Thursday night the school board considered an “Internal Controls Report” prepared by Talbert.
Perhaps it should have been titled, “Lack of Internal Controls Report.”
The board packet for Thursday night meeting contains over 600 pages of information. If any of the board members reads it all, I’d award him or her a gold star.
But they ought to read this Talbert report. Start on page 10 of the Finance Report in the board packet for December 13th.
It starts out defining internal controls as a process designed to provide reasonable assurance regarding the achievement of objectives in the following three broad categories:
- Effectiveness and efficiency of operations
- Reliability of financial reporting
- Compliance with applicable laws and regulations
To reach those objectives the internal control framework requires these five components:
- Control Environment – “Tone at the top” or “corporate culture” of the organization influencing the control consciousness of the employees.
- Risk Assessment – Identification and assessment of the internal and external risks that present obstacles to achieving the organization’s objectives.
- Control Activities – Policies and procedures in place to deter, detect, or mitigate various forms of risks identified by management.
- Information and Communication – Accurate, timely, and appropriate communication is made available on a timely basis to those who need it. Clean and concise communication from the top down that control responsibilities must be taken serious.
- Monitoring – Ongoing monitoring and evaluation of policies and processes.
So, we’ve both had our management lesson for the day.
What about where District 158 fits into this picture?
Talbert looked at business processes in the Fiscal department with emphasis on high cash areas, e.g., food service, school secretaries or those responsible for handling cash at schools, registration, etc.
Next comes the Executive Summary.
With regard to accounts receivable and cash, purchasing, purchase cards and credit cards, accounts payable and cash disbursements, payroll, accounting and budgeting, and general controls,
”There are significant deficiencies in business processes that cross all categories reviewed, poorly designed processes that are manual, lack of purchasing expertise, inadequate financial software system, lack of consistently followed reviews and processes, lack of technical and operational training, lack of standardized purchasing and accounts payable process.”
What are some specific problems?
Accounts Receivable and Cash Cycle:
For impact and transition fees [from developers]…there is no established billing cycle…no established system for monitoring receipts, [etc.]
Deposits received in the Fiscal office are not recounted and posted to SDS upon receipt…[nor] reconciled and deposited on a daily basis…
Funds waiting to be deposited are not secured in the safe but in a locking bank bag in the file cabinet in the Fiscal department.
“Overall controls and business processes surrounding the purchasing process are inconsistent, weak, and lend it self to major deficiencies…below are some of the more significant deficiencies…:
There is no professional purchasing agent… All bids, requests for proposals and request for qualifications are handled by the individual departments and the process is not standardized.
There is no requirement for departments to utilize purchase orders…As a result there are very large dollar amounts request to be paid on a check request… [when] the goods and services have already been received… Develop a threshold for requiring all purchases over an established dollar amount be placed on a purchase order… [and be approved by the] B[oard] o[f] E[ducation]…
…no accounts payable processing should be tasks within the purchasing area.
There is no approved purchaser list with established purchasing limits…
Purchasing Card and Credit Cards:
Since implementation of the purchase card, there has not been an evaluation of the other credit cards held by the District…
…There is not formal process to determine credit limits for individual or department cards. There appears to be a lack of accountability and/or ownership for departmental purchase cards…
Accounts Payable and Cash Disbursement Cycle:
Overall, controls and business processes surrounding the accounts payable and cash disbursement process are inconsistent, weak, and lend it self to major deficiencies…
Purchase orders and invoices are not always compared resulting in invoices being vouchered in the system separate from the purchase order and not relieving the encumbrances…quarterly… all open purchase orders [should be reviewd] and close[d] when necessary.
Invoices are being vouchered and paid from copies. Additionally, instances have been noted where a check request has been received in Fiscal with no sufficient backup documentation…can result in duplicate payments…
Invoices are being sent from vendors to the ordering departments. As a result, invoices are not process in a timely manner…
…Invoices that are “problem” invoices are not followed up on in a timely manner due to lack of manpower…There is one accounts payable clerk who is the sole employee that completes the process from vouchering to disbursements. When this employee goes on vacation, accounts payable activity stops until she returns. This poses a separation of duties issue…
There is no requirements or guidelines for departments to utilize check requests…There needs to be established criteria for purchasing goods or services using a purchase card vs. purchase order vs. check request.
…an area of improvement needs to be deductions and reconciliations to the general ledger. Additionally, all EFT payments and reports needs to be reviewed and approved by the Comptroller prior to processing.
The current software system does not meet the needs of the District…does not support accrual based accounting…standard reporting used in the accounting industry is not available… [With] the current software system… there are no audit trails, the check printing process allows staff to print and reprint checks with no controls, and staff are often in the background of the database to do standard data uploads…[which] allows for corruption of data and data formatting…
…There needs to be a vocal embrace and awareness of internal controls from the top down….
There is no policy to address unreserved fund balance and emergency contingency…from 5-15% [of] revenue stream…
There is…too much access to Fiscal staff [to SDS] and no separation of duties…
Next there are pages and pages of objectives, potential risks and evaluations/conclusions. Here are some of the more shocking ones:
Accruals for accounts receivable had not been calculated or recorded in the G[eneral] L[edger] prior to September 2007.
There is no regular billing cycle for impact fees for …municipalities…
…in the school office…there is no separation of duties as in most cases the same person collects the monies and prepares the deposit.
Cash receipts are not entered (receipted) upon receiving the funds…
Fiscal deposits are secured in a locked bank bag in a locked file cabinet.
There is no formal and/or uniform purchasing process. Process is decentralized…
With regard to use of sole or single source vendors, “there is no formal and/or uniform purchasing process.”
There is no “approved vendor list.”
Large dollar purchases are made with no p[urchase] o[rder] in place.
For department credit cards, are more occurrences where the buildings don’t know who charge the items and there are no receipts remitted.
Employees are not being consistently required to sign out the department credit card.
…process payments from faxed copies of invoices…nothing…that prevents duplicate payments to vendors.
Thee have been instances of duplicate payments.
There is still an environment of coding expenses to the G[eneral] L[edger] account in which there is budget money instead of the correct GL account.
Backup received for reimbursements. Have noted that there have been credit card receipts submitted but the receipt do not detail what was purchased at a restaurant. Noted management submit reimbursements that do not have their supervisors approval.
Check stock and signature plates are secured in the Fiscal department but all fiscal staff have access to the information.
…no separation of duties [between check preparation, check signing and mailing].
Not certain all petty cash funds are accounted for in the ledger.
Deduction codes on employees are not always correct…not been done on a consistent basis.