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Greater London Authority Table of Contents Page 1 INTRODUCTION 1 2 OBJECTIVES AND METHOD 1 3 EXECUTIVE SUMMARY 2 4 ACKNOWLEDGEMENT 4 5 DETAILED AUDIT FINDINGS 5 6 RECOMMENDATIONS 12 Greater London Authority 1. INTRODUCTION 1.1. This audit forms part of the 2000/2001 audit plan, which has been approved by the Audit Panel and the Mayor. The plan entails a review of the systems and controls operating over the Accounting / General Ledger system. 1.2. The General Ledger System used is the Sun Account and this system has been in operation since the inception of the GLA. The General Ledger system is made up of ledger accounts and is based on a single ledger structure. 2. OBJECTIVES AND METHOD 2.1. Internal Audit’s objectives for this audit were to assess the adequacy and effectiveness of the internal controls put in place for the operation of the General Ledger at the Greater London Authority. In addition, to provide assurance that these controls will assist in the effective achievement of the Authority’s objectives. 2.2. This review examined the following areas relating to the General Ledger: The General Ledger system is being managed in accordance with the Code of Practice on Local Authorities Accounting in the United Kingdom 2000 and other relevant regulations. All General Ledger transactions and journals are valid and are being supported by proper documentary evidence. All data held on the General Ledger system is secure and access is appropriately restricted. The authority effectively monitors and manages accounting within the General Ledger system. 2.3. Details of procedures were obtained from interviews with key staff and procedure or guidance notes. Random samples of prime source documents were selected and tested to evaluate the controls actually in operation. The results of these tests were then assessed to determine adequacy of controls. Page 1 of 17 Greater London Authority 3. EXECUTIVE SUMMARY Policies, Procedures and Legislation relating to the management of the General Ledger system 3.1. This area was covered in depth within the budgetary control system audit and has therefore not been revisited during this audit. It was identified that the Finance Management Team were in the process of amending the Finance Manual and chart of accounts in order to fully reflect the needs of the Authority. General Ledger system and security 3.2. The general ledger system at the Greater London Authority (GLA) was inherited from the London Research Centre and implemented by the transition team prior to mayoral elections. The main finding in this area is that there is an adequate if somewhat cumbersome audit trail that when interrogated would provide management information. Access privileges relating to the various modules are satisfactory in that records are maintained to allow all users of the system to be identified. 3.3. One area where we have made a priority two recommendation relates to the secure storage of the master password, which can be used by nominated officers in the absence of the Finance Manager, Systems and Technical. Tests showed that at the time of the audit, the password was not held securely. Completeness and Accuracy of General Ledger records 3.4. Being an integrated package, transactions posted to one module are automatically updated on the Ledger Accounting module. In this respect the system is sufficiently robust to provide assurance over the completeness and accuracy of the ledger records. Reliability and Integrity of transactions processed through the General Ledger 3.5. The Sun Account system is an integrated system, encompassing a number of financial systems. Our findings in this area showed that the controls over the reliability and integrity between the modules are satisfactory. An area of weakness relates to the lack of segregation of all key functions within the Purchase Ordering module with a consequential impact on Ledger Accounting. At the time of the audit, the Finance Managers explained that the core Finance section was insufficiently staffed to afford sufficient segregation. Once the full complement of staff is in post, the Finance Managers plan to review and improve on the current level of segregation. Journal entries and manual adjustments within the General Ledger 3.6. There was some inconsistency in the journal format, both the GLA and LRC documentation was being used. There was no independent review / authorisation of journals input to confirm that the journals were accurate and appropriate, because in the main, senior members of staff create and then post journals. To some extent, the issue of journal approval is less of an issue at present, but once the Finance section recruits more staff, procedures for the approval of journals will need to be strengthened. Page 2 of 17 Greater London Authority Cheque Control 3.7. Our review showed that there was no stock control system in place over cheques drawn manually or those printed from the system. The bulk of the printed cheques were stored in a filing cabinet in the finance office and the current batch was stored in an unmanned printing room in a locked cabinet. 