The Sherrill City School 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 annually appoints a claims auditor who, according to Education Law, assumes the Board’s powers and duties in regard to approving or denying claims against the District. Responsibilities relating to the District finances, accounting records and reports are largely those of the Superintendent, the Assistant Superintendent of Finance and the Treasurer.

Scope and Objective

The objective of our audit was to determine if District officials were properly safeguarding their financial resources for the period July 1, 2005 to December 31, 2006. Our audit addressed the following related questions:

• Have the Board and District management established internal controls over cash disbursements and the claims audit function that are appropriately designed and operating effectively?
  
  
• Has District management established an appropriate segregation of duties over the payroll process?
  
  
• Has District management established procedures to verify daily lunch fund sales records agree with bank deposits?

Audit Results

Our audit identified internal control weaknesses that could lead to errors or irregularities occurring and not being detected. The District has limited controls and oversight over the check signing machine, the Treasurer’s signature plate and the blank manual check stock. In addition, the Treasurer had not compared check payments to certified warrants or payrolls for any of the District check payments prior to disbursement during our audit period. While testing disclosed no discrepancies, these control weaknesses result in an increased risk that District checks could include errors or irregularities that would not be detected.

We identified an increased risk for improper cash adjustments to occur and go undetected because the senior account clerk is responsible for preparing manual check payments for two District funds, for entering all manual check stub detail into the computer system and for preparing and recording all District journal entries. District officials told us that one of the Assistant Superintendents reviewed the journal entries made by the senior account clerk; however we found no documentation to confirm their approval of journal entries.

We also found that the District did not have an effective claims audit process. Cash disbursement controls over the manual check payments did not ensure an effective audit of claims or authorization of payment by the claims auditor or the Board. The Board appointed a claims auditor, but it improperly retained the warrant approval function for manual check payments. The Board approved the manual check payments after the funds had already been disbursed and it did not review the claims. As a result, the District paid manual checks totaling about $9.4 million out of the school lunch, Federal and capital funds during our audit period without a proper audit.

The Board also did not provide the claims auditor with a written job description relating to the audit of claims. The current claims auditor is not independently reporting to the Board, but is instead reporting to the Superintendent in her role as payroll clerk. In addition, the current claims auditor’s position as payroll clerk is not compatible since her payroll duties include posting payroll disbursements to the accounting records.

Our audit also disclosed a lack of segregation of duties and oversight as it relates to the job duties of the payroll clerk. The payroll clerk is responsible for preparing, processing and distributing all payroll check disbursements, and for entering and updating all employee pay rates and withholdings on the computer system. Until October 2006, she was also responsible for entering new employees. There is no review of the data entered or updated by the payroll clerk and certification of the payroll did not begin until July 2006. Because of the lack of oversight and the failure to segregate the duties of the payroll clerk, there is an increased risk that payroll errors and irregularities will occur and not be detected.

The District collected approximately $400,000 in combined cafeteria receipts from the District’s five schools during the 2005-06 fiscal year. District management has not established adequate internal control over cafeteria sales receipts. Not all moneys are run through cash registers and there is no independent comparison and reconciliation of moneys received with cash register tapes. As a result, there is an increased risk that cafeteria receipts could be misappropriated and not detected by management.

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.

---

Complete Audit in PDF