Repurchase Agreements
(84) Subsequent to the 1996-97 fiscal year, the Clerk invested BCC and Clerk moneys in
repurchase agreements that were not authorized in the investment plan. Also, in some
instances, the securities collateralizing the repurchase agreements were not authorized in
the investment plan or by law and included derivative products. Furthermore, procedures
had not been implemented to assure that the repurchase agreements were adequately
collateralized. Failure to establish adequate controls over the investment of moneys could
result in significant losses in the event of adverse investment conditions.
(85) In October 1997, the Clerk began investing surplus BCC and Clerk funds in
overnight repurchase agreements through the establishment of two sweep accounts at a local
banking institution. The total amounts invested in repurchase agreements at March 31,
1998, were $14,487,000 and $841,000 for the BCC and the Clerk, respectively. Pursuant to
the two sweep account agreements, on each banking day that the sweep accounts contain a
balance of at least the minimum investment ($25,000), the bank invests all, or
substantially all, of the account balances in overnight repurchase agreements. Pursuant to
the Master Repurchase Agreements entered into between the Clerk and a banking institution,
the bank agreed to transfer to the County securities or financial instruments (securities)
against the transfer of funds by the County with a simultaneous agreement by the County to
transfer to the bank such securities at a date certain or on demand against the transfer
of funds by the bank. Our review of the Master Repurchase Agreements and the investments
made by the Clerk pursuant thereto disclosed the following:
· Repurchase agreements were not included in the authorized types of investments
specified in the investment policy adopted by the BCC. Also, the Master Repurchase
Agreement for the BCC allowed for collateralization by securities issued by two Federal
agencies, respectively, that were not authorized by Section 125.31, Florida Statutes, and
the securities were not backed by the full faith and credit of the United States
Government. The Federal agencies included the Student Loan Marketing Association and
Resolution Funding Corporation. Subsequent to our review, the bank began collateralizing
the repurchase agreements with direct obligations of the United States Government.
· The Master Repurchase Agreement for the Clerk allowed for collateralization by
securities issued by five Federal agencies, respectively, that were not authorized by
Section 219.075, Florida Statutes, and for which the securities were not backed by the
full faith and credit of the United States Government. The Federal agencies included the
Federal Home Loan Bank, Federal Home Mortgage Corporation, Federal National Mortgage
Association, Student Loan Marketing Association, and Resolution Funding Corporation. Our
test of monthly activity statements which described the collateral for the repurchase
agreements for the period October 1, 1997, through March 31, 1998, disclosed 121 instances
where securities were issued by agencies that were not backed by the full faith and credit
of the United States Government. Subsequent to our review, the bank began collateralizing
the repurchase agreements with direct obligations of the United States Government.
· The monthly activity statements which described the collateral for the repurchase
agreements for the BCC and Clerk accounts for the period October 1, 1997, through March
31, 1998, disclosed that certain securities were described with an " IAN" (index
amortization note) designation, a structured note that is considered to be a derivative
product. Section 218.415(5), Florida Statutes, requires that investments in derivative
products be specifically authorized in the investment plan; however, the County’s
investment plan did not address derivative products. Our test of the monthly activity
statements for the BCC and Clerk accounts for the above period disclosed 16 and 11
instances in the BCC and Clerk accounts, respectively, in which IAN securities were
purchased.
· Pursuant to the Master Repurchase Agreements, the aggregate market value of the
securities transferred by the bank to the County shall be established daily and shall be
at least 102 percent. The County received a daily written investment confirmation, which
describes, in part, the securities and identifies the amount invested and the market value
of the securities. The Clerk has not established procedures to verify that the amount
invested was collateralized by the bank at least at 102 percent. While our review of the
required collateral for March 1998 disclosed that investments were adequately
collateralized at that point in time, in the absence of these procedures, the Clerk did
not have assurance that adequate collateral was continuously maintained.
(86) We recommend that the BCC and Clerk amend the investment policy and the Master
Repurchase Agreements to include the overnight repurchase agreements and to prohibit
collateralization by securities not authorized by law or backed by the full faith and
credit of the United States government. We also recommend that the Clerk implement
procedures to assure that all investments are subject to adequate collateralization.