3.8. The procedure set up for void, cancelled and /or spoilt and precarboned cheques required that the cheques should be shredded in the presence of two officers and the details of the cheque recorded, together with the date and signatures of the officers. We identified seven cheques that had been recorded as shredded but there was no evidence of the date and officers performing the shredding. Our view is that cheques are prime documents and therefore, we would prefer to see cancelled and spoilt cheques retained but clearly marked cancelled. However, since the authority has chosen to apply an alternative control, we are satisfied with this approach, provided the control operates as intended. 3.9. All the officers in the Budget & Exchequer team had access to the safe, where the manual cheques and the system password were stored. The system password was not held securely which we felt compromised the integrity of the whole accounting system. Again, at the time of the audit, the risk of allowing full access to the safe is relatively small as the majority of staff accessing the safe is senior and would genuinely require access. However, in future, when more junior staff are recruited, the Finance Managers will need to review access to the safe. Audit Opinion – Substantial Assurance Evaluation Opinion: while there is a basically sound system there are weaknesses, which may put some of the system objectives at risk. Testing Opinion: There is evidence that the level of non-compliance with some of the controls may put some of the system objectives at risk. Page 3 of 17 Greater London Authority 4. ACKNOWLEDGEMENT 4.1. We would like to thank the following for their assistance over the course of the audit. Myfanwy Barrett Finance Manager, Budgets & Exchequer Services Steve Linnet Finance Manager, Systems & Technical Siu Lan Liu Finance Officer, Exchequer Services Steve Linnet Finance Manager, Systems & Technical Jim Lo Accountant, Budgets & Exchequer Services Shahid Majid Accountant, Contracts & Financial Accounts Julie Potter Senior Finance Admin Officer, Exchequer Services Page 4 of 17 Greater London Authority 5. DETAILED AUDIT FINDINGS General 5.1. The Sun Account Ledger comprises Ledger Accounting, Fixed Asset Accounting, Purchase Ordering and Sales Ordering Modules. The Ledger Accounting Module is a single ledger system whereby one chart of accounts is used for Nominal, Purchase and Sales, rather than separate modules. The system currently in use at the GLA is the older version and does not use the latest windows technology. As part of the review of the operations during the first months of the GLA, staff in Core Finance reviewed the system inherited from the London Research Centre and concluded that the system was not suitable for the needs of the GLA going forward in its configuration, nor was it sufficiently functional to meet the true needs of an operational GLA. As a result, staff in Core Finance plan to make changes to the system for the financial year 2001/02. This will include a new coding structure (Chart of Accounts) to better reflect the operations and ensure true compliance with the Best Value Accounting Code of Practice, revised security arrangements and new and enhanced working practices with the introduction of a revised Finance Manual and Accounting Manual. After the implementation of the revised Sun Configuration staff in Core Finance plan to embark upon a full functionality needs assessment and a bench marking exercise against the market place to determine, within the context of the GLA’s ICT Strategy, whether Sun will be replaced with a newer and more functional system from the market place. 5.2. Bearing in mind the above, many of our findings highlight issues officers and management are already aware of and intend to address once the full complement of staff is in post, which at present management informs us, is the main reason why some matters were outstanding at the time of the audit review. Policies, Procedures and Legislation relating to the management of the General Ledger system 5.3. The need for review and amendment to the chart of accounts and the finance manual were identified and reported in the Budgetary Control audit report and have consequently not been revisited in this report. The specific issues raised in the Budgetary Control audit related to the chart of accounts not fully reflecting the change in structure of the GLA. Officers have initiated processes that will align the chart of accounts more closely with the new structure and envisage the process to be completed by the start of the next financial year. General Ledger system and security 5.4. The system supporting the General Ledger is the Sun Account system, which was implemented by the transition team. An important control that would be expected of all key financial systems is a clear audit trail of all transactions recorded on the system, which can be interrogated to generate useful information. The trail should as a minimum detail the nature of transaction, the officer making the transaction and the time and date. To test the trail within the Sun Account system, a report was requested detailing all transactions posted by an officer on a particular day. The system is