Fiscal Oversight Fundamentals

Transcription

1 Fiscal Oversight Fundamentals Module 1: School District Finances: Roles and Responsibilities 2012 New York State School Boards Association, Latham NY

2 The Five-Point Plan 1. Requires training for school board members 2. Created Audit Committee 3. New Internal Audit Requirement 4. Improved External (Independent) Audit 5. Claims Auditor position strengthened

3 Five Modules 1. Roles and Responsibilities 2. Building School District Fiscal Fitness 3. Managing School District Fiscal Fitness 4. Monitoring School District Fiscal Fitness 5. Preventing Fraud, Waste and Abuse of District Resources

4 In this Module: 2012 New York State School Boards Association, Latham NY

5 The Claims Auditor 2012 New York State School Boards Association, Latham NY

6 What is a Claim? A claim is a legal document (invoice) from a vendor or contractor, that demands money in consideration for goods or services delivered by them to the school district based upon a properly executed purchase order The claims approval process ensures that all claims submitted for payment are supported by sufficient documentation.

7 The Claims Auditor The Education Law requires audit and approval of claims prior to payment Union Free, Central & Small City school districts with enrollment of 10,000 or more and large city school districts may adopt a risk based or sampling methodology of auditing claims pursuant to board resolution (expires 7/1/14) Methodology must reasonably assure all claims represented in sample are proper charges. The Comptroller will review the effectiveness of such methods to determine if adequate accountability is maintained and issue report to governor and legislature by 1/15/14.

8 The Claims Auditor - Two Ways Board s responsibility is to audit all claims May delegate this authority by establishing position by board resolution Position is paid All or nothing Board cannot audit some claims and leave remainder to claims auditor Can be abolished by board resolution

9 Claims Auditor Duties Audit each claim for payment against the district, verifying that: The purchase is in compliance with law and regulation and is in accordance with district policy All requisite forms are present and complete All required authorization and signatures were obtained

10 Claims Auditor Duties Cont d Audit each claim for payment against the district, verifying that: The claim is for an actual and necessary expense The expenditure is supported by a budgetary appropriation In simple terms, the Claims Auditor is telling the Treasurer that they have certified the claim to be true and accurate, and to issue payment to the claimant.

11 Voucher Packet Purchase order with appropriate authorization signed by the purchasing agent Receiving report confirming that work was complete, goods/services were received satisfactorily Documentation that purchasing agent approved voucher packet Original invoice containing description, cost, and quantity of (if appropriate) goods/materials/svcs

12 Conditions for Claims Approval In addition, the Claims Auditor will verify: The receiving copy was signed and dated, indicating that the materials or services were received; Suggested legend: I hereby certify that the work has been completed and/or the materials delivered satisfactorily to the District on dates stated.

13 Conditions for Claims Approval The charges are not duplicates of an item(s) already paid The proposed payment is for a valid and legal purpose The unit price billed (invoice) does not exceed the bid or contract authorization There is no cancellation or paid stamp on original invoice

14 Conditions for Claims Approval Cont d If the expenditure was required to be bid are there supporting documents? Do goods or services being paid for appear reasonable (i.e. are utilities being paid only for school district addresses?)

15 Conditions for Claims Approval Cont d Compare actual check to voucher packet approved, (i.e., address, amount.) Authorize treasurer to sign checks Suggested legend: To the District Treasurer: I hereby certify that this claim has been audited and allowed in the total amount of $. You are hereby authorized and directed to pay the claimant the amount allowed, and charge to the proper fund.

16 Claims Auditor Appointment Can be anyone except: Board member, clerk or treasurer Superintendent Business official or other district official (i.e. audit committee member) Purchasing agent Anyone associated with the business functions of the district or under the direct supervision of the superintendent Internal and external auditor

17 Claims Auditor Appointment Can also delegate authority using: Inter-municipal cooperative agreements Shared services to the extent authorized by law Independent contractors Does not have to be a district resident, and may be an employee of the district or BOCES

18 The Audit Committee 2012 New York State School Boards Association, Latham NY

19 Audit Committee Function Advises the board on issues relating to the internal and external audits Assists with interpreting complex financial documents, reports and recommendations Responsible for asking the right questions and getting answers in order to keep the board informed Communication between the audit committee, auditors, and board is key Hold regularly scheduled meetings and report to the board at least once per year

20 Audit Committee Duties Assist in coordinating the external audit processes Provide recommendations to the board regarding the appointment of the external auditor Interview process Meet with the external auditor prior to commencement of the audit Understand the engagement letter Discuss the audit plan and risk assessment Review drafts or anticipated representation letters Review drafts of anticipated audit opinions

