independentcontractor for IRS reporting purposes.Multiple vendors may also be setup
based on the types of payments (e.g.,Defense grant or regular vendorpayment for services).
Review for the over 4,000 vendorsperiodically for inactivation is a verytime consuming task which thedepartment has not had the resourcesto complete. Management will assessthe need to devote current resourcesor obtain additional resources incompleting this task.
ECD: TBD
Responsible Person:Pamela Murphy,VP of Finance and Accounting
Teresa Buckley,Senior Accountant
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OBSERVATIONS ANDRECOMMENDATIONS
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Rating Observation Recommendation Management Response
Moderate 5. Employee Federal Income Tax Withholding Errors
Federal income tax withholdings for 2 of 10employees selected for testing were improperlycalculated in the payroll system. Both errors werecaused when information from the employee-completed IRS Form W-4 Employees Withholding
Allowance Certificate was incorrectly input into thepayroll system. In both instances, excess Federalincome taxes were withheld from each paycheck,thus impacting the employees personal tax return.
These employees were notified of the errors duringour audit and the Payroll department is obtainingupdated Form W-4's from the employees todocument their current withholding allowances andmarital status and update, if needed. We notedthese errors occurred prior to a change inpersonnel and processes in the payroll department.Updated controls would have likely detected theerrors if the employee had submitted an updatedW-4.
Employees expect that their income taxwithholdings are based on the information theyreport on their Form W-4 and can therefore faceunder or over-payment situations when incorrectamounts are withheld. It is the employer'sresponsibility to ensure that taxes are withheld
using the employee-reported information forallowances and status.
IRS Publication 15, "Employers Tax Guide, statesthat employers are responsible for annually remindingemployees to submit a new Form W-4 if they need tochange their withholdings. The IRS recommends thatbefore December 1, employers remind employees tosubmit a new Form W-4 if their marital status orwithholding allowances have changed or will changefor the next year. This will reduce the risk ofwithholding income tax based on outdated W-4information. As a general practice, W-4s should bereplaced periodically even when preferences haventchanged.
We recommend W-4 forms should be updated at leastannually, or a company-wide email or intranetreminder should be sent to the employees to checktheir withholdings and submit an updated form by apre-specified date in accordance with IRS guidelines.
Further, periodic checks of employee income taxwithholdings and other personnel file documentation(such as I-9 forms, benefit selections, etc.) should beperformed for a sample of employees (e.g., 10employees per month) to ensure withholdings arebeing calculated based on the most recentinformation. Appropriate follow up should beperformed to correct identified errors within the
system and notify the employee for their tax planningpurposes.
Response: HR already sends anemail annually reminding staff tosubmit a new W-4 form inDecember.
All employee changes including W-4s are reviewed and verified withevery payroll by either the VPFinance and Accounting or theSenior Accountant which was not thecase previously.
Since the auditors identified thesediscrepancies the current HRDirector and Payroll Assistant havereviewed every active personnel fileand verified the W-4 status on thepages form completed by theemployee agrees to the status in
ADP.
ECD: Completed
Responsibl e Person:Pamela Murphy,VP of Finance and Accounting
Sharon Blake,Director of Human Resources andOffice Services
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Vendor Setup Enterprise Florida, Inc. 1
Staff
Accountant
VPFinance&
Acco
unting
BusinessU
nit
GapControlProcess
Step
Legend:
Annually: Reviewvendor master file forduplicate and inactive
vendors and ensurecompleteness of files
Enter vendorinformation into
Great PlainsEnd
Start
Receive vendorsetup form
along with copyof W-9
Review vendorinformation and
assign vendornumber
Prepare vendorsetup form
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Purchase Initiation Enterprise Florida, Inc. 2
Vend
ors/
Service
Providers
Contrac
ts
Complian
ce
B
usinessUnit
Provide assistance
in obtaining bids/quotes and
selecting vendor/provider
Start
Purchase requiresmultiple bids or
sole sourcejustification.
Purchases >$25,000 in afiscal year?
Yes
Submit proposalsfor bids and formal
quotations basedon advertisements
No
Summary of bid/quotes or cost
comparisons mustbe kept in a file
and available foraudit
Purchases >$100,000 in afiscal year?
Procurement isreported to the
ExecutiveCommittee
PO required underPurchasing policy?
