General

As part of the follow-up audit of cash handling within the Recreation and Park Department, the Budget Analyst examined the adequacy and effectiveness of the Permits and Reservations Unit's cash handling activities to determine whether those activities provide reasonable assurance that assets are adequately safeguarded, financial reporting is accurate, and City and Department policies and regulations are complied with.

To accomplish these objectives, the Budget Analyst:

• Reviewed policy statements and written procedures for the Permits and Reservations Unit's cash handling function;
• Observed how permits are issued and reservations are made across the two Divisions within the Permits and Reservations Unit;
• Observed cash handling activities;
• Examined Daily Reports of Cash Receipts (DRCR), permits, denomination detail sheets, deposit slips, permit or reservation payment receipts and fee schedules to observe how patrons are charged, how permits are issued and reservations are made, how cash is collected and recorded, and what potential room for error exists by employing these methods;
• Compared DRCRs, denomination sheets, and deposit slips recorded within the Permits and Reservations Unit with the deposits made by the Revenue Unit to see if they match;
• Examined security procedures for cash on hand in the Pioneer Log Cabin and for transport of cash from the Pioneer Log Cabin to the Revenue Unit at McLaren Lodge.

Background

Located in the Pioneer Log Cabin in Golden Gate Park, the Recreation and Park Department's Permits and Reservations Unit, comprised of an Athletics Section and a Picnics and Special Events Section, is responsible for reserving athletic fields and for issuing permits and granting reservations for picnics, weddings, films, and special events.

Cash handling operations of the Permits and Reservations Unit are divided into five different revenue sources, with the following actual revenues from FY 2006-2007:

The Permits and Reservations Unit, which is part of the Operations Division of the Recreation and Park Department, is authorized 13.0 fulltime equivalent (FTE) positions, as shown below.

Permits and Reservations Unit Handling of Cash

As indicated below, the Department issued a revised Cash Handling Policy as part of the implementation of recommendation 10.1 of the 2006 Recreation and Park Department Audit Report.

The Cash Handling Policy includes provisions for depositing cash receipts, separation of duties, safeguarding cash, and supervisory oversight and monitoring.

However, the Budget Analyst found that the two divisions of the Permits and Reservations Unit do not adhere to all of provisions of the 2006 Cash Handling Policy, and that further, the two divisions have developed their own separate, informal procedures for cash collection, revenue reporting, and revenue deposits.

Based on staff interviews and observation of operations within the Permits and Reservations Unit staff, the Budget Analyst found that:

• Staffmembers had not received cash handling manuals, nor had they been trained on cash handling procedures.
  
  
• Procedures regarding frequency of deposits, separation of duties, and security of all cash are not consistent throughout the Unit and are insufficient to provide reasonable assurance of accomplishing cash handling objectives.
  
  
• Supervisory duties of reviewing and reconciling deposits with receipts as well as ensuring that staff are following internal controls are not being followed by appropriate Permits and Reservations staff.

Policies and Procedures for Issuing Permits and Making Reservations

As previously stated, the Department responded to recommendation 10.1 in the 2006 Recreation and Park Department Audit Report by stating that the implementation of CLASS had lowered risks associated with cash handling and had also resulted in clearly defined policies regarding daily reconciliation of cash drawers as well as additional improvements to cash handling. On the whole, the Budget Analyst agrees with this assessment. However, as noted in below in the Department's response to recommendation 9.8 of the 2006 Recreation and Park Department Audit Report, the Department intended for CLASS to rectify deficiencies in maintaining reservation and permit files, reconciling reservations and permits with daily deposits, reconciling deposits, and maintaining deposit records that cross-reference reservation and permit files. The Budget Analyst found, however, that within the Permits and Reservations Unit, only the Athletics Division has implemented the CLASS system, while the Picnics and Special Events Division continues to rely on manual data entry and hand-written documentation. This dichotomy in implementing the CLASS system has resulted in inconsistencies in accounting, record-keeping, and patron experience across the Unit as a whole. The Budget Analyst has identified specific operational and control problems associated with these inconsistencies, as presented in the sections below.

Recommendation 9.8 and the RPD response states as follows:

The Athletics Division

The Athletics Division of the Permits and Reservations Unit issues permits and makes reservations for all athletic fields within the Department's jurisdiction. The Athletics Division commenced using CLASS in 2007. The Budget Analyst found the following problematic practice within the Athletics Division:

B7 All credit card payments are processed by the staff accountant for Picnics and Special Events, even though the Athletics Division payments go into a different revenue fund, thereby increasing the possibility for human error in the deposit process.

