Mount Vernon City School District

Internal Controls Over Purchasing, Cash Disbursements and Claims Processing - EXECUTIVE SUMMARY

The Mount Vernon City School District (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.

The Board is responsible for establishing, implementing and monitoring appropriate internal controls. Internal controls include policies and procedures that help ensure laws and regulations concerning purchasing are complied with and the District operates efficiently and effectively. Establishing and implementing such controls can help the District obtain the best prices for goods and services and prevent misuse of District assets. The Board’s adopted purchasing policy governs District purchasing and related activities.

The Board appointed a Purchasing Agent for administering all purchase activities. The Purchasing Agent was terminated from the District amidst allegations that he misused District assets. The District referred information about the Purchasing Agent to the Westchester County District Attorney’s Office (DA) for further investigation. In October 2006, we were contacted by the DA’s office and asked to conduct an audit relating to the activities of the Purchasing Agent.

Scope and Objective

The objective of our audit was to examine the District’s internal controls over purchasing, cash disbursements and claims processing for the period July 1, 2003 through November 30, 2006. Our audit addressed the following related question:

• Are internal controls over purchasing, cash disbursements, and claims processing appropriately designed and operating effectively to adequately safeguard district assets?

Audit Results

Internal controls over purchasing, cash disbursements and claims processing are not operating effectively. While the District has adopted policies and procedures for purchasing, cash disbursements and claims processing, District officials have not enforced compliance with the policies and procedures.

We tested payments and found that the Purchasing Agent did not use required competitive bidding to make purchases totaling $1,119,742. Without competitive bidding, when required, the District cannot be sure that goods and services were obtained at the best possible price. Additionally, District staff made purchases of $120,519 without first seeking prior approval for the purchase of these those goods and services. Making purchases without prior approval significantly increases the risk that purchases will be made that are not necessary or at the best price available.

District policy does not require budget transfers to be approved by the Board. Budget transfers were made at the school level by the principals, the Purchasing Agent, and the Assistant Superintendent for Business. District officials made year-end budget transfers for the 2003-04, 2004-05 and 2005-06 fiscal years totaling $9,531,266, $2,297,480 and $1,310,000, respectively without Board pre-approval. This lack of budgetary control increases the risk that appropriation accounts could be overspent for the fiscal year.

The District paid vendors without adequate supporting documentation as required by the District's purchasing procedures. We tested payments made to 175 vendors that totaled $3,123,581 and found that 34 vendor payments, totaling $363,433, did not include receiving reports. District personnel cannot be certain they have received the goods that were paid for without proper documentation.

During our audit period, the District Treasurer (Treasurer) issued hand-drawn checks in excess of one quarter of a billion dollars. Hand-drawn checks only require one signature and are not approved by the District claims auditor prior to payment. These checks included approximately $281 million in payroll related items including checks to transfer funds into payroll accounts. We found checks in amounts as high as $3.9 million which only required the Treasurer’s signature.

We also found there was a lack of segregation of duties for the treasury and internal audit functions. The Treasurer handles all cash transactions, prepares bank reconciliation and is a single signatory on the District bank accounts. As a result, the Treasurer could execute and conceal inappropriate transactions thereby putting the District’s assets at great risk of abuse. The Internal Auditor is also the capital project manager. As a result, the Internal Auditor audits her own claims and payments related to capital projects which totaled approximately $79 million during the audit period.

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. Except as specified in Appendix A, District officials generally agreed with our recommendations and indicated that they planned to take corrective action. Appendix B includes our comments on issues raised in the District’s response letter.