Audit Activities Report For Fiscal Years 2009 and 2010

Transcription

1 Audit Activities Report For Fiscal Years 2009 and 2010 September 10, 2010 Report

2 MISSION STATEMENT The School Board of Palm Beach County is committed to excellence in education and preparation of all our students with the knowledge, skills, and ethics required for responsible citizenship and productive employment. Arthur C. Johnson, Ph.D.* Superintendent of Schools School Board Members Monroe Benaim, M.D., Chair Dr. Sandra Richmond, Vice Chair Frank Barbieri, Jr.*, Esq. Paulette Burdick William C. Graham Carrie Hill* Debra Robinson, M.D. Audit Committee Members Cindy Adair, CPA, Chair Richard Roberts, CPA, Vice Chair Max Davis Kevin James, Ed.D Audley Porter, CPA Noah Silver, CPA David Talley Bruce Harris*, Esq. Robert Dow* Gregory Daniel (Effective March 2010) *Ex-Officio Audit Committee Members

3 Audit Activities for Fiscal Years 2009 and 2010 EXECUTIVE SUMMARY We performed audits in four major areas: School Internal Funds, Performance and Compliance Audits, Special Requests, and Special Investigations. Internal Funds Audits. Pursuant to Florida State Board of Education Rules 6A-1.087(2), all the schools are to be audited annually. The District has a total of 188 schools as of August Since we took over the audits of School Internal Funds in 2004, we are able to refine the audit process and focus on those areas that need the most attention. As we concluded in our 2008 and 2009 Internal Funds Audits, repeated exceptions were noted in disbursements and leasing of school facilities, while some improvement was found in School Age Child Care (SACC) and community school programs. (See page 15 for five-year summary.) New audit procedures were developed so that we could efficiently assess the adequacy of control in certain areas. During the last two years, our audit scope has been focusing on: Disbursements and P-Card purchases Leasing of school facilities School Age Child Care Program (SACC) Receipts of revenues Since 2006, of the 17 top priority areas that school principals have the most concern, four of them had improved, eight remained the same, and the remaining five need further attention. (See page 15 with.) In response to the audit findings, especially those repeated ones, Accounting has developed and implemented certain new procedures and corrective actions. Hopefully the repeated findings could be resolved in a timely manner. Revenues Collection Improved Since We note that total revenues collected by the schools have gradually increased during the last five years, during 2004 and Total revenues have increased by $14 million, or 24%, from $59 million to $73 million (please see the top chart on page 17). Per student revenues for the school have increased by 24%, from $349 to $432. (Please see the bottom chart on page 17.) i

4 Total facility leasing revenues increased by $1.9 million, or 106%, from $1.8 million to $3.7 million. Per school leasing revenues increased by $10.5K, or 96%, from $10.9K to $21.4K. (See page 19.) Total cumulative increase in facility leasing revenues was $7.08 million. (See page 19.) Total SACC revenues increased by $3.6 million, or 20%, from $18.1 million to $21.7 million. Total cumulative increase in SACC revenues was $14 million. (See page 18.) For both facility leasing and SACC programs, total cumulative increase in revenues was $21 million. Credit Cards. As recommended by the Audit Committee, the School District has implemented the credit card program at pilot schools. This program should improve the controls and streamline the cash collection process at schools. Together with the new procedures implemented by Accounting, we should expect further improvement in revenues collections. This is important to the schools, especially during difficult economical times and unprecedented budget cuts. Performance and Compliance Audits. We released a total of 6 performance and compliance audit reports during 2009 and 2010 that contained recommendations for improvement in control, and operation efficiency and effectiveness. These improvements should result in more effective and cost-efficient delivery of services to our students. (See pages 23 to 24.) Special Requests. In response to requests of staff and principals, we completed 18 special audits during the last two years. Most of these audits were primarily related to potential financial irregularities. Conclusions for 15 of these audits were referred to School Police and Employee Relations Department for further investigation. As a result of the Police/Personnel investigations, six were charged by the State Attorney s Office, two employees were terminated, four resigned, and six received other personnel actions. As of September 1, 2010, three referrals were still pending. (See page 35.) ii

5 THE SCHOOL DISTRICT LUNG CHIU, CPA ARTHUR C. JOHNSON, Ph.D. PALM BEACH COUNTY, FLORIDA DISTRICT AUDITOR SUPERINTENDENT OFFICE OF THE DISTRICT AUDITOR 3318 FOREST HILL BLVD., C-306 WEST PALM BEACH, FL (561) FAX: (561) M E M O R A N D U M TO: FROM: Honorable Chair and Members of the School Board Arthur C. Johnson, Ph.D., Superintendent of Schools Chair and Members of Audit Committee Lung Chiu, CPA, District Auditor DATE: September 10, 2010 SUBJECT: Audit Activities Report For Fiscal Years 2009 and 2010 Submitted for your review is our Audit Activities Report for Fiscal Years 2009 and This report summarizes the School District s auditing functions, activities, related statistics, recaps of audit conclusions, and status of corrective actions. In light of the increasing demand in resources and the reduction in funding from the State and local sources, it is crucial that the means are found to increase revenues, improve operation efficiency and effectiveness, improve controls, and reduce costs. We will continue to serve the School District in these activities. Encl. An Equal Opportunity Employer

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7 AUDIT ACTIVITIES REPORT For Fiscal Years 2009 and 2010 Page Executive Summary i Mission 1 Audit Committee 1 Internal Audit Function Performance Audits 1 Financial and Compliance Audits 2 Benefits of Auditing 2 Audit Department Organization Chart 3 Staffing 3 Internal Audit Reports Internal Funds Audits Major Findings for 2008 Internal Funds Audit 5 Details of Major Internal Funds Audit Findings (2008) 7 Update of 2009 Internal Funds Audits (as of September 1, 2010) 13 Five Year Summary of Findings 15 Internal Funds Revenues Analysis 17 Audits Released During 2009 and Performance Audits 23 Special Requests & Referrals for Investigation 25 Other Audit Reports KPMG s Management Letter for Year-Ended June 30, Ernst & Young s Management Letter for Year-Ended June 30, Appendices A. Audit Committee (School Board Policy 1.091) 41 B. Internal Audit Function (School Board Policy 1.092) 43 C. Performance Measures and Comparative Data for Audit Function 47

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9 Audit Activities Report For Fiscal Years 2009 and 2010 Mission. The purpose of Internal Audit is to assist the School Board and District staff in the effective discharge of their responsibilities related to the District s policies, internal controls, and management reporting practices. It is the objective of Internal Audit to provide the School Board and District staff with information about the adequacy and effectiveness of the District s system of internal controls and the quality of performance in carrying out assigned responsibilities. Internal Audit serves as an independent appraisal function within the district to examine and evaluate its activities. To this end, Internal Audit furnishes the District with analyses, appraisals, recommendations, and information concerning the activities reviewed. Audit Committee (School Board Policy 1.091). To promote independence and objectivity of internal audit function in the School District, the School Board established the Audit Committee Charter and created the Audit Committee in The Audit Committee is to ensure broad audit coverage, adequate consideration of audit reports, and appropriate staff actions on audit reports. The District Auditor is to report to the School Board through the Audit Committee. The Audit Committee is comprised of seven voting members appointed by individual School Board Members, and six non-voting ex-officio members including two School Board Members, the Superintendent, the Chief Counsel to the School Board, one representative from the Classroom Teachers Association, and one representative from the school principals. Internal Audit Function (School Board Policy 1.092). The Internal Audit Charter grants the auditors with complete access to the records of all District departments. The auditors use this access and authority in performing independent assessment of programs and activities. Audit work is to be conducted in accordance with Government Auditing Standards. These standards require due professional care in conducting audits, professionally qualified staff, adequate supervision, and planning of audit work, and reporting audit findings. Two major types of audits are performed by the District Auditor s Office: Performance Audits. A performance audit is an objective and systematic examination of evidence for the purpose of providing an independent assessment of the performance of a government organization, program, activity, or function in order to provide information to improve public accountability and facilitate decision-making by parties with responsibility to oversee or initiate corrective action. Performance audits include economy and efficiency and program audits: a. Economy and efficiency audits include determining (1) whether the entity is acquiring, protecting, and using its resources (such as personnel, property, and space) economically and efficiently, (2) the causes of inefficiencies or 1

