The Clymer 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 Business Official and instructional technology specialist play key roles in the District’s financial activities. The District uses an information technology system to process and store financial information. This information is used to, among other things, create disbursement schedules, provide data to calculate separation payments and generate reports of account balances for each of the District’s operating funds.

Scope and Objective

The objective of our audit was to evaluate internal controls over selected financial operations. Our audit addressed the following questions for the period from July 1, 2005 to May 9, 2007. We also extended our scope for certain disbursements back to July 1, 2004. Our audit addressed the following questions:

• Are internal controls over the information technology function relating to financial activity appropriately designed and operating effectively?
  
  
• Are internal controls over certain disbursement-related activities appropriately designed and operating effectively?
  
  
• Are internal controls over the use of the trust and agency fund appropriately designed and operating effectively?

Audit Results

We found numerous problems in the District’s financial operations resulting from very poor policies and procedures and a very casual attitude towards proper controls. For example, District officials deliberately eliminated a key control over wire transfers and now allow unlimited transfers of District funds by one official alone. As a second example, 66 percent of the accounts in the trust and agency fund do not belong there; District officials did not take the time to determine the proper way to handle these accounts. These examples and the other findings from our audit demonstrate a very poor control environment and “tone at the top.”

We found weaknesses in the controls for assigning user rights to the computer system, the use of passwords, and the addition and deletion of users from the system. Users’ access was not limited based on job functions. For example, some users had unlimited access to the system when this level of access was not necessary or appropriate, given their responsibilities. Unlimited access allows a user to view, modify, edit and create transactions in areas that have nothing to do with their actual job responsibilities. We also found that management provides no oversight of system users.

The District has not adopted internal controls for cash transfers. There are no documented policies or procedures addressing the initiation, approval, documentation, or monitoring of cash transfers. We found that the Business Official was able to make approximately $20 million in bank transfers without any authorization. In addition, the Business Official did not include detailed information regarding these transactions on the transfer document. Furthermore, the Treasurer did not routinely request to see any documentation supporting these transactions. Although we did not identify any improper transactions, a significant risk exists for improper transfer activity to occur and not be detected in a timely manner, due to the weaknesses we identified.

The District has not established a formal job description or duty statement for the claims auditor position. The claims auditor did not receive adequate training prior to assuming the duties of the position. We reviewed 40 claims totaling $114,345 and found that 11 lacked adequate supporting documentation and 22 had no indication of audit approval for payment. We also reviewed 10 claims that had corresponding contracts and found the Board did not authorize four of the contracts. In addition, two contracts could not be found in District files and three contracts did not support the payments made.

The provisions in contracts and District-adopted incentive programs regarding separation payments were not clearly defined nor consistently followed. We reviewed 12 separation payments totaling $166,474 and found that the District inappropriately paid a total of $1,932 to four employees in accumulated sick leave benefits and did not use the appropriate calculation for one employee resulting in an underpayment of $7,255. In addition, two cash payments were made without applicable payroll taxes withheld and one employee received her entire separation payment of $16,004 in one year even though the agreement stated a maximum of $6,000 per year.

The District has not adopted clear policies and procedures addressing the trust and agency fund. The Business Official is responsible for the overall fund maintenance with minimal oversight. We found that 33 of the 50 accounts included in the trust and agency fund should not be accounted for in that fund or in some cases even with the District. In addition, four accounts had negative balances and on two occasions the bank account was overdrawn. We also found 13 deposits and four disbursements which lacked supporting documentation.

Comments of School 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 that they are taking corrective action.