Department of Health-Surprise Cash Count

					                   Department of Health-Surprise Cash Count

                                     EXECUTIVE SUMMARY



         The Territorial Audit Office conducted unannounced cash counts at two Department of Health
Facilities on February 17 and 19, 2009. Cash is Collected at Tafuna Health Center (TFHC) and at
Department of Health (DOH) Main Office at Fagaalu.

        TFHC Collects Patient Service Fees for Primary, Dental, Prenatal and Diabetes Care. DOH collects
Examination Fees for Government and Private Employees and Contractors as well as Fees to obtain
Health Cards for Canneries and Food Industry Workers. These fees are ultimately recorded in the
General Fund as “Charges for Services” Revenue.

         This was a limited scope performance audit that evaluated internal controls over cash receipting
activities. The purpose of our audit was to determine whether existing cash receipting policies and
procedures were being followed and whether internal controls were adequate to ensure that all cash is
collected, accurately recorded, safeguarded and transmitted to Treasury in a timely manner.

        Some findings from this audit have been “leveraged” into recommendations that could
positively impact other ASG departments’ cash collection activities to the extent they are implemented.




                      Summary of Findings and Recommendations, on next page




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                   Department of Health-Surprise Cash Count

EXECUTIVE SUMMARY, CONTINUED



                  Executive Summary Findings and Recommendations
Summary Findings:

   Our audit disclosed significant internal control deficiencies including:

   •   Diversion and misuse of funds (collected cash was used to purchase operating supplies)
   •   Cash was not transmitted to Treasury in a timely manner (held up to 41 days prior to delivery to
       Treasury)
   •   Missing cash receipt forms (Increased risk of unrecorded cash transactions/ theft)
   •   Void cash receipt forms not retained with daily records (impairs accountability)
   •   Treasury’s written cash procedures are insufficient to ensure that all cash collections are
       properly accounted for, accurately recorded and transmitted intact to Treasury.

Summary Recommendations:

    • The American Samoa Administrative Code should be revised to clarify that Treasury Department
       has sole authority to establish financial policies, procedures and internal controls for all divisions
       of ASG.
     • Treasury should consider the use of alternative cash receipting methods (at every ASG cash
       collection point) such as electronic cash registers, point of sale debit/ credit cards and issuance
       of theatre tickets, based on type of activity, volume of transactions and amount of cash at each
       collection point.
     • Cash receipting policies and procedures should be revised by Treasury, as suggested in detail
       within this report. Policies and procedures should also be developed for alternative receipting
       methods.
     • Treasury should review its policy requiring daily transmittal of cash collected at remote
       locations. Consideration should be given to establishing thresholds of accumulated cash and
       provide flexibility on frequency of transmittals to Treasury. Any deviation from required daily
       transmittals should be approved in advance by Treasury Director, on an exception basis.
     • Cash collections should be balanced daily to receipting records then transmitted, intact, to
       Treasury according to approved policy. Collected cash should not be diverted.
     • Personnel should be fully trained by Treasury, to ensure compliance with cash collection policies
       and procedures. Such personnel should be required to sign a statement acknowledging that
       they have been trained, read and understand the relevant policy(s).




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                      Department of Health-Surprise Cash Count

                                          Management’s Comments:

Department of Health
American Samoa Government
Pago Pago, American Samoa 96799
Phone: 684-633-4606 Fax: 684-633-5379 E-mail: public health@americansamoa.gov
January 14,2010
Bob Dantini, CPA
Territorial Auditor
Territorial Audit Office
AP Lutali Executive Office Building
Tuiasina Dr. Salamo Laumoli
Director of Health
Department of Health
Re: Unannounced Cash Audit Report
Dear Mr. Dantini,
I applaud your findings and recommendations on your preliminary audit report dated February 2009. I
agree with your report and I would like to add our cash handling policy for your review and the
Treasurer's approval.
Please find attachment of our cash handling and disciplinary action policy.
Should you have any questions, feel free to contact me at the following or our Finance Manager, Mr.
Mark Meredith at 633-4606 or his email atmark.meredith7@gmail.com .
Respectfully,
cc: Magalei Logivii, Treasurer
Seiuli E. Ponausuia, Deputy Director of Health
Mark Meredith, Finance Manager
File




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Department of Health-Surprise Cash Count




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Department of Health-Surprise Cash Count




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                Department of Health-Surprise Cash Count

