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INTERNAL AUDIT OF PINELLAS PUBLIC LIBRARY COOPERATIVE ~ Prepared by: Jodie L. Sechler, CPA Internal Auditor *Regulated by the State of Florida INTERNAL AUDIT DIVISION CLERK OF THE CIRCUIT COURT AUDIT OF PINELLAS PUBLIC LIBRARY COOPERATIVE Karleen F. De Blaker Clerk of the Circuit Court Ex officio County Auditor Robert W. Melton, CPA*, CIA, CFE Chief Deputy Director Internal Audit Division Supervised by: Ronald M, Peters, CIA, CISA Senior Internal Auditor APRIL 17, 2003 REPORT NO. 2003-3 Internal Audit Division, Clerk of the Circuit Court KARLEEN F. De BLAKER CLERK OF THE CIRCUIT COURT - PINELLAS COUNTY, FLORIDA INTERNAL AUDIT DIVISION Clerk 01 the County Court Recorder of Deeds Clerk and Accountant 01 the Board 01 County Commissioners Custodian of County Funds County Auditor Clerk of the Water and Navigation Control Authority 400 Cleveland Street, Fourth Floor Clearwater, FL 33755-4041 Telephone: (727) 464-8371 Suncom: 570-8371 Fax: (727) 464-8386 April 17 , 2003 The Honorable Chairman and Members of the Board of County Commissioners We have conducted an audit of the Pinellas Public Library Cooperative. Our audit objectives included determining' the validity and, propriety of financial transactions, assessing internal controls, and reviewing compliance with laws and the Interlocal Agreement. We conclude that the Pinellas Public Library Cooperative has internal control weaknesses in their cash disbursement process. They have no investment policy, and are not always complying with Florida law and the Interlocal Agreement. Opportunities for improvement are presented in this report. We appreciate the cooperation shown by the staff of the Pinellas Public Library Cooperative during the course of this review. Respectfully Submitted, {lUJt,~ Robert W. Melton, CPA*, CIA, CFE Chief Deputy Director Internal Audit Division Approved: Ka-v~(}: I1g~ Karleen F. De Blaker Clerk of the Circuit Court Ex Officio County Auditor .Regulated by the State of Florida AUDIT OF PINELLAS PUBLIC LIBRARY COOPERATIVE TABLE OF CONTENTS PAGE EXECUTIVE SUMMARY 1 INTRODUCTION OPPORTUNITIES FOR IMPROVEMENT 4 8 Internal Audit Division, Clerk of the Circuit Court EXECUTIVE SUMMARY We have conducted an audit of the Pinellas Public Library Cooperative (PPLC). The PPLC is comprised of thirteen member libraries, which include various municipalities within the County, Our audit objectives include determining the validity and propriety of financial transactions, assessing internal controls, and reviewing compliance with laws and the Interlocal Agreement. We conclude that the PPLC has internal control weaknesses in their cash disbursement process. They have no investment policy, and are not always complying with Florida law and the InterlocaJ Agreement. The East Lake Library received $165,982 in funding from the PPLC in Fiscal Year 2002, which did not meet funding requirements of the Interlocal Agreement. We recommend either the Boards approve these distributions or recover the funds from the East Lake Library. In its 2001 Annual Report, the City of Tarpon Springs overstated its expenses by $239,070, which resulted in an overpayment to Tarpon Springs of $75,000. The overstatement of expenses resulted primarily from an allocation of indirect costs by Tarpon Springs, which would not normally be allowable, The net effect is that other member libraries received a total of $75,000 less than they would have otherwise received. The PPLC restricted the use of $200,000 to unincorporated areas only, in violation of the Interlocal Agreement. The effect of this restriction by the PPLC is to preclude its use by any member library that is a municipality. In restricting the funds, the PPLC Board referenced, as an example, the construction of the East Lake Library (unincorporated) as an allowable use. The PPLC Board has no procedure for the Board to monitor and act on any cash surplus or deficit. At September 30, 2001, we calculated the cash surplus to be $669,091. We analyzed the sources of the surplus and found that 57% of the surplus represents interest earned by the PPLC on its bank accounts, and 41 % of the surplus occurred from budget savings for operational costs funded by state money. By maintaining large surpluses rather than distributing the funds to member libraries, the PPLC is depriving the member libraries use of the funds for their intended purpose, while the funds are earning interest income for the PPLC by remaining in their accounts. The PPLC has set reserve requirements that include 100% of the entire year's funding commitment of state aid allocations. Therefore, the PPLC reserved $625,000 in the Fiscal Year 2002, which represented the entire year's funding commitment for state aid allocations. The PPLC intentionally delayed remittance of quarterly Unincorporated Tax from Pinellas County for an average of 52 days, The former Administrator of the PPLC indicated they were holding the money to earn interest. However, holding the $1.1 million quarterly payment to earn interest for the PPLC is not part of the mission of the PPLC. This practice deprives Members of operational funding for their libraries and may force municipalities to advance funds to pay for Library funding that are budgeted from PPLC-distributed funding. The PPLC has made inappropriate and questionable expenditures. Although dollar amounts are not material in total, it is imperative that tax dollars be spent to support the PPLC's mission of providing library materials, library services and information to all in support of lifelong learning, We noted expenditures for a baby shower, Halloween party, and another undocumented party. The baby shower was funded with monies received through donations, even though "thank you" letters sent by the PPLC state, "Your gift will support free library services for Pinellas County residents with print disabilities," In addition, the PPLC is purchasing refreshments. We were able to identify $2,926 in such purchases. Most of the beverages and snack foods were charged to the Office Supplies Account. The rate set by the PPLC for travel expense reimbursement is more than double the rate allowed by state law. Total meal cost per day reimbursed by the PPLC to Board members and staff is $55, while state law only allows a total of $21. Additionally, the PPLC is reimbursing mileage at the rate of 32 % cents per mile, even though state law only provides for 29 cents per mile. No assurance could be obtained to determine that fees charged or not charged for Braille production orders were properly billed, collected, and deposited. Staff has no record of completed Braille orders. In addition, the price structure discourages entities with high Braille demands from requesting Braille orders. The rationale for the price structure per the policy manual is, "... provides incentive for entities with high Braille demands to investigate owning their own embossing equipment." Any charges assessed for these services should be at a level to cover the costs of the service. During our review, we noted various additional internal control and procedural weaknesses, including errors in calculation of the funding allocation and related procedural weaknesses, lack of an investment policy, internal control weaknesses in the disbursement process, lack of a written agreement with a contract accountant, lack of adequate accounting procedures, lack of proper controls over use of business credit cards, and a lack of control over donations. In total, our report contains 42 recommendations for improvement. The PPLC generally agreed with our recommendations. Audit of Pinellas Public Library Cooperative INTRODUCTION Scope and Methodology We have conducted an audit of the Pinellas Public Library Cooperative (PPLC). The objectives of our audit were to: · Determine the validity and' propriety of PPLC financial revenue and expenditure transactions. · Determine that proper internal controls are in place for cash receipts, cash disbursements and any other functions of the PPLC. · Determine that the investment policy and the investment vehicles are reasonable. · Determine if the PPLC and Board of Directors are complying with the Interlocal Agreement, Articles of Incorporation, Bylaws, and Florida Statutes. · Determine that funding projections are calculated in accordance with applicable documents, Le., Interlocal Agreement for County Funds and Grant Documents for State funds. · Determine if Member Libraries (Members) are properly requesting, budgeting, expending and accounting for reported Local Funding. · Determine if proper internal controls are in place to cover transactions of the Talking Book Library. To meet these objectives we tested cash receipt and disbursement transactions, and determined if proper internal controls were in place to cover these functions. We analyzed the availability of funds and how the funds are invested. We reviewed applicable documents and tested for compliance to the Interlocal Agreement, Articles of Incorporation, Bylaws and Florida Statutes. We tested calculations in the Cooperative Funding Projection schedules for FY 2001 and 2002. We took a sample of the member libraries and reviewed their documents to determine if the expenditures reported by the members qualified under the Interlocal Agreement as Local Funding. Functions related to the Talking Book Library were reviewed to determine if proper internal controls were in place. The period reviewed was from October 1, 2001 to February 28, 2002. However, transactions and processes reviewed were not limited by the audit period. We performed such other audit procedures that we considered necessary in the circumstances. Overall Conclusion We conclude the PPLC has internal control weaknesses in their cash disbursement process and some expenditures are not supporting the PPLC's mission. The PPLC has Internal Audit Division, Clerk of the Circuit Court 4 Audit of Pinellas Public Library Cooperative INTRODUCTION no investment policy and is not maximizing their interest earning potential. The PPLC is not always complying with the Interlocal Agreement and Florida Statutes. The Cooperative Funding Projection schedule is not prepared in a mathematically sound manner, and in some cases, the formula used to allocate County funds is not in accordance with the Interlocal Agreement. The method used by member libraries to report to the PPLC the local dollars spent on operating costs that qualify for County funding is inconsistent. Background The Pinellas Public Library Cooperative, Inc. is a 501 (c)(3) that was established in 1989 to do the following: · Extend library services to the unincorporated areas of Pinellas County and the municipalities that do not have such services. · Improve existing library services to the residents of municipalities and library tax districts. . Allow Pinellas County to receive state aid. Funding sources created by establishing the PPLC have supported the following activities: · The Talking Book Library to assist the visually impaired and physically handicapped. · A courier service among member libraries to facilitate interlibrary loans and return of borrowed materials. . An Answer Center which provides a Librarian's Librarian who answers in-depth reference queries using online and CD-Rom services and area library resources; such as. the County Law Library, Stetson University and the University of South Florida. · Deaf Services supplies devices and descriptive videos for the hearing impaired. The PPLC is comprised of thirteen member libraries. The PPLC is administered by a professional librarian, managed by a nine member Board of Directors, and funded by taxes assessed to the unincorporated residents of Pinellas County (Unincorporated Tax Funding), state aid, and state grants. Unincorporated Tax Fundinq - The PPLC received $4,643,072 in FY 2001 and $4,669,210 in FY 2002 from Unincorporated Tax receipts. In 1989 the unincorporated Pinellas County (County) voters passed a referendum to tax themselves up to .5 mills Internal Audit Division, Clerk of the Circuit Court 5 Audit of Pinellas Public Library Cooperative INTRODUCTION for library services. The County collects the taxes and sends quarterly payments to the PPLC. The first Interlocal Agreement executed on January 10, 1989, was signed by the County, PPLC and all members. This agreement governs how these funds will be spent and distributed. On September 19, 1995, there were six amendments made to the Interlocal Agreement in order to comply with state law. None of these amendments affected the Funding Formula. On September 10, 2001, a new Interlocal Agreement was executed that did include changes to the Funding Formula. The Interlocal Agreement signed September 10, 2001, indicated the County Unincorporated Tax. Funds would be spent and distributed as follows: · Five percent (5%) will be used for a capital improvements fund. A minimum of $200,000 of these reserve funds shall be made available annually for new construction and capacity enhancing expansions that benefit unincorporated residents and this amount shall not be cumulative. · Five percent (5%) for PPLC Administration. · Ninety-four percent of the remaining funds (this amount will decrease 1 % each year until it. becomes ninety percent, the Circulation Pool will increase by 1 % each year until it becomes ten percent) will be distributed to the member libraries in proportion to each library's operating costs. · Six percent (6%) of the remaining furds will be placed in a Circulation Pool with the allocation percentage being derived by taking non-resident circulation for each library and dividing it by the total nonresident circulation for all members. For units located in unincorporated Pinellas County, the circulation for the unit shall include all usage except usage from within the boundaries of the member library of which it is a unit. This Circulation Pool was created to provide an additional incentive to those libraries most impacted by users from outside their own taxpayer base. The computation for the allocation of the Unincorporated Tax Fund to the Members is based on two documents. 