Palo Alto's cash-handling operations are riddled with errors and discrepancies and have insufficient security, a new audit by City Auditor Lynda Brouchoud's office has found.
The audit, which looked at the city's cash handling and travel expenses, found that the city needs "stronger controls for cash-handling operations" and "increased oversight" in travel-expense process.
The city, which offers utility services and a myriad of recreational programs, has more than 20 locations where workers regularly process cash, according to the audit. These include the Development Center, where builders pay their fees and submit their applications; the Utilities Customer Service where residents pay for their gas and electricity; and Foothill Park, where people can rent a canoe.
Not all of the workers at these various locations are adequately trained for handling cash, the audit found. Auditors reviewed 13 cash-handling locations and evaluated their "internal controls" in three areas: segregating cash-handling duties, safeguarding revenues and properly documenting all transactions. The city's Revenue Collection service, which is operated by the Administrative Services Department and which handles about $86.9 million, met the auditor's standards in all three categories.
Smaller operations had a harder time meeting the auditor's criteria. The city's Animal Services department failed to meet the standards in all three categories, while the Children's Theatre (whose cash-handling operations were at the center of a recent citywide scandal) met the necessary standards in the "segregation" category, but did not meet them in the other two.
More than half of the areas surveyed had deficiencies related to safeguarding revenue, the report stated.
Auditors also conducted surprise cash counts at three locations. Two of them had incorrect cash balances (though the differences were only $5), while the third one processed an incorrect deposit slip (the city's accounting group later corrected the error).
The audit points out that the city has a largely "decentralized" cash-handling framework and an "outdated" cash-handling policy. The report recommends the city's Administrative Services Department to update the policy and provide "sufficient guidance" to revenue collectors throughout the city on "internal controls related to cash handling.
The report also stated that the city "should improve training and implement a more proactive oversight program for cash-handling operations."
The report also scrutinized how well the city keeps track of employees' expenses and found that city workers have plenty of room for improvement. Auditors looked at 40 purchases made by city workers through the CAL-Card (credit cards used for city business) and found "exceptions" in 27 of them (or 68 percent).
Most of these exceptions were related to "incomplete travel forms or inadequate documentation." In one case, a transaction appeared to have been reimbursed twice.
The audit also reviewed "Executive Staff" credit cards, which are issued to department heads, and found that about a quarter of the purchases were missing travel forms or receipts.
"This lack of documentation makes it difficult to ensure the expenses were properly authorized and in compliance with City policies," the audit stated.
The report also cites seven cases in which workers used their Executive Staff cards to pay for meals of people who weren't city workers. Though the amount of these meals was "not significant, the public perception of paying for non-employee meals can be a concern."
The auditors' site visits "revealed weaknesses that should be immediately addressed," the report states. It offers 11 recommendations, including consolidating Executive Staff credit cards into the CAL-Card program; performing spot checks of travel expenses; and holding "surprise cash reviews" at revenue collection locations.
The City Council Finance Committee is scheduled to discuss the audit Tuesday night.