not able to provide such information. Page 5 of 17 Greater London Authority Most modern systems are able to generate such a report as standard. However, should the need arise for all transactions of an operator to be identified for one particular day, a number of reports can be generated from the current system for each module of the system and reviewed to identify the actions of the operator. A list of all journals posted by a particular operator on a particular day in the Ledger Accounting can be produced as a standard report. Changes to the masterfile data on a particular day can be produced but the report would then have to be trawled through manually to check all changes made by the operator. The Order Amendments Listing in Sales Ordering and Purchase Ordering can be produced by date of change by operator. These reports together would then provide an audit trail through the system. 5.5. As described above, an audit trail is in place for recording changes made to standing data on the system and this is maintained on the masterdata. The Finance Manager, Systems & Technical indicated that from time to time, the audit trail data was printed and the electronic version deleted from the system. The reason for this was that the increased size of the masterdata file resulted in the reduced performance of the system. The transactions posted on the system are not effected by the deletion of the audit trail, it is only the masterfile that changes detailing accounts, names and addresses and bank details for supplier payments. This process is satisfactory, but we have made a recommendation to archive the audit trail instead of printing the trail. This will ensure that should the authority ever need to review the trail, an electronic medium will allow the trail to be interrogated relatively easily, as opposed to reviewing the printed audit trail manually. 5.6. It is recommended that the masterdata on the Sun Account system is archived instead of being deleted. 5.7. In order to safeguard the integrity of the system, access privileges for users who no longer require access is removed by closing the user access account. The Finance Manager, Systems & Accounting indicated that the Sun Account system used by the GLA does not provide the facility to suspend or close user access accounts. Most modern systems allow a number of statuses for user accounts; open, temporarily suspend, closed and terminated. Consequently, when a user leaves the GLA, their password is changed by the by the Finance Manager, Systems and Technical to prevent access and then the user account is deleted. To ensure that a record is maintained of all deleted users, a record of all users is maintained in a lever arch file, which can be used to identify previous users of the system. 5.8. A review of user privileges highlighted five London Research Centre (LRC) user passwords that were still active. The Finance Manager, Systems & Technical explained that this was because the LRC accounts were still in the process of being finalised and closed. The Finance Manager, Systems and Technical plans to delete these users once the accounts are finalised. 5.9. The transition team created access levels to the Sun Account system when the system was developed. A review of the level of access provided to officers showed that the framework of controls within the accounting system is compromised since many of the key functions are not fully segregated, particularly over controls in the purchasing module of the system. At the time of the audit however, we are advised that the full complement of core finance staff is not in post and consequently, there is little that the Finance Manager, System & Technical can do little to fully segregate key functions. The manager plans to refine all access privileges when new officers are appointed shortly. Page 6 of 17 Greater London Authority 5.10. It is recommended that access levels within the Sun Account system should be reviewed to ensure that access is commensurate with level of authority / responsibility once additional staff is recruited. 5.11. The Finance Manager, Systems & Technical set up a control system to ensure that all Sun Account system changes were appropriately authorised. Our review showed that all change control forms had been approved and correctly maintained on file. The manager also maintains a change control index to summaries all changes made, which at the time of the review was also up to date, although the printed copy reflected changes made to 15/05/00. 5.12. It is recommended that an up to date change control index for the Sun Account system should be printed and retained to reflect all changes authorised at the time of processing. 5.13. The master password to the Sun Account system was held in the safe, as back up for the absence of the Finance Manager, Systems & Technical. This allows other nominated officers to act as supervisors in the absence of the Finance Manager. Although this is a good control, when reviewed, the password was found to be in an envelope which had been slit open and 'over closed' with a piece of sellotape which could allow unauthorised officers access to sensitive information. Control over the master password is necessary to minimise the risk to the integrity of the system. 