Rotterdam-Mohonasen Central School District

Internal Controls Over Selected Financial Activities -
EXECUTIVE SUMMARY

The Rotterdam-Mohonasen 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.

There are four schools in operation within the District, with approximately 3,300 students and 510 employees. The District’s budgeted expenditures for the 2006-07 fiscal year were nearly $38 million, funded primarily with State aid, real property taxes and grants.

Scope and Objective

The objective of our audit was to review internal controls over cash receipts and disbursements, purchasing and claims processing, and information technology for the period July 1, 2005 to February 7, 2007. Our audit addressed the following related questions:

• Has the District established adequate internal controls over cash receipts and disbursements to protect District assets against fraud, abuse, and professional misconduct, and are those controls operating effectively?
• Has the District established adequate internal controls over purchasing and claims processing to protect District assets against fraud, abuse, and professional misconduct, and are those controls operating effectively?
• Are internal controls over information technology appropriately designed to protect District assets against fraud, abuse, and professional misconduct?
• Is the District’s internal audit function appropriately designed?

Audit Results

The District has not established adequate internal controls over cash receipts and disbursements. We found discrepancies between cafeteria sales recorded and moneys deposited. Net discrepancies over a five-month period totaled over $3,300. In addition, other miscellaneous receipts were not deposited and recorded in a timely manner and there was an insufficient segregation of duties within the Treasurer’s office. Further, press-numbered receipts were not always issued and bank reconciliations were not always properly prepared. As a result, we tested 20 cash receipts from August 2006 to March 2007 totaling $362,012. Ten receipts totaling $43,735 were not recorded timely and 19 receipts totaling $357,493 were not deposited timely. We also found the October 2006 and November 2006 bank reconciliations for the general investment fund were not properly performed. These control weaknesses have significantly undermined the protection of District assets and allowed errors and/or irregularities to occur and go undetected and uncorrected.

The District has not established adequate internal controls over purchasing and claims processing. Although the Board has adopted policies that require written and verbal quotes, District officials have not always enforced compliance with these policies and the claims audit process is ineffective in ensuring that District claims are valid. For example, for 19 purchases tested that required quotes, District personnel failed to obtain quotes for 11 purchases totaling $28,013. In addition, certain claims were paid without signed documentation attached acknowledging receipt of goods or services. As a result, there is an increased risk that goods and services may not be acquired economically or that costs may be incurred for unauthorized or improper purposes. We also found, as of April 30, 2006, 43 of 383 budget accounts tested were over-expended/over-encumbered. The failure to limit expenditures to available appropriations increases the risk that moneys may not be available when required, which may result in a budget deficit.

The District also needs to strengthen internal controls relating to information technology. The District does not effectively restrict system access or physical access, periodically restore backup data, or have a formal disaster plan because the District managers have not developed policies for these issues. As a result, the District’s IT systems and electronic data are subject to an increased risk of loss or misuse.

Finally, the District has not established an effective internal audit function, as required by law, because the Capital Region BOCES employee serving as the internal auditor is not independent. The current arrangement may put this BOCES employee in the position of evaluating significant District services or programs that are provided by BOCES, the individual’s employer. In 2005-06, the District spent $2.6 million on general fund services provided by the Capital Region BOCES. The failure of the District to establish an effective internal audit function may result in the evaluation of significant District services or programs by someone who is not independent of those services/programs.

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 indicated in Appendix A, District officials generally agreed with our recommendations and indicated the District planned to initiate corrective action. OSC comments on the District’s response can be found in Appendix B.