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Common Issues of Financial Processes

Common Issues of Financial Processes. Audits. State Agency Internal Audit Forum Michael Simon, Audit Manager Thomas Mahoney, Senior Auditor January 18, 2019. What are Financial Processes Audits?.

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Common Issues of Financial Processes

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  1. Common Issuesof FinancialProcesses Audits State Agency Internal AuditForum Michael Simon, AuditManager Thomas Mahoney, SeniorAuditor January 18,2019

  2. What are Financial Processes Audits? • The objective of financial processes audits is to determine whether the audited entity has processes and related controls to help ensure that they administer financial transactions in accordance with applicable statutes, rules, and agency policies andprocedures.

  3. Financial ProcessesAudits • As of January 11, 2019, the State Auditor’s Office has completed 18 financial processes audits at the following entities: Board of Nursing(16-022) Texas Public Finance Authority(16-029) Juvenile Justice Department(16-032) Public Utility Commission(16-033) Library and Archives Commission(16-035) Pension Review Board(16-038) Department of Licensing andRegulation (17-003) Commission on the Arts(17-035) Office of Court Administration(17-048) Texas Military Department(18-010) Texas Veterans Commission(18-031) State Office of Risk Management(18-032) Texas Department of Criminal Justice(18- 035) Texas Department of Insurance(18-039) Texas State Board of Dental Examiners (18- 043) Texas A&M Forest Service(19-009) 18. Office of the Secretary of State(19-020) 9. Texas Alcoholic Beverage Commission (17- 17. 044)

  4. Financial ProcessesAudits Financial Processes Audits Performed Since Fiscal Year 2016, by General Appropriations ActArticle 7 6 5 4 3 2 1 0 FY2016 FY2017 FY2018 FY2019* Article III -Education Article V - Public Safety and CriminalJustice Article I - GeneralGovernment Article IV - The Judiciary Article VIII -Regulatory * Data for FY2019 is as of1/11/19.

  5. How are agencies selected for Financial ProcessesAudits? • Agencies are selected using a riskassessment • with a variety of factorsincluding: • Time since lastaudit. • Expenditures. • High percentage of payrollexpenditures. • Otherfactors.

  6. How are the financial processes selected for theaudit? • Audit team gain an understanding of keyfinancial • processes at theagency. • Financial processes are selected based on factors including risk, controls, and expenditures.

  7. Issue RatingsMatrix

  8. Categories of Financial Processes Issues • Budget • Expenditures • Revenue • Contracts andGrants • AssetManagement • FinancialReporting • InformationTechnology

  9. Common Audit Issues- Expenditures Issue Ratingsfor IssuesIdentified How Commonly These Issues AreIdentified 14 12 10 8 6 4 2 0 Expenditures Other 23% Travel 26% Priority High Medium Low Payroll 20% Purchasing 31%

  10. Common Audit Issues– ExpendituresExamples The Veterans Commission Had Controls to Process Payrolls and Payroll Changes in Accordance with Applicable Requirements (18-031, Chapter2-D) Issue Rating: Low The Military Department’s Processes Ensured That the Department Processed Payments That Were Allowable, Properly Supported, and Approved; However, It Should Strengthen Its Processes to Ensure That It Makes Payments in a Timely Manner and Reports Complete and Accurate Information in CAPPS (Report 18- 010, Chapter3) Issue Rating: Medium The Alcoholic Beverage Commission Should Strengthen and Enforce Controls Over Its Processing of Travel Expenditures (Report 17-044, Chapter4-B) Issue Rating: High The State Office of Risk Management Accepted, Denied, and Paid Workers’ Compensation Claims in Compliance with Applicable Statutes, Rules, and Office Policies and Procedures (Report 18-032, Chapter2-A) Issue Rating: Low 10

  11. Common Audit Issues -Revenue • Common revenue relatedissues: • Timeliness ofdeposits. • Segregation ofduties. • Review and approval oftransactions. • Issue Ratings for Revenue Issues 7 Low,6 6 5 4 3 2 1 11 0