5.14. It is recommended that the master password to the Sun Account system should be held under seal and when the seal is opened, procedures implemented once the master password has been used. Completeness and Accuracy of General Ledger records 5.15. A number Finance Officers have access to the maintenance of chart of accounts, which had been defined at the inception of the GLA by the transition team. The Finance Manager, Systems & Technical is aware of this and in the process of redefining access levels for all Sun Account users, to be implemented in April 2001 with the new chart of accounts. 5.16. We concur with the Finance Manager, Systems and Technical over the need for the introduction of new codes or amendments to the chart of account to be controlled, authorised and co-ordinated strictly and permitted only by an officer with delegated authority and recommend a prompt implementation of this control. Page 7 of 17 Greater London Authority Reliability and Integrity of transactions processed through the General Ledger 5.17. The SunAccount system is an integrated system encompassing the purchase order and accounts payable functions. Being an integrated system, the system is designed to ensure that the system remains in balance. Transactions processed in are module automatically updates relevant ledgers in the general ledger thereby providing assurance over the completeness and accuracy of the general ledger records. However, our review did highlight weaknesses in the Purchase Ordering module that may compromise the validity of transactions on the purchase order and accounts payable functions. A full audit review of the ordering, receipting and payment procedures is planned which will review all functions within the system but at this stage, our findings in relation to the impact on the general ledger are detailed below. 5.18. It is recommended that access to add, amend, delete data in the supplier / customer masterfile should be restricted to officer/s with delegated authority only. 5.19. The access levels set by the transition team permit all officers to access the supplier / customer masterfiles to add, amend, delete data although we understand that this is because the full complement of core finance staff is not in post. The lack of control compromises the reliability and integrity of the accounting system. The risk has been identified by the Finance Manager, Systems & Technical and a plan is in place for access levels of the accounting systems to be amended with the implementation of the chart of accounts and the recruitment of additional staff. New procedures are also being developed for the control of changes to the supplier masterfile. 5.20. The Finance Manager, Systems and Technical and the staff in the Budget and Exchequer Services are able to change details of supplier bank accounts. The ability of some officers to update the supplier master data and then process payments to these suppliers compromises key controls derived from the segregation of these functions. 5.21. It is recommended that changes to supplier bank details should be restricted to delegated authorised users only. Journal entries and manual adjustments within the General Ledger 5.22. Journals were seen to be documented on two journal formats, the GLA format and the LRC format. The use of a standard format for journals will ensure all journals are dealt with consistently. 5.23. It is recommended that the GLA journal format should be used for the documentation of all journals. 5.24. A journal register was being maintained by the Budgets and Exchequer team. The register provided a record of all journals input with cross reference to the unique Sun Account system reference. It was noted however that other services do not use the register maintained by the Budget and Exchequer team but maintain all posted journals in a journal file. 5.25. It is recommended that all journals should be recorded in the journal register. Page 8 of 17 Greater London Authority 5.26. The review also highlighted some inconsistencies between journal documentation recorded and retained by officers preparing journals. It was noted that the journal source and reference were not consistently recorded and control totals and the purpose of journal was not recorded on all journals reviewed. A SunAccount journal listing of transactions created on the system to verify and demonstrate accuracy of journal input was being used consistently by one officer. There was no documentary evidence of journal authorisation prior to input of journals as at present, the small size of the core finance means that the officer preparing the journal also posts the journal. It is envisaged that in future the Finance Managers will approve journals created by their team. The authorisation of manual journals is necessary to ensure the integrity of the accounting information. 