Arkport Central School District

Internal Controls Over Selected Financial Operations
EXECUTIVE SUMMARY

The Arkport Central School District (District) is governed by the Board of Education (Board) which comprises five elected members. The Board is responsible for the general management and control of the District’s financial and educational affairs. The Superintendent of Schools (Superintendent) is the chief executive officer of the District and is responsible, along with other administrative staff, for the day-to-day management of the District under the direction of the Board.

The District’s annual payroll expenditures were about $3.7 million. The payroll clerk processes payroll for an average of 100 employees every other week. The Treasurer reconciles the payroll account and the Superintendent certifies the payroll. The information technology (IT) department comprises a technology coordinator and one technician. The Western New York Regional Information Center (WNYRIC), that provided the District with its financial software application, administers the financial application.

Scope and Objective

The objective of our audit was to assess the District’s internal controls over its payroll function and information technology for the period July 1, 2005 through June 7, 2007. Our audit addressed the following related questions:

• Are internal controls over the segregation of duties in payroll appropriately designed and operating effectively to adequately safeguard District assets?
• Are internal controls over the information technology systems appropriately designed to adequately safeguard District assets?

Audit Results

Payroll duties are not properly segregated and compensating controls are inadequate. The payroll clerk’s responsibilities include adding, deleting and modifying employee information; adding and changing pay rates and salaries; entering hours worked; printing payroll checks containing the Treasurer’s signature; and distributing paychecks. As a result, the payroll function is at a heightened risk for fraud, abuse, or professional misconduct, and for payroll errors and irregularities to occur and go undetected.

The Board has not effectively addressed the safeguarding of computer data. The Board has not adopted comprehensive policies and procedures to address the use of passwords for the financial software. In addition, the current financial software used by the District does not provide basic tools such as exception reports and change reports. Further, the Board has not established formal policies and procedures to address disastrous events that may result in the loss of critical functions and/or data. The lack of comprehensive policies and procedures related to information technology puts the District’s data, network and applications at risk for damage or loss.

Comments of District Officials

The results of our audit and recommendations have been discussed with District officials and their comments, which appear in Appendix A, have been considered in preparing this report. District officials generally agreed with our recommendations and indicated they planned to initiate corrective action.