1) The Member Library Annual Report - This report is rendered by the Members twice a year and contains the financial information on the Local Funding for the Member libraries. November's report is used by the PPLC for budget purposes only. The March report ("Final", completed in the following year) contains actual costs that should reconcile to the information contained in the audited financial statement of the member for that year. This information is used by the PPLC in the Funding Formula. 2) Cooperative Funding Projection schedule - The schedule is prepared by the PPLC using the financial information supplied by the Members through the Final Member Library Annual Report. The function is to allocate the Unincorporated Tax Fund based on the Funding Formula contained in the Interlocal Agreement. The schedule uses financial information from different time frames. For example, the Cooperative Funding Projection 2002 schedule covers the funds collected and disbursed for October 1, 2001 through September 30, 2002, but uses the Local Funding expenditures and library usage information for October 1, 2000 through September 30, Internal Audit Division. Clerk of the Circuit Court 6 Audit of Pinellas Public Library Cooperative INTRODUCTION 2001 for proportioning calculations. The schedule allocates two funds: the Base Appropriation proportioned by Local Funding and the Circulation Appropriation proportioned by the use of library services by unincorporated residents. State Aid - The PPLC received $1,963,728 in FY 2001 and will receive $1,714,664 FY 2002 from State Aid. State Aid is allocated by the State of Florida to assist in development and support of countywide library services. The PPLC receives funds from the state and the County. State Aid may only be used for administrative costs. There is a separate state capital improvement grant for which member libraries must individually apply. ForFY 2001 State Aid money was spent on the following: . Thirty six percent (36%) for operating expenses of PPLC Administration, including accounting services, salary for PPLC Administrator, printing, public relations and a wide variety of central services for the member libraries. . Thirty two percent (32%) for operating expenses commitment to Members. The formula used to allocate these funds to the member libraries is the same as that used for the base appropriation of County funds to the Members. The cumulative balance for each Member can be drawn down at anytime by the Member. . Eighteen percent (18%) for the Talking Book Library. .. Nine percent (9%) for surplus, PPLC received more from the state than originally anticipated. . Three percent (3%) for the Answer Center. . Two percent (2%) for the Deaf Services Program Allocation of State Aid consists of budgeted items for operating departments (Talking Book Library, Answer Center, Deaf Services Program), with the remaining amount given to the Members, to be used for library operations. Each Member's proportion of funding is based on same percentages calculated in the County allocation for the Base Appropriation. State Grants - In FY 2001, the PPLC received and administered approximately $328,641 in state grants on behalf of its Members. Internal Audit Division, Clerk of the Circuit Court 7 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT. Our audit disclosed certain policies, procedures, and practices that could be improved. Our audit was neither designed nor intended to be a detailed study of every relevant system, procedure or transaction. Accordingly, opportunities for improvement presented in this report may not be all-inclusive of areas where improvement may be needed. 1. Allocations Of $165,982 Were Made To The East Lake Library Without Proper Authorization. Our review for PPLC compliance to the Funding Formula noted the following issues: A. For the FY 2002 Cooperative Funding Projection schedule, the East Lake Library received the 4% minimum allocation of $165,982, but again did not have Local Support for FY 2000, as required by the Interlocal Agreement (September 10, 2001). The FY 2002 Cooperative Funding Projection schedule shows the $150,000 that was provided by the PPLC in FY 2000 as local support for the East Lake Library. In addition, there were no amendments done to the Funding Formula as required by the Interlocal Agreement (September 10,2001). Section V.C.3 of the Interlocal Agreement (September 10, 2001) states the following: . "Funds received from the BCC for the support of a library, which is a unit of a member library but exists wholly in the unincorporated area of . Pinellas County, shall be considered as additional local support for the Members for purposes of the application of the disbursement formula." . "The disbursement formula may only be amended by the Cooperative's Board of Directors, with the approval of a simple majority of the parties to this Agreement and the approval of the BCC, to reflect a change in the Cooperative's composition." The $150,000 for FY 2000 did not come from the BCC General Fund but the County's Unincorporated Tax Fund. This allocation to the East Lake Library of $165,982 is an unapproved change to the Funding Formula. Funds allocated from the Unincorporated Tax Fund cannot be considered "Local Funding." B. The PPLC Board approved a change to the Funding Formula on June 18, 1996; however, BCC Board Records has no agenda item to approve the change. Since the Interlocal Agreement requires Funding Formula changes to be approved by both Boards, the PPLC should maintain documentation to support the compliance with the Interlocal Agreement. Internal Audit Division, Clerk of the Circuit Court 8 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT The Funding Formula was changed to the following: 5% for PPLC Administration, 5% for reserves, and 6% for Circulation Pool, with the remaining 84% used for the Base Appropriation Local Support segment. In addition, $50,000 of remaining funds in the Circulation Pool is distributed proportionately to those libraries not receiving the minImax. The original formula was 3% for PPLC Administration, 8% for a Capital Improvement Fund with the remaining 89% used for the base appropriation Local Support segment. There was no Circulation Pool in the original formula. This change in the Funding Formula resulted in a two percent reduction of available funding for Members. We Recommend management: A. Obtain proper authorization for the Funding Formula change made for FY 2002 from the PPLC and the BCC Boards, with the approval of a simple majority of the parties to this agreement, or recover the funds from the East Lake Library. B. Approve any future changes to the Funding Formula in accordance with the Interlocal Agreement. Management Response: A. Concur. Based on the requirements for local support as defined in the Interlocal Agreement the East Lake Library was not eligible to receive an allocation from the County's Unincorporated Tax Fund until FY 03. The PPLC and BOCC Boards need to approve the allocation as recommended. B. Concur. The PPLC Board will be diligent in ensuring that any future changes in the Funding Formula are handled in accordance with the Interlocal Agreement. 2. Member Libraries Received An Erroneous Percentage Of Funding From The County's Unincorporated Tax Allocation. We reviewed the Member Local Support financial information for FY2000. This information is presented in the Cooperative Funding Projection schedule for FY 2002. The following issues were noted: A. A discrepancy exists between total Local Support reported by the Members on the Member Library Annual Report (final report due to PPLC March 2001) and the amount recorded by the PPLC on the Cooperative Funding Projection schedule. Forty three percent (6 of 13) Members showed differences between the reported and recorded amounts. In some cases the PPLC Administrator made adjustments to the Members' reported Local Internal Audit Division, Clerk of the Circuit Court 9 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT Support, but did not document the reason for the change. We noted the following differences during our review: Members Dunedin Gulfport Palm Harbor Pinellas Park St. Pete Seminole Difference ($) 3,100 3,202 Difference resolved 46,554 8,012 40,000 16,181 With the exception of Seminole, the differences represent an increase in Local Support that will result in additional funding for some Members, but a proportional deduction to other Members, with the net total pool dollar amount not changing. Not performing a formal reconciliation and recording the adjustments on a standard form does not provide the assurance that the Funding Formula is properly applied. B. We attempted to reconcile the Members' local funding expenses reported in the audited financial statement to the amount recorded by the PPLC on the Cooperative Funding Projection schedule. Fifty seven percent (8 of 14), had differences that could not be resolved with the information maintained by the PPLC. Members do not supply the PPLC with a reconciliation between the Library expenses reported in the audited financial statement and the amount presented by the libraries in the Member Library Annual Report. In most cases, the information presented in the audited financial statement is not sufficient (not detailed at the municipality level) for the PPLC Administrator to perform a meaningful reconciliation. The PPLC is not receiving sufficient information from the Members to comply with reconciliation requirements of the Interlocal Agreement (requirements noted in item C. below). By receiving adequate information, the PPLC can accurately assess and correct calculations to ensure the Members are receiving an accurate proportion of the tax allocation. C. The Interlocal Agreement, Section IV.B.2, requires each Member to submit an audited statement of its library operating costs for its last completed fiscal year. It then requires the PPLC to review the audited statement and determine allowable dollars expended locally for library operations. The intent of this requirement is to obtain assurances that Local Support dollars reported in the Member Library Annual Report are accurate. In most cases, the PPLC is unable to perform the required reconciliation. In addition, the commercial auditing firm that is rendering the opinion on the Member's audited statement is not giving any assurance that the reported library expenses are in compliance and allowable under the terms of the Interlocal Agreement. The PPLC should receive assurances from Members that Local Funding amounts reported are accurate. Internal Audit Division, Clerk of the Circuit Court 10 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT D. The Palm Harbor Library was overpaid