Internal Audit Report - Bank Reconciliation

Everyone 7 127 461 rep _agd _ID Draft 3 Ch ief E xecutives 13 0 5, 6, 8, 9, 7, 10, 11, 12, 18, 14, 15, 16, 17 rep_e xe_IDsYes Yes Yes Yes No No No No No Yes Yes Yes Yes Yes No No No No Yes Yes Yes Yes No No No No No No No No No No No No No No No No No No No NoPE1, PE 2, PE 3, PE 4, PL 1, PL 2, P L3, PL4, PL5, PR1, PR2, PR3, PR 4 25/03/02 19:00:56 Chief E xecutive Old 116 1East Dorset District CouncilFinance and ResourcesOverview and ScrutinyCommittee Agenda Item No 1025th March, 2002Public ReportInternal Audit Report - Bank ReconciliationItem for Decision:Contributors:Contact Officer:Financial Implications:Council Priorities:Recommendations:To advise Members of the results of the audit carried out on theCouncil's Bank Reconciliation procedures.Chief ExecutiveVic Smith, Head of Finance & I.T. ServicesNone.PE1 PE2 PE3 PE4 PL1 PL2 PL3 PL4 PL5 PR1 PR2 PR3 PR4It is RECOMMENDED that the action plan as set out in theinternal auditor's report is supported.1. Introduction1.1 An audit into the Council’s bank reconciliation procedures was carried out inFebruary 2002 by the Council’s internal audit service. The audit report isattached at Appendix 1.1.2 Recommendations within internal audit reports are prioritised as low, mediumor high, dependent on the level of risk involved and the likelihood of financialloss occurring. Recommendations refer to page numbers within the originalaudit reports. This numbering is lost when agendas are prepared andsubsequently renumbered.2. Audit Findings2.1 In the auditor’s opinion :Internal Audit is satisfied that reliance can be placed on controls reviewed,following the completion of the Bank Reconciliation audit.However some recommendations have been made within the report to furtherenhance control procedures.2.2 The auditor has made two recommendations, neither of which is regarded ashigh risk. The main points highlighted in the audit are that :(a) procedure notes on bank reconciliation need to be completed; and(b) a second person needs to be trained in the procedures.Both of these issues are currently being addressed, as previously reported tothe Finance Monitoring and Review Group in October 2001.3. Appendices3.1 Appendix 1 : Audit Report on Bank Reconciliation55

4. Background Papers4.1 None.56

APPENDIX 1BANK RECONCILIATIONAUDIT REPORTFEBRUARY 2002Action PlanManagement SummaryDetailed FindingsPrepared By:David MaidmentAudit AssistantEast Dorset District Council57

Action PlanRecNo.RecommendationPageRefAgreed /ActionedComments Date Priority1 That the procedure notes forthe Drawings AccountReconciliation are completedfor the purposes of sickness,absence and training.5 FinancialServicesManagerPartially done withthe aid of screenprints. Formallydocumented oncenew systemcomes on-line.Feb-02Medium2 That a further member of theAccountancy Team istrained in order that they cancomplete the bankreconciliation withoutassistance from theAccountant.6 FinancialServicesManagerFinancial ServicesManager has beentrained with theassistance of theAccountant.Feb-02Medium58

Management SummaryIntroductionThis audit was carried as a part of the 2001 – 2002 Internal Audit Plan; the last auditof the Bank Reconciliation system was carried out in March 2001.ObjectivesThe purpose of the audit work was to ensure that control systems adequately meetthe objectives set out below, as agreed with Service Management.1. Council Bank accounts are reconciled accurately and on a timely basis.2. Bank Reconciliation procedures are clearly defined and documented.3. Performance Indicators report satisfactorily the performance of the service.59

Audit OpinionInternal Audit is satisfied that reliance can be placed on controls reviewed, followingthe completion of the Bank Reconciliation audit.However some recommendations have been made within the report to furtherenhance control procedures.Recommendation Priority IndicatorHigh3R1 / R2Risk(Consequence)Medium2Low1Low1Medium2High3Probability(Occurrence)- Judgements are based on financial, corporate, environmental, economic and political consequences60