The Picnics and Special Events Division

The Picnics and Special Events Division issues permits and makes reservations for picnics, weddings, films, and special events at locations within the Department's jurisdiction. Though the Department clearly states in response to recommendation 9.8 that the implementation of CLASS will fix any irregularities cited in recommendation 9.8, the Department has failed to implement CLASS in the Picnics and Special Events Division, thereby allowing for the continuation of discrepancies in issuing of permits and making reservations, record-keeping, and reconciling deposits.

The Budget Analyst observed that there are different procedures followed for making reservations in the Picnics and Special Events Division, depending on which type of reservation is being made or permit is being issued. Problems associated with the failure to implement CLASS include:

• Neighborhood Parks does not use a database, but rather, records reservations by hand. The Budget Analyst notes that this method makes recommendations 9.8(b) and 9.8(d), as noted above, difficult to implement because there is no automatic reconciling or cross-checking of permits and deposits without access to a database.
  
  
• Copies of permits are not attached to payments for processing within the Division. Therefore, the accountant receives the check with the reservation number, or cash, or the credit card receipt, but does not receive copies of any of the accompanying permits. This does not allow for a streamlined and thorough record-keeping process of all permits and reservations Unit-wide. The Budget Analyst notes that procedural standards for reconciling permit reservations with deposits, such as those implemented with the CLASS system, indicate that all information for a reservation, including copies of the permits, should be kept together for adequate record-keeping. The current condition in the Picnics and Special Events Division does not adhere to these standards and does not satisfy the implementation of recommendation 9.8 from the 2006 Recreation and Park Department Audit Report.

Cash Handling Practices

The Budget Analyst found that the Permits and Reservations Unit staff do not follow a uniform set of policies or procedures regarding cash payments, recording of cash payments, or cash deposits, nor do staff adhere to certain cash handling provisions of the Department's 2006 Cash Handling Policy. Further, oversight of cash handling and verification of the accuracy of deposits is inadequate.

In the following section, the Budget Analyst discusses the various procedures used by each Division within the Permits and Reservations Unit and describes the findings concerning violations of the Department's cash handling policies or inadequacies in cash handling procedures

The Athletics Division

Athletics Division staff deposit all cash and check payments in a cash register. All Athletics staff have access to the cash register and there is no oversight regarding cash that goes in and out of the register. The lack of procedures and safeguards to protect cash throughout the day puts cash at risk within the Unit. The Athletics staff advised that all cash and check payments are taken from the register, secured in a lock box, and stored in a file cabinet every night. According to the Cash Handling Manual issued by the Department in 2006, the Supervisor has the responsibility of evaluating overall internal controls to ensure that cash is safeguarded throughout the day, and must ensure that employees understand internal control procedures and follow them. The Permits and Reservations Unit should implement detailed internal controls regarding the safeguarding of cash throughout the day, which staff have access to the cash register, and who is responsible for cash receipts and disbursements. The Budget Analyst found that because these internal controls do not exist, accountability for cash handled throughout the day is invalidated.

Though the 2006 Cash Handling Policy states that cash should be deposited or reported immediately when it exceeds $100, the Budget Analyst found that the Athletics Division consistently had more than $100 on hand before deposits were made, as shown in the chart below. Further, no controls were in place regarding amounts that had to be reported or deposited based on the Supervisor's discretion.

Table 5.1

Athletics Division June 2007 Deposits

B7 According to Athletics Division staff, payments of up to $70,000 may be received in the Athletics Division for the payment of an athletic league and even in this case, the same procedures are followed.

The Athletics Division has one 3284 Recreation Director who is responsible for maintaining the records of all Athletics reservations and permits, reconciliation of revenues, and preparation of weekly deposits. The Recreation Director reconciles payments every week and ensures that they match with reservation information in the CLASS system.

The Picnics and Special Events Division

The Picnics and Special Events Division follows different procedures for cash collection, recording of payments, and making deposits. All Picnics and Special Events staff make reservations and collect cash payments. When a reservation is made, cash and check payments are placed in envelopes on the desk of the Senior Account Clerk, who serves as the staff accountant. The envelopes are labeled according to type of reservation, such as 93picnics.94 These envelopes remain on the Senior Account Clerk's desk during the day and are locked in a file cabinet at night.

The Budget Analyst found:

• There is no monitoring of payments that are put in the envelopes throughout the day.
  
  
• Payments are not reconciled at the end of the day to ensure that they match the appropriate permit or reservation.