10 uneconomical practices, and (3) whether the entity has complied with laws and regulations on matters of economy and efficiency. b. Program audits include determining (1) the extent to which the desired results or benefits established by the authorizing body are being achieved, (2) the effectiveness of organizations, programs, activities, or functions, and (3) whether the entity has complied with laws and regulations applicable to the program. Financial and Compliance Audits. The emphasis of financial and compliance audits is on assessing the adequacy of internal control systems in deterring fraud, waste, and inefficiency. Auditors examine management s internal controls to ensure that: a. Resources are used in a manner consistent with laws, regulations, and policies. b. Reliable data are obtained, maintained, and properly disclosed in financial and management reports. c. Resources are safeguarded against loss due to fraud, theft, errors, and mismanagement. Benefits of Auditing. Auditing alone does not produce benefits; however, they can only come from implementation of audit recommendations. Audit recommendations should leave no doubt that implementation would result in improvements. Recommendations must be practical, implementable, and the cost of implementation should not exceed the benefits to be derived from the change. Audit reports should present convincing and accurate information, which clearly demonstrates the benefits of implementing audit recommendations. One approach of measuring the value of internal auditing is by determining (1) program improvements, (2) potential increase in revenues, and (3) savings resulting from implementing audit recommendations. These improvements include better controls and safeguards against loss due to fraud, theft, errors, and mismanagement, improved resource utilization, and increased productivity. All these improvements should ultimately result in providing the maximum support for instructional services at schools and improving student achievements. Internal auditors bring to staff s attention regarding issues and concerns on a timely manner so that corrective actions can be implemented immediately. As a result, changes are sometimes implemented before the audit report is released. More commonly, audit recommendations are implemented after staff has had the opportunity to study the issues and modify program operations accordingly. 2

11 Audit Department Organization Chart Staffing 11 professional and 1 administrative Collectively o 9 advanced degrees o 10 professional certificates, including Certified Public Accountants (CPA), Certified Internal Auditors (CIA), Certified Information System Auditors (CISA), and Certified Management Accountants (CMA) 3

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13 Internal Funds Audits Major Findings for 2008 Internal Funds Audits I. Disbursements 1. Extensive Noncompliance in P-Card Transactions * 2. Disbursement Not Properly Approved and Documented II. Receipts 3. Unrestricted Access to Drop Safe 4. Monies Not Deposited Timely 5. Copy of Monies Collected Report (MCR) Not Retained by Staff 6. Monies Collected Not Adequately Documented 7. Inadequate Fundraising Documentation 8. Cash Handling Procedures Not Incorporated into Manual * III. School Age Child Care Program 9. Program Deficit in 20 Schools 10. Student Records Not Properly Maintained 11. Payroll Not Properly Documented IV. Community Use of School Facilities 12. Inadequate Proof of Insurance 13. Lease Agreement Not Properly Completed 14. Undercharged Rentals and Late Payments 15. Lease Prequalification Not Performed V. Community School Program 16. Registration and Attendance Records Not Maintained 17. Improvement Needed for Payroll Processing 18. Program Deficit in Three Schools * New findings for Fiscal Year

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15 DETAILS OF MAJOR INTERNAL FUNDS AUDIT FINDINGS (2008) I. DISBURSEMENTS 1. Extensive Noncompliance in P-Card Transactions (New Finding) Details of this finding were presented in the November 13, 2009, Special Report Concerning Purchasing Card Transactions for Fiscal Year 2008, and March 12, 2010, Final Special Report Concerning Purchasing Card Transactions for Fiscal Year Findings were noted 139 times in nine major areas for 75 schools. Areas of P-Card Findings Fraudulent transactions (1 school) Transaction records missing (4 schools) Documentation missing for some purchases (51 schools) Insufficient documentation for some purchases (24 schools) End-of-Cycle Checklist not completed (11 schools) Monthly reconciliation not done (12 schools) Monthly Bank Statement not reviewed and signed by Principal (20 schools) Purchases inappropriately funded (5 schools) Split purchases to avoid $1000 single purchase limit (11 schools) 2. Disbursement Not Properly Approved and Documented During Fiscal Year 2008, all 171 schools in the School District disbursed a total of $75.7 million in payments for purchases goods, services, and other expenditures through the Internal Funds system. The 2008 audit revealed that some disbursements did not have adequate supporting documentation in many schools. Specifically, some disbursements in 48 schools did not have invoices or receipts indicating the items and dollar amounts of the purchases. Without records documenting the dollar amounts and items purchased, there is no assurance that the purchases were appropriate and complying with District s purchasing rules. Moreover, some disbursements were not properly approved by the Principals. Specifically, some Check Requisitions were missing in nine schools, some Check Requisitions were not approved by the Principals in eight schools, and some checks were not signed by the Principals in three schools. To ensure proper accountability for disbursements and safeguard of school assets, disbursements should be approved by the Principals, with adequate support and documentation for the purchases. 7

16 II. RECEIPTS 3. Unrestricted Access to Drop Safe The audit revealed that 12 of the schools allowed a single person, i.e. bookkeeper, secretary, or other staff, to have the full combinations for access to the drop-safes. As a result, these staff were able to access the drop-safes without restriction. To ensure proper safeguard of school assets, schools should enforce Bulletin #P-9303-AS/BA that To enable personnel to gain access to the drop safe without requiring the principal s involvement, part of the combination should be provided to two employees. One of these employees should be the school s internal accounts bookkeeper. As a backup, two other alternate employees can be provided part of the combination as well. 4. Monies Not Deposited Timely The review of monies collection process revealed that monies collected by staff were not turned in to the bookkeeper for timely deposit in 26 schools. Schools should comply with DOE Rules (Department of Education s Financial and Program Cost Accounting and Reporting for Florida Schools, Chapter 7) that all monies collected be turned in to the bookkeeper daily and the monies be deposited within five business days. Delay in turning in monies for deposit could result in potential irregularity. 5. Copy of Monies Collected Reports (MCRs) Not Retained by Staff Staff did not always retain copies of the Monies Collected Reports (MCRs) in 67 schools. Sponsors should retain the yellow copy of the MCRs before turning in the monies to the bookkeeper for deposit. Keeping a copy of the MCR will assist the sponsors in (1) ensuring that the dollar amount printed on the Official Receipt provided by the bookkeeper agrees with the monies collected and submitted for deposit, (2) tracking the account balance periodically for ongoing monitoring, and (3) providing documentation and proof for revenue collections if record keeping errors should occur. 6. Monies Collected Not Adequately Documented During 2008, all 171 schools in the School District collected a total of $76.2 million from fundraising, special trust accounts, and program fees. The audit of monies collection records revealed that some monies collected at 31 schools did not always document the sources and purposes of the collection. In accordance with DOE Rules, relevant information for monies collected should be adequately documented. 8

