The North Carolina Department of Insurance failed to deposit and process checks totaling more than $300,000 in accordance with state guidelines, the State Auditor’s Office reports.
Thirty-two batches of checks, received by the department’s Agent Services Division, were not processed daily, as required by state law, during the Feb. 11-March 6 period analyzed by the auditor’s office. The largest batch contained $269,415. The checks were stored in an unlocked file cabinet, had not been restrictively endorsed, and were not included on a mail receipt log, the auditor’s office said in its report released Oct. 2.
Failure to properly process the checks exposed the division to misappropriation of funds, the report said. In addition, the state lost the opportunity to earn interest on the funds had they been deposited in a timely manner.
Other discrepancies found by the auditor’s office included:
• Inadequate control of cash receipts. The Manufactured Housing and Engineering Divisions did not send copies of prenumbered receipts along with the deposits of cash receipts to the Controller’s Office as required by the Department’s Cash Management Plan, preventing independent verification of amounts received.
• The Engineering Division did not use prenumbered receipts for the sale of building codebooks. Instead, the division used invoices/order forms, which were not prenumbered.
• The Controller’s Office did not maintain a control log for the unused receipt books on hand. The books were kept in an unlocked file cabinet.
Not using prenumbered receipts increases the risk of theft and misuse of cash, the report said.
The audit also faulted the insurance department for not reconciling surety deposits reported by the surety agent to documentation maintained by the department. The total February surety deposit balances for insurance companies and bail bondsmen totaled $540.7 million and $12.4 million, respectively. Unless a reconciliation is performed, the insurance department cannot be assured that the surety agent’s balances are correct, the audit said.
The Auditor’s Office recommended that the Agent Services Division deposit cash receipts daily and intact in accordance with the Daily Deposit Act. The division should maintain a check log, place restrictive endorsements on checks as soon as possible and store the checks in a secure environment, the report said.
As a temporary solution to the auditor’s findings, the division hired temporary accounting employees to process the checks, although the auditor’s report recommended permanent workers be hired when adequate funding becomes available.
The Manufactured Housing and Engineering Divisions, the Engineering Division, and the Controller’s Office also instituted corrective measures to satisfy the auditor’s findings.
Richard Wagner is the editor of Carolina Journal.