The Picnics and Special Events Division, similar to the Athletics Division, does not follow any protocol regarding the reporting of cash on hand that exceeds a certain amount. As shown in the chart below, the Division consistently had over $100 cash on hand at any given time.

Table 5.2:

Picnics and Special Events Deposits June 2007

The Budget Analyst selected the month of June 2007, one of the busiest months for the Permits and Reservations, to sample permits issued and paid for within the month in order to reconcile the payment documentation for the permit with the Daily Receipts of Cash Received and deposits. Of the fifty permits judgmentally sampled, thirty were for picnics, five were for Stern Grove, and fifteen were for Neighborhood Parks.

Picnics

Of the thirty picnic permits examined, fourteen were paid for with a credit card, ten with a check, two with cash, and payment for four permits was waived. In reconciling the permits with the payments recorded on the DRCR's, the Budget Analyst found that:

• One permit for Lindley Meadow on June 13, 2007 states that the amount owed and paid for the permit was $25 via check. However, the permit reservation on the DRCR states the payment received was for $400.
  
  
• Additionally, the Budget Analyst found that a permit issued on June 1, 2007 for Speedway Meadow had two $25 credit card charges made on separate dates (June 1, 2007 and June 11, 2007, respectively), but only one charge was recorded on the DRCR. All of the permits with waived fees were for schools. There were no other irregularities found in the picnic permits sample.

Stern Grove

Of the five Stern Grove permits, one was paid for by check, two were paid for partially by check and partially by credit card, and two were waived for official City College of San Francisco events. The Budget Analyst found:

• One permit, issued on June 15, 2007, states that the payment was made with check, however, it is recorded on the DRCR as being paid by credit card.
  
  
• The check payment made on June 4, 2007, for one permit was not recorded on the DRCR for deposit until June 20, 2007, or sixteen days after the payment was received. This violates the cash handling policy of depositing cash on a weekly basis.

Neighborhood Parks

Of the fifteen Neighborhood Parks permits selected, eight were paid for through credit card, one in cash, three through check, and three were waived. We found that:

• A cash payment for the rental of Louis Sutter playground on June 16, 2007, was made in the amount of $49.60 but was recorded on the DRCR as $25. Though the reservation number was not written on the DRCR for this reservation, which is not standard procedure, the name of the playground being rented was written on the DRCR. The reservation number for this rental could not be found on any of the DRCR's for June 2007. Based on the date of the deposit and that only one other reservation was made during the month of June 2007 for the same location and it was paid for by credit card, which was confirmed on the DRCR, the Budget Analyst determined that the $25 Louis Sutter playground reservation was a mistake and should have read $49.60.
  
  
• The Budget Analyst also found that a reservation made on June 14, 2007 for the Julius Khan playground was paid for with check, but there is no record of the reservation on the June 2007 DRCR.

The Budget Analyst found that the irregularities found in the permit sample were due to human error as a result of manual data entry onto the DRCR's and onto the permits themselves, whether the data was completed by hand or entered into a computer. The Budget Analyst recommends that the Picnics and Special Events Unit implement the CLASS computer system to mitigate human error, such as the failure to reconcile the correct permits and matching deposits, incorrect documentation, and inadequate record-keeping. There were no irregularities found in the fees assigned to the permits.

Reconciliation of Revenues and Deposits

Though all staff of the Picnics and Special Events Unit are able to make reservations and issue permits, the staff accountant, a 1632- Senior Accountant Clerk, is the sole person responsible for completing the DRCR's, reconciling activity and giving the weekly deposit to the staff supervisor to deliver to the Revenue Unit. The Senior Account Clerk advised the Budget Analyst:

• DRCR's are not completed daily and while she tries to make weekly deposits, she does not adhere to a strict schedule.
  
  
• Revenues are not reconciled to make sure that payments match up with what is written on the DRCR.

The Budget Analyst notes that the 2006 Cash Handling Policy provides specific instructions regarding the completion of the DRCR's on a daily basis, the issuance of receipts to patrons, the reconciliation of daily activity to ensure that payments collected equal what has been listed on the DRCR, and weekly deposits of DRCR's and the accompanying payments.

Overall, the Budget Analyst found:

• The Picnics and Special Events Unit staff do not adhere to the cash handling policies of filling out the DRCR's on a daily basis, making sure that the permits and DRCR's match in terms of payment details, weekly deposits, and not holding onto cash for more than one week.
  
  
• The staff supervisor does not review and approve the deposits from either division and that there is a general lack of oversight to ensure that the proper cash handling and deposit procedures are followed.