17 7. Inadequate Fundraising Documentation Fundraising activities were not always documented or completed in 70 schools: some fundraisers were not approved by the Principals; and revenue and inventory discrepancies were not investigated, documented, and disposed properly. Without accurate information on the Fundraiser Application/Recap Forms, there is no assurance that school revenues are properly safeguarded. 8. Cash Handling Procedures Not Incorporated Into Internal Accounts Manual (New Finding) To help strengthen controls and ensure integrity of revenue collection, in Fiscal Year 2007, the Accounting Department introduced new procedures for cash handling. Monies collected by staff are to be recorded in Monies Collected Reports (MCRs); then the monies accompanied by the MCRs are to be dropped off into the drop-safe daily while staff should retain the yellow copy of the MCRs as a temporary receipt. When dropping off the monies and MCRs into the safe, staff is to enter into the Drop-Safe Log the record of dollar amount being deposited. The Drop-Safe Log should provide a tool for independent confirmation and helps ensure the integrity of control for dollar amounts deposited into the drop-safe. While the new procedures have been implemented since August 2006, they have not been codified through bulletin or incorporated into the Internal Accounts Manual. Accounting Department should ensure that these procedures are delineated in the Internal Accounts Manual. Training sessions should also be provided to staff so that new procedures can be implemented effectively. III. SCHOOL AGE CHILD CARE PROGRAM (SACC) School Age Child Care is a fee based self-supporting program that provides after school care for students. During 2008, SACC programs were offered in 94 elementary schools and collected total fee revenues of $21.4 million. The audit revealed the following major conclusions: 9. Program Deficit In 20 Schools Although SACC program is a fee-based self-supporting program, 20 (21%) of the 94 elementary schools incurred a deficit in 2008, totaling $357,238. Deficits ranged from $954 to $73,276. The primary cause of the deficits was due to high staffing level when personnel expenses accounted for 95% of total SACC expenses. To ensure fiscal soundness and accountability, schools should monitor their revenues and expenditures closely. Staffing level and program expenditures should be consistent with the student enrollment and revenues collected. 9

18 10. Student Records Not Properly Maintained The review of SACC student records found that (1) some students were released without parent sign-out in 22 schools, (2) some students were released to persons not on the authorized list in 15 schools, (3) attendance and parent sign-out records were missing for some students in 12 schools, and (4) Student Registration Forms were missing or incomplete for some students in nine schools. 11. Payroll Not Properly Documented The review of SACC payroll found that (1) employees did not sign timecards in 16 schools, (2) some employee timecards were missing in 15 schools, (3) supervisors did not sign off on some employee timecards in 13 schools, (4) payroll did not always match with employee timecards in nine schools, and (5) time was input manually into some time cards in nine schools. All payrolls should be supported by employee timecards, signed by the employees, and signed off by their supervisors. IV. COMMUNITY USE OF SCHOOL FACILITIES The School District recognizes the mutual benefits of use of school facilities by the community, civic organizations, and taxpayers. To meet the needs of the community while protecting the best interests of the School District, certain leasing guidelines were developed by the District and implemented by the schools. The audit revealed the following issues in school facilities leasing that should require more management attention. 12. Inadequate Proof of Insurance Forty-seven schools did not always receive proof of adequate insurance from some lessees. To protect the School District from unwarranted financial liabilities, all lessees should provide proof of adequate insurance or purchase the required insurance coverage through the District s insurance pool prior to use of school facilities. 13. Lease Agreement Not Properly Completed Incomplete or missing information, such as lessees signatures, and location and time for use of facilities, was noted on some leases for 40 schools. Without proper signatures, there is no assurance that lease agreements can be legally enforced. Moreover, without the information for how long the facilities are to be used on the lease agreement, there is no reliable basis for determining the accurate amount of rental charges. 10

19 14. Undercharged Rentals and Late Payments Twenty-three schools had undercharged some lessees for their rent. Most undercharges were caused by (1) using the wrong leasing rate; i.e., a lower non-profit rate for commercial lessees, and (2) charging less hours for use of facilities. Moreover, the District s leasing procedures require all rentals be collected prior to the use of facilities; however, 18 schools did not comply with this requirement. To ensure that the School District is not subsidizing lessees through tax dollars, schools should ensure District approved rental charges are properly collected from lessees. 15. Lease Prequalification Not Performed Pursuant to School Board Policy 7.18 and District Directive D7.18, all lessees must be prequalified on an annual basis by the Superintendent or designee. The primary objectives of prequalifying lessees are (1) to ensure the leasing is mutually beneficial to the District, the community, and the lessee, and (2) to document the proper approval of fee waivers, if applicable. The audit found that some leases in 15 schools had not been pre-qualified; i.e. they did not have the District approved Rental Prequalification Request Forms. Schools should not enter into lease agreements until the intended use of school facilities by lessee has been approved through rental prequalification. V. COMMUNITY SCHOOL PROGRAM The Community School Program is a fee-based self-supporting function that offers classes for the general public in (1) general interest, and (2) workforce development designed to train persons to meet the needs of the local community. During 2007, twenty-two (22) schools in the School District offered Community School Program, and collected a total of $886,060 in fee revenues. 16. Registration and Attendance Records Not Maintained Incomplete or missing registration and attendance records were noted in seven community schools. Without accurate and complete student registration records, there is no assurance that revenues collected from the fee-based program were properly accounted for. 17. Improvement Needed For Payroll Processing The review of community schools personnel expenses revealed that payroll records did not agree with employee timecards at four schools. To ensure proper fiscal accountability for personnel expenses, all payrolls should be supported by employee timecards, signed by the employees, and approved by their supervisors. 11

20 18. Program Deficit In Three Schools At the end of School Year 2008, three schools had a total deficit of $133,992 in their community school program: $4,950 for Palm Beach Lakes High, $11,226 for Lake Worth High, and $117,816 for Boynton Beach High. To ensure self-sufficiency, financial conditions of the program should be monitored closely. Timely adjustment to staffing and expenditures should be made based on the actual student enrollment. In addition, the District should establish guidelines to ensure that classes offered to the public have sufficient students and generate enough revenues to fund the program expenditures. 12

21 Update of 2009 Internal Funds Audits (as of September 1, 2010) Fieldwork for 2009 Internal Funds Audits for all the schools had been completed as of September 1, 2010, with similar findings we concluded in prior years. Pending the receipt of management responses, the final report will be released in November Based on the nature and frequency of occurrence in certain findings, we have continually implemented new audit approaches and procedures in performing audit work. The followings are some of the new approaches. Cash We conducted surprise cash counts and deposit verifications. We tested compliance with monies collections procedures: o Whether sponsor maintains yellow copy of Monies Collected Report (MCR) o Whether sponsor indicates cash or check for each collection on MCR o Adequacy and use of Drop-Safe Log o Do cash and checks agree with records MCRs? Expenditures We focused on certain expenditures; i.e. Administrative Courtesy, payments to specific employees We reviewed selected expenditures from both payment vouchers and cancelled checks Adequacy of Controls We conducted tests on school deposits prepared by bookkeepers to detect the instance of replacing cash with unrecorded checks We also alerted: o Bookkeeper opening the mail o Bookkeeper completing Monies Collected Reports for sponsors o Sponsor not maintaining yellow copy of MCRs In reviewing School Age Child Care (SACC) collections, we alerted: o Use of manual receipts but not recorded in KidsCare database o Adjustments to Accounts Receivable without justified explanation 13

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25 Internal Funds Revenues Analysis 17

