An Audit Report on Financial Systems at the Office of the Secretary of State
November 2005
Report Number 06-013
Overall Conclusion
Significant weaknesses in the Office of the Secretary of State's (Office) controls over its revenue processes limit its ability to safeguard revenue that it collects from citizens and businesses for providing various services. (The Office reported collecting $73 million in appropriation year 2005.) Specifically, the Office does not immediately log cash and checks upon receipt, its revenue process is decentralized, and its staff's revenue processing duties are not properly segregated. As a result, the Office has an inadequate system of internal controls. A good system of controls is necessary to ensure that assets that are particularly vulnerable to loss and theft are physically secured and that access to them is limited. Furthermore, in about 38 percent of cases that auditors tested, the Office's Corporations Division did not deposit revenue into the State Treasury within three business days of receipt as required by Texas Government Code, Section 404.094. The Office's internal auditor's audit of revenue processing in October 2005, as well as an April 1999 State Auditor's Office audit, reported similar findings.
The financial system the Office has used for recording and tracking revenue since 2001, the Business Entity Secured Transactions (BEST) system, lacks some of the controls necessary to ensure the integrity of financial data and processes. As a result, Office staff can alter revenue records, and the Office is unable to effectively monitor the revenue collection process. The Office also has not programmed BEST to identify duplicate and potentially fraudulent customer accounts or to close out financial records at the end of an accounting period. These types of weaknesses create process inefficiencies and also make it difficult for Office staff to perform reconciliations and maximize revenue collection.
The Office has well-developed policies and procedures for processing and recording expenditures, and expenditures appear to be made for valid purposes. Although the Office has good procedures in place, it does not always follow them, which increases the opportunity for unauthorized expenditures to be made.
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