by approximately $82,000 as a result of an error by the PPLC. The PPLC Administrator overstated "Local Support" for the Palm Harbor Library by $322,313 in the Cooperative Funding Projection schedule. A contributing factor to the error was the fact that Palm Harbor Library did not submit a final Member Library Annual Report in March 2001 along with their audited financial statement. The Administrator inadvertently used the Total Library amount reported on the audited statement without backing out depreciation and the expenses relating to the PPLC funding received. The error represents an approximate 30% overstatement that has resulted in an overpayment to the Palm Harbor Library and a reduction in the same amount to the other Members. E. For the FY 2002 budget, the PPLC misstated the County Unincorporated Tax Fund by $235,782, resulting in a commitment to the Members in excess of the funds that will actually be received. The Administrator used the estimated amount for budget purposes of $4,904,902 instead of the actual funding amount of $4,669,120 developed by the Pinellas County Budget Office. Inaccurate proportioning of County funding for the Base Appropriation also affects the percentage Members receive under the annual State Funding Formula. The Members' proportion of the disbursement is also based on the percentage used in the Courity funding. We Recommend: A. The PPLC Administrator develop a reconciliation form to be used to document the review and recording of the "Local Funding" reported on the Member Library Annual Report to the amount recorded on the Cooperative Funding Projection schedule. If the Local Support amount submitted by the Members is not used in the Cooperative Funding Project schedule, the PPLC should document and maintain supporting documentation for the differences. B. The Interlocal Agreement be amended to require Members to perform and submit reconciliation between the audited financial statement and the amount submitted on the Member Library Annual Report. C. The Interlocal Agreement be amended to require an attestation letter signed by the Finance Director of the Municipality and the Library Director stating that the amount reported on the Member Library Annual Report is in compliance with the terms of the Interlocal Agreement with respect to allowable expenditures. For members that are not municipalities, Le., Palm Harbor and Gulf Beaches, the treasurer and the Library Director should sign the attestation letter. D. A member of the PPLC Board review the Cooperative Funding Projection schedule preparation and calculations for accuracy. Internal Audit Division, Clerk of the Circuit Court 11 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT E. The PPLC Administrator present the condition to the PPLC Board for corrective action. Management Response: A. Concur. B. Partially Concur. The reconciliation between the audited financial statement and the Member Library Annual Report is critical to providing an accurate accounting of local support funds being expended on library services. The PPLC Administrator will work with Cooperative members to implement a reconciliation process. The PPLC Board believes this can be accomplished within the boundaries of the current Interlocal Agreement and that further amendments are not required. This is one of the complexities of being a Cooperative. Each member city performs an audit that meets the needs of its total organization. The end result is a wide array of documents that must then be reconciled to meet the requirements of the Cooperative. A mutually agreeable format for purposes of assuring compliance will benefit all of our members. C. Partially Concur. The Finance Director and Library Director currently sign a form attesting to expenditures to meet the requirements of the State Aid application. The PPLC Board recommends that a similar form be developed to state compliance with the Interlocal Agreement with respect to allowable expenditures. This is a procedural matter that can be implemented without amending the Interlocal Agreement. D. Concur. E. Concur. The Board has been made aware of the error and determined that the funds would be allocated to the Members out of reserves. Further, the Projected Funding form has been modified to show Actual Funding. 3. The PPLC Is Not Accurately Completing The Cooperative Funding Projection Schedule For The Unincorporated Tax Fund. A. Our review of the calculations for the Cooperative Funding Projection schedule for years ending 2001 and 2002 found mathematical application inconsistencies for the rounding of percentages used for proportioning the allocation and resulting in a transfer of funds that are not in accordance with the terms of the Interlocal Agreement. Differences in the percentage calculations were noted as follows: · For the FY 2001 Base Appropriation for the "Mid-Range" allocation amount to five Members, individually are incorrect (gross difference of $19,122) but the net funding difference is zero. Internal Audit Division, Clerk of the Circuit Court 12 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT Member PPLC Calculation Audit Calculation Gross Difference Dunedin $318,685 $321,873 $3,188 Largo 449,057 442,684 6,373 Palm Harbor 202,800 201,207 1,593 Pinellas Park 275,228 281,603 6,375 Tarpon Springs 202,800 201,207 1,593 ------ ---- ----- $1,448,570 $1,448,574 $19,122 · For the FY-2002 Base Appropriation, the percentages used for the five "Mid-Range" Members added to 99.7% instead of 100.00% causing an under allocation of $4,977. · For the FY-2001 and FY-2002 Circulation Pool allocation. three small errors in rounding percentages resulted in funds being under allocated by $2,336. B. The Cooperative Funding Projection report for FY 2001, $50,000 was moved from the Circulation Pool to the Base Appropriation Fund. As stated in Opportunity for Improvement No.1.B, this change was in the Funding Formula not approved by the BCC. Although the overall financial impact of the errors to the allocation of the County . funding is minor, the Funding Formula as stated in the Interlocal Agreement should be performed in a mathematically sound manner as to produce accurate calculations for Member allocations. In addition, there are not assurances that material miscalculations would be detected. We Recommend the rounding of the percentage of allocation factors used be carried out to the correct number of places so that the total is 100.00%. Management Response: Concur. 4. The Tarpon Springs Library 2001 Annual Report Overstated Costs By $239,070 Causing An Estimated Over Payment To The Library Of $75,000. The Tarpon Springs Library overstated operating expenditures on their Member Library Annual Report for FY 2001. The Member Library Annual Report submitted to PPLC reflected $960,974 of operating and capital expenditures. The audited financial statement reported operating and capital expenditures for the library of $721,904. The difference between the audited financial statement and the Member Library Annual Report is $239,070, made up from $221,348 of allocations, $17,725 of calculation errors and a -$3 rounding error. A. The Tarpon Springs Library allocated indirect departmental administrative costs to the library with no documentation to support any direct benefit to the Internal Audit Division, Clerk of the Circuit Court 13 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT library. The Library Director calculated a 5% indirect cost allocation to the library, based on the library's 5% make up of the total general fund budget. This method being used to allocate expenses does not relate to the services received by the library. The Tarpon Springs Accounting Department does not allocate interdepartmental services through journal entries. Therefore, the allocations are not presented in the audited financial statement. In addition, there are inconsistencies in the departments that are being allocated from the previous years. Departments who had indirect costs allocated to the library for FY 2000 (per the Member Library Annual Report) were: Financial Administration, Human Resources, Purchasing, Data Processing, Non- Departmental, and City Buildings/Grounds. FY 2001 the following departments were added to the allocation: City Commission, City Manager, Cultural Services, City Clerk's Office, City Attorney, City Parks/Parkways, Police, and Public Works. It is reasonable to assume the library received services from some of the departments appearing on the Memberis allocation worksheet. However, unless the library can provide documentation to show the library actually received direct benefits from the departments, the $217,748 should be disallowed unless a valid cost allocation plan is presented and approved. Items totaling $175,634 should be disallowed because there is no documented direct benefit received by the library. Internal Audit Division, Clerk of the Circuit Court 14 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT Three departments totaling $27,166 could supply services to the library, but the allocation method is not proper. Purchasing should be based on what services the department performs for the library; i.e. purchase orders submitted. MIS should be based on some type of usage; i.e. terminals, lines, or applications. HR should be based on the number of employees for the library as a percentage of total employees using the HR department. These items are considered "questioned" costs and unless the correct allocation formula is developed/used, the allocation should be disallowed. We could not identify what services relate to the non-departmental allocation of $1,219. Unless the service can be documented, this item should be disallowed. The Finance allocation of $13,597, using the current method, seems the best formula, but documentation should exist stating what services are performed by the Finance Department for the library. This item is a "Questioned" cost but could be allowable for the current year: however, support would be required for the next year. B. Operating expenditures reported in the audited financial statements are $17,026 less than what was reported on the Member Library Annual Report. This figure was inaccurate as a result of mathematical errors and the incorrect amounts were used from the audited financial statement. The difference should be reduced from the Cooperative Funding Projection schedule. Section IV. B. 2. of the Interlocal Agreement (September 10, 2001) states, "Allowable costs for each library shall consist of all personnel and direct operating costs, as provided for in the State of Florida Chart of Accounts. All other costs, including fixed capital items and debt expenses, shall be limited to $25,000 per year." It is essential that any allocated costs reported by member libraries be supported by a valid cost allocation plan. We Recommend the PPLC: A. Require the Tarpon Springs Library to develop a cost allocation method that will reflect the true value of direct services received from other internal departments. Disallow $175,634 that does not supply direct services to the library. PPLC should also disallow allocated expenses of $28,385 ($27,166+$1,219) unless documentation can be provided to substantiate a direct benefit was received by the library. The disallowed costs should be recovered from the audited financial statements unless proper detail support is provided. Internal Audit Division, Clerk of the Circuit Court 15 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT B. Require the Tarpon Springs Library to provide reconciliation for the difference of expenses reported on the Member Library Annual Report to the audited financial statements. This amount, $17,026 less than what was reported on the Member Library Annual Report, should be subtracted from the local expenditures amount reported in the Cooperative Funding Projection schedule. Management Response: A. Concur. A cost allocation method needs to be developed and agreed upon all Members. B. PPLC will request that Tarpon Springs provide reconciliation for the differences of expenses reported on the Member Library Annual Report to the audited financial statements. 