Holley Central School District

Internal Controls Over Claims Processing - Introduction

Background

The Holley Central School District (District) is located in Orleans County, in western New York State. The District is governed by the Board of Education (Board) which comprises nine 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.

There are two schools in operation within the District, with approximately 1,300 students and approximately 200 employees. The District’s budgeted expenditures for the 2005-06 fiscal year were over $17 million, funded primarily with State aid and real property taxes. This includes over $465,000 in revenues¹ and $465,800 in expenditures for operation of the School Food Service Program.

Food service operations at the District’s two cafeterias have been provided by a vendor pursuant to a written agreement between the vendor and the District. The cafeteria cashiers and cooks, as well as the cafeteria manager, are all employees of the vendor. The vendor is responsible for the purchase of food supplies, the maintenance of the food inventory,² collecting revenues from the sale of meals, preparing the corresponding bank deposits,³ and recording cafeteria sales. The District owns the point-of-sale registers and software system that the vendor uses to record cafeteria sales. This system allows the District to track meals served and revenues collected from the sale of meals. The District establishes the prices to be charged for menu entrees and side dishes.

The vendor is paid by the District on a cost-per-meal basis. This is calculated by counting each lunch and breakfast served at the District’s two cafeterias and by converting the a la carte sales⁴ to meal units. A meal unit was valued at $1.318 for both breakfast and lunch in the 2004-05 fiscal year; in 2005-06, the cost of a meal unit increased to $1.362; and in 2006-07, the cost of meal unit went up to $1.4274.

For the past two years the District has operated an after school food cart. The purpose of this service is to provide snack items to students staying after school while they participate in extra-curricular activities. The District purchases the food items separately from other vendors and pays for two cafeteria cashiers to operate the food cart for a couple of hours each day. Some of the supplies used on the food cart (e.g., napkins and straws) are provided by the cafeteria vendor. In the current year District officials also started selling a few of the vendor items from the food cart, such as water and ice cream, in the cafeteria. The revenue from all cafeteria sales and food cart sales that is collected by the cashiers is remitted to the District.

Objective

The objective of our audit was to evaluate internal controls over the District’s cafeteria operations to ensure that District assets were properly safeguarded. Our audit addressed the following related question:

• Did the District establish appropriate internal controls over cafeteria operations and are those controls operating effectively?

Scope and Methodology

Our overall goal was to assess the adequacy of the internal controls put in place by officials to safeguard District assets. To accomplish this, we performed an initial assessment of the internal controls so that we could design our audit to focus on those areas most at risk. Our initial assessment included evaluations of the following areas: financial oversight, cash receipts and disbursements, purchasing, and payroll and personal services. Based on that evaluation, we determined that controls appeared to be adequate and limited risk existed in most of the financial areas we reviewed. We did determine that risk existed in cafeteria operations and, therefore, we examined internal controls over cafeteria operations of the District for the period July 1, 2004 to December 31, 2006.

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 C 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. Except as specified in Appendix A, District officials generally agreed with our recommendations and indicated they planned to initiate corrective action. Appendix B includes our comment on an issue raised in the District’s response letter.

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.