                                   Table of Contents


                                                             Page

Executive Summary                                              1

Executive Summary of Findings and Recommendations              2

Management’s Comments                                          3

Table of Contents                                              6

Introduction                                                   7

Background                                                     8

Audit Scope, Objectives and Methodology                        9

Detailed Findings and Recommendations                         10

Corrective Action Plan Request                                17




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                    Department of Health-Surprise Cash Count

                                              INTRODUCTION


The Territorial Audit Office conducted an unannounced cash count at the Department of Health (DOH),
American Samoa Government on February 17 and 19, 2009. This was a limited scope performance audit
which included an evaluation of internal controls associated with point of sale cash receipting and
collections. In planning and performing the audit, we considered the entity’s control structure to
determine our auditing procedures but not to provide assurance on the entity’s control structure.

We noted matters involving the internal control structure and its operation that we consider to be
significant deficiencies under standards established by the American Institute of Certified Public
Accountants. Significant internal control deficiencies are defined as those that could adversely affect
the entity’s ability to initiate, authorize, record process or report financial data reliably in accordance
with generally accepted accounting principles such that there is more than a remote likelihood that a
misstatement of the entity’s financial statements that is more than inconsequential, will not be
prevented or detected.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in
more than a remote likelihood that a material misstatement of the financial statements will not be
prevented or detected.

Our consideration of the internal control structure would not necessarily identify all significant
deficiencies that might have otherwise been considered to be material weaknesses as defined above.

The criteria used in developing our findings, was based on written cash procedures established by ASG
Department of Treasury.




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                    Department of Health-Surprise Cash Count

                                             BACKGROUND


The Department of Health (DOH) has four facilities on Tutuila Island; During the time of our audit just
two locations receipted cash transactions. The two facilities with cash collection activities are;

1. Tafuna Health Center (TFHC) in Tafuna collects Patient Fees for: Primary, Dental, Prenatal and,
Diabetes Care.

2. The Department of Health (DOH) Main Office is located adjacent to LBJ Tropical Medical Center at
Fagaalu and collects Physical Examination Fees for Government and Private Sector Employees,
Contractors, and Examination Fees to obtain Health Cards for Canneries and Food Industry Workers.

The Department of Health(DOH) and Tafuna Family Health Center(TFHC) cashiers issue manually
prepared cash receipts (GAS Form AR100) as payments are received for services rendered. Blank cash
receipt forms are obtained from the ASG Department of Treasury, Revenue Division. All cash receipt
forms are required to be issued in ascending numerical sequence for control. All cash receipt forms are
pre-numbered.



The following summarized financial data concerning ASG General Fund and DOH Revenues was obtained
from Department of Treasury Management (source IFIS financial system):

                            2005                 2006                  2007                  2008
DOH Revenues:              $ 29,264             $ 29,308              $ 29,379              $ 92,295


                                             2008 Revenues:

       Total General Fund             Gen’l. Fund Charges for Services    DOH Charges for Services
          $ 91,123,396                          $ 5,879,971                        $ 92,295




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                     Department of Health-Surprise Cash Count

                        AUDIT SCOPE, OBJECTIVES, AND METHODOLOGY



Scope:        This audit included an unannounced cash count of Department of Health cash
               collections on February 17 and 19, 2009.



Objectives:

         1. Determine that all fees paid are properly receipted, recorded and accounted for at the time
            of our audit.
         2. Determine that daily cash receipts are deposited in a timely manner.
         3. Determine the existence and adequacy of written cash collection policies and procedures.
         4. Determine that cash, checks, and supporting payment receipting records are adequately
            safeguarded.



Methodology:

         1.    Counted all cash and checks on hand at the Department of Health at TFHC and Main Office
              (Fagaalu) on February 17 & 19, 2009. We compared our total of cash and checks counted, to
              the payment receipting records issued from the opening of business each morning until the
              time of our cash count.
         2.   Reviewed the ascending numerical and chronological sequence of payment receipts issued
              in support of our cash count.
         3.   Reviewed payment receipting records to determine that cash collected, on February 17 & 19
              2009, was properly documented and deposited in a timely manner pursuant to Treasury’s
              prescribed policy.
         4.   Reviewed whether adequate written policies and procedures pertaining to cash collection
              were on site and being followed.
         5.   We reviewed the adequacy of safeguarding of cash, checks, and unused payment receipt
              stock through inquiry and observation.

This audit was conducted in accordance with Generally Accepted Government Audit Standards issued by
the Comptroller General of the United States (Revised July 2007). Accordingly, we performed tests of
source documents and records as well as other auditing procedures to obtain sufficient and appropriate
evidence to support our finding and recommendations.




