The Regional Office of Education #35 did not have adequate controls over fixed assets. For example, there were no formal policies or procedures to monitor and control equipment and other fixed assets. An annual physical inventory of fixed assets was not performed. Proper forms were not used to document disposal or retirement of computer-related equipment. Transfers of equipment from one location to another were not formally documented. The balances in the General Fixed Asset Account Group were not recorded in the general ledger. Finally, the detailed fixed asset listings were not reconciled with the balances reported in the General Fixed Asset Account Group.

The ROE Accounting Manual requires each ROE to maintain detailed fixed asset records for both accounting purposes as well as insurance purposes, for fixed assets costing $500 or more. In addition, sound internal controls require that policies and procedures on fixed assets cover the acquisition and tagging, recording and reporting, depreciation (if applicable), transfers and dispositions, and physical inventory, and that they be formally documented and consistently applied (Finding 03-1, pages 12-14).

The Regional Office of Education #35 accepted the recommendation, stating that while they did not have formal written procedures, they had initiated informal property control procedures. The Regional Office will develop a formal fixed asset policies and procedures manual to monitor property acquisitions, transfers and disposals and provide for accurate reporting of fixed asset balances. The ROE stated they will conduct an annual physical inventory of fixed assets, reconcile the detailed inventory listing to the balances in the General Fixed Asset Account Group, and dispose of all reconciling items in a timely manner. The Regional Office will also maintain spreadsheets to support fixed asset balances in the financial statements.

The Regional Office of Education #35’s bookkeeper performs the disbursement functions of invoice processing, check preparation, custodian of blank checks, recording and bank reconciliations. The bookkeeper also records cash receipts. Four program employees perform the functions of receiving cash and making deposits.

Sound internal controls require adequate segregation of duties to ensure that effective checks and balances are in place to minimize the risk of loss. (Finding 03-3, page 16)

The Regional Office of Education #35 accepted the auditor’s recommendation and will assign critical functions to different individuals as best as they can. If necessary, the Regional Office will strengthen supervisory controls over cash receipts.

The Regional Office of Education #35 does not maintain a logbook of checks received. Each program employee, as well as the bookkeepers, receive cash and make deposits. In 22 out of the 60 (37%) receipts tested, which totaled $15,346.75, the receipts were deposited from 29 to 68 days after the date of the check.

Failure to deposit receipts as they are received increases the risk of loss. Absence of a control log for receipts or indication of the date of receipt on the supporting documents does not provide a basis for reviewing the timeliness of deposits, considering the receipt functions are performed by numerous individuals. (Finding 03-5, page 18)

The Regional Office of Education #35 accepted the recommendation to develop a process to ensure that all checks received are recorded in a control log upon receipt and deposited in a timely manner.

Two bank accounts were not reconciled, as of June 30, 2003. Discrepancies included the June 2002 and October 2002 payroll not being posted to the books, as well as payroll being double booked. Also, outstanding fund transfers were not properly recorded.

Sound internal controls require bank reconciliations to be performed accurately and promptly, with reconciling items being investigated immediately and adjustments made to the general ledger. Inaccurate bank reconciliations render this internal control procedure ineffective to detect irregularities and inaccuracies in the financial records. (Finding 03-4, page 17)

The Regional Office of Education #35 concurred with the recommendation, responding that it will ensure bank reconciliations are prepared accurately and differences investigated promptly.

The remaining findings are less significant. We will review progress toward the implementation of our recommendations during the next audit.

Our auditors state the Regional Office of Education #35’s financial statements as of June 30, 2003 are fairly presented in all material respects.

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WILLIAM G. HOLLAND, Auditor General

WGH:JRB

Our special assistant auditors were E.C. Ortiz & Co., LLP.