26 SACC & Summer Camp Revenues Analysis 18

27 School Facilities Leasing Revenues Analysis 19

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29 Performance Audits Released During Fiscal Years 2009 and Audit of Reimbursements from Red Cross for Shelter Costs (Released November 14, 2008) 2. Study of District s Heath Care Costs (Released December 12, 2008) 3. Audit of Purchase and Inventory Control of Fuel (Released February 13, 2009) 4. Audit of Exceptional Student Education Funding (Released October 16, 2009) 5. Special Report Concerning Purchasing Card Transactions (Released November 13, 2009) 6. Update: Special Report Concerning Purchasing Card Transactions (Released March 12, 2010) Special Requests and Referrals for Investigations Released During Fiscal Years 2009 and Audit of Lincoln Elementary School s Expenditures (Released November 14, 2008) 2. Audit of Western Pines Middle School s cheerleading Program (Released on September 12, 2008) 3. Audit of West Gate Elementary School s SACC Revenue (Released September 12, 2008) 4. Audit of Boca Raton High School s Basketball Program (Released November 14, 2008) 5. Special Audit of Barton Elementary School s Deficits in Internal Funds Accounts (Released on December 12, 2008) 6. Special Audit of Palmetto Elementary School s SACC & Summer Camp Revenue Collection (Released on December 12, 2008) 7. Special Audit of West Boca Raton High School s Basketball Account (Released December 12, 2008) 8. Special Audit of Liberty Park Elementary School s SACC Revenue Collection (Released December 12, 2008) 9. Special Audit of Melaleuca Elementary School s Pre-Kindergarten Program Revenue Collection (Released January 16, 2009) 10. Audit of Jupiter High School s Rugby Club (Released February 13, 2009) 11. Audit of Guided Path Academy Charter School (Released May 14, 2009) 12. Special Audit of Student Attendance Records at South Intensive Transition School (Released November 13, 2009) 13. Audit of John F. Kennedy Middle School s 2009 PASS/ComPASS Summer Program (Released December 11, 2009) 14. Audit of Migrant Scholarship Program (Released December 11, 2009) 15. Audit of Suncoast High School s Football Program Expenditures (Released March 12, 2010) 16. Special Audit of Poinciana Elementary School s Collections and Disbursements (Released March 12, 2010) 17. Special Audit of Addison Mizner Elementary School s SACC Fieldtrips (Released April 16, 2010) 18. Response to Complaint Referred by the Office of the Auditor General Concerning Drop Back In Academy s Enrollment Records (Released April 16, 2010) 21

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31 Performance Audits 1. Audit of Reimbursement from Red Cross for Shelter Costs We determined if the district has received the correct amount of reimbursement from the Red Cross when district Schools were opened for shelters during the hurricanes and tropical storms of Fiscal Years 2005, 2006, and The audit produced the following major conclusions: Due to the lack of certain personnel records or insufficient record keeping, we were not able to ascertain the correct amount of billing submitted to the Red Cross and the correct amount to be reimbursed by the Red Cross. o Hurricane Charley (August 2004): No information for related custodial personnel hours was available; therefore cost for involved custodial services could not be determined. Furthermore, no invoice or payment information related to any personnel costs was available for our review. o Hurricane Frances and Jeanne (September 2004): Not all of the billable employees on the timesheets were included on the Red Cross billing. o Hurricane Katrina (August 2005): The bill submitted to the Red Cross did not include the fringe benefits, which resulted in an under-billing of $25, o Hurricane Wilma (October 2005): The bills did not include the details for custodial or facility coordinator costs. Due to the inconsistencies and incompatibility of available data, we were unable to ascertain whether all shelter costs incurred for Hurricane Wilma were reimbursed. o Tropical Storm Ernesto (August 2006): Approximately $ in personnel costs were not included in the billing. Examples of inconsistent billings prior to May 2007: Employees actual pay rate was not used to prepare the invoice. This resulted in a net under-billing of $94, Timeliness Issues: It took the School district an average of 87 days to send an invoice to the Red Cross after the shelter was closed. It took an average of 257 days to receive a payment from Red Cross after the shelter was closed. Sound billing practices require that invoices be prepared and sent to payees as soon as possible after services rendered. 2. Study of District s Health Care Costs We analyzed the School District s health care costs and compared the costs to comparable institutions. The audit concluded that: The School District had a lower than average premium increase for 2008 and 2009 The District s costs were below benchmarks The District s costs were below peers The District s self-insured heath care plan complied with state filing requirements The School district currently does not have performance measurements to help analyze costs and processes associated with managing employee health care 23

32 3. Audit of Purchase and Inventory Control of Fuel We determined for the period November 15, 2006, through June 30, 2008, if (1) the vendor correctly invoiced the District pursuant to Term Contract #07C-10D for purchase and delivery of fuel, and (2) controls were adequate for dispensing of fuel. The audit found that the District did not adequately monitor the vendor s compliance with contract provisions. As a result, the vendor had invoiced the School District more than the contract allowed. $1,506,744 fuel tax billings although consistent with Florida Statutes were inconsistent with the contract terms $68,624 in billing errors due to vendor s use of incorrect billing method $6,751 in billing errors due to vendor s use of wrong prices Monitoring of contract compliance was inadequate Contract language was inconsistent with industry billing practice Base on review of records and on-site observation of fuel dispensing, w noted that there was no assurance fuel was provided to legitimate employees due to lax control procedures Controls in fuel cards were lax 4. Audit of Exceptional Student Education Funding We determined if funding designated for Exceptional Student Education (ESE) programs for the period July 1, 2007, through June 30, 2008, was spent to benefit ESE students. The audit concluded that: No exceptions were found in review of non-personnel expenditures. Overall, funding designated for ESE programs was spent to benefit ESE students. 5. Special Report (and Update) Concerning Purchasing Card Transactions The Audit Committee expressed its desire to have the P-Card findings from the Fiscal Year 2008 Internal Funds audits presented in a separate report. We presented our interim analysis on November 13, 2009, of noncompliance in P-Card transactions so that proper corrective actions can be developed and implemented. On March 12, 2010, we presented our final report of all 171 schools. The special report concluded that: P-Card related findings were noted 139 times, in nine major areas for 75 schools. o Fraudulent transactions were found at one school o Transactions records were missing at four schools o Documentation was missing for some purchases in 51 schools o Insufficient documentation was maintained for some purchases in 24 schools o End-of-cycle checklist was not completed in 11 schools o Monthly reconciliations were not done at 12 schools o Monthly bank statements were not reviewed and signed by principal in 20 schools o Purchases were inappropriately funded in five schools o Split purchases to avoid the $1000 single purchase limit occurred in 11 schools 24

33 Special Requests & Referral for Investigations During Fiscal Years 2009 and 2010 Received 24 special requests 15 referred to School Police/Personnel for further investigation (Some cases involved multiple employees) Results: 6 referred to State Attorney 2 terminated 4 resigned 6 other personnel actions 3 pending 25

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35 Special Requests and Referrals for Investigation 1. Audit of West Gate Elementary School s SACC Revenue Collection In response to the principal s request, we determined whether all revenues for the period July1, 2006, through January 18, 2008, were properly accounted for in the school s Internal Funds. The audit concluded that: $4,142 in SACC fees were missing 22 SACC receipts were missing Collections were not deposited timely The audit conclusions were referred to the School Police Department and the Employee Relations Department on March 26, 2008, for further review. On July 16, 2008, Employee Relations Department completed its investigation and the conclusions were referred back to the school principal for necessary actions. 2. Audit of Western Pines Middle School s Cheerleading Program In response to the principal s request, we determined whether the program s revenues and expenditures for the period July 1, 2007, through March 3, 2008, were properly accounted for in the school s Internal Funds. The audit concluded that: Cheerleading revenues and expenses were not accounted for in the internal funds Purchases were unauthorized by the principal Audit conclusions were referred to the Employee Relations Department on March 26, 2008, for further review. On May 8, 2008, Employee Relations Department completed its investigation and the conclusions were referred back to the school principal for necessary actions. 3. Audit of Boca Raton High School s Basketball Program In response to staff s request, for the period July 1, 2005 through June 24, 2007, we examined the basketball camps and related activities being operated in the school s gymnasium. The audit produced the following major conclusions: The basketball coach operated personal businesses with school facilities and equipment $100,757 in lease revenue was not collected from the basketball coach. Merchandise paid by school was delivered to home address of coach and non-district employee Payroll records were not maintained Immediate remedial action On June 5, 2007, the Chief Counsel of the School Board issued a letter to the principal of Boca Raton High School informing the school that the way the summer camps and related programs operating at the school was in violation of School Board Policy 6.07 (Internal Accounts) and 7.18 (Community Use of School Facilities) and is not sponsored by the School Board of Palm Beach County. The principal was instructed 27

