Mohawk Central School District Internal Controls Over Selected Financial Operations

Background

The Mohawk Central School District (District) is located in Herkimer County and serves the Village of Mohawk and the Towns of German Flatts, Columbia, Little Falls, and Litchfield. The 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.

There are two schools in operation within the District, with approximately 992 students and 164 employees. The District’s budgeted expenditures for the 2006-2007 fiscal year are approximately $12.2 million, funded primarily with State Aid, real property taxes and grants. The District’s major expenditures are employee salaries and related fringe benefits.

The Business Office is made up primarily of three employees: the Business Official, who is also the Treasurer and Purchasing Agent; an account clerk that performs all aspects of disbursements and purchasing; and a payroll clerk that performs all aspects of payroll. All accounting transactions are processed with a standard computerized financial system designed specifically for school districts. For the year ending June 30, 2006, cash disbursements totaled $16 million1 and payroll disbursements totaled $6.2 million.

Objective

The objective of our audit was to determine if controls over selected financial operations are appropriately designed and operating effectively. Our audit addressed the following related questions:

Has the District established adequate segregation of duties over cash disbursements to properly safeguard District assets from fraud, waste, abuse, and professional misconduct?
Has the District established adequate segregation of duties over payroll to safeguard District assets from fraud, waste, abuse, and professional misconduct?
Are internal controls over the computerized financial system appropriately designed and operating effectively to ensure that employees cannot perform incompatible duties?

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 the cash disbursements, payroll and controls over the computerized financial system areas. Therefore, we examined internal controls over those areas for the period July 1, 2005 to April 30, 2007.

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 have been considered in preparing this report. The District’s response is attached to this report in Appendix A. District officials generally agreed with our recommendations and indicated they plan 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.