Investment of Surplus Funds
(87) During the period October 1, 1996, through March 31, 1998, the Clerk maintained
significant balances of surplus BCC and Clerk moneys in low interest money market and
checking accounts and reported interest earnings of approximately $284,000. However,
additional interest earnings of approximately $348,000 could have been earned had the
excess funds been invested through the Florida State Board of Administration.
(88) The Clerk, and the former Clerk, in fulfilling their responsibility for investing
surplus BCC and Clerk funds, invested funds during the period October 1, 1996, through
March 31, 1998, in low interest money market and checking accounts. Also, as indicated in
paragraph 85, the Clerk, in October 1997, began investing surplus BCC and Clerk funds in
overnight repurchase agreements through the establishment of two sweep accounts at a local
banking institution. The reported earnings on such accounts during the period October 1,
1996, through March 31, 1998, were approximately $284,000:
· With the exception of a few money market accounts, interest rates earned on money
market accounts generally ranged from approximately 2 to 4 percent during this period,
while interest rates on checking accounts ranged from 1 to 1.55 percent.
· The average monthly yield during the period October 1, 1997, through March 31, 1998,
for the overnight repurchase agreements ranged from 5.037 to 5.109 percent. (89) In
comparison, interest rates available from the Florida State Board of Administration (SBA)
ranged from 5.37 to 5.66 percent during this same time period. Our analysis of amounts on
deposit in money market and checking accounts disclosed that the BCC and Clerk could have
earned an additional estimated $348,000 had the Clerk and former Clerk invested such
moneys with the SBA.
(90) Of the $348,000 of additional estimated interest, $312,000 (90 percent) was for
the period October 1, 1996, through September 30, 1997, prior to the establishment of the
sweep accounts. Although substantial improvement resulted from the investment of surplus
BCC and Clerk funds in overnight repurchase agreements, the County could have earned an
additional $36,000 in interest subsequent to establishment of the sweep accounts.
(91) To maximize interest earnings on surplus BCC and Clerk funds, and thereby reduce
the costs borne by the taxpayers for the services provided by the BCC, we recommend that
the Clerk continue to review his investment practices and, when appropriate, make
investments through the SBA or in other authorized investments offering competitive
returns consistent with the provisions of the BCC’s investment policy.
Interest Distributions on Pooled Bank Accounts
(92) The methodologies used by the Clerk to allocate interest earnings for the BCC and
Clerk pooled bank accounts were not always consistent and did not provide the most
equitable interest earnings distribution.
(93) As indicated in paragraph 85, the Clerk, in October 1997, began investing surplus
BCC and Clerk funds in overnight repurchase agreements through the establishment of two
sweep accounts with a local banking institution to maximize interest earnings and
facilitate cash management. The BCC and Clerk sweep accounts have 12 and 9 subsidiary
accounts, respectively. The subsidiary accounts include, for example, payroll, tourist
development, solid waste, mediation arbitration, and local government criminal justice.
The interest earned on each sweep account as a result of investing in overnight repurchase
agreements was reported to the County in total on a monthly activity statement. On a
monthly basis, Clerk personnel allocated the total interest earned to each subsidiary
(pooled) account for both the BCC and the Clerk.
(94) Our review of the Clerk’s methodologies used to allocate interest earnings to
the various BCC and Clerk accounts disclosed that they were not always consistent and did
not provide the most equitable interest distribution. The interest earnings distribution
for the Clerk’s accounts was calculated using a spreadsheet application that
calculates the interest based on a monthly average percentage of each account’s
balance to the total of all account balances. The interest earnings distribution for the
BCC accounts was calculated during the period October 1, 1997, through April 30, 1998,
using a computer application that, according to the Clerk, was intended to calculate the
monthly interest earnings distribution based on each account’s average daily balance.
However, our review of the October 1997 interest earnings distribution disclosed that the
interest was calculated based on the account balance at the end of the month.
