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 the Westminster Community Charter School (School) operations is provided by the Board of Trustees (Board) which comprises nine members. The Board is responsible for the general management and control of the School’s financial and educational affairs. The Board appoints the Chief Executive Officer (CEO) 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 less legal operational requirements than traditional public schools. Most of the regulations for the charter schools 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 $4.7 million. These expenditures were funded primarily with revenues derived from billing the area school districts for resident pupils (74 percent), from certain State and Federal aid and other grants (17 percent), from contributions (8 percent), and from investment and other income (1 percent).

Scope and Objective

The objective of our audit was to evaluate the School’s internal control system over claims processing1 for the period July 1, 2005 to April 13, 2007. Our audit addressed the following related question:

• Are internal controls over the check disbursement process and credit card usage appropriately designed and operating effectively?

Audit Results

The Board has not adequately segregated incompatible duties with regard to the processing of claims. The Board also does not review claims prior to payment nor has it designated the responsibility to someone independent of the business function. Furthermore, the control environment has been weakened through the use of credit cards for many purchases, which circumvent an independent review prior to payment.

We reviewed 21 disbursements over $25,000 made in our audit period, totaling approximately $1.2 million, and determined that 18 did not have the required Board approval. We also reviewed 50 judgmentally selected credit card transactions to determine whether they were properly approved, documented, itemized and whether they represented appropriate School expenditures. Although our review did not identify any significant systemic deficiencies, we did note certain approval and documentation exceptions.

Comments of School 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 disagreed with our findings, indicating that they believed the School’s internal controls were adequate. However, they also indicated that enhanced controls would be implemented. Appendix B includes our comments on issues raised in the School’s response letter.