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The Regional Office of Education #17 did not post prior year audit adjusting entries.
The Regional Office of Education #17 incurred finance charges and late payment fees on credit card accounts. The Regional Office also incurred a penalty for late filing of a quarterly payroll return.
The Regional Office of Education #17 is unable to determine the true operational cost of each grant if a portion of the expenses attributable to the grant is transferred out of the grant fund and into the general operation account.
The Regional Office of Education #17 did not always have documentation to support expenditures or cancel invoices after payment was made.
The Regional Office of Education #17 does not have proper segregation of duties for accounting functions pertaining to the Livingston Alternative School. |
FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
PRIOR YEAR AUDIT ADJUSTMENTS NOT POSTED
The Regional Office of Education #17 maintains its financial records on a cash basis of accounting. Prior year adjusting entries, primarily for the conversion of cash basis financial statements to the modified accrual basis of accounting had not been posted to the general ledger. These prior year adjusting entries were recorded during this audit.
Generally Accepted Accounting Principles require financial statements to be presented on the modified accrual basis of accounting (Finding 03-1, page 12). This finding is repeated from our 2002 audit.
The Regional Office of Education #17 accepted the recommendation and will secure and post all audit adjustments for the current year’s audit, which includes prior year adjustments. (For previous Regional Office response, see Digest Footnote #1.)
FINANCE CHARGES AND LATE FEES
The Regional Office of Education #17 incurred finance charges and late payment fees on credit card accounts. The Regional Office also incurred a penalty for late filing of a quarterly payroll return. The Regional Office of Education #17 has 3 active credit cards. During testing the following finance charges, late payment fees and penalties were noted:
- Late fee on a MasterCard account in the amount of $20 on the January 2003 statement. On the same statement the Regional Office incurred a finance charge of $10.57 for carrying an average daily balance of $1,390.25.
- A finance charge of $52.70 for carrying an average daily balance of $6,574.21 on the July 2002 MasterCard statement.
- A late filing penalty of $692.08 was assessed in connection with the untimely filing for the payroll return Form 941 for the quarter ending December 2002.
Internal controls should exist to ensure timely payment of invoices and regulatory filings (Finding 03-3, page 14).
The Regional Office of Education #17 accepted the auditor’s recommendation to implement new policies and procedures to ensure that balances are not carried on charge accounts and that all charge account payments are paid in a timely manner. The Superintendent will also closely supervise the filing of payroll tax returns in the future.
ACCOUNTING FOR GRANT EXPENDITURES IN EXCESS OF GRANT REVENUES
Some of the Regional Office of Education #17’s grants have more than one funding source. Rather than transferring other sources of revenue into the grant fund to pay the grant expenses, the Regional Office of Education #17 transferred the expenses out of the grant fund and into the general operating fund. The Regional Office of Education #17 is unable to determine the true operational cost of each grant if a portion of the expenses attributable to the grant is transferred out of the grant fund and into the general operation account (Finding 03-2, page 13). This finding is repeated from our 2002 audit.
The Regional Office of Education #17 accepted the recommendation to begin tracking funds by program expenditures rather than by revenue source. (For previous Regional Office response, see Digest Footnote #2.)
LACK OF SUPPORTING DOCUMENTATION AND CANCELLATION OF ORIGINAL INVOICE AFTER PAYMENT
The Regional Office of Education #17 did not always have documentation to support expenditures or cancel invoices after payment was made. The following was noted during audit testing:
- In 23 of 179 purchase orders sampled, documentation supporting the expenditure was missing.
- In 92 of 179 disbursements sampled, the invoice was not canceled after payment.
- In 8 of 179 disbursements sampled, payment was made based on a copy of an invoice and not an original invoice.
The Regional Superintendent of Schools is responsible for establishing and maintaining an internal control system to prevent errors and irregularities. Internal controls over purchasing require receipts and/or invoices to be attached to a purchase order prior to payment (Findings 03-4 and 03-5, pages 15 and 16).
The Regional Office of Education #17 accepted the recommendation to implement internal controls that ensure supporting receipts are attached to every purchase order and ensure that expenditures are paid based upon the original invoice amount with proper cancellation of the invoice.
INADEQUATE SEGREGATION OF DUTIES
The Regional Office of Education #17 does not have proper segregation of duties for accounting functions pertaining to the Livingston Alternative School. The program director reviews and approves bills and payroll for payment. The bookkeeper prepares checks, stamps the checks with the Regional Superintendent’s signature, mails the payments, maintains the general ledger, and reconciles the bank statements.
A proper segregation of duties is required over all programs in the accounting function to reduce the risk that errors or fraud in the financial statements won’t be detected by employees in the normal course of performing their assigned functions (Finding 03-7, page 18).
The Regional Office of Education #17 accepted the recommendation to require the purchasing and disbursement procedures be the same for all programs and funds.
OTHER FINDING
The remaining finding was less significant and is reportedly being given attention by the Regional Office of Education #17. We will review progress toward the implementation of our recommendations during the next audit.
AUDITORS’ OPINION
Our auditors state the Regional Office of Education #17’s financial statements as of June 30, 2003 are fairly presented in all material respects.
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WILLIAM G. HOLLAND, Auditor General
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SPECIAL ASSISTANT AUDITORS
Our special assistant auditors were Kemper CPA Group, LLP.
DIGEST FOOTNOTES
#1: PRIOR YEAR AUDIT ADJUSTMENTS NOT POSTED – Previous Regional Office Response
In its prior response in 2002, the Regional Office accepted the finding and stated they would secure and post all audit adjustments for the current year’s audit.
#2: ACCOUNTING FOR GRANT EXPENDITURES IN EXCESS OF GRANT REVENUES – Previous Regional Office Response
In its prior response in 2002, the Regional Office accepted the finding and agreed to implement the recommendation in the current fiscal year.
Complete Regional Office responses to prior findings are available upon request from the Auditor General’s Office.
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