Detailed FindingsOBJECTIVE 1 – COUNCIL BANK ACCOUNTS ARE RECONCILED ACCURATELY AND ON A TIMELY BASIS1.1 The Accountant is responsible for reconciling the Council’s bank accounts with theMain Accounting System and relevant feeder systems.The auditor verified that the details on the General Bank Account statements had beenreconciled to the respective systems, which include:- Council Tax and National Non-Domestic Rates- Mortgages- Sundry Debtors- Miscellaneous Income- QELC Income- Giro AccountsTesting was undertaken on the source documentation for the figures used for thereconciliation in November 2001. No errors were found and the accounts were reconciled.OBJECTIVE 2 – BANK RECONCILIATION PROCEDURES ARE CLEARLY DEFINED AND DOCUMENTED2.1 The Accountant has completed the procedure notes on the reconciliation of theGeneral Bank Account. However, in order for the General Bank Account to be accuratelyreconciled, the Drawings Account must also be accurately reconciled and as yet, noprocedure notes have been produced for this reconciliation.It is the auditor’s opinion that if the procedure notes for the Drawings Accounts arecompleted, reference could be made to ensure the continued efficient running of the bankreconciliation function in the event of sickness or long term absence.It is recommended that the procedure notes for the Drawings Account Reconciliation are completedfor the purposes of sickness or long term absence.2.2 It was further found that the Accountant is the only member of the Accountancy Teamthat knows how to reconcile the bank accounts in their entirety.There were staff changes in the Accountancy Section during July 2001, which resulted in adelay in training an additional member of staff.It is the auditor’s opinion that at least two members of staff should have a working knowledgeof the bank reconciliation system.It is recommended that a further member of the Accountancy Team is trained in order thatthey can complete the bank reconciliation without assistance from the Accountant.2.3 In their 2001 Annual Report, District Audit raised concern over the amount of chequesthat were six months old and had been included in the balance sheet.The auditor reviewed cheques that were over six months old on the November 2001 bankreconciliation. Testing highlighted eight cheques totalling £2,410.21.On a regular basis, the Accountant issues the relevant Section e.g. Council Tax, NNDR etc,a list of cheques over six months old. It is then the responsibility of the Section to cancelthese cheques on their relevant system.61

The auditor is satisfied that the Accountant has done enough to establish the reason why thecheques have not been cashed.OBJECTIVE 3 – PERFORMANCE INDICATORS REPORT SATISFACTORILY THE PERFORMANCE OF THE SERVICE3.1 Best Value was introduced by Central Government to take effect from April 2000. TheBank Reconciliation Performance Indicators are included as part of Support Services (SAP11) which is scheduled for review in 2004–2005.There are two local indicators that relate to the reconciliation of the council’s bank accounts.The performance indicators tested during the course of this audit have been highlightedbelow:Performance IndicatorNumber of months in each year inwhich the accounts were reconciled.Current Year2001/02Projection / Targets forfuture yearsTarget Estimate 2002/03 2003/04 2004/0512/12 12/12 12/12 12/12 12/12Number of months in which theaccounts were reconciled within 20days of the end of the period.12/12 7/12 12/12 12/12 12/12NUMBER OF MONTHS IN EACH YEAR IN WHICH THE ACCOUNTS WERE RECONCILED3.2 The prints from the bank account reconciliation from April 2001 to December 2001were examined, from which it was confirmed that the accounts have been reconciled on amonthly basis.NUMBER OF MONTHS IN WHICH THE ACCOUNTS WERE RECONCILED WITHIN 20 DAYS OF THE ENDOF THE PERIOD3.3 The Accountant records the date when the accounts are completely reconciled.These are then passed to another member of Financial Services for certification.The reconciliations from April 2001 to January 2002 were examined. It was found that fiveaccounts had not been reconciled within 20 days and this was correctly reported to theFinance Monitoring and Review Group meeting on the 11 th October 2001.David MaidmentAudit AssistantFebruary 200262