Clinton Central School District

Financial Condition and Controls Over Selected Financial Activities - EXECUTIVE SUMMARY

The Clinton Central School District (District) is governed by the Board of Education (Board) which comprises seven 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.

Scope and Objectives

The objectives of our audit were to evaluate the District’s financial condition and to assess internal controls over cash disbursements, claims processing, capital assets and computer access for the period July 1, 2005 through November 30, 2006. In addition, we analyzed financial information from the fiscal years ending 2001 through 2005. Our audit addressed the following related questions:

• Has the Board been provided with the financial information it needs to adequately oversee financial operations?
• Did the Board adopt a realistic budget for the 2005-06 fiscal year?
• Are internal controls over cash disbursements appropriately designed and operating effectively to adequately safeguard district assets?
• Are internal controls over claims processing appropriately designed and operating effectively to adequately safeguard District assets?
• Are internal controls over capital assets appropriately designed and operating effectively to adequately safeguard District capital assets?
• Did District management assign users access to only those computerized accounting functions necessary to perform their respective jobs?

Audit Results

The District has experienced six consecutive years of operating deficits that reduced the unreserved fund balance in its general fund from $960,226 at June 30, 2000 to a reported fund balance deficit of $696,975 at June 30, 2006. However, our analysis of District finances determined that this reported deficit was significantly understated. The failure to recognize and report certain accruable liabilities at June 30, 2006 and the inclusion in general fund assets of interfund receivables that will not be available increases the deficit to approximately $1.8 million.

The deficit resulted in part from the fact that the Board has not been provided with the financial information it needs to adequately oversee financial operations. Although the Director of Business prepared budgetary status reports for the Board to use in monitoring and controlling expenditures, the reports were not adequate. We also found that expenditures were underestimated in the 2005-06 budget, and that the Board did not effectively monitor the budget during the year.

District officials have not effectively addressed the Treasurer’s duties and responsibilities to ensure that they were properly segregated, nor have they established sufficient compensating controls. Furthermore, the Treasurer does not directly supervise the application of her facsimile signature on payroll checks by the payroll clerk. When the Treasurer is absent, her facsimile signature is also applied on checks by the accounts payable clerk. We also found that the computer software used to print District checks allows for the production of duplicate signed checks that are not recorded in the District’s accounting records. These weaknesses could lead to inappropriate transactions being initiated and paid without detection by District officials. We tested 200 cash disbursements and did not identify any irregularities.

We also found that the Treasurer paid claims without viewing documentation from the claims auditor showing that they have been audited and approved for payment. No one besides the accounts payable clerk verifies that the checks processed relate to audited and approved claims. Nine claims totaling $16,507 paid by the Treasurer did not contain evidence of the claims auditor’s review and approval. As a result, there is an increased risk that payments may be made for improper purposes.

The Board and District management did not establish policies and procedures that clearly assign responsibility for inventory control, and describe how officials should effectively safeguard the assets and maintain accurate records. District officials were unable to locate four laptop computers totaling $8,660. We found that there is no independent verification by another District employee of work of the Director of Business, who orders, receives and oversees the distribution of much of the electronic equipment. The District’s failure to establish policies and procedures for inventory control resulted in the loss of District assets.

Finally, we found the District’s computer access controls were deficient. The Director of Business is the system administrator for the District’s computerized accounting system. This enables the Director of Business to create a new user, update the user’s access rights, and perform other administrative functions including the ability to create journal entries to adjust District records. The Director of Business is also the purchasing agent for the District, and has the authority to conduct certain Treasurer’s duties such as the ability to prepare and execute wire transfers. As such, the Director of Business can initiate and conceal inappropriate transactions. Our tests of payments made during the audit period disclosed no improper payments.

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.

Scope and Methodology

We examined the District’s financial condition and internal controls over cash disbursements for the period July 1, 2005 through November 30, 2006. In addition, we analyzed financial information from the fiscal years ending 2001 through 2005.

We conducted our audit in accordance with generally accepted government auditing standards (GAGAS). More information on such standards and the methodology used in performing this audit are included in Appendix B of this report.

Comments of District Officials and Corrective Action

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.

The Board has the responsibility to initiate corrective action. Pursuant to Section 35 of the General Municipal Law, Section 2116-a (3)(c) of the Education Law and Section 170.12 of the Regulations of the Commissioner of Education, the Board must approve a corrective action plan that addresses the findings in this report, forward the plan to our office within 90 days, forward a copy of the plan to the Commissioner of Education, and make the plan available for public review in the District Clerk’s office. For guidance in preparing the plan of action, the Board should refer to applicable sections in the publication issued by the Office of the State Comptroller entitled Local Government Management Guide.