No bids/quotes arerequired.
Purchase isapproved
according to theapproval matrix.
No
Procurement ispre-approved by
the ExecutiveCommittee
Purchase inAnnual Approved
Budget?Yes No
Yes
POYes
Goods/Services
No
ControlLegend:
ProcessStep
Gap
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Purchase Order Enterprise Florida, Inc. 3
BusinessU
nit
Accounting
Department
VPFinance&
Acco
unting
GapControlProcess
Step
Legend:
(1) Approval Limits
0 - $1,000 = Director$1,001 - $2,500 = Senior Director or Vice President$2,501 - $5,000 = Senior Vice President, SVP-Administration/COO, or President/CEO$5,001 - $99,999 = Joint signature of the Division Senior Vice President, and either SVP-Administration/COO or President/CEO$100,000 + = Executive Committee
Enter PO informationin an Excel log formaintenance of
outstanding balanceand other details
Obtain and filecopy of PO
Verify purchaseorder details(amounts,
available funds,etc.)
Assign asequential PO
number fromAccess database
Prepare purchaseorder (non-
recurring items)
Obtain original POand place order
Obtain properapproval per
approval limit (1)
PO
Review PurchaseOrder Excel log for
open POsannually
Goods/Services
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Cash Disbursements Enterprise Florida, Inc. 5
President/
CEO
VPFinance
&
Accounting
Manager,
Capital
Programs
SVPof
Admin.
/
COO
Senior
Ac
countant
Staff
Account
ant
EndGoods/Services Check/ wiretransfer?
Process
Step
Control Gap
Wire Transfer
Release wire transfervia secure pin
number**
Provide checks and
supportingdocumentation to VP
Finance andAccounting.
Prepare checkregister (weekly and
monthly)
Release wire transfervia secure pin
number**
Release wire transfervia secure pin
number**
Checks
Review and signchecks. Two
signatures needed ifcheck is over $5,000.
Review and signchecks. Twosignatures needed ifcheck is over $5,000.
Review and signchecks. Two
signatures needed ifcheck is over $5,000.
Review checkregister weekly andsign Check RegisterApproval Memo.
Copy checks and
mail. Copy wiretransfers and filewith approved wire
transfer requestform.
Legend:
Release wire transfervia secure pin
number**
SunTrust system willnot allow the releaseof wire transfers bythe same user that
entered the wire.
Review checks and supportingdocumentation for approvals,proper coding, and accuracy.
Enter into PO Log.
* All invoices submitted and properly authorized/matched by Friday are included for payment the next week.** The following individuals have access to release wire transfers: Senior Accountant, VP Finance and accounting, SVP of Administration, and Manager, Capital Programs. TheManager, Capital Programs, has access to release wires***The CEO, SVP Administration, and COO have signing authority on all accounts. The VP Finance & Accounting and Manager, Capital Programs, have signing authority only for theinvestment related accounts. The SVP Strategic Partnerships has signing authority only over the non-investment related accounts.
Travel expenses related to budgeted events are pre-approved through the annual budget approval. For disbursement approval, they must also be supported by expense reports andsupporting documentation, authorized by the employees supervisor. The total expense report amount must be approved in accordance with the purchase approval limits.
Review WireTransfer Request
Form and approve.
Generate checks weeklyand review batch.
Enter wire information inSunTrust On-Line Treasury
Manager system.
Approve and signwire transfer request
form.
Approve and signwire transfer request
form.
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Monthly Enterprise Florida, Inc. 6
VPofF
inance
&Acco
unting
Manager,
Capital
Programs
Executiveand
Finance
Committees
SVPof
Adm
inistration/
COO
Senior
Accountan
t
Prepare monthlybank
reconciliations.
End
Review monthlyactivity with VP of
Finance andAccounting
Start
Annually:Payables are
recorded throughcut-off date.
GapProcess
Step
Legend:Control
Review financialstatus and reports
at periodicmeetings.
Approve financialstatements.
Review andapprove
investment bankaccount
reconciliations.
Review and
approve bankreconciliations.
Prepares quarterlyinvestment bank
accountreconciliations.
Print and reviewbalance sheet,
profit & lossstatement and
detail trial balance
Prepare monthlyaccounts payable
reconciliations.
Review andapprove accounts
payablereconciliations.