Naples Central School District

Internal Controls Over Selected Financial Activities -
EXECUTIVE SUMMARY

The Naples Central 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 internal controls to provide reasonable assurance that assets are properly safeguarded from unauthorized use or disposition and are properly accounted for. Internal controls should assure that there is a separation of duties so that no single individual controls all phases of a transaction, professional services are procured in an efficient manner, and that claims contain enough documentation to determine compliance with statutory requirements, policies, and agreements. Internal controls should also assure that fuel inventories are protected from loss and used effectively, as intended, and that computerized data and assets are properly safeguarded, and should provide for the timely identification of errors or irregularities so that corrective action can be taken. Once established, the Board has the responsibility to monitor internal controls to ensure that they are operating properly.

Scope and Objective

The objective of our audit was to determine if controls over selected financial operations are appropriately designed and operating effectively for the period July 1, 2005 through March 30, 2007. Our audit addressed the following related questions:

• Are internal controls in the Treasurer’s office appropriately designed and operating effectively to adequately safeguard District assets?
• Has the Board established policies and procedures to ensure that professional services are acquired as economically as possible?
• Are internal controls over diesel and gasoline fuel inventories appropriately designed and operating effectively?
• Has the Board established policies and procedures to ensure that computer data is stored in a secure area and access to financial data is restricted?
  

Audit Results

District officials did not effectively assign responsibilities to the Treasurer/payroll clerk¹ to ensure there was a proper segregation of duties and did not establish sufficient compensating controls. The Treasurer/payroll clerk maintained the books of original entry (general journal, and cash receipt and disbursement journals) and general and subsidiary ledgers. She also invested cash, made inter-fund and inter-bank transfers, signed checks, reconciled bank statements, entered employee payroll changes, collected time sheets, entered hours worked and salaries paid, posted expenditures to the subsidiary ledgers, prepared and disbursed paychecks and helped maintain personnel files. Further, she was the system administrator, which enabled her to create new users, update access rights and perform other administrative functions including management overrides. This is an incompatible duty because the Treasurer/payroll clerk uses the system on a daily basis to perform her job duties.

We also found that professional services were not always procured in conformance with General Municipal Law, which requires the District to obtain qualified and necessary professional services as economically as possible, and to document the basis for the selection of service providers. The District did not solicit competitive proposals for accounting and legal services and paid related invoices that were not consistent with written agreements. Payments for accounting services exceeded contracted amounts by $20,275 and payments for legal services exceeded agreed upon amounts by a minimum of $3,680.

Internal controls to protect fuel inventories against fraud, abuse or misuse are not adequate. District personnel are not accurately reconciling measurements of deliveries, usage and inventories on hand to calculate losses or gains of fuel. Instead of using actual pump readings, District personnel simply plug in the “total gallons pumped” figure based on the difference between daily physical measurements. Further, because the District has two underground tanks, these deficiencies could allow fuel leaks to go undetected and lead to substantial costs, such as groundwater and soil remediation and DEC fines.

Finally, the Board has not established policies and procedures to sufficiently address the safeguarding of computerized data and assets. The network has six servers and approximately 400 computers. We found computer equipment is not physically secure and access to financial data was not restricted.

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 they planned to take corrective action. Appendix B includes our comments on the issues raised in the District’s response letter.

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¹ The same individual serves as Treasurer and payroll clerk.