Pinnacle Charter School

Internal Controls Over Selected Financial Activities - EXECUTIVE SUMMARY

A charter school is a public school financed by local, State and Federal resources that is not under the control of the local school board and is governed under Education Law Article 56. The oversight for Pinnacle Charter School (School) operations is provided by the Board of Trustees (Board) which comprises 11 members, including the Chief Academic Officer (CAO). The Board is responsible for the general management and control of the School’s financial and educational affairs. The Board appoints the CAO who is responsible, along with other administrative staff, for the day-to-day management of the School under the direction of the Board.

Charter schools have fewer legal operational requirements than traditional public schools. Most of the regulations for a charter school are contained in the entity’s by-laws, charter agreement and the fiscal/financial management plans, which are part of the charter school application.

The School’s 2005-06 fiscal year operating expenditures totaled $3.6 million. These expenditures were funded primarily with revenues derived from billing the area school districts for resident pupils (81 percent) and from certain State and Federal aid attributable to these pupils (19 percent).

Scope and Objective

The objective of our audit was to evaluate the School’s internal controls over claims processing and credit card usage for the period July 1, 2005 to June 25, 2007. Our audit addressed the following related questions:

• Are internal controls over claims processing¹ appropriately designed and operating effectively?
• Are internal controls over credit card usage appropriately designed and operating effectively?

¹The term "claims processing" is used to describe the payment of bills or accounts payable.

Audit Results

The Board has not adequately segregated incompatible duties with regard to purchasing and the processing of claims. We found that the Board does not review the claims paid by the School and has not established an independent claims audit function. Officials in the administrative office initiate, authorize, and approve all the claims, in effect controlling all the key aspects of a transaction. The CAO can control the entire purchasing process and is one of the designated check signers. This lack of adequately segregated duties is not sufficiently mitigated by compensating controls such as enhanced monitoring or reporting.

We reviewed 70 judgmentally selected claims totaling $391,470 that were paid between July 1, 2005 and April 24, 2007 to determine whether they were properly approved and documented, itemized, and represented appropriate School expenditures. We found that the purchase of computer equipment totaling more than $92,000 was made without seeking quotes from different vendors to ensure the School is obtaining the best prices.

Of the 70 claims reviewed, 19 were for monthly credit card payments made between July 1, 2005 and February 2007 totaling $79,664. Our testing disclosed that there was no original supporting documentation for three of these monthly payments totaling $16,626. Because of this missing documentation, we reviewed the remaining monthly credit card payments, representing a total of 370 transactions, to determine if the charges were fully supported and documented. Of the 370 transactions, 93 (25 percent) totaling $21,012 did not have adequate documentation other than the description on the credit card statement.

Comments of District Officials

The results of our audit and recommendations have been discussed with School officials and their comments, which appear in Appendix A, have been considered in preparing this report. School officials generally agreed with our recommendations and indicated they would take corrective action. Appendix B includes our comment on an issue raised in the School’s response letter.