Procedural Review Arizona State Board of Cosmetology as of March_31_2013

              A REPORT
TO THE
ARIZONA LEGISLATURE
Debra K. Davenport
Auditor General
Procedural Review
Arizona State Board of
Cosmetology
As of March 31, 2013
Financial Audit Division
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five
senators and five representatives. Her mission is to provide independent and impartial information and specific
recommendations to improve the operations of state and local government entities. To this end, she provides financial
audits and accounting services to the State and political subdivisions, investigates possible misuse of public monies, and
conducts performance audits of school districts, state agencies, and the programs they administer.
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.azauditor.gov
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
August 13, 2013
Mr. Gary Begley, Chair
Arizona State Board of Cosmetology
Ms. Donna Aune, Executive Director
Arizona State Board of Cosmetology
We have performed a procedural review of the Arizona State Board of Cosmetology’s internal controls in
effect as of March 31, 2013. Our review consisted primarily of inquiries, observations, and selected tests of
internal control policies and procedures, accounting records, and related documents. The review was
more limited than would be necessary to give an opinion on internal controls. Accordingly, we do not
express an opinion on the effectiveness of internal controls or ensure that all deficiencies in internal
controls are disclosed.
Specifically, we reviewed cash receipts, cash disbursements, payroll, purchasing, journal entries, and
transfers.
As a result of our review, we noted certain deficiencies in internal controls that the Board’s management
should correct to ensure that it fulfills its responsibility to establish and maintain adequate internal controls.
Our findings and recommendations concerning these deficiencies are described in the accompanying
summary.
The Office of the Auditor General is also conducting a performance audit and sunset review of the Arizona
State Board of Cosmetology. The results of that audit will be issued at a future date.
This report is intended solely for the information and use of the Board and is not intended to be and
should not be used by anyone other than the specified party. However, this report is a matter of public
record, and its distribution is not limited.
Should you have any questions concerning our procedural review, please let us know.
Sincerely,
Jay Zsorey, CPA
Financial Audit Director
TABLE OF CONTENTS
page i
Office of the Auditor General
Finding 1: The Board should separate personnel and
payroll responsibilities and document employees’
wage rates 1
Finding 2: The Board should strengthen its controls
over cash receipts 3
Board Response
page 1
Office of the Auditor General
The Board should separate personnel and payroll
responsibilities and document employees’ wage rates
Effective controls over payroll processing require management to adopt sound accounting policies
and to establish and maintain internal controls that will help the Board initiate, authorize, record,
process, and report accurate payroll transactions. Although the Board used the State of Arizona’s
automated HRIS payroll system, the Board should establish its own internal controls over the
personnel and payroll processes, including separating payroll responsibilities, documenting an
employee’s pay rate, and maintaining personnel records. Specifically, the individual responsible for
processing payroll had the authority to input employee information and change employee pay rates
in the HRIS system without another employee’s approval. Although the Board followed the State of
Arizona’s salary range for each position, the Board did not document the amounts paid to employees.
For all 10 employees tested, there was no documentation maintained in the employees’ personnel
files supporting their rates of pay, and auditors were unable to determine if employees were being
paid at the appropriate rates.
Recommendation
To help strengthen controls over payroll processing, the Board should separate its personnel and
payroll responsibilities and require different employees to update personnel information in the HRIS
system and process payroll. In addition, the Board should maintain appropriate personnel records
which include payroll authorization forms to support employees’ pay rates.
FINDING 1
page 2
State of Arizona
page 3
Office of the Auditor General
The Board should strengthen its controls over cash
receipts
The Board collected approximately $2.4 million in cash receipts during the period July 1, 2012
through March 31, 2013. Therefore, it is essential that the Board’s internal controls over its cash
receipts are documented to ensure all receipts are properly accounted for and recorded in its
accounting records and employees’ responsibilities are adequately separated. However, the Board
did not have current cash receipts policies and procedures describing its processes of collecting,
recording, and depositing cash receipts as required by the State of Arizona Accounting Manual. The
Board’s cash receipts policies and procedures were last updated in 2002. As a result, there were
inconsistencies in how various receipts were collected and recorded by the Board. Specifically, fines,
forfeitures, and penalties receipts were collected, recorded, deposited, and reconciled by the same
employee without supervisory review of the deposits or reconciliations. Further, the Board did not
prepare daily reconciliations of internal records to online credit card payments. Finally, although the
Board prepared certain daily reconciliations, the Board did not reconcile its internal accounting
system to bank deposits and the State’s accounting system monthly. Auditors prepared a
reconciliation for the period audited and noted that cash receipts were materially accounted for.
Recommendations
To help strengthen controls over cash receipts, help ensure that all receipts are properly recorded
and deposited, and to comply with the State of Arizona’s Accounting Manual, the Board should:
1. Update and maintain detailed written cash receipts policies and procedures and distribute them
to all employees who are responsible for handling cash.
2. Separate cash receipts responsibilities for receipts from fines, forfeitures, and penalties so that
the same person is not responsible for collecting, recording, depositing, and reconciling cash
receipts.
FINDING 2
page 4
State of Arizona
3. Reconcile online credit card payments to its internal accounting system and deposits. The
reconciliation should be reviewed and approved by an employee who is not responsible for
cash receipts.
4. Prepare complete monthly reconciliations between the Board’s internal accounting system,
bank records, and the State’s accounting system. The reconciliation should be reviewed
and approved by an employee who is not responsible for cash receipts. Make all necessary
corrections for reconciling items.
BOARD RESPONSE
Office of the Auditor General
Arizona State Board of Cosmetology
Procedural Review
As of March 31, 2013
State of Arizona
Office of the Auditor General