21 Audit Committee Duties Providing recommendations to the school board regarding the acceptance of the external auditor's audit report and management letter Reviewing a correction action plan developed in response to an audit report and assisting with the implementation of that plan

22 Audit Committee Duties Also assists with the oversight of the internal audit function: Provide recommendations regarding the appointment of the internal auditor Review and discuss the annual internal audit plan to ensure that high risk areas and key control activities are periodically evaluated and tested

23 Audit Committee Duties Also assists with the oversight of the internal audit function (cont d): Review all significant findings and recommendations of the internal auditor Monitor the school district s implementation of the internal auditor s recommendations Assist in the evaluation of the internal auditor by providing feedback on the performance of the internal audit function

24 Audit Committee Meetings Meetings should occur quarterly Minimum is annually Subject to Open Meetings Law Can enter executive session as defined by law and commissioner s regulations Also can enter executive session for reasons pertaining to External Audit: Meet with external auditor prior to audit Review with external auditor the risk assessment Receive and review the draft annual report and management letter (interpret with External Auditor)

25 Audit Committee Composition All, some, or none of the board Minimum of three members Members do not have to be a district resident Do not need to be a financial professional For non- board members, can be anyone except: District employee Recent employee (within two years) Internal, External, or Claims Auditor Close or immediate family member of employee or recent employee, trustee, contractor or anyone holding a business interest with the district

26 Audit Committee Charter Required Submitted to board for approval Establishes guidelines, procedures and requirements to allow committee to operate effectively Should specify: Purpose/mission Duties/responsibilities Membership and meeting frequency Reporting requirements Self -evaluation requirements

27 Audit Committee Self-Evaluation Areas of Focus: Working relationship with management, auditors, and board. Participation level and contribution of members. Do committee members possess the appropriate skills to do the job? Is the size of the committee appropriate? Does the committee meet regularly enough?

28 Audit Committee Self-Evaluation Areas of Focus (cont d): Does the committee encourage a tone at the top? Does the committee evaluate the internal auditor to ensure overall effectiveness and compliance with expectations? Has the committee reviewed all significant control deficiencies identified by the internal/external auditors as well as management s corrective action plan to address recommendations?

29 Internal Audit Function 2012 New York State School Boards Association, Latham NY

30 Internal Audit Purpose To assist the board in ensuring that financial risks are identified and that appropriate internal controls are in place to address these risks The internal audit function assists the board in its oversight responsibility through its capacity as an objective third party

31 Internal Audit Responsibilities Development of an initial risk assessment of district operations including, but not limited to, a review of district financial policies, procedures and practices An annual review and update of the risk assessment Annual testing and evaluation of one or more areas of the district's internal controls

32 Internal Audit Responsibilities (cont d) Report to the board with analysis of significant risk assessment findings Recommend changes for strengthening controls and reducing identified risks Agreement with auditor should be documented in an engagement letter.

33 Areas of Focus for the Internal Audit Payroll Purchasing Food service Fixed asset policy Extra-curricular activities fund Budget transfers Bank statements

34 Risk Assessment Evaluation Need to identify the kind of risk in order to reduce the following risks: That financial results will be manipulated by recording revenue or expenditures in the wrong year so that the resulting fund balance will meet projected targets That Individual assets will be stolen The risk of an unintentional error

35 Internal Audit Evaluation Focus Areas: Is the experience level of the auditor adequate? Is the scope of the internal audit adequate? Relationship with Audit Committee and Management. Does the Internal Auditor meet with the Audit Committee to provide and discuss the audit plan prior to the audit?

36 Internal Audit Evaluation Focus Areas: Does the auditor report significant findings to the attention of the Audit Committee? Is the frequency of reporting and level of detail sufficient to ensure effective action by management and the Audit Committee?