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                   Department of Health-Surprise Cash Count

                            FINDINGS AND RECOMMENDATIONS


    FINDINGS:


        1. ASG ADMINISTRATIVE CODE DOES NOT CLARIFY THE TREASURER’S AUTHORITY FOR
           ESTABLISHING FINANCIAL RULES, POLICIES AND PROCEDURES (Internal Controls).

The American Samoa Code Chapter 5, Section 4.0506 and Chapter 10, Section 4.1001 (a) and (g)
authorizes the Department of Treasury to adopt rules to further the purposes of its powers and duties.

Chapter 10, Section 4.1002, (1) authorizes each agency to “adopt rules of practice setting forth the
nature and requirements of all formal and informal procedures available, including a
description of all forms and instructions used by the agency;”

This language has been interpreted to mean that individual departments can establish their
own financial rules, policies and procedures provided they do not contradict with ones
established by Treasury.

Treasury’s financial policies and procedures have evolved over time and have not been given
priority attention until recently.

Development of entity-wide, uniform financial policies and procedures should be the
responsibility of the Director of Treasury. The Treasurer should have sole authority for
establishing and promulgating all financial policies and procedures for ASG.



            2. CASH COLLECTIONS ARE NOT TRANSMITTED TO TREASURY, IN A TIMELY MANNER

TFHC established their own independent policies and procedures for cash collections. According to
TFHC policy, collections are to be deposited to the Treasury Department’s Revenue Division on a daily
basis. This policy is consistent with the corresponding policy of the Department of Treasury.

We reviewed TFHC daily cash receipts both before and after the date of our cash count. We determined
that TFHC retained their cash collections, from one day to forty one days, before transmitting them to
Treasury.




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                    Department of Health-Surprise Cash Count


                            FINDINGS AND RECOMMENDATIONS


FINDINGS, CONTINUED

The DOH Main Office did not establish a cash collection policy and procedure. DOH main office did not
comply with the current policy of the Department of Treasury to remit money on a daily basis. They
retained their cash collections from one day to seventeen days.

Frequent remittance of cash to the Treasury is an important control because it safeguards public assets
and reduces the risk of loss due to theft, misappropriation or misplacement of money.



            3.   TFHC: CASH COLLECTIONS WERE DIVERTED TO PURCHASE SUPPLIES



During the course of the cash count, we learned that TFHC used a portion of its daily cash collections to
purchase supplies for the clinic. TFHC does not have the authority to establish a petty cash or imprest
account without the express written approval of the Treasurer of ASG pursuant to Department of
Treasury, General Cash Procedures.

Accountability is strengthened when daily cash receipts are transmitted and deposited intact. Diversion
of collected cash resulted in a cash shortage that corresponded with the amount of purchased supplies.
Additionally, the expenditures of purchased supplies were not formally recorded in ASG’s financial
system, resulting in an understatement of expenses in ASG’s financial statements.



            4. TFHC: MISSING CASH RECEIPT FORMS

 An integral part of established internal controls over cash receipting, involves maintaining strict
accountability over all pre-numbered cash receipt forms. Missing or unaccounted cash receipt forms
increase the risk of misappropriated cash.

Transmittal letters and cash receipts forms reviewed both before and after the cash count, revealed that
pre-numbered receipt forms were missing from the sequence of cash receipts issued on February 25,
2009. Transmittal Letter #243253, dated 2/26/09 was supported by cash receipt numbers 2207201 –
2207222 and 2207400. Missing from the sequence of pre-numbered receipt forms supporting the
remittance to Treasury were Receipt forms #2207223 – 2207399. Cash receipts supporting the
remittance were dated February 25, 2009.

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                    Department of Health-Surprise Cash Count



                            FINDINGS AND RECOMMENDATIONS
FINDINGS, CONTINUED

 TFHC personnel were unable to explain or account for the missing pre-numbered cash receipt forms
noted in the preceding paragraph. The total number of missing receipt forms is 176. TFHC did not
follow their own internal policies and procedures by not issuing cash receipts in ascending sequential
numerical order. Non compliance with this policy increases the risk that a theft of cash could go
undetected.



            5. ASG’s CASH PROCEDURES ARE INSUFFICIENT TO ENSURE THAT ALL CASH RECEIPTS ARE
               COLLECTED , ACCURATELY RECORDED AND ULTIMATELY DEPOSITED.

