The Northeastern Clinton 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.

Scope and Objective

The objective of our audit was to determine if the District had established effective internal controls over selected financial activities for the period July 1, 2005 to February 28, 2007. Our audit addressed the following related questions:

• Are internal controls over extra-classroom activity funds adequate?
  
  
• Have adequate internal controls been established over the financial operations of the Business Office to ensure that District assets are properly safeguarded?
  
  
• Are internal controls over the District’s information technology system appropriately designed to protect electronic data?

Audit Results

We found instances where the Board had either not established critical internal controls or controls that had been established were not implemented and operating effectively. As a result the District is vulnerable to the possibility of errors and/or irregularities occurring and not being detected in a timely manner.

The Board established a policy governing the operations of the extra-classroom activity fund, but fund moneys were not maintained in accordance with the policy. Although the Board appointed the Superintendent as the fund’s central auditor, there was no indication that transactions were adequately monitored. The extra-classroom activity fund’s software lacks controls to prevent sequentially-issued check and receipt numbers from being edited and reissued. We identified 13 cancelled checks totaling $7,482 with duplicate check numbers and two receipts totaling $798 with duplicate receipt numbers. These deficiencies still exist despite the fact that more than $27,000 was embezzled from the fund by a former employee over a seven-year period, from the 1998-99 to the 2004-05 fiscal years.

In addition, there are weaknesses in the controls over the Business Office financial operations. The Board has not adopted comprehensive written policies and procedures to provide guidance and internal controls for payroll processing, leave time accruals, and cash receipts. Specifically, there was inadequate segregation of duties over payroll and cash receipts and disbursements with minimal oversight. We found that the payroll clerk prints payroll checks using the Treasurer’s electronic signature, without any oversight by the Treasurer. Furthermore, we noted that the District’s blank check stock is accessible to eight Business Office employees. Bank reconciliations were not being performed properly. For example, we reviewed the District’s multi-fund bank account and found that in four months the book balance overstated the bank balance by at least $21,035 and as much as $78,128 for the period.

Finally, the District does not have adequate written policies and procedures providing guidance and internal controls as it relates to information technology (IT) and the protection of electronic data stored by the District. Although the District has established a Computer Network for Education policy, the policy does not adequately address procedures that establish controls to adequately safeguard the District’s IT system and the data that is stored on it.

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 have initiated, or indicated they planned to initiate, corrective action.