The Mexico Academy and 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.

On an annual basis, the Board appoints a claims auditor who assumes the Board’s powers and duties of approving or denying claims against the District. Responsibilities relating to the District’s finances, accounting records and reports are largely those of the Executive Director of Management Services (Director) and the Treasurer. All of the District’s financial transactions are processed by the Onondaga-Cortland-Madison BOCES’ Central New York Regional Information Center (CNYRIC).

Scope and Objective

The objective of our audit was to evaluate the internal controls over selected financial activities for the period July 1, 2005 to September 30, 2006, to ensure that District assets were properly safeguarded. Our audit addressed the following related questions for the period:

• Are internal controls over cash disbursements appropriately designed and operating effectively to prevent unauthorized payments?
  
  
• Did District management provide for sufficient segregation of the duties of the payroll clerk?
  
  
• Did District management assign users access to only those computerized accounting functions necessary to perform their respective jobs?
  

Audit Results

We identified internal control weaknesses in the District’s operations relating to cash disbursements that could lead to errors or irregularities occurring and not being detected. Duties of the Treasurer include receiving cash, entering receipt information into the accounting system, preparing deposit slips, preparing and posting journal entries (without written supervisory approval), receiving the bank statements and cancelled checks from the bank, and preparing and signing manual checks. As a result, there is a risk that the Treasurer could misappropriate cash and manipulate accounting records to conceal the misappropriation from District officials. We also found the Treasurer’s signature is applied to District checks without her direct supervision, which could result in signed checks with the Treasurer’s facsimile signature being issued by another employee for improper purposes or in incorrect amounts. Our testing disclosed no questionable payments.

The payroll clerk’s duties are not adequately segregated. The payroll clerk is directly responsible for the entire payroll process, including adding new employees into the computer system, inputting and updating salaries, inputting the bi-weekly payroll and directly receiving the signed paychecks in sealed envelopes from CNYRIC. As a result, District officials do not have adequate assurance that payroll checks are accurate or that errors and irregularities will be detected. Our testing of payroll payments did not disclose any significant exceptions.

Finally, we found the District’s computer access controls were deficient. The Director, Treasurer and accounts payable clerk, who is also Deputy Treasurer, have full access rights to all phases of the District’s computerized financial system. The unrestricted computer system access enjoyed by these individuals includes an ability to generate computerized checks and creates a risk that these individuals could initiate unauthorized payments. Our tests of payments made to these individuals 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.