5. Municipal Member Libraries Are Precluded By The PPLC From Use Of $200,000 Of Unincorporated Tax Maintained In The Capital Improvements Fund. The PPLC has established a Capital Improvement Fund of $200,000 and limited its use to the unincorporated areas based on the requirement in the Interlocal Agreement (September 10, 2001). The process being used to administer this fund places restrictions on Members that are municipalities. Section V.C.1 of the agreement states, "Five percent (5%) of the monies collected from members without library service shall be put into a capital improvements fund to be used for additions to existing libraries, for building new libraries, or purchase of special improvements to service other participants. A minimum of $200,000 of these reserve funds shall be made available annually for new construction and capacity enhancing expansions that benefit unincorporated residents and this amount shall not be cumulative." The PPLC is limiting the use of the $200,000 to unincorporated libraries only, and excluding municipal Members from applying for this portion of the fund. The change in this provision from the prior Interlocal Agreement (January 10, 1989) was discussed in the BCC presentation for approval of the new Interlocal Agreement (September 10, 2001) on August 28, 2001. Changes to the formula were as follows in Section V.C. 1: "Reserve will remain at the 5% level. However, $200,000 in reserve funds will be earmarked annually for new construction and capacity enhancing expansions that benefit unincorporated residents. The amount shall be revised annually to equal the state grant funding match requirement." . Internal Audit Division, Clerk of the Circuit Court 16 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT On September 30, 2001, the Capital Improvement Fund had $232,154 of uncommitted reserves available. The fund reserve was then increased for the FY 2002 allocation of $232,011, giving a new balance of $464,165. The PPLC set aside $200,000 of the $464,165 but limited the use to new construction in the unincorporated area referencing, as an example, the construction of the East Lake Library. The PPLC restricting the use of the $200,000 reserve is not in compliance with Section V.C.1 of the Interlocal Agreement. The funds only have to be used to "benefit unincorporated residents. 11 If new "construction and capacity enhancing expansion" takes place in a. municipality library that meets this objective, the Member should have access to that fund. The unincorporated resident would benefit from any library that is a member of the PPLC. In a letter from the City Of Largo, City Manager that was attached to the BCC approval package for the new Interlocal Agreement (September 10, 2001), the use of the $200,000 is addressed directly and states, "This specific section was . discussed with the County Attorney's Office, and the Senior Assistant County Attorney agrees this language allowed a city either expanding or building a library to use part of the $200,000 if the expansion or new library benefited unincorporated residents." In addition to not being in compliance with the Interlocal Agreement, the application of the $200,000 reserve does not meet the PPLC purpose relating to the municipalities providing service to unincorporated residents. Section LB. of the Interlocal Agreement (September 10, 2001) states, "The purpose and intent of this Agreement is to establish and operate the Cooperative to extend library services to the unincorporated areas of the County and to municipalities that do not have such services as of the effective date of this Agreement, and to improve library services to residents of municipalities and library tax districts that have library services as of the date of this agreement." We Recommend the PPLC: Discontinue their current application of the $200,000 reserve and comply with Section V.C.1 of the Interlocal Agreement (September 10, 2001). The PPLC should accept applications from all Members of the PPLC for the use of the $200,000 in the same manner as the other segment of the fund. Management Response: Current PPLC policy is already following the recommendation. 6. The PPLC Has No Formal Policy For Using Its Large Cash Surplus Balance ($669,091 As Of September 30,2001) And Has No Formal Policy For Usage. A. The PPLC has no procedure for the Board to monitor and act on cash surplus or deficits. In addition, the monthly financial information supplied to the PPLC Internal Audit Division, Clerk of the Circuit Court 17 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT Board does not give them the ability to ascertain the current PPLC cash surplus/deficits position. The Board is informed of the month-end balance of the checking account (including the sweep amount) and a running status (uncommitted funds) of the Capital Improvement Fund allocation derived from County funding. Periodic monitoring by the Board is necessary to fulfill its responsibilities in overseeing financial operations. B. When we brought the surplus/deficit information deficiency to the PPLC Administrator's attention, additional information was presented in the February 2002 Board Package. The schedule presented to the Board included a summary of the PPLC cash surplus status as of September 30, 2001. Management's projection had the surplus at $447,601. We calculated the surplus at $669,091. The discrepancies were noted as follows: · Management's schedule inadvertently left out the SPJC Building Project commitment of $100,000. . Management is considering the total funding commitment of $625,000 to the Members for FY 2002 State Aid Allocations segment as a reserve requirement. The Fund is cumulative with an amount each year allocated to each Member for library expenses that can be drawn down at any time by the Member. To evaluate the contingency requirement for the committed amount, two factors must be considered; the Allocation Fund usage and the State grant funding. 1) Analyzing the past year's usage of this Fund, the expenditures out of the Fund represents 40% of the year's starting balance. Since the FY2001 starting balance of $1,244,531 is totally reserved, requiring a reserve of 100% for the current year commitment of $624,000 is too conservative. 2) Since the library funding is a State Budget issue that must be approved each year, there is no firm budgeted commitment that the yearly State grant will be funded. However, anticipating no State funding is also too conservative. In considering these factors and maintaining a conservative balance, a more practical balance could be a 50% or $312,500 reserve. C. Analyzing the origin of the surplus using the past five years' financial records, 57% is interest earned on the PPLC cash balance in the checking account, 41 % is budget savings for operational cost funding by State money, and 2% is budget savings for operational cost funding by County money. Budget saving is defined as actual operating cost for the year less than the budget amount. The performance over the past five years has produced a surplus for each year. This information has not been presented to the PPLC Board and no provision has been made to apply the surplus to the objectives of the PPLC by making the surplus available to the Members. Internal Audit Division, Clerk of the Circuit Court 18 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT The Interlocal Agreement established the purpose of the PPLC to improve library services to residents of municipalities and library tax districts that have library services. The PPLC funds should be used for that purpose. Under the current practice, the PPLC surplus funds will not be returned or made available to the Members for library improvements and/or operations. The effect of requiring excess reserves is to deprive member libraries use of the funds while, at the same time, the funds are earning interest for the use of the PPLC. We Recommend: The PPLC Board develop and adopt a policy to periodically monitor PPLC surplus and deficit for cash reserves. The policy should establish benchmarks for the dollar amounts that require Board action. The Administrator should report to the Board, at least at the end of each fiscal year, the current status of the PPLC cash surplus and/or deficit. Surplus over a set dollar amount should be applied to the objective of improvement of the County library system. Whether or not the application of surplus funds is a change in the Funding Formula that requires both the BCC/PPLC board and Members' approval would have to be investigated prior to disbursing any funds. Management Response: The PPLC Board reviews the balance of accounts at each monthly Board Meeting. Further, the audit performed by an outside firm includes all cash surplus/and or deficit and is reviewed annually following completion of the audit. The Board will take the recommendation of this audit under consideration. 7. The PPLC Intentionally Delayed Remi1;tance Of Quarterly Unincorporated Tax from Pinellas County For An Average Of 52 Days. The PPLC is not distributing funds received on a timely basis. Section V.C.3. of the Interlocal Agreement (September 10, 2001) states, "Funds received by the Cooperative shall be disbursed within a reasonable time (not to exceed 90 days) after receipt." However, the current process is depriving Members of operational funding and may force the municipalities to advance funds to pay for the library operations that are budgeted from PPLC distributed County funding. The Administrator of the Cooperative indicated they were holding the money in order to earn interest. Holding the $1,160,000 quarterly payment to earn interest is not part of the mission of the PPLC. Based on our evaluation of the PPLC's fund remittance process, there is no operational reason that the PPLC cannot remit funds to the Members in a more timely manner. Internal Audit Division, Clerk of the Circuit Court 19 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT We Recommend the PPLC disburse quarterly funds to Members within five business days of receipt of the funds from the County. In addition, establishing electronic funds transfers instead of issuing checks should be considered. Management Response: PPLC will make every attempt to disburse funds within a reasonable time frame. The Board will consider options for disbursement including electronic transfer. 8. The PPLC Is Not Maximizing Interest Earnings On Their Cash Account. During our review of the PPLC's cash account process, we noted the following concerns: A. The PPLC does not have an Investment Policy to maximize return on investment funds and to set security standards for developing investment portfolios. During the audit period, the PPLC averaged $4.5 million in their bank account. Currently, each night available funds are invested in repurchase agreements collateralized by US Government securities. Section III.B.6.e. of the Interlocal Agreement (September 10, 2001), sets forth the duty of the PPLC Board to invest Cooperative funds. Section V.B.1. requires Cooperative funds to be maintained in an interest-bearing public depository as set forth in F.S. Section 280. Additional returns could be obtained by utilizing more effective investment instruments with more than a one-day maturity. If part of the funds ($3 million of the $4.5 million) were invested in a 6-month Treasury, a better return could have been obtained, 3.51 % vs. 2.94%. For one year, this would have produced additional interest earnings of $17,1 00. B. Quarterly checks sent by Pinellas County for the Unincorporated Tax Fund are not deposited in the PPLC checking account in a timely manner. Quarterly Check Date *Date Rec Deposit # Of Business Check Date Mailed Bv Librarv Date Davs 151 Quarter 12/11/00 12/12/00 12/14/00 12/19/00 3 2nd Quarter 1/02/01 1/03/01 1/05/01 1/9/01 2 3rt! Quarter 4/02101 4/03/01 4/05/01 4/18/01 9 4th Quarter 7/16/01 7/17/01 7/19/01 7/20/01 1 * Allowed 2 days for mail to be received. I nterest lost from delays in depositing the four $1,160,770 checks into the bank account was $2,002 (calculated using the PPLC Investment Account rates). Internal Audit Division, Clerk of the Circuit Court 20 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT ~ Interest Days Quarter Rate Lost $ Lost 15t Quarter 5% 3 $ 484 2nd Quarter 4.85% 2 313 3rd Quarter 3.85% 9 1,117 4th Quarter 2.75%' 1 89 $2,002 The delay in depositing the checks will not be a loss to the taxpayers for interest earnings since the County would invest the check float and receive interest. However, checks should be deposited timely to maximize interest earnings for the benefit of the PPLC and its Members. We Recommend: A. The PPLC Board consult with appropriate governmental finance professionals to obtain guidance in developing an appropriate Investment Policy for the PPLC available funds, and develop an Investment Policy to take advantage of longer-term conservative investments, for an increased rate of return. B. Deposit checks into the PPLC checking account the same day they are received or, provide for direct deposit of the proceeds into the PPLC checking account. Management Response: A. The PPLC Board will continue to monitor its cash accounts and consult appropriate finance professionals as deemed necessary. B. Checks are currently deposited through electronic transfer directly into the PPLC checking account. 