  12. Common Audit Issues –Revenue Examples The Office of Court Administration Did Not Have Adequate Processes and Controls Over Statewide Electronic Filing System Revenue Collection and Contractor Payments (Report 17-048, Chapter1) Issue Rating: High The Department of Insurance Had Adequate Controls to Collect andRecord Revenues from Licenses, Fees, Permits, and Taxes (Report 18-039, Chapter1-A) Issue Rating: Low IssueRating: Low The Board of Nursing Generally Had Controls to Deposit Revenue; However, It Should Segregate Certain Duties and Consistently Deposit Funds within the Statutorily Required Time Frame (Report 16-022, Chapter4) The Veterans Commission Had Revenue Processes to Ensure That Drawdowns of Federal Funds Generally Complied with Applicable Requirements; However, It Should Strengthen Its Reviews to Verify Accuracy (Report 18-031, Chapter1) Issue Rating: Medium

  13. Common Audit Issues –Contracts andGrants 10 9 8 7 6 Priority High Medium Low 5 4 3 2 1 0 Contracts Grants

  14. Common Audit Issues – Contracts and GrantsExamples Issue Rating: High The Military Department Should Strengthen Its Contracting Processes to Ensure That It Consistently Performs Required Activities Related to Contract Planning, Procurement, and Formation (Report 18-010, Chapter1) Texas Public Finance Authority Should Make Improvements by Documenting Its Process for the Selection and Evaluation of Its Bond-related Contracts (Report 16-029, Chapter2) Issue Rating: Medium The Department of Licensing and Regulation Should Consistently Approve Purchases Prior to Spending State Funds and Develop a Formal Process to Monitor Contract Expenditures (Report 17-003, Chapter3) Issue Rating: Medium Issue Rating: Low The Juvenile Justice Department Had Adequate Controls Over JuvenileProbation Grants (Report 16-032, Chapter2-A)

  15. Common Audit Issues– AssetManagement Issue Ratings for AssetManagement Low Medium High Priority 5 IssueRating: Low The Department of Criminal Justice Established Processes and Controls toHelp Manage Its Assets (Report 18-035, Chapter2) The Office of Court Administration Should Strengthen Its Controls Over Asset Accounting to Ensure That It Accurately Reports Controlled and Capital Assets to the Statewide Property Accounting System (Report 17-048, Chapter3) Issue Rating: Medium

  16. Common Audit Issues –Financial Reporting andOther Texas Public Finance Authority Should Establish and Document Annual Financial Report Procedures and a More Thorough Review Process (Report 16-029, Chapter4) Issue Rating: Medium The Pension Review Board Should Improve Succession Planning, Cross-training, and Policies and Procedures for Financial Processes (Report 16-038, Chapter1) Issue Rating: High The Forest Service Had Processes and Controls to Ensure That Most Fleet Vehicle Data Was Recorded Accurately and Completely; However, It Should Strengthen Its Processes for Reporting Data Related to Disposed Fleet Vehicles (Report 19-009, Chapter2-B) Issue Rating: Low

  17. Common Audit Issues – InformationTechnology Access The Public Utility Commission Should Improve Access Controls Over Its Accounting System (Report 16-033, Chapter3-A) Issue Rating: Medium ChangeManagement The Commission on the Arts Should Strengthen Controls Over CertainAspects of Its Information Technology System (Report 17-035, Chapter1-C) Issue Rating: Medium ApplicationControls The Department of Insurance Should Improve Certain Controls Over Information Systems Used to Administer Financial Transactions (Report 18-039, Chapter3) Issue Rating: Medium While the Forest Service Had Controls Over Automated Systems to Administer Financial Processes, It Should Improve Certain Information TechnologyControls Issue Rating: Medium (Report 19-009, Chapter3) 17

  18. Questions? ContactInformation Michael Simon, AuditManager Texas State Auditor’s Office 512-936-9480 Michael.Simon@sao.texas.gov Thomas Mahoney, SeniorAuditor Texas State Auditor’s Office 512-936-9726 Thomas.Mahoney@sao.texas.gov 18

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