The ASG’s undated cash procedures provide a limited, general narrative of policies and procedures
related to the collection, receipting and subsequent transmittal of money to the Treasury Revenue
Division for deposit. The written cash procedure (based on a receipting method that requires the use
pre-numbered cash receipt forms) does not completely describe all elements required to effectively
control the cash collection activity.

A preferred method of cash receipting involves the use of electronic cash registers, when practical, with
well developed written policies and procedures for controlling the activity. Another preferred method
involves the acceptance of point of sale merchant (debit/ credit) cards. These will be discussed further,
in the Recommendations.



            6. DOH/TFHC: VOIDED CASH RECEIPT FORMS ARE NOT RETAINED WITH THE DAILY
               RECEIPTING RECORDS.

As previously mentioned, an integral part of established internal control over cash receipting, involves
strict accountability over all pre-numbered cash receipt forms. Missing or unaccounted cash receipt
forms increase the risk of misappropriated cash.

The manual handwritten cash receipting process used, involves a three part form. The original (white) is
issued to the customer, the yellow copy sent to Treasury with the transmittal letter, and the pink copy is
to be retained at the collection point as part of the audit/ documentation.During the audit it was
determined that voided cash receipt forms (pink audit copy) were not retained at the agency but




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                   Department of Health-Surprise Cash Count

                            FINDINGS AND RECOMMENDATIONS


FINDINGS, CONTINUED

instead, sent to Treasury. This practice interrupts accountability over the numerical sequence of cash
receipt forms.

Additionally, ASG’s cash procedure does not fully describe the desired distribution of each copy of the
three part cash receipt form.




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                    Department of Health-Surprise Cash Count

                            FINDINGS AND RECOMMENDATIONS
    RECOMMENDATIONS:



        1. IT IS RECOMMENDED THAT THE ADMINISTRATIVE CODE BE REVISED TO CLARIFY THAT THE
           DIRECTOR OF TREASURY HAS SOLE AUTHORITY TO ESTABLISH ALL FINANCIAL POLICIES
           AND PROCEDURES AND THE FORMAT FOR FORMAL ADOPTION.

It is further recommended that Chapter 10, Section 4.1002 (1) be revised pursuant to authorizing each
agency to “adopt rules of practice setting forth the nature and requirements of all formal and informal
procedures available, including a description of all forms and instructions used by the agency”.

In conjunction with the preceding paragraph, it is suggested that all such rules and procedures be
formally reviewed, modified, approved and indexed by an appropriate authority designated by the
Governor. Reference, Finding 1



        2. IT IS RECOMMENDED THAT ASG’S CASH PROCEDURES BE EXPANDED TO COVER
           ADDITIONAL COLLECTION METHODS SUCH AS ELECTRONIC CASH REGISTER RECEIPTING,
           ACCEPTANCE OF MERCHANT SERVICE (CREDIT/ DEBIT) CARDS AND ISSUANCE OF THEATRE
           TICKETS. TREASURY SHOULD IDENTIFY EVERY CASH COLLETION LOCATION IN ASG AND
           CONSIDER IMPLEMENTING ALTERNATIVE CASH RECEIPTING METHOD TO INCREASE
           CONTROL OVER CASH.

The risk of loss due to theft and misappropriation of cash is reduced when policies and procedures are
well written and clearly communicated. Manual cash receipting is the primary method of accounting for
collections within ASG. This method is not considered to be a very effective from a control perspective.

Certain cash generating activities are better suited to other cash receipting methods rather than
issuance of manual receipts. Each method mentioned above, when implemented, will require the
establishing of detailed written policies and procedures and subsequent proactive monitoring.

When practical, use of electronic cash registers and point of sale merchant card receipting (debit and
credit) further reduces risk of loss due to theft or misappropriation of cash. Treasury should use these
when possible, as a means to better control cash transactions. Transaction volume, type and amount
should be considered. Note: Due to the diversity and number of locations that generate cash
collection, it is suggested that Treasury systematically identify and carefully assess each cash
collection site and activity to determine the most appropriate receipting method.