In response to Section 9, 93Permits and Reservations,94 of the 2006 Recreation and Park Department Audit Report, the Department stated that a new manager would be hired for the Permits and Reservations Unit and would be responsible for the implementation of the CLASS system across the Unit and oversight of all operations within the Unit. The Unit Supervisor advised that a manager has not been hired. The Unit Supervisor anticipated that the position would be advertised in the spring of 2008.

Furthermore, the Revenue Unit staff advised that:

• When they receive deposits from the Permits and Reservations Unit, they expect revenues to be reported accurately and to be properly reconciled.
  
  
• They do not consistently reconcile deposits received by the Permits and Reservations Unit.

The Revenue Unit should check deposits as reported by the Permits and Reservations Unit to increase the accuracy of revenue reporting.

Policies and Procedures for Security and Controls

The Permits and Reservations Unit, as a whole, has insufficient security procedures and few controls in place to safeguard against theft and maintain the integrity of the revenue reporting and deposit process:

• There is no safe in the Pioneer Log Cabin to store all types of cash payments at the end of each day. Instead, cash is stored in lock boxes in file cabinets.
  
  
• During hours of operation, cash is not monitored and is left in envelopes on the Senior Account Clerk's desk in the Picnics and Special Events Division, in the cash register in the Athletics Division, or in the file cabinets of either division.
  
  
• There are no controls in place regarding who has access to cash, nor is there any supervision to monitor the flow of cash during operating hours.
  
  
• When deposits are made, the Permits and Reservations Supervisor takes the sealed deposit envelopes to the Revenue Unit by herself, without an escort.

Conclusions

Overall, the Budget Analyst found that the lack of controls and security protocol greatly increased the opportunities for theft or inaccuracies in revenue reporting in the Permits and Reservations Unit and that security of cash had not improved since the 2006 Recreation and Park Department Audit Report.

The Budget Analyst found that the cash handling procedures employed by the Permits and Reservations Unit of the Recreation and Park Department need to be significantly improved.

The 2006 Cash Handling Policy provided to the Permits and Reservations Unit does not have a control in place to ensure that all staff receive a copy of the Policy. All staff should be provided with a copy of the Cash Handling policy as well as training on cash handling procedures.

The Permits and Reservations Unit needs to adhere to the Cash Handling Policy as it pertains to Daily Reports of Cash Receipts to be completed on a daily basis, deposits to be made weekly, revenues to be reconciled daily and again before deposits are made, separation of cash handling duties, the safeguarding of cash, monitoring of cash transactions and overall supervision at all times.

The Department must create mechanisms to enforce adherence to its cash handling policies within the Permits and Reservations Unit and needs to improve security protocol as well as overall management and oversight of the Unit.

Recommendations

The Budget Analyst makes the following recommendations for the Permits and Reservations Unit:

The Director of Operations should:

5.1 Update the Cash Handling Policy to incorporate the following improvements cited in this audit report section:

5.1.1 All Units should have clear procedures in regard to security of cash throughout the day as well as at night when cash should be properly locked up.

5.1.2 The security of cash transport from the Pioneer Log Cabin to the Revenue Unit at McLaren Lodge should be strengthened.

5.1.3 The Manager of the Permits and Reservations Unit should verify and approve proposed internal controls developed for each unit.

5.1.4 The Manager of the Permits and Reservations Unit should verify that each employee has (a) received a copy of the Department's Cash Handling Policy, and (b) been properly trained on cash handling protocol within the Unit.

5.2 Implement the CLASS system in the Picnics and Special Events Division to eliminate manual data entry and mitigate the opportunities for human error.

5.3 As recommended in the 2006 Recreation and Park Department Audit Report, hire a manager to implement the CLASS system and oversee all operations within the Permits and Reservations Unit and wherever the CLASS system is used within the Recreation and Park Department.

5.4 Direct the current Supervisor of the Permits and Reservations Unit to develop formal protocols requiring (a) daily reconciliation of revenue activities in both divisions, (b) weekly reconciliation of revenue activities before deposits are made, and (c) at least two employees present during transportation of cash from the Pioneer Log Cabin to the Revenue Unit.

The Director of Administration and Finance should:

5.5 Develop a formal policy or set of procedures regarding the reconciliation of revenues once they are received by the Revenue Unit, to ensure that the Permits and Reservations Unit has reported their revenues accurately.

Costs/Benefits

The recommendations contained in this section will enhance cash handling controls thereby providing adequate safeguards for the collection of over $1.6 million annually.

1 CLASS is a computerized program registration and facility booking system.