36 to adhere to School Board Policies. To allow the continued operation of the camps, the principal should immediately issue a least to the corporation independently operating the camp. If the camp should operate as a school sponsored event, then all funds raised are to be deposited into the school s Internal Funds. In both cases, all individuals employed by the camps must comply with background checks pursuant to the Jessica Lunsford Act. The audit conclusions were referred to the School Police Department on July 16, 2007, for further review. School Police completed investigation on February 27, 2008, and the results were forwarded to Employee Relations. On August 29, 2008, the Employee Relations Department informed us that the case was closed because the subject employee resigned from the District effective August 20, Subsequently, the Legal Department filed a lawsuit against the coach to recoup the loss in rental revenues. 4. Audit of Lincoln Elementary School s Expenditures At the request of the principal, we determined the appropriateness of expenditures for the period July 1, 2006, through March 15, 2007, specifically the deficit balance for the General Activities Account and the cellular phone expense. The audit produced the following major conclusions: Three accounts in the school s Internal Funds had deficit balances: Administrative Courtesy ($203.63); Faculty Fund ($53.19); and General Activities ($2,525.84). Cellular phone and Blackberry charges were unresolved. 5. Special Audit of Barton Elementary School s Deficits in Internal funds Accounts At the request of staff, we determined for the period July 1, 2006, through June 30, 2007, (1) the reasons why the school was unable to pay certain invoices, and (2) whether all monies collected during Fiscal Year 2007 were properly accounted for and deposited into the bank. The audit concluded that: Missing cash was substituted by checks: $22,843 was missing The school incurred a total of $10,075 in unpaid debts, and had a total deficit of $5804 in Internal Accounts 6. Special Audit of Palmetto Elementary School s SACC & Summer Camp Revenue Collections At the request of the principal, we determined whether the 2007 Summer Camp and SACC revenues for July 1, 2006, through March 10, 2008, were properly accounted for in the school s Internal Accounts. The audit produced the following conclusion: $17, in SACC fees were missing The audit conclusions were referred to the School Police Department on April 4, 2008, for further investigation. School Police completed its investigation on June 3, 2008, and the results were referred to the State Attorney for further actions. 28

37 7. Special Audit of West Boca Raton High School s Basketball Account At the request of staff, we determined if the monies collected for the period June 1, 2007, through April 30, 2008, from the basketball program were properly accounted for. The audit concluded that cash collections and expenditures for the basketball program should have been handled by the Internal Accounts. 8. Special Audit of Liberty Park Elementary School s School Age Child Care (SACC) Revenue Collections At the request of the principal, we determined whether all SACC revenues for the period July 1, 2006, through January 31, 2008, were properly accounted for. The audit concluded that: $17, in SACC fees were missing SACC receipt books were not maintained properly On May 5, 2008, we referred the audit conclusions to the School Police Department for further investigation. Subsequently, subject employee resigned from the District effective February 11, 2008, while the audit work was still in progress. School Police completed its investigation on October 30, 2008, and the conclusion was forwarded the State Attorney for further actions. 9. Special Audit of Melaleuca Elementary School s Pre-Kindergarten Program Revenue Collections At the request of the principal, we determined if monies collected for the Pre-Kindergarten program for the period July1, 2007, through June 30, 2008, were properly accounted for and assess the compliance with District s policies and procedures for revenue collections. The audit concluded that: Deposits of monies collected were delayed. The Pre-K teacher repeatedly failed to comply with the District s requirements during November 2007, and March 2008, with delays ranging from two to 238 days. Monitoring controls were lacking 10. Audit of Jupiter High School s Rugby Club During the annual audit of the school s Internal Accounts, we noted that the school s Rugby Club maintained a separate bank account outside the control of the school. We reviewed deposit and expenditure records for the period July 1, 2006, through January 31, 2008, related to the Rugby Club. The audit concluded that: Imprudent travel could put students and the School district at risk There were no criminal background checks for chaperones Travel was unauthorized 29

38 On March 24, 2008, audit conclusions were referred to the School Police Department and Employee Relations for further investigation. On January 7, 2009, School Police and Employee Relations completed their investigations and recommended necessary disciplinary actions. 11. Audit of Guided Path Academy Charter School At the requests of the Charter Schools Department and the Office of the Chief Counsel, we audited Guided Path Academy Charter School for the period January 1, 2005, through February 28, This request was initiated by a complaint filed with the Charter Schools Department. We focused on the allegations contained in the complaint and produced the following major conclusions: School was in financial emergency pursuant to Florida Statutes Section (1) o The school maintained inaccurate salaries and taxes liabilities o The school avoided, underpaid, and under-recorded employment taxes o The school did not timely meet payroll obligations o The school had a deficit fund balance of $76,873 The school was in noncompliance with charter requirements. The Principal obtained and issued six unnumbered bank counter checks totaling $26,297 with only the Principal s signature, including one check written payable to herself, and another one written payable to Cash that was endorsed by her. Principal continued to pay herself the loan she forgave The school exercised unsound business practices: During the audit, we found that the Principal had possession of blank checks which were not secured in a vault. Commingling of funds: Funds received from Family Central continued to be recorded in the school s general ledger. Payroll for child care workers were being recorded in and paid from the school s operating account. Child care funds should not be commingled with the school s funds. Principal s Salary: The Principal s salary was inconsistent with the employment contract approved by the Governing Board. 12. Special Audit of Student Attendance Records at South Intensive Transition School In response to a complaint received by the Department of Quality Assurance and subsequently referred to our department, we examined the student attendance to determine if the student attendance records had been tampered. The audit concluded that attendance records were missing and incomplete. 30

39 13. Audit of John F. Kennedy Middle School s 2009 PASS/ComPass Program The North Area Superintendent s Office requested an audit of JFK s 2009 PASS/ComPASS Summer Program because of questionable work-hours submitted by staff and program deficit. The audit concluded that: Work hours incurred by employees exceed the allowable amount Missing attendance documentation: Of the 92 confirmed enrolled students, attendance for 10 of them could not be verified. Program had a total $13,697 deficit 14. Audit of Migrant Scholarship Program At the request of staff, we determined whether the program s fund was expended on scholarship awards to eligible students. The audit concluded that: $36,500 in scholarships were awarded during 2008 and 2009 Some documentation for scholarships awarded was missing. Some of the following records were either missing or discarded by the department: o List of scholarship recipients and the amounts awarded during School Year 2009 o Documentation for scholarship recipients registering with an institute of high learning. o Records of applications received and the final decision for scholarship awards District and school did not maintain donation letters. Consequently, there was no assurance that all donations were accounted for in the Migrant Scholarship Program. 15. Audit of Suncoast High School s Football Program Expenditures At the request of the principal, we determined whether the Football Program s expenditures for the period July 1, 2008, through November 30, 2009, were incurred with proper approval. The audit concluded that: $5,995 in merchandise was purchased without the principal s prior approval A $1, purchase was billed in two sequential invoices, with the same billing date, and was paid by two different checks in two months Non-approved vendor was used for helmet reconditioning and recertification 16. Special Audit of Poinciana Elementary School s Collections and Disbursements During the annual audit of the school s Internal Accounts we noted that all Purchasing Card (P- Card) Records were missing for Fiscal Years 2007 and Consequently we performed additional audit procedures for transactions for the period July 1, 2006, through December 11, 2008 to determine whether (1) monies collected were properly accounted for (2) disbursements were for legitimate expenses, and (3) the controls were adequate for monies collections and disbursements. The audit provided the following major conclusions: 31

