School District Business Operations

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School District Business Operations
Efficiencies and Internal Controls
Laura E. Cowburn, PRSBA Asst. to Supt. for
Business Services Columbia Borough School
District
Matthew J. Malinowski Business Manager Susquehanna
Township School District
PASBO Conference 3/15/07
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Introduction

• Internal controls
• A process effected by the entitys board,
  management, and other personnel, designed to
  provide reasonable assurance regarding the
  achievement of objective in effectiveness and
  efficiency of operations, reliability of
  financial reporting, and compliance with
  applicable laws and regulations.

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Internal Control Myths an Facts

• MYTHS
• Internal control starts with a strong set of
  policies and procedures
• Internal control Thats why we have
  external/internal auditors.
• Internal control is a finance thing
• Internal controls are essentially negative, like
  a list of thou-shalt-nots.
• Internal controls take time away from our core
  activities serving students.

• FACTS
• Internal control starts with a strong control
  environment
• While external/internal auditors play a key role
  in the system of control, management is the
  primary owner of internal control
• Internal control is integral to every aspect of
  business
• Internal control makes the right things happen
  the first time
• Internal controls should be built into, not
  onto business processes.

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Segregation of Duties

• Segregation of duties means separating the
  recordkeeping function from the operational
  responsibility of that activity and from those
  who exercise physical control over the records.
• Categories of duties
• Authorization
• Custody
• Record keeping
• Reconciliation

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State Audit

• Internal Control Review (sample questions)
• Is cash deposited in tact and on a timely basis?
• Are checks restrictively endorsed immediately
  upon receipt?
• Are changes in employment, salaries, wage rates,
  and payroll deductions authorized by the board
  and the dollar amounts listed in the minutes?
• Are employee files maintained by a person
  independent of payroll processing?
• Is the payroll register approved by authorized
  personnel prior to final processing?
• Are invoices checked in the business office
  against purchase orders and evidence of receipt
  noted prior to payment?
• Are the purchasing and receiving functions
  separate?

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Assessment Criteria

• A Balanced Assessment should take into account
  the following
• Significance- The degree of harm that could
  result
• Likelihood of Occurrence- What is the probability
  the a given risk will materialize?
• Inherent Risk Where will there always be risk?

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Example of Maintaining the Three Separate
Functions

• Purchasing person issues a purchase order based
  on a requisition completed beforehand.
• Person who ordered the item verifies that the
  goods are received (Sign off on PO copy)
• Separate Person in the business office issues or
  authorizes payment.

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Identifying Potential Risks

• Assertions to ensure that all significant risks
  are identified in a purchasing cycle
• Has a purchase been recorded for goods not yet
  received? Has a vendor been paid twice?
• Have purchases been made, but not recorded?
• Were all purchases properly authorized?
• Were charges to appropriate accounts?

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Compensating Controls

• Control related policies to compensate for risks.
  
• Examples
• Purchases orders must be approved by department
  head or other designated official.
• Policy to only pay off of an original invoice
• Reconcile encumbrances to open purchase orders

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What are you reporting to your board?

• Treasurers Report on all Cash Balances
• Special Fund Reports (Food Service, Capital,
  Special Revenue, Activity)
• YTD Budget Report
• Budget Transfers
• All Tax Exonerations
• Bill List (Include monthly, emergency, wires)

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Common Types of Public Sector Fraud

• Payroll Fraud
• Benefit Fraud
• Double Payments
• Charge Off Fraud
• Disposal Fraud
• Travel Claim Fraud

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Examples of Internal Controls

• Budget preparation, monitoring
• Purchasing/Payroll functions
• Tax Collection/Reporting
• Investments
• Records

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Other Examples

• Internal Control Components
• Assessment Factors
• Risk Evaluation
• Occupational Fraud and Abuse
• Quiz Whats Your Fraud IQ?

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Additional Resources/Information

• U.S. Government Accountability Office (GOA) New
  Edition Yellow Book http//www.gao.gov/govaud/yb
  k01.htm download. See pages 81-87.
• Roslyn School District, New York -
• http//www.osc.state.ny.us/localgov/audits/2006/sc
  hools/roslynfoll.pdf (a real life scandal)
• AICPA -https//antifraud.aicpa.org/Resources/CPAS
  ervicesforFraudPreventionandDetection.htm