Reference, Finding 5


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                  Department of Health-Surprise Cash Count

                           FINDINGS AND RECOMMENDATIONS


RECOMMENDATIONS, CONTINUED:



       3. ASG’S WRITTEN CASH PROCEDURES SHOULD BE STRENGTHED AND EXPANDED TO
            INCLUDE THE FOLLOWING:
   •    Encourage segregation of incompatible duties, whenever possible. Transmittal letter prepared/
        approved by someone other than cashier. Receipts reconciled to cash collected by someone
        other than the cashier.
   •    Detailed procedures related to disposition of each portion of the three part cash receipt.
   •    Detailed procedures related to retention of void receipts with daily cash receipting records.
   •    Detailed procedures to require that all pre-numbered receipts are issued sequentially in
        ascending numerical order and that all are properly accounted for.
   •    Require the cashier specify mode of payment (cash or check) on each cash receipt form.
   •    All pre-numbered receipt forms should be logged and issued by Treasury.
   •    Require daily reconciliation of collections with receipts and a method for recording cash over/
        short.
   •    Establish dollar thresholds to determine the required frequency of transmittal to Treasury.
   •    Require checks to immediately be restrictively endorsed “for deposit only, ASG Treasury”.
   •    Establish formal procedures related to checks returned “NSF”.
   •    Prohibit the acceptance of third-party checks as a means of payment
   •    Prohibit the cashing of personal checks

        Reference, Findings 4, 5 and 6

       4. CASH COLLECTIONS SHOULD BE REMITTED TO TREASURY DIVISION IN A TIMELY MANNER

       Treasury’s cash procedures presently require transmittal of collections on a daily basis. It is
       recommended that the Director of Treasury consider granting exceptions to this rule based
       upon predetermined dollar thresholds and the maximum number of days that collected cash is
       allowed to be retained at each agency. When exceptions to the daily transmittal policy are
       granted by the Treasury Director, they should be in writing and include the dollar limit and
       maximum number of days before transmittal.

       Reference, Finding 2.




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                 Department of Health-Surprise Cash Count



                          FINDINGS AND RECOMMENDATIONS


RECOMMENDATIONS, CONTINUED:



     5. CASH COLLECTIONS SHOULD BE TRANSMITTED TO TREASURY INTACT

     The TFHC should not use or divert collected cash for any purpose. TFHC used cash it collected
     from charges for services, to purchase operating supplies. The existing Treasury policy
     specifically prohibits this practice;

     “To avoid unreported revenues, departments are not permitted to make any purchases with the
     cash collected”.

      If small supplies purchases are frequently needed, the Director of Health should request from
     the Treasury Director, authority to establish a petty cash or, “imprest” fund. Treasury should
     establish written policies and procedures for the operation of, and documentation required to
     replentish such funds.

     Any violations of this policy should result in immediate termination. Reference, Finding 3



     6. DOH/TFHC: PERSONNEL INVOLVED IN THE CASH COLLECTION PROCESS SHOULD BE FULLY
        TRAINED TO COMPLY WITH WRITTEN POLICIES AND PROCEDURES (INTERNAL CONTROLS)

     ASG Personnel need to be sufficiently trained to comply with established cash receipting policies
     and procedures in order to ensure all cash is accurately recorded, transmitted and ultimately
     deposited. Such training will teach the employees their assigned roles and responsibilities.

     Establishing well written internal controls and better training of personnel will reduce the risk of
     theft and that lost, stolen or misappropriated funds will not be detected.




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                   Department of Health-Surprise Cash Count

                            CORRECTIVE ACTION PLAN REQUEST
The Territorial Audit Office (TAO) conducted an exit meeting with management representatives of the
Departments of Treasury and Health on Tuesday December 15, 2009. The purpose of the meeting was
to present, review and discuss proposed audit findings and recommendations contained in the
preliminary report, with the audited agencies.

Although the audit was performed on activities under the Department of Health, the Treasury
Department was involved because of their authority and responsibilities concerning accounting and
establishing rules (internal controls).

ASG Code Title 4, Chapter 4.0412 establishes procedures to be followed at the conclusion of an audit.
This code section requires that the Territorial Auditor present and discuss with agency officials,
proposed findings which may be included in the audit report. The audited agencies are then required to
submit a written statement explaining or rebutting the proposed audit findings, including any corrective
actions to be taken that are designed to preclude recurrence of adverse findings. The Agency’s response
is required to be submitted to TAO within 30 days after receipt of the proposed findings, and
subsequently published in the final audit report.

TAO’s Policies and Procedures Manual Part II, Chapter 7 requires the submission of a corrective action
plan by management of the audited agency(s) within 180 days of the final audit report date. Such
corrective action plan should include the timeframe for implementation.

Accordingly, it is hereby requested that the Departments of Treasury and Health collaborate on the
preparation of the Corrective Action Plan in connection with this audit. The plan should be submitted to
TAO 180 days from the issue date of this report.

TAO will include the state of progress on corrective action plans which resulted from issued audit
reports in its annual report to the Governor and Fono.




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