9. The PPLC Cash Disbursement Process Has Internal Control Weaknesses. We found procedure and internal control weaknesses during our review and testing of four randomly selected bank reconciliations for the PPLC AmSouth demand deposit account. A. The PPLC contract Accountant is not following acceptable reconciliation procedures for performing bank reconciliations. The PPLC sends the contract Accountant a copy of each statement after the end of the calendar month (statement is month-end cutoff). Instead of listing the general ledger entries that are obtained from the Bank Statement, as general ledger adjusting entries on the reconciliation, the Accountant is backdating the journal entry to the month-end and using this adjusted general ledger balance as the starting point for the reconciliation. In most cases the general ledger entry description for the entries is "Balance Bank"; not a meaningful Internal Audit Division, Clerk of the Circuit Court 21 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT description. The Accountant is also posting the tax segment of the payroll transaction from the Bank Statement, not the original entry form, ADP Statistical Summary Recap. This procedure Mitigates the ability of the reconciliation process to find a bank error for the payroll tax transaction. It also implies the Accountant is posting the tax segment of the payroll transaction from the Bank Statement, not the original entry form, ADP Statistical Summary Recap. Journal entries that are posted to the general ledger after the end of the calendar month should be carried on the reconciliation as adjustments to the general ledger balance. Transactions to the general ledger should be derived and supported by the originating document. B. No notation is placed on the Bank Reconciliation for checks that were removed from the outstanding check listing through a stop payment. Since PPLC management does not receive a copy of general ledger transactions, there is no management oversight for the removal of the check through stop payments. Instructions to the Accountant for stop payments are done verbally, which does not provide for management to oversee the stop check process. Proper management oversight is necessary to ensure all funds are accounted for properly. C. On the September 2001 reconciliation, a check for $3,879.92 was listed as outstanding. The general iedger entry for the issuance of the check (dated September 25,2001) listed the item as $1,939.96. The bank paid the check on October 1, 2001 for $1,939.96. There should have been a difference on the reconciliation for $1,939.96 but none was noted. After we performed an additional review, we found the error to be adjusted by a post month-end journal entry. D. There is a lack of separation of duties in the performance of the PPLC bank reconciliation. The Accountant performs the reconciliation and has sole control over entries to the PPLC general ledger. In addition, PPLC management does not receive sufficient supporting documentation for the reconciliation to perform a meaningful review. Adequate segregation of duties is necessary to achieve adequate internal control. A person who is independent of the check issuance process should perform the bank reconciliation. We Recommend: A. Journal entries posted to the general ledger after the month-end, even if they are backdated to the prior month, be recorded on the reconciliation as general ledger adjusting entries. Internal Audit Division, Clerk of the Circuit Court 22 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT B. When a check is removed from the outstanding checks listed from the prior reconciliation other then when paid by the bank, the check be noted on the reconciliation that the item was removed by a stop payment and if the check was reissued. c. Errors be properly reflected on the reconciliation. D. Someone other than the Accountant perform the bank reconciliation. Management Response: A. Concur. Journal entries do appear on the bank reconciliation when posted prior to the general ledger prior to subsequent bank reconciliations. The current software does not permit revisiting a bank reconciliation after a subsequent month has been reconciled. B. Concur. C. Concur. D. Concur. A member of the staff already reconciles all checks against the bank statement which is received directly by PPLC. A copy is then sent to the accountant to perform a computer supported reconciliation. 10. The PPLC Has No Policies And Procedures In Place To Cover Payment Processing Or Review Of The Contract Accountant's Work. During our review, we found control weaknesses in the process for check issuance, posting of transactions to the general ledger, and management's oversight. We observed the following deficiencies: A. PPLC is using the same number series for manual checks issued by the Administrator as automated checks issued by the Accountant. The Accountant has to destroy the manual checks when the check numbers are used in the automated process and there is no control in place to confirm that the Accountant has destroyed all the blank checks that relate to the number series issued as automated checks. In addition, the manual/automated check procedure resulted in the pre-numbered checks constantly being issued out of numerical order and in some cases, automated and manual checks were issued with the same number. This process mitigates the purpose of pre-numbered checks, which is to assure accountability for all checks. B. PPLC management does not receive a Check Register report for each of the automated check runs from the general ledger application. The information currently available through the application Check Register report is: check Internal Audit Division, Clerk of the Circuit Court 23 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT number, check amount, payee, and the expense code the check was posted to. Management has no means to ensure correct posting of the transaction to the general ledger accounts when the invoices and the issued checks are returned to the PPLC for signature and mailing. In place of the Check Register control, the Accountant is recording the automated checks issued on the. bankbook stubs. This procedure is time consuming and provides weak control to detect general ledger posting errors. C. PPLC Management does not receive any documentation to support the posting of the manual checks to the general ledger by the Accountant. The manner used to post the manual checks is inconsistent. During our review, we noted transactions posted to the general ledger as a stand-alone item, block posted, or posted with the automated check run. The result is a poor general ledger transaction trail for the manual check issuance process. Like the automated check run, the PPLC does not receive a Check Register report to confirm correct postings to the general ledger for manual checks issued. Posting errors were noted in our review, see Opportunity for Improvement No.11. D. We found two unresolved discrepancies during our reconciliation of all cash transactions between the general ledger cash account and the PPLC bank statement for September and October 2001. · A transaction to the cash account for the posting of September 18, 2001 in the amount of $1,099,442.52 could not be reconciled to the PPLC bank book stubs and/or to the paid check in the bank statement; the bank book stubs and the paid checks in the bank statements each totaled $1,077,275.83. The offsetting individual entries to the general ledger expense accounts also totaled $1,077,275.83. We found five checks totaling $22,229.75 that were posted to expense accounts on four other dates. Amount CK# Date Issued Date Paid $ 8,169.93 9621 9/22/01 9/26/01 11,683.22 9622 9/25/01 9/27/01 1,939.96 9623 9/25/01 10/1/01 353.58 9562 9/12/01 9/17/01 83.06 9563 9/20/01 9/27/01 $22,229.75 None of the five items indicated an entry to the general ledger cash account for the date the checks were issued and posted to the expense account. If assumed the five checks were included in the September 18, 2001 check run, there is still a difference of $63.06 between the general ledger and the paid checks recorded on the bank statement. The Accountant was unable to produce a Check Register documenting that the five checks were included in the check run of September 18, 2001. Internal Audit Division, Clerk of the Circuit Court 24 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT . Two transactions were posted to the general ledger cash account on September 26, 2001, totaling $37,961.50. Checks issued on that date total $37,791.44; a difference of $170.06. The Accountant was unable to produce a Check Register that documents what checks were included in the check runs of September 26, 2001. E. The Accountant's procedures do not provide an adequate posting trail for recording cash transactions. In some cases several different types of items were combined, and the description of the entry input into the general ledger application did not always adequately identify transactions. For example: . Transaction Date 9/6 - Description "Checks Issued", the item is the Payroll posting. . Transaction Date 9/11 & 9/26 - Description "Checks Issued", Combined automated checks issued with manual check issued. . Transaction Date 9/17 Description "Balance Bank". Items included; two ADP Fee, Bank Fee and two-payroll period tax. . Transaction Date 10/31 - Description "Balance Bank". Items included; two ADP Fee, Bank Fee and three-payroll period tax. Section V.B.2. of the Interlocal Agreement, states, "Complete and accurate . records shall be kept of the receipt and disbursement of all funds of the Cooperative." Unless transactions are adequately identified, adequate assurance is not provided that accurate records are maintained. We Recommend: A. A different set of check numbers be assigned for the issuance of automated checks. The Accountant should never receive any manual blank check stock. With the use of two check numbering series, issuance of duplicate check numbers should be eliminated. B. For each check run, PPLC receive a Check Register showing the checks issued for that date. Management should agree the postings to the invoice for accuracy. Management should also confirm that the ending check number for the prior run agrees with the next number' used for the current check run and all checks are accounted for. C. PPLC receive a Check Register for the posting of manual checks to the general ledger. The manual checks should be backdated to the date the PPLC issued the check. Management should agree the posting to the invoice for accuracy. Internal Audit Division, Clerk of the Circuit Court 25 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT D. The posting of automated and manual checks to the general ledger should not be combined. Combining checks rendered on different dates into one journal entry should be eliminated. Ensure all discrepancies are investigated and resolved. . E. The general ledger transaction description identify the transactions being posted. Only like-type transactions should be combined. Payroll taxes should be posted to the general ledger when they occur and the information should be obtained from the ADP payroll report, not the bank statement. Management Response: A. Concur. Already corrected. B. Concur. Already corrected. C. Partially concur. At this point there is no way to produce a separate transaction listing for manual checks. All checks are reflected in the transaction listing once the information has been provided to the accountant. D. Partially concur. There is only one general ledger resulting in all items being recorded on that same ledger. The collapsing of checks into one journal entry can be eliminated. E. Concur. The interim transaction listings are provided for the purpose of confirming individual transactions. Reports are issued on a monthly basis after being verified by performing a bank reconciliation. All payroll taxes are taken directly from the ADP payroll report. 