40 The special audit identified $37,244 in fraudulent disbursements and missing monies: o $11,845 in personal purchases charged to the school s P-Cards for entertainment, travel, restaurants, department stores, and grocery stores o $7,860 in irregular reimbursements with forged signature, forged endorsement, previously-paid invoices used for reimbursement requests, and without invoice or receipt. o $17,539 missing from monies collections Check requisitions were pre-signed by the principal Other internal control deficiencies were identified. The audit identified widespread noncompliance with District procedures in monies collection and disbursement and internal control deficiencies: o Administrative staff admitted to back-dating Check Requisitions at the bookkeeper s request for the purpose of eluding discovery of missing documentation. o The bookkeeper had the full combination to access the drop-safe. o Staff did not reconcile the yellow copies of MCRs with the Official Receipts issued by the bookkeeper. Remitters did not follow-up with the bookkeeper or notify the principal for collections submitted when they did not receive the Official Receipts from the bookkeeper. o The bookkeeper was receiving and opening the school s incoming mail. o Reconciliations of the school s P-Cards were not performed. On December 11, 2008, we referred the conclusions to the School Police and Employee Relations Departments for further investigation. The concerned employee was removed from the school and temporarily reassigned to another work location effective December 12, 2008; and this employee resigned on May 7, On September 18, 2009, School Police completed its investigation and the conclusions were referred to the State Attorney for further actions. Employee Relations Department completed its review concerning the Principal s pre-signing 47 Check Requisition. As indicated by Employee Relations, the case was closed on December 9, 2009, and subject matter was handled by the Area Superintendent. 17. Special Audit of Addison Mizner Elementary School s SACC Fieldtrips During the annual audit of the school s Internal Accounts, we noted that the school expended significant amounts of SACC funds on fieldtrips to the Panthers hockey games for SACC students and their families, staff, and chaperones. We examined specifically the expenditures on these fieldtrips to determine whether these expenditures were appropriate. The audit concluded that: $69,315 in SACC funds were expended on SACC fieldtrips Records of ticket recipients were not available $1,337 in game tickets were given to staff and chaperones 32

41 On May 22, 2009, we referred the audit conclusions to Employee Relations for further review. As indicated by Employee Relations, the case was closed on December 9, 2009, and subject matter was handled by the Area Superintendent. 18. Response to Complaint Referred by the Office of the Auditor General Concerning Drop Back In Academy s (DBIA) Enrollment Records In response to a complaint referred to the School District by the Office of the Auditor General, we examined the enrollment and attendance records and Full Time Equivalent (FTE) reporting for the period August 1, 2009 through October 16, 2009 to determine (1) whether DBIA s student count was accurate; (2) whether DBIA s Student FTE Survey 2 was accurate; and (3) the causes for reporting errors, if any, in the student counts for FTE Survey 2. The audit concluded that: The school inflated the FTE October 2009 Survey by 149 students. Ninety-four (94) of these 149 students were rollovers from the previous school year but never attended the school for the new school year. This misrepresentation of enrollment count compromised the integrity of FEFP funding calculation and could increase the unearned funding for DBIA at the costs of taxpayers. The remaining 55 students did attend the school at least one day since the beginning of School Year ; but they were not present during the Survey Week of October 2 through 16, 2009, and therefore were ineligible for FTE funding. 33

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43 35 Referrals to School Police/Employee Relations (Fiscal Years 2009 and 2010) Date of Referral to Report Nature School Request Police/Personnel Release Date Results 1. Western Pines Middle Cheerleading Program 2/5/2008 3/24/2008 9/12/2008 Principal action 2. West Gate Elementary Monies Missing (SACC) 1/14/2008 3/26/2008 9/12/2008 Principal action 3. Boca Raton High Lease Revenues 5/7/2007 7/16/ /14/2008 Employee resigned. Subsequent lawsuit by District to recoup loss in rental revenues 4. Barton Elementary Monies Missing (Bookkeeper) 9/17/2007 2/19/ /12/2008 Employee resigned; Referred to State Attorney 5. Palmetto Elementary Monies Missing (SACC) Internal Funds Audit 4/4/ /12/2008 Employee terminated; Referred to State Attorney 6. Liberty Park Elementary Monies Missing (SACC) Internal Funds Audit 5/5/ /12/2008 Employee resigned; Referred to State Attorney 7. Melaleuca Elementary Fee Collections 7/2/2008 7/24/2008 1/16/2009 Employee terminated 8. Jupiter High Rugby Club Internal Funds Audit 3/24/2008 2/13/2009 Employee removed from sponsor position 9. Poinciana Elementary Monies Missing Internal 12/11/2008 3/12/2010 Employee resigned; (Bookkeeper) Funds Audit Referred to State Attorney Fraudulent P-Card Use Fraudulent Disbursements 10. Suncoast High Band Deficit Internal 3/4/2009 Ongoing Ongoing investigation Funds Audit 11. Morikami Park Monies Missing Internal 9/21/2009 Ongoing Employee reassigned; Elementary (Bookkeeper) Funds Audit Referred to State Attorney 12. Del Prado Elementary Financial 8/17/ /4/ /10/2010 Employees reassigned 13. Diamond View Monies Missing Internal 1/22/2010 Ongoing Employee reassigned; Elementary (Bookkeeper) Funds Audit Referred to State Attorney 14. Frontier Elementary Monies Missing (SACC) Internal 4/21/2010 Ongoing Ongoing investigation Funds Audit 15. Orchard View Monies Missing (SACC) Internal 6/2/2010 Ongoing Ongoing investigation Elementary Funds Audit

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45 Other Audit Reports KPMG s Management Letter for Year-Ended June 30, 2008 (Released on December 2, 2008) Reportable Conditions: IT General Controls Testing of IT General control surrounding the PeopleSoft system identified control deficiencies for a second year in a row. KPMG noted a lack of key controls around significant risk points within Access to Programs and Data and Program Changes. Specifically, excessive user privileges were provided to developers, test IDs, and others as a result of a lack of periodic review. KPMG found that there is no formal process in palce to review user access to the PeopleSoft application. Sales Tax Revenue The District had understated sales tax revenue as no accrual was made for revenue earned in June Ernst & Young s Management Letter for Year-Ended June 30, 2009 (Released on November 18, 2009) Reportable Conditions: Use of an Internal Service Fund for the Self Insurance Program The District currently records its risk financing activities in the general fund, which is permissible under generally accepted accounting principles; however, it is more prevalent in practice for school districts and other local governments to account for their self-insurance programs utilizing internal service funds. Ernst & Young recommended that the district consider using an internal service fund to account for and report all of its self-insurance programs. The use of an internal service fund to track the District s self-insurance costs would allow for enhanced transparency; separate accounting; visibility as to rising costs and provide a mechanism for recovering those costs. School Internal Accounts Banking The District currently uses several different banks to maintain the funds collected and held at the schools. Therefore, the schools could be paying bank fees which could be eliminated if a negotiated contract is obtained with one bank (or a few banks). Suspension and Debarment Verification Although the District indicated that its practice is to check the Excluded Parties List System (EPLS), no documentation evidencing that it had checked the EPLS was maintained, and a certification from the entity was not collected or clause or condition included in the agreements, as applicable, for certain sample transactions selected for testing. 37

