Report LA96-13

Results in Brief

The Office of Secretary of State processed about 300,000 transactions and collected more than $20 million in fees during fiscal year 1995. These numbers are expected to grow as more businesses incorporate in Nevada. Therefore, strong internal controls over the collection of fees are critical. However, the fee collection process does not properly safeguard fees against loss or misuse. The Agency has a longstanding practice of depositing fees only after staff process the accompanying documents. As a result, fees are not deposited timely. During most of the delay, fees are not secured or accounted for, and are therefore vulnerable to loss or theft. In addition, the Agency lacks a standardized process and sufficient reconciliations to ensure fees are deposited. Management is seeking to improve internal controls by revising the fee collection process.

Principal Findings

1. Fees received at the Carson City office were not deposited for an average of 12 days: delays of 3 weeks or more were not uncommon. Furthermore, the Agency does not account for or secure money during most of the time it remains undeposited. We estimate $560,000 was not safeguarded each day. Delays in depositing fees increase the risk of loss or misuse of state funds and result in lost interest income to the State. (page 8)

2. The Agency's procedures for collecting and depositing money need improvement to ensure fees are deposited for all documents filed. For instance, we noted the following weaknesses: (1) many filed documents did not have evidence they were paid for, (2) cash receipt forms were not readily available for inspection, (3) adjustments to bank deposits were not always documented, and (4) cash receipt forms were not properly accounted for. (page 9)

3. Reconciliations of trust accounts and daily deposits were poorly documented. These reconciliations are critical since key duties are not separated among individuals and large amounts of money are involved. To reduce the risk of errors or abuse, periodic reconciliations need to be performed. (page 10)