(95) The use of the month-end account balance does not provide the most equitable
distribution in that it does not take into consideration the fluctuation in each account
during the month. For example, we recalculated the interest earnings distribution for each
applicable BCC account for the month of October 1997 using the average daily balance and
compared the results to the amount of interest earnings distributed by Clerk personnel to
each account. The results of our comparison disclosed differences in the amount of
interest earnings distributed to each account ranging from an understatement of
approximately $1,600 to an overstatement of approximately $800.
(96) We recommend that the Clerk select an interest earnings distribution method that
provides the most equitable distribution and ensure that it is applied consistently.
Receivables
(97) The BCC had not established adequate collection procedures for emergency medical
services accounts receivable.
(98) The BCC provides emergency medical services (EMS) to individuals in need of
ambulatory or other paramedic attention pursuant to Resolution No. 94-1. Because of the
sensitive nature of the services provided, the BCC must issue billings for recovering the
costs of services provided in lieu of collecting payment at the time services are
rendered. Because many of the patients are indigent, these accounts are often difficult to
collect. As such, it is essential that the BCC establish effective procedures for
monitoring these accounts and pursuing timely collection. As discussed below, our audit
disclosed that the BCC had not implemented adequate procedures for billing and collecting
EMS receivables.
(99) The BCC assumed the responsibilities for EMS billings and collections on September
1, 1997, at which time approximately $2.9 million in billings were outstanding. Prior to
that date, these responsibilities were handled by a collection agency. The BCC, on
November 22, 1997, employed a full-time billing clerk whose responsibility is to handle
EMS billings and collections, exclusively. At the time of our review in July 1998, BCC
personnel had not made an attempt to collect on these accounts through the mailing of past
due notices and/or referral of delinquent accounts to a collection agency, nor had they
attempted to prepare an aging of the accounts or to make a determination as to which of
these accounts are collectible. Instead, the BCC has focused its effort on the issuance of
billings for EMS services provided subsequent to September 1, 1997. Effective June 1,
1998, the BCC implemented a new computer software program capable of producing reports
which will be useful in monitoring the collection of these accounts.
(100) To maximize EMS collections, we recommend that the BCC, to the extent practical,
make a determination as to the likelihood of collection of outstanding EMS accounts and,
as appropriate, attempt to collect EMS receivables through the mailing of past due
notices, referral of delinquent accounts to a collection agency, and/or other appropriate
procedures. The BCC should also establish procedures for aging accounts and provide for
periodic review to assist in determining the likelihood of collection.
(101) The Chairman, in his written response to this finding, identified reasons why
a significant portion of the outstanding billings may not be collectible. We recognize, as
indicated in paragraph 98, that there are reasons why such accounts may be deemed
uncollectible, such as indigency on the part of the persons owing the money; however, the
BCC has not made any determination as to the extent to which the accounts may be
uncollectible. It is for this reason that we recommended in paragraph 100 that the BCC
make a determination as to the likelihood of collection. The Chairman also stated that the
Florida Statutes do not contain any provision allowing the BCC to write-off accounts
deemed to be uncollectible. Our finding did not address the write-off of uncollectible
accounts; however, the BCC should be aware that Section 17.041, Florida Statutes,
authorizes the BCC to certify such accounts to the Florida Department of Banking and
Finance for settlement.
Tangible Personal Property
(102) According to the BCC’s subsidiary property records, the BCC had tangible
personal property totaling $12,291,087 as of September 30, 1997. Chapter 274, Florida
Statutes, and Chapter 10.400, Rules of the Auditor General, establish requirements for the
supervision, control, and disposition of tangible personal property. The BCC is
responsible for carrying out these functions.
(103) Proper safeguarding of an entity’s fixed assets such as tangible personal
property requires that the assets be recorded in the accounts of the entity and that the
physical assets be periodically compared against the property records. A system of
accountability for tangible personal property should include the establishment of general
ledger control accounts to provide a basis for reporting of tangible personal property;
individual records for property items to establish accountability for each item acquired;
a comparison of capital outlay expenditures to the general ledger control accounts and
property records to assure that all purchased property items are properly recorded; and a
periodic physical inventory of the property items, together with a reconciliation of the
physical inventory to the property records and general ledger control accounts, to assure
the accuracy of the recorded accountability. Our examination of the BCC’s records and
internal controls for tangible personal property disclosed several deficiencies as
described under the appropriate subheadings below.