46 Accounting and Financial Reporting for Derivatives (GASB 53 Implementation) Ernst & Young recommended that the District review the terms of its derivative instruments, thoroughly review GASB 53, and engage specialists as may be necessary, to assess the impact of adopting GASB 53 well in advance of fiscal 2010 year-end reporting. Reporting Controls (Refugee Grant Program) For three out of eight reports selected for testing, the district was unable to provide the respective reports at the time of Ernst & Young s fieldwork procedures because the individual who submitted the reports had since left the position and the current staff did not know whether the reports had been submitted and where they were located. Logical Access Controls - User Access and Roles Periodic reviews of user access appropriateness are not currently being performed. Without a periodic monitoring function, the District is unable to verify that employees access to systems is appropriate for their job function. Also, a review to validate that current roles are still necessary was not performed during the audit period. Without a periodic review of roles within PeopleSoft, users can have access to inappropriate roles for their job functions. Logical Access Controls - Password Settings Password settings of Active Director are not enabled. Security and password configurations are not optimized to prevent unauthorized access. Without the password settings enabled, brute force attacks can be carried out with a higher success rate and can lead to the compromise of financial data. Logical Access Controls - Police Personnel Access Ernst & Young noted that a school police officer s user account has access to domain admin group. A risk exists that data/programs could be intentionally or unintentionally modified. Arbitrage Rebate Liabilities The District does not maintain a fully comprehensive checklist or schedule setting forth each of its outstanding debt issues that are subject to arbitrage rebate and the relevant information such as when the last calculation was made and when the next calculation is due, etc. in order to monitor compliance with the federal requirements and to ensure that the arbitrage liability is complete and properly stated in the financial statements. 38

47 APPENDICES Appendix A School Board Policy #1.091 Audit Committee Appendix B School Board Policy #1.092 Internal Audit Function Appendix C Performance Measures and Comparative Data for Audit Function 39

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49 Appendix A Audit Committee (School Board Policy 1.091) RULES OF THE SCHOOL BOARD OF PALM BEACH COUNTY, FLORIDA Title 6Gx50 Chapter 1. School District Prev. Section Next Policy Audit Committee The School Board has created an Audit Committee, which is an advisory committee to the Board. The Committee shall be governed by its charter, as set forth herein. 1. Authority a. Primary responsibility for the District's financial reporting and internal operating controls is vested in senior operating management as overseen by the School Board. The Audit Committee is advisory only, and has been created consistent with Policy 1.09, "Advisory Committees to the Board," for purposes of providing advice to the School Board and providing guidance and assistance to the District Auditor. The District Auditor shall report to the School Board. b. Whenever a recommendation of the Committee on a substantive issue is reported to the School Board and the recommendation was not unanimous, the basis for the majority and minority positions should be brought to the attention of the School Board. c. The Audit Committee shall be appointed by the School Board from nominations by School Board members (one appointee per Board member) and will be composed of seven (7) voting members from the community and six (6) non-voting ex-officio members. The non-voting ex-officio members shall include: two School Board members, the Superintendent/designee, Chief Counsel to the School Board/designee (solely to provide legal advice), the President of the Classroom Teachers Association, and a representative from the District's school principals. d. In nominating individuals to serve on the Audit Committee, School Board members are encouraged to take into consideration representation from various racial and ethnic groups and professionals with a background in accounting, finance, or business. e. The terms of community members nominated by School Board members shall be consistent with the terms of their respective nominating School Board members, unless the nominating School Board member exercises his/her discretion to remove the Committee member. The terms of ex-officio members shall be consistent with their term of service in the position which qualified them to serve ex-officio on the Audit Committee. f. The Committee shall elect a Chair and a Vice Chair from among the seven community members. All Committee members serve in a voluntary capacity and shall be residents of Palm Beach County. Community members will be removed automatically should they miss three (3) consecutive regular meetings without good cause. g. Committee members, and/or their company(ies) in which the members have a direct financial interest, shall not do business with the District during the members' term, in accordance with , Fla. Stat., and pertinent Opinions of the Florida Commission on Ethics. h. The School Board will reasonably provide adequate support to the Audit Committee to discharge its responsibilities. The Board, with the advice and counsel of the Audit Committee, shall ensure that the auditors have unrestricted reasonable access to District personnel and public documents. The management shall cooperate with the Committee in promoting the use of the internal audit as a constructive process. Committee activities shall be reported to the School Board on a regular basis. 2. Responsibilities a. Meetings.-- The Audit Committee will meet on a regular basis and call special meetings as required with proper notice. Four (4) voting members shall constitute a quorum. Audit Committee meetings are to be conducted under Robert's Rule of Order Newly Revised. 41

50 Appendix A Audit Committee (School Board Policy 1.091) All Committee and subcommittee meetings are governed by the Sunshine Law as required by Chapter 286, Fla. Stat. b. Management Accountability i. The responsibility of the Audit Committee in the area of financial reporting is to review interim financial statements, annual financial statements, and the District's annual management letter, and assist the Board in interpreting these documents. ii. Specific responsibilities of the Audit Committee shall include, but not be limited to: nominating external auditors; reviewing auditor engagement letters; coordinating with the District's chief financial officer in overseeing the audits by external auditors; arranging for periodic reports from management, the external auditors, and the District Auditor to assess the impact of significant regulatory changes and accounting or reporting developments; reviewing external auditors' performance; reviewing management letters and auditor's opinions; reviewing and monitoring implementation of management's response to auditors' recommendations; reviewing and recommending to the Board any necessary changes to the Audit Committee charter or Internal Audit procedures as set forth in Policies and 1.092; and recommending an annual audit plan to the School Board. c. District Governance i. The Audit Committee is to provide assurance that the District is in compliance with pertinent laws and regulations relating to accounting and financial matters; is operating in accordance with sound business practices; is conducting its affairs ethically; maintains effective controls against employee conflict of interest, errors and fraud; and provides accurate and complete financial disclosure. ii. iii. Among other responsibilities, the Committee shall provide input to the Board in the Board's performance evaluations of the District Auditor, whose written evaluations will be kept on file pursuant to Fla. Stat The Audit Committee may review and make recommendations on any proposed disciplinary action upon, or termination of the employment of, the District Auditor. In the event of a vacancy in the position of District Auditor, the Audit Committee should review the applicants and provide its recommendations to the School Board regarding selection. 3. Internal Control.-- The responsibility of developing and implementing adequate internal control rests with the management of the District. The Audit Committee must fulfill its internal control oversight responsibilities, through the District Auditor, without unnecessary or inappropriate intervention in the prerogatives of District management. Nevertheless, to carry out its responsibility, the Audit Committee must, among other actions, assist in determining if any restrictions have been placed by management on the scope of independent auditors' examinations. The Committee should review the results of each peer review of the Office of District Auditor and discuss the nature of any corrective measures. The District Auditor shall also coordinate with the Chief Counsel to the School Board and the School Police Chief in special investigations into significant matters. 4. Duration of Charter.-- The Audit Committee's charter shall remain in effect until repealed or amended by the Board following appropriate procedures. The Board may modify or terminate the charter with stated cause. STATUTORY AUTHORITY: Fla. Stat (2); (22) LAWS IMPLEMENTED: Fla. Stat , (10)(l); OTHER REQUIREMENTS: Government Auditing Standards, General Accounting Office, U.S. Comptroller of the Treasury. HISTORY: 12/2/02 42