11. The PPLC Is Not Properly Accounting For Some Grant Expenditures. During our review of grant expenditures, we noted general ledger posting errors. The process requires the Administrator to include the general ledger expenditure account number on the purchase order. A file is maintained by the PPLC for each grant that includes the purchase orders, invoices and a spreadsheet that documents the P.O. #, Date, Vendor, and Amount. The purchase order is then sent to the Accountant for a check to be prepared and for the expenditure to be posted to the general ledger. However, there is no reconciliation of the general ledger expenditure accounts to the manual spreadsheet of grant recordsot The following posting errors were noted: . The Portable Technology Revenue account was overstated by $632. A refund of $632 for overpayment of an invoice was incorrectly posted to the revenue account instead of the expenditure account. The spreadsheet Internal Audit Division, Clerk of the Circuit Court 26 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT correctly reflected the refund as a reduction of expenditures. . The Inner City Computer and Tutorial Program Grant expenditure account is overstated by $19.76, for fiscal year 2001/2002. This is due to a refund of unexpended grant funds for fiscal year 2000/2001. This entry should have been a prior period adjustment. . There are two separate grants titled "Successful Families Read." One grant is for $10,500 (will refer to as Grant #1) and one is for $25,000 (will refer to as Grant #2). There are separate contracts for each grant. The following table reflects the posting errors: GRANT #1 Grant 1 G/L Balance $8,269.22 As Of 9/30/01 Grant 2 Expense Incorrectly Posted To -$1,438.25 Grant 1 Grant 1 Expense lncorrectly Posted To $3,564.63 Grant 2 G/L Should Be $10,395.60 GRANT #2 Grant 2 G/L $26,874.51 Balance As Of 9/30/01 Grant 2 Expense Incorrectly Posted $944.75 To Grant 1 Grant 1 Expense Incorrectly Posted -$3,564.63 To Grant 2 Grant Refund Incorrectly Posted -$785.69 To Grant 2 Grant 2 Expenses Posted To Prior $686.30 Fiscal Year PO #27 - Could Not Locate Where It $59.07 Was Posted G/L Should Be $24,214.31 Section 1.f. of the Grant Agreements require the PPLC to use and maintain adequate fiscal authority, control, and accounting procedures that will ensure proper disbursement of, and accounting for project funds. Although the dollar amounts of the posting errors are not substantial, there are no internal controls in place to prevent material mispostings from being made. Section II I.e. of the Grant Agreement indicates the State can terminate the grant because of failure of the PPLC to fulfill its obligations in a satisfactory manner. Internal Audit Division, Clerk of the Circuit Court 27 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT We Recommend a written policy and procedure be adopted that requires the spreadsheet of grant expenditures to be reconciled to the general ledger expenditure account. Management Response: Concur. 12. The PPLC Has Made Inappropriate and Questionable Expenditures. The PPLC is making expenditures that do not appear proper in some instances, and in other instances are questionable, and are not approved by the Board through the budgetary process. Although the dollar amount of the issues found in our testing of expenditure transactions is not considered material compared to the overall operating budget of the PPLC, the number of questionable transactions does indicate a control issue that needs to be addressed by the PPLC Board. The PPLC is funded by State Aid money, State grants and taxes assessed to the residents of unincorporated Pinellas County. It is imperative tax dollars be spent to support the PPLC's mission of providing library materials, library services and information to all in support of lifelong learning. In addition, Section III.B.h. of the Interlocal Agreement (September 10, 2001) requires the PPLC Board to establish the operating budget each year and establish administrative policies for operation of PPLC. During our review of expenditures we also noted the following specific concerns: A. Three out of fifty-nine expenditures reviewed were not appropriate and did not have documentation to support they were reasonable and necessary to carry out the mission of the PPLC. The expenditures were as follows: 1. Baby Shower for Talking Book Library employee - $43.13. The following items were purchased: . Cake from Publix - $20.99 . Decorations from Party City - $22.14 Charged to the account, Other Misc.lOnline The Administrator stated patrons make donations in appreciation of the service provided by library and that some donations are for staff to treat themselves for food/beverages, etc. This item was covered by those donations. We could not find any documentation supporting this statement. All "thank you" letters for TBL donations have the statement, "Your gift will support free library services for Pinellas County Residents with print disabilities." 2. Halloween party - $48.91. The following items were purchased: . Cupcakes and Cookies from Publix - $8.87 Internal Audit Division, Clerk of the Circuit Court 28 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT . . Halloween Decorations from Party City - $29.04 . AMC Movie Gift Certificates - $10.00 . Lottery Ticket - $1.00 Charged to the Office Supplies account Party - $22.75, purpose not documented. The following items were purchased: . Mileage reimbursement for driving to Dunkin Doughnuts, Publix and Party City - $8.27 . Napkins from Party City - $14.48, charged to the Office Supplies account . The Administrator stated they have parties for the volunteers; however, the documentation gave no indication of the party's purpose and there is no policy that gives the Administrator authority to have the parties. B. The PPLC is making expenditures for refreshment that do not appear to be approved by the Board through the budget process. During the audit period, we noted twelve separate trips made to Sam's Club with purchases totaling $2,926. The majority of items purchased consisted of beverages and snack foods. The Administrator stated the beverages and snack foods were purchased for board meetings and the volunteers. The invoices did not indicate the purpose of the purchase. In addition, $415 other refreshment items were charged to various expense accounts, even though all the items relate to refreshment items. We noted the following specific concerns regarding classification of expenses: Date Purchased Vender Amount Account Chanced Item Purchased Puroose 5/2/01 Honey Baked Ham $127.00 Promotional Activity 21 Box Lunches Not Documented 2/21/01 Lonnie's $72.37 Non-Op Contingency Sandwiches Finance Mtg. 11/15/00 Target $17.26 Admin - Office Supplies Napkins. Paper Plates Not Documented 11/15/00 Honey B~ked Ham $68.55 Non-Op Contingency Turkey, Sweet Potat.oes Not Documented 4/18/01 Lonnie's $58.24 Promotional Activity Sandwiches BudgeUPlanning Mtg 11/30/00 Dollar Store $27.00 Office Supplies Decorations Decorations 12/18/00 Albertson's $17.99 Office Supplies Christmas Party Food Christmas Party Food 12/18/00 Publix $17.68 Office Supplies Christmas Party Food Christmas Party Food 1212/00 Walmart $8.93 Office Supplies Christmas Candy. Christmas Candy The Florida Comptroller's chart of accounts defines office supplies as, "... materials and supplies such as stationary, pre-printed forms, paper, charts, and maps. Included also are equipment items under $750 in unit value." The Florida Comptroller's chart of accounts defines promotional activities as, "Includes any type of promotional advertising on behalf of the local unit." Internal Audit Division, Clerk of the Circuit Court 29 Audit of Pinellas Public Library Cooperative. OPPORTUNITIES FOR IMPROVEMENT The Board of Directors, through the budgetary process, should approve all expenditures. Each expenditure account should clearly identify the nature of the expense. To eliminate any uncertainties, a definition should be given for each type of expenditure account and consistent application of posting expenditures to the proper accounts should be applied. This will provide the Board with useful information to plan and control operations. We Recommend the PPLC: A. Develop a written policy on providing incentive and support activities for volunteers, include a separate line item in the budget for these expenditures, and obtain Board approval. In addition, the PPLC should disallow PPLC funds to be used to pay for non-work related activities for employees. See Opportunity for Improvement NO.16 for the recommendation for donations. B. Develop a policy and procedure regarding whether refreshments should be provided for meetings and/or volunteers of the PPLC, and the extent of such refreshments. If the Board desires to adopt a policy allowing refreshments, the legality should be researched and documented. If approved by the board, a separate budgetary expenditure account should be provided to capture and control these expenditures. Management Response: A. Concur. B. Concur. 13. The Rate Set By The PPLC For Travel Reimbursements Is More Than Double The Rate Set By Florida Statute. During our review of travel reimbursements Policies and Procedures, we noted the following concerns: A. The PPLC is not complying with the Interlocal Agreement and thePPLC Bylaws regarding Board members' travel expenses. Section III.BA. of the Interlocal Agreement and Article IV. 14. of the Bylaws state, "Directors and Officers shall...be reimbursed for travel and per diem expenses in accordance with Section 112.061, Florida Statutes." The PPLC Procedure Manual states, "Meals shall be reimbursed using the Travelers' Log at the rate of $9.00, $16.00 and $30.00. Receipts are required for meals over $30.00 such as conferences dinners, etc." The rates are as follows: Internal Audit Division, Clerk of the Circuit Court 30 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT Rates Breakfast Lunch Dinner Florida Statutes $3 $6 ill $21 PPLC $9 $16 $30 $55 Total The PPLC has no authority to exceed statutory reimbursement rates for the staff members. B. The following statement on page IV-3 of the policy and procedures manual requires clarification. As stated, "Receipts are required for meals over $30.00 such as conference dinners, etc." This statement appears to mean that if dinner was not part of the conference fee, the employee can attend the dinner and submit a receipt if the cost was over the reimbursement rate. It can also be taken to mean that dinners over $30 are authorized if a receipt is submitted. This provision is also in conflict with Florida Statutes. C. The PPLC Traveler's Log has a line item entitled "Breaks." The Manual does not authorize reimbursement for items purchased on breaks nor does the Florida Statutes. D. The PPLC is reimbursing mileage at the current IRS rate of 32 % cents per mile. The rate set by Florida Statutes is 29 cents per mile. The PPLC has no authority to exceed statutory reimbursement rates. We Recommend: A The PPLC revise the Policies and Procedures manual to conform to Florida Statutes regarding the above noted travel expenses. Reimbursement for Board members and employees should be the same. B. Clarification be made in the Policy Manual regarding when receipts are required for reimbursement, 'and circumstances when meals at conferences will be reimbursed. Policy allowances for meal reimbursement in excess of statutory limitations should be eliminated, and reimbursement for meals, when they are provided by the conference, should be prohibited. C. Employees not be reimbursed for expenses incurred while on breaks. The line item should be removed from the form. D. The PPLC revise the Policies and Procedures manual to conform to Florida Statutes regarding mileage expenses. Internal Audit Division, Clerk of the Circuit Court 31 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT Management Response: A. Concur. B. Concur. C. Concur. D. Concur. 14. PPLC Travel Vouchers And Use Of Business Credit Cards Lack Proper Oversight and Internal Control. The internal controls and the separation of duties relating to PPLC travel vouchers and use of business credit cards does not provide for adequate management oversight and control risk. A. Our review of eleven management travel vouchers paid during the audit period found the following issues: 1. The two Traveler's Logs for the Administrator, that were included in our sample, were only approved for payment by the Administrator. There is . no separation of duties between the person incurring the expense and the approval of the propriety of the expense for payment by PPLC. 2. Attached to one of the Administrator's Traveler's Logs was a charge by one Board Member for breakfast that was applied to the Board Member's room and ultimately paid thru the PPLC VISA credit card. The Interlocal Agreement requires the Board Members to use the Florida Statutes per diem rate, not actual cost. 3. Sixty four percent (seven) of Traveler's Logs submitted used actual cost for meals instead of the per diem rate stated in the PPLC Policies and Procedures Manual. The approved procedure makes no provision to use actual cost instead of the per diem rate. On one Traveler's Log, the traveler used per diem rate but also included the actual cost of one dinner that was higher then the per diem rate (the dinner was not part of the seminar schedule). The IRS prohibits the use of per diem rates in conjunction with actual cost of meals. In addition, four of the Traveler's Logs had individual meals that were greater then the per diem allowed for that type of meal by the Policy Manual. Note, the PPLC per diem rate per day is twice the amount stipulated in the Florida Statues (discussed in Opportunity for Improvement No.13). Internal Audit Division, Clerk of the Circuit Court 32 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT 4. Three Traveler's Logs had errors. An airfare item for $421.74 was not listed on the Log or included in the "Total Cost of the Trip" section. One registration fee for $295.00 was listed as a prepaid item but was included in the total that was being requested for reimbursement. An airfare of $390 was charged to the VISA credit card but was not listed in the Traveler's Log. While the amount of actual reimbursement was proper, it is essential that all logs be completed accurately. 5. Two Traveler's Logs did not have proper documentation to support items totaling $886.28. The actual hotel bill for $798 was not submitted with the voucher. A meal was recorded for $32.25 but the item charged to the VISA credit card was for $81.10. There was no documented explanation for the difference. 6. Ninety-one percent (11 of 12) of Traveler's Logs had items that are not authorized by the PPLC travel procedures. The vouchers reported tip and break expenses totaling $330. These items are not authorized by PPLC policy. 7. Four Traveler's Logs lacked complete information. One voucher did not have daily totals and the "Total Cost of the Trip" section filled out. One voucher had a receipt for $17.50 that was charged to the VISA credit card but not listed on the Log. Two receipts attached to the Log for $47.54 and $56.94 were not included on the voucher. One Traveler's Log showed the traveler arriving on Saturday when the seminar did not start until Sunday. There was no cost justification for the savings related to the airfare cost for flying on Saturday, $211, vs. the additional cost of the one-day stay of $229. 8. The traveler is not attaching the agenda for the conferences being attended. Therefore, there is no documentation to support what items are part of the conference and what items are appropriate for reimbursement. The issues noted above represent an inadequate review and approval process for travel expense and disregard to the PPLC Travel Procedures. B. Our review of 25 Staff Expense/Mileage Reports paid during the audit period found the following issues: 1. Two vouchers had items totaling $46.44 reimbursed that were not PPLC expenses: $10.96 was for an employee's personal event, and $35.48 was for an employee's cake. 2. Ninety-six percent (24 of 25) of Staff Expense/Mileage Reports included non-related travel expenses totaling $1,159 in the reimbursement requests. This type of expense item should be processed through Petty Internal Audit Division, Clerk of the Circuit Court 33 Audit of Pine lias Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT Cash or charged to a vender that PPLC has an account with. In addition, there should be prior approval before staff incurs these types of expenses. As per the general ledger transaction records, the total other operating expenses (non-travel) processed through the Staff vouchers for the audit period was $2,661. It was also found that the majority of the purchases made by staff did not take advantage of the tax-exempt status of the PPLC. 3. Sixty percent or $696 of the operating expenses reported on the Staff vouchers (noted in item "2") were applied to an inappropriate general ledger expense accounts. . Fish Supplies totaling $223.18 charged to: Non-Op Contingency, Office Supplies, Machines/Equipment, and Other Misc.lOnline. . Food, paper goods and shirts totaling $228.30 charged to Promotional Activities, but the documentation does not state what promotion the items relate to. . Food totaling $78.31 charged to: Local Travel, Other Misc.lOnline, and Non-Op Contingency. . Mileage, outside plants, and office plant material totaling $37.59 were charged to Office Supplies. These items should be posted to Mileage, Grounds and Maintenance Other. . Three items totaling $72.76 had the correct general ledger account number on the voucher but were mis-posted to an incorrect expense account. 4. One voucher had a receipt attached for $60.40 for uniforms/shirts but the reimbursement item was for $35.48. The reason for the difference was not documented. 5. Fourteen percent (14%) or $290 of the total dollar amount processed for the 25 Staff Expense/Mileage Reports was for the purchase of food items. With the lack of adequate explanation for the use of the food, we cannot conclude that the expense was a proper PPLC expenditure to accomplish the CootJerative's mission and not just for the benefit of PPLC staff. C. The PPLC does not have any policies and procedures covering the use of the two Cooperative VISA credit cards. The cards are in the possession of the Administrator and the Librarian of the Talking Book Library. The cards are being used as both a purchase and a travel card. Our review of the current process and the items charged to the credit cards for the audit period found the following issues: Internal Audit Division, Clerk of the Circuit Court 34 Audit of Pine lias Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT 1. The Administrator is approving her own credit card bill. There is no separation of duties between the use of the card and the approval of the propriety of the expense for payment by PPLC. 2. In most cases, the credit card bills submitted for payment do riot have sufficient supporting documentation to provide the assurance that the items were for a proper PPLC purpose, the items were approved prior to the charge occurring and the amounts expended were reasonable. None of the travel and per diem charges ($23,869) on the billing statements are supported by a copy of the approved Traveler's Log. Fifty percent ($2,720) of the Purchase Card type items were not supported by a copy of the invoice. 3. We agreed the travel and per diem items listed on the credit card bill to the individual items recorded on the Traveler's Log submitted for reimbursement. Forty six percent ($10,997) of the travel and per diem items listed on the billings are not supported by a Traveler's Log and thirty three percent ($7,928) are not supported by any receipt at all. 4. Three items totaling $162 were posted to an- incorrect expense account on the general ledger. D. Other issues relating to travel expense and PPLC credit card usage were found. . 1. The PPLC Board is not submitting a Traveler's Log for trips made on behalf of the Cooperative. It appears that the hotel bill and the airfare are being billed to the VISA credit card. 'In addition, there is no record that the Board is requesting per diem for meals that they are entitled to receive when on PPLC business. 2. There are no PPLC policies and procedures for the use and processing of other PPLC credit cards, I.e., Chevron and Home Depot.. 3. The Administrator's VISA credit card is being used to charge all airfare relating to employees and Board member trips. The PPLC uses AAA as their travel agent and the tickets are billed directly to the credit card account. Expenses relating to other PPLC persons should not be charged to a credit card that is the responsibility of another person, in this case the Administrator. The written policies and procedures, internal controls, separation of duties, and VISA credit card process should be adequate to oversee and control the risk related to the operations. The current process does not provide the necessary Internal Audit Division, Clerk of the Circuit Court 35 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT assurance to substantiate expenditures being made with PPLC funds are for a PPLC purpose. We Recommend: A. The Board Chairman or the Treasurer approve the Traveler's Logs for the Administrator. All re.imbursements should comply with PPLC policies and procedures. Adequate reviews should be performed on the Traveler's Logs submitted for payment so errors are detected. The travel policies and procedures should be changed to require a copy of the conference agenda to be attached to the Traveler's Log as supporting documentation. B. All reimbursements comply with the PPLC policies and procedures and be for a proper PPLC purpose. Non-travel operating expenses should not be processed through the Staff Expenses/Mileage Reports. Operating expenses should be posted to the proper general ledger expense account. Adequate descriptions for the purpose of the reimbursed expense should be present for ALL items. If the PPLC Board wants to authorize the purchase of food and related items for PPLC meetings and/or events there should be a' Board- approved policy and a budget line approved for these types of items. Food and related items should not be purchased with PPLC funds for use by or benefit of the PPLC employees. Proper prudence should be present for food items purchased for the benefit of the PPLC volunteers. C. An approved Traveler's Log or an invoice be completed to support all VISA credit card billings. If the charge on the credit card is a "prepaid item" a Traveler's Log should be filled out just for the prepaid item with a copy attached to the final Traveler's Log. The Board Chairman or the Treasurer should approve the credit card billing for the Administrator. Due care should be observed when assigning the general ledger expense line to be charged. D. A Traveler's Log be completed to support Board member trips. The Board should put in for the per diem that they are entitled to as per the Interlocal Agreement. Policies and procedures should be written for the use and processing of the credit card and billings. A third VISA credit card should be obtained for the exclusive function to charge PPLC related airfare processed by the AAA travel agent. Payment of prepaid conference fees should be made through a check request (with the exception of the two persons now holding a PPLC VISA card). Management Response: A. Concur. B. Concur. Internal Audit Division, Clerk of the Circuit Court 36 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT C. The payment of all credit card invoices, including those of the Administrator, already requires the review and signature of a member of the Executive Board in addition to the signature of the Administrator. The Administrator cannot currently, nor have they in the past, been able to incur and expend funds unilaterally without approval of the Board. D. Partially Concur. PPLC agrees that a Traveler's Log should be completed for Board member trips. PPLC also agrees with the need for written policies and procedure governing the use of credit cards and billings. PPLC does not concur with the issuance of a third generic card for travel to be processed by AAA. Other resources are often used to book flights, rooms, etc. PPLC prefers to issue individual cards to staff members to more easily track expenditures directly related to that staff member. There will be one card issued to the Office Manager to be used for Board member travel and related expenditures. This is an operational issue that the Board will address to ensure proper accountability. 