Pulaski Academy and Central School District

Internal Controls Over Financial Operations - EXECUTIVE SUMMARY

The Pulaski Academy and 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.

On an annual basis, the Board appoints a claims auditor who assumes the Board’s powers and duties of approving or denying claims against the District. Responsibilities relating to the District’s finances, accounting records and reports are largely those of the Business Manager and the Treasurer. The same person serves as payroll clerk and accounts payable clerk. All District checks are computer-generated and electronically signed. The District’s financial statements are audited annually by an independent CPA firm.

Scope and Objective

The objective of our audit was to evaluate the internal controls over selected financial activities for the period July 1, 2005 to January 31, 2007. Our audit addressed the following related questions:

• Are internal controls over cash disbursements appropriately designed and operating effectively to prevent unauthorized payments?
• Did District management establish sufficient internal controls over the duties of the payroll clerk?

Audit Results

We identified internal control weaknesses in the District’s operations relating to cash disbursements that could lead to errors or irregularities occurring and not being detected. Duties of the Treasurer include entering information into the accounting system, preparing deposit slips, initiating wire transfers, reconciling bank accounts, and preparing and posting journal entries. As a result, there is a risk that the Treasurer could misappropriate cash and manipulate accounting records to conceal the misappropriation from District officials. We also found the Treasurer’s facsimile signature is applied to District checks without her direct supervision, which could result in another employee signing and issuing checks for improper purposes, or in incorrect amounts. Our testing of payments did not disclose any significant exceptions.

District officials have not adequately segregated the payroll clerk’s duties. The payroll clerk handles all salary entries and changes made to the payroll, processes the payroll for payment, and prints and distributes all signed payroll checks. Although new employees are entered in the computerized payroll system by another District employee, we were informed that the payroll clerk also had this capability until July 1, 2006. As a result, District officials do not have adequate assurance that payroll checks are accurate or that errors and irregularities will be detected. The District, for example, would have no assurance that all payroll checks are for valid employees. Our testing of payroll payments did not disclose any significant exceptions.

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 indicated they planned to initiate corrective action.