51 Appendix B Internal Audit Function (School Board Policy 1.092) RULES OF THE SCHOOL BOARD OF PALM BEACH COUNTY, FLORIDA Title 6Gx50 Chapter 1. School District Prev. Section Next Policy Internal Audit Function 1. Purpose a. It is the express interest of the School Board and the Superintendent of the School District of Palm Beach County to promote fiscal responsibility and accountability for the operations of the District. The internal audit function shall be considered an essential element in achieving these goals, with a view to assisting the School Board and District management in carrying out their responsibilities relating to fiscal policies, internal controls, and management reporting practices. b. Internal audit will serve an independent appraisal function within the District to examine and evaluate its activities, including the adequacy and effectiveness of the District's system of internal controls and the quality of performance. Internal audit will provide analyses, appraisals, recommendations, counsel, and information concerning the activities reviewed. The School Board and management of the District will be notified of any potential problem areas. The District Auditor will advise individual Board members periodically of significant findings identified during audits, before the final report is released. 2. Organization of the Internal Audit Function a. To promote the independence and objectivity of the audit function, the District Auditor shall report to, and be evaluated by, the School Board pursuant to Fla. Stat (10)(l), with input from the Audit Committee in accordance with Policy 1.091(2)(c)ii. b. The Audit Committee is governed by Policies 1.09, "Advisory Committees to the Board" and 1.091, "Audit Committee," and it shall promote independence in the internal audit function and advise on ensuring broad audit coverage, adequate consideration of audit reports, and appropriate action on audit reports. c. The District Auditor's office shall be free of organizational and political pressures that limit its objectivity in selecting areas to be examined in implementing the audit plan. The District Auditor should not be involved in any political campaign for a School Board elective office nor make financial contributions to any such campaign. d. The District Auditor's office should be adequately staffed, within financial constraints, to perform its auditing activities; and auditors should maintain their technical competence through continuing education. e. The District Auditor and personnel on the internal audit staff are required to follow the Audit Manual and all the Policies, procedures, and guidelines which govern other District employees. The District Auditor is responsible for administering and enforcing the audit staff's compliance with such Policies, procedures, and guidelines and the Audit Manual. 3. Authority a. To properly carry out its responsibilities, internal audit shall reasonably be granted: i. The authority to conduct performance and financial audits of all departments, offices, activities; programs under the control of the School Board; and expenditures incurred by the School District; ii. Complete and unrestricted access to all District records, documents, and facilities or other assets owned, borrowed, or used by the District, which includes information regarding District vendors, as deemed necessary in performing audit activities; iii. The authority to request reasonable assistance from appropriate personnel in locating assets and obtaining records and documents; and 43

52 Appendix B Internal Audit Function (School Board Policy 1.092) iv. Unrestricted interview privileges, both written or oral, with all District management and employees. The District Auditor may also obtain information from District vendors when such information is needed while conducting an audit. b. Auditors are to have no authority over, or responsibility for, the activities they audit. The District Auditor or any of the employees of the Office of District Auditor shall not conduct or supervise an audit of an activity for which he/she was responsible or within which he/she was employed during the preceding two (2) years. 4. Responsibility and Scope of Activities a. Before the beginning of each fiscal year, the District Auditor shall develop, for approval by the Board, a proposed audit plan after consultation with the Board and Audit Committee at a joint meeting, and with input from the Superintendent and other high-level administrators. Before presenting the proposed audit plan for approval by the Board, the District Auditor shall first submit the proposed plan (reflecting budget, staffing, scheduled audits, and non-audit activities) for review and discussion by the Audit Committee, whose advice on the proposed plan will be reported to the School Board before a vote by the Board. The District Auditor may amend the approved plan during the fiscal year only by approval of the School Board with input from the Audit Committee. b. The School Board shall have the authority to make changes in the approved audit plan during the year, and these changes shall be submitted to the Audit Committee for advisory input. All staff requests for amendments to the audit plan shall be reviewed by the Audit Committee and submitted to the School Board for approval, along with a report stating the Audit Committee's advice on the requested amendments. c. Types of audits to be performed by internal audit shall include, but not be limited to: performance audits, economy and efficiency audits, program audits, financial statement audits, and financial-related audits, as defined by the Government Auditing Standards. 5. Auditing and Reporting Procedures a. Internal audit will conduct its affairs in accordance with this Policy; the Audit Committee charter as set forth in Policy 1.091; the Government Auditing Standards; and the Audit Manual, which is hereby incorporated by reference herein and made a part of this Policy, provided that nothing in the Manual shall be interpreted as contrary to state or federal law. The Audit Manual shall be filed with the Clerk of the School Board as a part of this Policy and shall be available for inspection in the Public Information office. If any part of the Audit Manual may be deemed to conflict with this body of the Policy, the provisions within this body of the Policy shall control. b. The District Auditor, in collaboration with the Superintendent, may initiate and conduct any emergency audits or reviews not listed in the audit plan, if deemed necessary, in view of potential illegal acts, fraud, abuse, or misuse of District funds. Evidence of such irregularities shall be referred to the School Police and the School Board's Office of Chief Counsel for further investigation. c. Except for audits intended to be unannounced, reasonable notice should be given to appropriate personnel of an intent to audit in their area. d. During the course of audit work, the District Auditor and Audit staff shall be alert to any indications of fraud, abuse, or illegal acts. If the District Auditor detects apparent violations of law or apparent instances of misfeasance, malfeasance, or nonfeasance by an employee or information that dereliction may be reasonably anticipated, the District Auditor shall consult with the Superintendent, Chief Counsel to the School Board, and the School Police Chief. If the irregularity may be criminal in nature, the investigation shall be handled by the School Police Department, in conjunction with the Office of Chief Counsel to the School Board. e. Each internal audit will result in a written report. Audit reports shall be objective, clear, concise, constructive, and timely and shall contain the professional conclusions of the auditor regarding the activities audited. 44

53 Appendix B Internal Audit Function (School Board Policy 1.092) f. Before issuing a final written report, the District Auditor will communicate with, and schedule a meeting to review the preliminary report and response with, the respective audited department, office, or division. When auditing a vendor, and/or in the event information and response is needed from a vendor, this step may include meeting with the vendor when the audit is near completion, and the vendor or affected person must agree to maintain the confidentiality of preliminary/draft report and the information contained therein pursuant to Fla. Stat (3)(y) and shall enter into a written confidentiality agreement for the period until the audit is completed. A vendor's failure to enter such written confidentiality agreement shall be deemed to constitute that vendor's waiver of the opportunity to respond to the preliminary report, and the audit shall be completed without the vendor's response. g. The District Auditor shall advise the Superintendent of the findings. However, the Auditor shall not provide any preliminary reports to the School Board or individual Board members until the final draft of the report is distributed (absent a Board vote requesting receipt of a preliminary/draft report before the final draft of the report). h. The District Auditor will place on the agenda the finalized audit report for the next available Audit Committee meeting prior to submitting the final report to the School Board. i. Pursuant to (3)(y), Fla. Stat., and Ch , Laws of Fla., work papers, notes, and preliminary or draft audit reports shall be held confidential and exempt from public-records disclosure until the audit is completed by submission of the final draft of the report to the School Board. j. To enhance the independence, objectivity, and effectiveness of the auditing process, the final report shall be submitted at the same time to all members of the School Board, the Superintendent, and affected department heads. After submission of the final draft or final report to the School Board, audit reports will be available to members of the press and the general public upon request. k. The District Auditor may request periodic status reports from audited departments, offices, or divisions regarding corrective actions taken to address reported deficiencies and audit recommendations. STATUTORY AUTHORITY: Fla. Stat (2); (22) LAWS IMPLEMENTED: Fla. Stat (3)(y); ; (10)(l); OTHER REQUIREMENTS: Government Auditing Standards, General Accounting Office, U.S. Comptroller of the Treasury. HISTORY: 1/13/

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55 Appendix C Performance Measures and Comparative Data for Audit Function 47