General Ledger Control Accounts
(104) The BCC has not established general ledger control accounts to account for
tangible personal property owned by the BCC.
(105) Contrary to Section 10.450(6), Rules of the Auditor General, the BCC has not
established a general ledger control account for tangible personal property. General
ledger control accounts are used to accumulate the total investment in tangible personal
property. Control accounts are summary accounts intended to control accountability for the
individual property records by providing a basis for reconciliation of the individual
property records to the accounting records. To be effective as control accounts, entries
to the accounting control accounts should be posted contemporaneously with entries to the
individual property records. We recommend that the BCC establish general ledger control
accounts and periodically reconcile these accounts to the individual property records.
Tangible Personal Property Records
(106) The BCC’s tangible personal property records did not include all of the
information necessary to properly identify, and evidence the establishment of
accountability for, property items. Additionally, several property items were not properly
tagged or marked as property of the BCC.
(107) To assure proper accountability and safeguarding of tangible personal property,
units of local government should maintain an adequate record of each property item.
Section 274.02, Florida Statutes, and Section 10.450, Rules of the Auditor General,
require that an adequate record be maintained for all property items and specify the
required contents of such record. Our audit tests, which included the selection of 34
tangible personal property items (of which 19 items were selected from the property
records and 15 items were physically observed and traced back to the property records),
disclosed the following deficiencies in the tangible personal property records:
· Of the 19 items selected from the property records for our physical examination, 2
items could not be located by BCC staff. These items included a color inkjet plotter and a
computer system that originally cost $17,848.90 and $6,009.97, respectively. In response
to our inquiry regarding the disposition of these items, BCC staff indicated that these
items had been declared surplus and were to have been sold at auction but they had been
unable to verify that these items had been sold. However, we were not provided with
documentation evidencing that the items were actually sold at auction. Both items were
subsequently approved for deletion from the active property records by the BCC. We were
also advised that these missing items had not been reported to a law enforcement agency
for investigation.
· Contrary to Section 10.450(3)(h), Rules of the Auditor General, the property records
for 22 items, of which 12 were selected from the property records and 10 were physically
inspected and traced back to the property records, did not include a serial number. These
included computer systems, a plotter, copiers, a printer, and various other tangible
personal property items.
· Contrary to Section 10.460(1), Rules of the Auditor General, 16 property items, of
which 8 were selected from the property records and 8 were physically inspected and traced
to the property records, were not properly tagged or marked as property of the BCC. These
included computer systems, vehicles, plotters, fax machines, and various other tangible
personal property items.
(108) The maintenance of complete and accurate tangible personal property records and
the tagging or marking of property items are necessary to provide a basis for
establishment of accountability over and the safeguarding of the tangible personal
property. In the absence of such records, there is an increased possibility that errors
and irregularities could occur and not be detected in a timely manner. We recommend that
the BCC adopt and implement procedures to assure that the tangible personal property
records are complete and include all necessary information, including disposition
information, and that all tangible personal property records are entered into the property
records and marked with an identifying number in a timely manner. Such procedures should
provide for referral of missing property items to an appropriate law enforcement agency
for investigation.
Annual Inventory
(109) A complete inventory of the tangible personal property owned by the BCC had not
been done thereby limiting the BCC’s assurance that such property is adequately
safeguarded.
(110) Section 274.02(2), Florida Statutes, requires that a complete physical inventory
of all property be taken annually; the date inventoried indicated on the property records;
and the inventory be compared with the property records with all discrepancies traced and
reconciled. Our audit disclosed that a complete inventory of tangible personal property
was not taken during the audit period. Our test of 34 property items in May 1998 disclosed
25 (74 percent) items that had not, according to the property records, been inventoried
since October 1996. A complete physical inventory is necessary to demonstrate that the
recorded accountability for the tangible personal property provides an effective safeguard
over the tangible personal property. We recommend that the BCC implement procedures for an
annual inventory of all tangible personal property. Such procedures should assure that
someone other than the property custodian take the inventory and that the physical
inventory results are reconciled to the tangible personal property records.