15. No Assurance Could Be Made That Donations To The Talking Book Library (TBL) Were Properly Expended, Recorded Or Deposited. We reviewed the processing of donations, and found that the TBL does not maintain a complete transaction trail for donations collected. In addition, the PPLC has no written procedures covering the processing of donations made to the TBL. We noted the following concerns for FY 2001: A. For FY 2001, the general ledger reflected that $23,768 in donations were made to the TBL. Records for these donations amounted to copies of "thank you" letters that were mailed to donors. "Thank you" letters indicated a dollar amount of donations and the name and address of the donor. Cash is collected and deposited into one bank account with the revenue source written on the deposit slip. For example, the deposit made on January 9, 2001, was for $1,208,646.86. The back of the deposit slip documents the breakdown of the revenue sources as $1,160,770.00 - BCC/QTR II PYMT, $330.61 - Belleair Shores Qtrly PYMT, $996.00 - TBL Donations, and $46,550.25 LSTA Grant. We were not able to trace the $996.00 of donations back to the individual donors. We were also not able to trace individua.l donations from "thank you" letters to the general ledger. Proper internal control requires that transactions be traceable from their initial capture through all intermediate steps to disposition, with a separation of duties between individuals handling financial transactions. Written policies and procedures communicate an internal control structure established by management and can assist management in preventing misunderstandings of important functions and the potential for waste, fraud or abuse, which might result with weakened internal controls. Internal Audit Division, Clerk of the Circuit Court 37 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT B. There is no policy in place that prohibits employees from accepting gifts from patrons. The Librarian, TBL, stated they accept donations made for the benefit of TBL employees, that patrons make donations in appreciation of the help that is provided by TBL staff. We reviewed all "thank you" letters that were mailed to the donors during the audit period, and there was no indication that any donation was made for the benefit of TBL employees. The "thank you" letters stated in part, "Your gift will support free library services for Pinellas County residents with print disabilities." Prudent business practice requires that organizations adopt a Code of Ethics to ensure employees are independent and impartial, employees are not using public employment for personal gain, and the financial interests of employees present neither a conflict nor the appearance of a conflict with public trust. An essential element within a Code of Ethics is to prohibit the acceptance of anything that could be construed as a payoff, bribe or other personal benefit for special services or favors performed. We Recommend: A. The TBL develop a written policy and procedure requiring that checks received through the mail be restrictively endorsed, and donations recorded in a log that documents the date the donation received, dollar amount of the donation, purpose for the donation, and the name and address of the donor. The person opening the mail should maintain an original log, and a copy of the log should go to the Office Manager to draft and send "thank you" letters. This copy should be attached to the "thank you" letters mailed for that day's donations and maintained in a file by the Office Manager of the TBL. B. The TBL and PPLC develop a written Code of Ethics that prohibits employees from accepting anything of value that could be construed as a payoff, bribe or other personal benefit for special services or favors performed. Management Response: A. Concur. The Talking Book Library currently has a log for the recording of all donations. A written donation policy is being developed to ensure the separation of duties as recommended by this audit. B. Concur. Internal Audit Division, Clerk of the Circuit Court 38 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT 16. No Assurance Could Be Obtained To Determine That Fees Charged Or Not Charged For Braille Production Orders Were Properly Billed, Collected, And Deposited. In Addition, Patrons With High Braille Demands Are Being Discouraged From Using Braille Production Services Of The TBL. During our review of the TBL, we noted the following weaknesses related to processing Braille production orders. A. The TBL maintains no transaction trail for Braille production orders. The Librarian of the TBL stated they process approximately 2-3 orders a year. We requested copies of processed Braille Order Forms; however, TBL staff had no record of completed Braille orders. The policies and procedures do not explicitly state to retain the PTBL Braille Order Forms upon completion. The TBL Librarian stated the Office Manager should have the completed Braille Order Forms; however, when we asked the Office Manager, none were provided. The policies indicate a fee is not required to be collected for clients or members of the public in need of single copy materials. Although a fee is not required for all potential Braille requests, the PTBL Braille Order Form should be maintained to support a fee not being collected. Section VI. of the PPLC Policies and Procedures Manual states, "All parties interested in placing orders for Braille must complete the PTBL Braille Order Form...BFL volunteers or library staff may fill out the forms via telephone contact with ordering entities... The bottom section of the form provides for an internal check for job completion." The General Ledger revenue accounts of the TBL were reviewed for FY 2001 to determine if any collections for Braille Embossing were recorded. The only revenue account utilized was in donations, number 5300. B. The price structure used for Braille orders does not support the mission of the PPLC. The mission is to provide library materials, library services and information to all in support of lifelong learning. The TBL is discouraging entities with high Braille demanps from requesting Braille orders. The rationale for the prices charged in the policy manual states, "... the price structure provides incentive for entities with high Braille demands to investigate owning their own embossing equipment." Section VI. of the PPLC Policies and Procedures Manual states, "All Braille requests represent some expense for the BFL. In an attempt to recoup costs, the following prices will be charged for embossing: 1 -100 pages ........$.50/page 101 - 500 pages.....$.75/page over 500 pages... $negotiable" Internal Audit Division, Clerk of the Circuit Court 39 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT The rationale states, "...the price structure provides incentive for entities with high Braille demands to investigate owning their own embossing equipment." Any charges assessed for services of the TBL should be set to cover the costs of the service. We Recommend: A. A provision be included in the written policies and procedures that require the completed Braille Order Forms to be maintained. B. The price structure for Braille embossing be changed to cover the costs incurred, not to discourage patrons who may have high demands. Management Response: A. Concur. TBL is currently utilizing the Braille Order Form and maintains a file for completed forms in the Office Assistants files. Proper oversight will be provided to ensure compliance on this matter. B. Concur. The original pricing structure for Braille copies was developed prior to any historical data to determine potential volume and use of the equipment by for-profit entities. The pricing structure has since been revised (8/02) to reflect a standard fee of $.50 per sheet. 17. The PPLC Is Not Complying With Its Inventory Policy. The PPLC is not maintaining a current record of fixed asset inventory and is not complying with its policies governing inventory control. The Administrator of the . PPLC stated the inventory records were not current and they were in the process of being updated. The Administrator indicated that during the move of the PPLC, they disposed of some property and purchased new property. The PPLC changed locations in approximately April 2000. Because of the inadequate records, we were unable to verify the accountability for all assets purchased by the PPLC. The PPLC is not complying with their inventory policy. In addition, the policy is inadequate. Page IV-2 of the PPLC, states, "All furniture and equipment over $500 shall have PPLC ownership labels attached. Inventory shall be done annually in September." Staff indicated inventory records have not been updated since the move. To ensure assets are properly protected and accounted for, a comprehensive written policy and procedure should be developed. This process should parallel Internal Audit Division, Clerk of the Circuit Court 40 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT the requirements of Section 273.023, Florida Statutes and Section 10.350 of the Rules of the Auditor General. We Recommend the PPLC develop a comprehensive written policy and procedure that addresses the administration of fixed assets. Since the PPLC is funded by state and county taxes they should adopt the process required by Section 273, Florida Statutes. Management Response: Concur. PPLC has an updated list of all fixed assets. There is not however, an efficient inventory control process in place to update records based on the receipt and disposition of inventoried items. The Administrator will. review Section 273, Florida Statutes and develop a comprehensive inventory control procedure to ensure the proper accounting of fixed assets as approved by the PPLC Board. 18. The PPLC Does Not Have A Professional Service Contract With The Commercial Accounting Firm Defining Responsibilities And Deliverables For Accounting Services. A commercial accounting firm maintains the PPLC general ledger, renders checks, produces the monthly financial Board package, performs the bank reconciliation and renders the tax return. None of these services are defined by an agreement. In addition, there is no yearly engagement letter submitted to the PPLC that describes what services will be supr:>lied by the Accountant and what responsibilities have been accepted by the Accountant. The PPLC has nothing with which to measure the Accountant's performance. Professional services received by the PPLC should be covered by a written contract defining the rights and deliverables of all parties. Without this type of document the Board has no assurance that the requirements of Section V.B.2 of the Interlocal Agreement (September 10, 2001) to maintain complete and accurate records of the receipt and disbursement of all funds of the Cooperative are being met. We Recommend a contract between the PPLC and the Accountant be obtained. A yearly representation letter should be submitted to the Board defining the services to be rendered for the following year. Management Response: Concur. Internal Audit Division, Clerk of the Circuit Court 41 Audit of Pinellas Public Library Cooperative OPPORTUNITIES FOR IMPROVEMENT 19. Materials Are Being Purchased for The Deaf Services Program Without Proper Approval. The Deaf Services Coordinator is authorized to purchase materials for the Deaf Services Program with her own money and subsequently submit receipts for reimbursement without getting a PPLC Purchase Order Form approved. The "State Aid And Grant Purchases/Expenditures" policy on page IV-6 of the PPLC's Policies' and Procedures Manual, states, "5. The Cooperative purchase order form must be used for all purchases." The process being followed weakens the internal controls for the purchasing process and leaves the employee open to. purchase items that might not be proper for the program. This could also result in the employee not being reimbursed for expending her own money. We Recommend the PPLC Purchase Order Form be submitted and approved prior to purchasing materials for the Deaf Services Program. Management Response: Partially Concur. The Deaf Services Coordinator will submit purchase orders for materials prior to purchase.-The exception will be for purchases of $25.00 or less which will be reimbursed out of the petty cash fund. Internal Audit Division, Glerk of the Circuit Court 42