5.27. It is recommended that manual journals should be documented fully and authorised prior to input. A Sun Account journal listing should be generated, used to verify accuracy of posting and retained with the manual journal. Cheque Control 5.28. A review of the physical controls over cheques revealed that cheques were not treated as controlled stationery, consequently no record was held of cheques ordered, received and issued. Without control of cheque stocks there is a risk that cheques may be lost or misplaced and responsible officers within the authority would not be aware cheques were missing. 5.29. It is recommended that cheques drawn either manually or printed should be treated as controlled stationery and a record of the cheques maintained. It is further recommended that two cheque registers should be established, one each for printed and manual cheques. All additions to and issues from the cheque stocks should be recorded. 5.30. It is recommended the cheques provided by the bank should be examined to ensure that they run consecutively and the cheque register should show the consecutive sequence of the cheques. 5.31. Printed cheques are stored in the print room in a locked cabinet and the bulk stock of cheques was stored in the finance office. The print room is not manned and is open to all persons with access to the GLA offices who require the use of the photocopier and /or networked printer. There is one key to the cabinet in the print room. The Senior Finance Officer indicated that it was necessary to have spare keys cut in case the key was lost. The filing cabinet in the finance office is a metal four drawer, single lock cabinet. The keys to both these storage cabinets were held by the Senior Finance Officer in a draw in a pedestal cabinet by her desk. The cabinet holding the keys is not kept locked during office hours. 5.32. A log was maintained of spoilt, voided and cancelled cheques shredded. The record showed the cheque number, value, and reason for shredding, date and signatures of the two officers involved in the shredding. Seven cheques were recorded but there was no indication of the officers involved in the shredding or the date they were shredded. Details of these are provided below. Page 9 of 17 Greater London Authority Cheque no. value reason signature date wrong amount returned by post none None 636 £65.80 714 £1000.00 sent to wrong address none None 791 £145.00 wrong payee none None 892 nil void none none 900 £3438.77 printer error none none 901 £91.00 printer error none none 864 £1,500.00 misplaced cheque none none Cheque no. 791 was held with the log at the time of the audit. The Senior Finance Admin Officer (Exchequer Services) indicated that she was not aware whether the other cheques had been shredded and by whom. 5.33. It is recommended officers be reminded of the need to evidence of the need to record cheque movement and date of movement. 5.34. The status of the seven cheques listed in the rational para 5.32 should be established and recorded. 5.35. Our view is that cancelled and spoilt cheques are prime documents and should be retained, although the cheques should be clearly marked as cancelled so that the cheques cannot be presented. 5.36. The stock of printed cheques currently in use at the GLA was ordered by the transition team. Each cheque has a precarboned duplicate. The Senior Finance Admin Officer (Exchequer Services) explained that these duplicates were not used and the printer used would not take duplicate sheets. The cheques were being redesigned at the time of the audit in order to reflect the new corporate logo and in future will not be carbonated. Unused precarbon duplicate cheques were held in the pedestal draw in the print room. The Senior Finance Admin Officer (Exchequer Services) indicated that they awaited shredding. 5.37. The safe holding the cheques is situated in the Finance Manager, Budgets & Exchequer's office. The safe is locked by means of a key and a combination lock. The combination to the safe was known by the Finance Manager Budgets & Exchequer, the Accountants and the Senior Finance Admin Officer (Exchequer Services). Two keys were available to the safe. One key was held by the Senior Finance Admin Officer (Exchequer Services) in her desk draw. At the time of the audit, the Finance Manager, Budgets & Exchequer was not aware who held the second key. It was later identified that the second key was given to the Accountant (Contracts & Financial Accounts) to cover a period of absence of the Finance Manager, but this had not been returned. 5.38. The safe can be accessed by the Senior Finance Admin Officer (Exchequer Services), Finance Officer (Exchequer Services), in the absence of the Senior Finance Admin Officer (Exchequer Services), Accountant (Budgets & Exchequer Services), Accountant (Contracts Page 10 of 17 Greater London Authority & Financial Accounts) and Finance Manager, Budgets & Exchequer. The Finance Manager, Budgets & Exchequer indicated that a 'safe access' policy had not been written. A clear safe policy provides a means of controlling access to the contents of the safe, although bearing in mind the current contents of the safe, the risk in this area is relatively small. Page 11 of 17 Greater London Authority 6. RECOMMENDATIONS 6.1. The recommendations from the report are presented here as a table to assist you with the implementation of change. 6.2. In order to assist management in using our reports, we categorise our recommendations according to their level of priority. Priority 1 - major issues for the attention of senior management Priority 2 - other recommendations for local management action Priority 3 - minor matters. Report Ref. Detailed Recommendation Priority 5.6 It is recommended that the masterdata on the Sun Account system is archived instead of being deleted. 2 5.10 It is recommended that access levels within the Sun Account system should be reviewed to ensure that access is commensurate with level of authority / 3 Agreed / Not Agreed Comments or Action Agreed if Different from Recommendation Person Responsible for Action Date to be Completed Finance Manager, Systems & Technical Agreed Currently being reviewed for re-implementation at commencement of next financial year. Page 12 of 17 Finance Manager, Systems & Technical 31/05/01 Greater London Authority Report Ref. Detailed Recommendation Priority Agreed / Not Agreed Comments or Action Agreed if Different from Recommendation Person Responsible for Action Date to be Completed responsibility once additional staff is recruited. 5.12 It is recommended that an up to date change control index for the Sun Account system should be printed and retained to reflect all changes authorised at the time of processing. 3 Agreed Will endeavour to print on Finance a regular basis. Manager, Systems & Technical Actioned 5.14 It is recommended that the master password to the Sun Account system should be held under seal and when the seal is opened, procedures implemented once the master password has been used. 2 Agreed The password has been resealed, signed over the closure. The officer who opened the sealed envelope and the reason for opening has been established. Procedure introduced that an officer opening the password to record the event in a logbook and report the instance to the Finance Manager, Systems & Actioned Page 13 of 17 Finance Manager, Systems & Technical Greater London Authority Report Ref. Detailed Recommendation Priority Agreed / Not Agreed Comments or Action Agreed if Different from Recommendation Person Responsible for Action Date to be Completed Technical. 5.16 We concur with the Finance Manager, Systems and Technical over the need for the introduction of new codes or amendments to the chart of account to be controlled, authorised and co-ordinated strictly and permitted only by an officer with delegated authority and recommend a prompt implementation of this control. 3 Agreed This will be implemented with the new chart of accounts in April. Finance Manager, Systems & Technical Actioned 5.18 It is recommended that access to add, amend, delete data in the supplier / customer masterfile should be restricted to officer/s with delegated authority only. 3 Agreed Will implement with chart of accounts. Finance Manager, Systems & Technical 31/05/2001 5.21 It is recommended that changes to supplier bank 2 Agreed Finance Manager, 31/05/2001 Page 14 of 17 Greater London Authority Report Ref. Detailed Recommendation Priority Agreed / Not Agreed Comments or Action Agreed if Different from Recommendation details should be restricted to delegated authorised users only. Person Responsible for Action Date to be Completed Systems & Technical 5.23 It is recommended that the GLA journal format should be used for the documentation of all journals. 3 Agreed 5.25 It is recommended that all journals should be recorded in the journal register. 3 Agreed 5.27 It is recommended that manual journals should be documented fully and authorised prior to input. A Sun Account journal listing should be generated, used to verify accuracy of posting and retained with the manual journal. 3 Agreed Finance Manager, Systems & Technical 31/05/2001 Will introduce journal reference convention to ensure consistency within the team. Finance Manager, Systems & Technical 31/05/2001 Authorisation will be at Finance Manager level. Finance Manager, Systems & Technical 31/05/2001 Page 15 of 17 Greater London Authority Report Ref. 5.29, 5.30, 5.33, & 5.34. Detailed Recommendation The following recommendation all relate to accounting for and use of cheques: that cheques drawn either manually or printed should be treated as controlled stationery and a record of the cheques maintained; that two cheque registers should be established, one each for printed and manual cheques. All additions to and issues from the cheque stocks should be recorded; that the cheques provided by the bank should be examined to ensure that they Priority 2 Agreed / Not Agreed Comments or Action Agreed if Different from Recommendation Agreed Page 16 of 17 Person Responsible for Action Finance Manager, Systems & Technical Date to be Completed 30/6/01 Greater London Authority Report Ref. Detailed Recommendation Priority Agreed / Not Agreed Comments or Action Agreed if Different from Recommendation run consecutively and the cheque register should show the consecutive sequence of the cheques; that officers be reminded of the need to record cheque movement and date of movement; and that the status of the seven cheques listed in the rational para 5.32 should be established and recorded. Page 17 of 17 Person Responsible for Action Date to be Completed