Overview
From a sample of 60 cash disbursements, 4 (totaling $287) had check requests for payments that were processed by ServiceNet during our audit period without being approved by the agency’s controller or chief financial officer before payment. Further, the records for 2 additional disbursements (totaling $52,869) could not be located. Unless all expenses are properly reviewed and approved and appropriate documentation is maintained, there is a higher-than-acceptable risk of ServiceNet processing payments for nonreimbursable expenses, such as those discussed in Finding 1.
Authoritative Guidance
ServiceNet’s Cash Disbursement Memo details the following procedures:
[Accounts Payable, or A/P] looks for appropriate documentation/backup for the expenditure; they look for authorization (a site manager or higher’s approval); they math check the invoice; and they code the document for [general ledger] inclusion. [Coding is determining the proper general ledger account code in order to properly report the expenditure.] The check request then is put into a “blue book” where it goes to either the controller (generally) or the [chief financial officer, or CFO] for proper authorization (this person reviews everything the A/P clerks looked at, plus decides if the coding and timing [the accounting period the expense is charged to] is correct). . . . Once the invoices and check request forms are reviewed by the Controller or CFO and approved, they are entered into . . . the accounting system by the A/P clerks.
In addition, 808 CMR 1.04(1) requires contractors to maintain documentation supporting costs incurred in state programs:
The Contractor and its Subcontractors shall keep on file all data necessary to satisfy applicable reporting requirements of the Commonwealth . . . and . . . supporting documents . . . which reflect . . . costs incurred in or allocated to any Program of services rendered under the Contract.
Reasons for Issue
ServiceNet did not have internal controls in place to ensure that check requests were approved before they were entered in the accounting system and paid. According to ServiceNet’s management, the two files that could not be located for review may have been misplaced during the consolidation of its administration departments into a new building in mid-2018 or may have been misfiled.
Recommendations
- ServiceNet should establish internal controls to ensure that check requests are approved, verifying that the expenses are reimbursable and properly reported.
- ServiceNet should ensure that supporting documentation is kept on file for all expenses.
Auditee’s Response
The State Auditor's findings provide for a fresh perspective from which to view our monitoring practices. While we believe our internal controls are strong and consistently followed and monitored, there is always room for improvement. One way we intend to address this is by providing an agency-wide training to senior managers to disseminate what proper documentation is and how to improve the quality of this information.
As noted in the report, we moved our business office to a new location just at the end of FY 2018. We believe that our inability to locate some of the requested documentation was due to misplaced files during the move. We hope that the Commonwealth, through policy changes in either the State Auditor's Office or the Operational Services Division, will consider helping subcontractors comply with the document retention requirement by allowing for electronic document storage rather than requiring paper supporting documentation. Paper storage involves many hours of man power, both in the original filing and the subsequent retrieval of the supporting documentation. In addition, paper storage is cumbersome and expensive, as the subcontractor must find adequate physical space in which to house it. This is especially burdensome for larger entities.
Auditor’s Reply
Based on its response, ServiceNet is taking measures to address this issue. We again urge the agency to implement our recommendations to improve its controls in this area.
| Date published: | November 6, 2019 |
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