37 Appointing Your Internal Auditor Can be: District staff (no responsibility to business operations, i.e. math teacher) Inter-municipal cooperative agreements Shared services to the extent authorized by law Independent contractors Is not required to be a financial profession or hold any financial certification (but should)

38 Additional Resources for the Internal Audit: The Institute of Internal Auditors: Association of Certified Fraud Examiners The American Institute of CPAs Getting the Most Out of Your Internal Audit Function, NYS Office of the Comptroller: Internal Controls, NYS Office of the Comptroller:

39 External Audit Function 2012 New York State School Boards Association, Latham NY

40 External Audit Purpose Section 2116-A of Ed. Law and Section 170(r) of Commissioner Regulations require each board of education employing eight or more teachers to secure an annual audit by an independent auditor

41 External Audit Purpose Principal goal of the external auditor is to opine on the district s financial statements Are the financial statements a fair presentation of the financial position of the district? Audit report is presented to the board Draft to audit committee Management must prepare corrective action plan for any findings in audit report or management letter within 90 days, and begin implementing by end of next fiscal year

42 Appointing Your External Auditor District MUST use an RFP (request for competitive proposal) when hiring external auditors Lowest responsible bidder No engagement can exceed five years After five years, new RFP must go out Can use same firm if they win bid, but use different partner within firm Existing contracts can continue until expiration

43 External Auditor Qualifications MUST be a financial professional Be registered and licensed to practice public accountancy in New York State Meet the qualifications requirement including the completion of at least 80 hours of continuing professional education every two years Have an appropriate internal quality control system in place and undergo an external quality review at least once every three years

44 External Auditor Qualifications MUST be a financial professional Possess experience in audits of governmental entities and federal Single Audits Meet government auditing standards Possess sufficient staff to complete the audit in a timely manner Be independent in fact and appearance

45 Treasurer 2012 New York State School Boards Association, Latham NY

46 Treasurer Appointed by the Board at re-org meeting Deputy Treasurer is highly recommended to handle duties in absence of Treasurer Must be bonded in an amount determined by the board No set or recommended amount Can be covered by a blanket bond Conduit for monitoring fiscal condition

47 Treasurer Must provide quarterly budget status report (monthly if budget transfers have been made since last report). Must show at least the status of the district s revenue accounts and appropriation accounts required in the state budget form. Estimated revenues, amounts received as appropriation accounts, original appropriations, transfers and adjustments, revised appropriations, expenditures to date, outstanding encumbrances, and unencumbered balances

48 Treasurer Provide monthly report for each fund showing: Cash balance on hand at the beginning and end of month Receipts by source Total disbursements Reconciliation with bank statements

49 The Sixth Point Comptroller audits of school districts, BOCES and Charter Schools Focus on internal controls, policies, practices and operations to ensure adequate protection against fraud, waste and abuse. Will not duplicate the work of the external auditor Subsequent audits can occur and will be determined using a risk assessment process Previous audit findings Investigation of alleged improprieties Other financial indicators

50 Comptroller Audit Findings Information Technology Security issues relating to access of data and systems Lack of policies for acceptable use standards for computers, internet and Access rights above what was required for job duties No requirement to change user password No audit logs to determine who, where and when information was access or changed. (similar to lack of segregation of duties) Lack of data backup and disaster recovery plans

51 Comptroller Audit Findings (cont d) Claims Audit Deficiencies Incompatible business functions (authorize and approve a payment) Reported to management rather than board Deficient auditing of claims Lack of documentation Lack of department review or approval

52 Comptroller Audit Findings (cont d) Payroll Issues Separation Payments Lack of Board oversight regarding accuracy of leave balances or that payments were made in accordance with employment contracts Insufficient or lacking payroll policies Payment for personal services without contracts Again, related to inadequate internal controls and policies over payroll Loose employee contracts did not specify entitlement to salary and benefits; as a result offending districts paid these officials far more than they were entitled

53 Comptroller Audit Findings (cont d) Financial Condition Issues Inaccurate recording and reporting of district financial data. Prevented boards from monitoring the districts fiscal condition in a timely manner. Over-expending appropriations and fund balances deteriorated, often to a deficit. Over- reliance on fund balance, or using nonrecurring revenue sources to fund expenditures.

54 Key Points to Remember Board is ultimately accountable for oversight of district financial operations. Failure of one component, i.e. Audit Committee, is still the board s responsibility Listen! Follow up on anything that is not easily understood! Seek Additional Training

55 Additional Resources NYS Comptroller s Office Local Government and School Accountability landing page: Contains a wealth of information specific to maintaining and improving school district fiscal health such as: School District Financial Toolboxes, which provide additional information on Claims Auditor, Audit Committee, Internal and External Audit functions

56 Additional Resources Statement on the Governance Role of a Trustee or Board Member, Board of Regents, USNY, November ment_governance.html

57 Additional Resources Provides financial transparency for all government institutions in NYS Excellent resource for determining how school districts generate their revenues and what activities and services those revenues support Can compare revenues/expenditures from other districts to your own to identify potential efficiencies

58 Additional Resources NYS State Education Department Office of Education Management Services landing page: