ST MARY OF CARMEL CATHOLIC SCHOOL DALLAS, TEXAS AGREED UPON PROCEDURES REPORT

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1 ST MARY OF CARMEL CATHOLIC SCHOOL DALLAS, TEXAS AGREED UPON PROCEDURES REPORT Year Ended June 30, 2018

2 INDEPENDENT ACCOUNTANTS REPORT ON APPLYING AGREED UPON PROCEDURES Ms. Kaitlyn Aguilar, Principal St. Mary of Carmel Catholic School 2900 Vilbig Road Dallas, Texas We have performed the procedures enumerated in the attached report, which were agreed to by St. Mary of Carmel Catholic School (the School ) and the Diocese of Dallas, solely to assist you with respect to the accounting records of St. Mary of Carmel Catholic School as of and for the year ended June 30, Management is responsible for its accounting records. This agreed upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of those parties specified in the report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. Our procedures and findings accompany this letter. We were not engaged to and did not conduct an audit, the objective of which would be the expression of an opinion on the accounting records. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of St. Mary of Carmel Catholic School and the Diocese of Dallas and is not intended to be and should not be used by anyone other than those specified parties. August 22, 2018

3 Diocese of Dallas Agreed Upon Procedures St. Mary of Carmel Catholic School 1) Obtain a copy of the entity s year-end RightNetworks (RN) standardized financial report #8: Statement of Financial Position vs. Prior Year, report #9: Statement of Activities vs. Prior Year - Natural, and report #11: Statement of Activities vs. Budget Natural. The above financial reports are part of these procedures and must be in the prescribed RightNetworks format and included in the final review report. a) For Report #11, tie the budget balances to the approved budget by reference to minutes of the Finance Council (and School Advisory Board if applicable). If there is no budget or approval, so note in reviewer s report. Budget balances, per RN report #11, were not formally approved by the School Advisory Board. b) For Report #8, determine that the reported net assets balances in the prior year column agree with the report used in the prior year s review. Net asset ending balances in the prior year review report agree to the net asset beginning balances shown in the current year RN report #8. c) Determine and document, in the final review report, what financial reports are presented and reviewed with governing groups (e.g. Parish finance council, School advisory council, board of directors) and how often, by actual reference to minutes of the meeting (s). PSK was unable to review the minutes of the School Advisory Board to determine what financial reports are reviewed because the Board did not meet during the year. d) Determine that meetings are held with the Parish Finance Council at least four times a year by reviewing the minutes of said meetings. The School Advisory Board did not meet during the year. 2) Obtain (or update) the list of ALL accounts at all financial institutions using the attached format (Bank/Investment Account Information). - The list must include any trusts and all Parish Based Organizations accounts. - The list must include account number, name, authorized signers and purpose. - Identify any accounts on the list that are not included in the entity s RightNetworks report #8: Statement of Financial Position vs. Prior Year. - The list must be signed by the Pastor (and the Principal if applicable) and included in the final review report. Bank Account Information form is included in the attachments section of this report. PSK reviewed the list noting all accounts are included in the RightNetworks reports, and per inquiry with Hope Burton, accountant, all Parish/School Based Organization accounts are included. 1

4 3) Review the June 30th account reconciliation for all of the above accounts and: a) Determine that reconciliation to the general ledger was performed in a timely (30 days) manner. The June 30th reconciliation for the Operating account was performed by Maria Elena Gualy, accountant, on July 30, The June 30 th reconciliation for the Compass Bank account was not prepared as of the date of our review. b) Determine that the reconciliation was reviewed by other than the preparer (i.e. supervisory personnel) and such review is documented. PSK noted the approval signature of the principal on the Operating account reconciliation. c) Note, in final review report, any accounts that are not reconciled using QuickBooks. All accounts have been reconciled using QuickBooks. 4) Inquire if the entity pays individuals/workers in cash and/or gift cards. The School does not distribute cash and/or gift cards to workers as compensation. All wages are processed through PayChoice per inquiry with Hope Burton, accountant. 5) Select 20% of employees (a minimum of 5, or all employees if there are less than 5), including some new hires, and determine that: a) Salary has been appropriately approved and all compensation has been included for tax reporting purposes (see also step #13d). A priest s salary should agree with the Diocesan schedule and the related W-2 form (if any discrepancies are noted, notify the Diocesan CFO at ccolbert@cathdal.org and include all pertinent details in the final review report). We reviewed employee files for 7 of the School s 35 employees. We noted 1 of the 7 employees salaries or hourly wages had no documentation of approval. All compensation appears to be included on the W-2s. b) Review and document, in the final review report, the time-tracking mechanism for non-exempt employees. Select a sample of five timecards and trace time worked to payroll register to determine proper payment. The School has all non-exempt employees sign in and out on manual sign-in sheets for their scheduled workday. The accountant prepares a weekly summary for the principal to review and approve. We traced five sign-in sheets to the PayChoice reports noting no exceptions. c) Determine, through inquiry, if clergy employees are paid stipends. If stipends are being paid, document, in the final review report, pertinent details such as the basis for such payments, frequency, amounts, etc., and how such stipends are being recorded in the general ledger. Per inquiry with Hope Burton, accountant, there were no clergy employees receiving stipends in the current year. d) Ascertain, through review and testing of a representative sample of stipends paid to all clergy employees, that such payments are being paid through the payroll process and are being included as compensation for tax reporting purposes. Per inquiry with Hope Burton, accountant, there were no clergy employees receiving stipends in the current year. 2

5 e) Each has been enrolled in the diocesan group insurance plan if qualified (working 30 hours or more per week) and the cost of elective coverages has been withheld from pay. We noted 5 employees eligible for the diocesan group insurance plan out of the 7 selected for testing. Further, we reviewed the enrollment forms and noted each eligible employee appears to be properly enrolled and elective coverages are being withheld from pay. f) I-9 documentation for non-clergy employees has been properly completed and is maintained in a file separate from other personnel records. We were provided with a separate file folder containing the I-9s of all employees. We reviewed the forms for the selected employees noting that one I-9 had not been properly completed. g) Obtain a list of all employees paid during the fiscal year that indicates which are eligible and not eligible for 403B employer mandatory and employer matching contributions. This list should include gross pay for each employee for the fiscal year and the reason(s) why paid employees marked as ineligible are in that status. - Determine that the employee is properly enrolled in the 403B Plan and received the correct matching and mandatory employer contributions for the fiscal year. General 403B plan rules: (1) an employee can defer at any time. (2) To be eligible for employer contributions, an employee must have worked at least one year and worked more than 1,000 hours in a 12 month period. - Review the status of employees listed as ineligible for reasonableness. PSK obtained a complete list of all personnel employed by the School during the fiscal year. We reviewed the PayChoice reports for those with voluntary contributions and reviewed their personnel files noting amounts were being properly withheld and matched appropriately. For eligible employees, we noted the mandatory contribution was being made. Finally, ineligible employees appear to be properly classified. h) Determine that employees are not given a 1099 tax form (see also step #13f). We reviewed all 1099s issued in 2017 and noted no employees were included. 6) Inquire if the entity is providing any benefits to employees outside of Diocesan benefit plans. If any are identified, notify the Diocesan CFO at ccolbert@cathdal.org. No benefits outside the Diocesan benefit plans are being provided to employees. 7) Determine by inquiry and observation in other work steps that no payroll taxes are being paid directly to the IRS by the entity. (Payroll taxes are paid, and returns filed, by PayChoice, for all periods after December 31, 2008.) Per discussion with Hope Burton, accountant, the payroll taxes for the School are paid by PayChoice. We did not see any indication of direct payments to the IRS. 8) Inquire if the entity has any unresolved payroll tax issues/correspondence with the IRS. If so, notify Fred Villela at fvillela@cathdal.org and include a description in the final review report. Per discussion with Hope Burton, accountant, there are not unresolved tax issues, and the School has received no correspondence from the IRS. 3

6 9) For Parish only, a) Conduct a walkthrough of Mass collections counting and security procedures from the time contributions are collected at Mass until deposited in the bank including locked bags, access to safe, count team(s) counting process, count sheets, preparation of deposit slip, and the actual depositing of the funds at the bank. b) Select 5 non-consecutive weeks count sheets and tie-in to: - The bank deposit and posting to the general ledger. - The reconciliation with the parish database of individual contribution record (e.g. PDS). If no reconciliation exists, note this in the final review report. c) Based on the results of items a) and b) above, include in the final review report, a conclusion as to whether or not actual Mass collections procedures are essentially in accordance with the Diocese Accounting Standards Handbook. If not in accordance, include in the final review report, significant departures and weaknesses in internal controls. This step is not applicable. See separate report for St. Mary of Carmel Church. 10) For Schools only, a) Taking into account total actual enrollment, review the reconciliation of actual tuition revenue, broken down by gross tuition less discounts and assistance, to the detail per the Tuition Management system being used (e.g. FACTS, Smart, RenWeb, etc.) and agree to the respective line items of RightNetworks report #11 noted in item # 1). Include, in final review report, variances greater than 5%. There were no variances greater than 5% per review of the reconciliation of the FACTS reports and the RightNetworks report #11. b) Determine that the Tuition Receivables balance at June 30 th, per RightNetworks report #8, agrees to the outstanding accounts receivable per the Tuition Management System being used. Include, in the final review report, any unreconciled differences. The tuition receivables balance at year end per the FACTS reports agrees with the tuition receivables per the RightNetworks report #8. c) Ascertain that the School s subsidy amount for the current fiscal year agrees to the Parish s financial report, and include in the final review report, any unreconciled differences. The subsidy amount in the School s RightNetworks report #9 agrees with the subsidy amount in the Parish s RightNetworks report #9. 11) Review the contents of the Parish s/school s safe to determine that all funds are deposited timely, (within 7 days of receipt). If any funds are noted in the safe, note the date of collection and the reason for not being deposited. The safe was opened for our review and we noted the safe contained cash and checks collected for tuition and various other purposes, such as pizza sales, donations, afterschool program fees, etc., as well as petty cash. The funds were collected this week and were scheduled to be deposited the following week. 4

7 12) Conduct a walkthrough of procedures for major revenues, other than Mass collections and School tuition and registration fees, such as fundraising revenues, faith formation and sacramental fees, etc. a) Test receipt of 10 transactions (10 for parishes and 10 for schools) to determine if deposits are being made timely, within 7 days, and proper recording to the general ledger. Deposit (type of receipt) Amount Date Received Date of Deposit # of days Traced to GL acct. # Garage Sale Proceeds $ /21/2017 8/29/ Garage Sale Clothing Donation Revenue $ /7/2017 9/19/ Miscellaneous Revenues Jamaica Cash from Event $ 18, /1/ /3/ Jamaica Pizza 11/22/17 $ /22/ /5/ Pizza Revenue Poinsettia Sale $ /21/2017 1/9/ Misc Fundraisers Fish Fry Procceds 3/23/18 $ 1, /23/2018 3/27/ Misc Fundraisers Ticket Pmt $ /4/2018 4/10/ Casino Night Tickets - Araceli G. $ /24/2018 4/24/ Casino Night Candy Sold at Church $ /16/2018 4/24/ Family Fundraisers Trivia Card Donation $ 4, /25/2018 4/27/ Trivia Night b) Based on the above, include in the final review report, a conclusion as to whether or not actual procedures are essentially in accordance with the Diocese Accounting Standards Handbook. If not in accordance, include in the final review report, significant departures and weaknesses in internal controls. PSK performed a walkthrough of procedures for major revenues, other than School tuition and registration fees, with Hope Burton, accountant. We noted the procedures appear to be in accordance with the Diocesan Accounting Standards Handbook; however, 5 of the 10 transactions tested were deposited more than 7 days after receipt. 13) Review 30 non-payroll disbursements for the Parish and 30 non-payroll disbursements for the School, including disbursements by Parish/School Based Organizations. The above 30 disbursements should consist of 15 employee reimbursements (to include the pastor, other priests, and principal) and 15 other disbursements. If the entity has less than 15 employee reimbursements, review all employee reimbursements and the balance in other disbursements for a total of 30 non-payroll disbursements. For the 30 non-payroll disbursements determine: a) That invoice, receipt, or contract is properly approved and attached. We selected 30 disbursements and were provided with appropriate supporting documentation, including approval, for all transactions except one. b) That reimbursements to employees are in compliance with Diocesan policy, including adequate and proper support. Include, in the final review report, any noted employee reimbursements for entity operation expenses such as supplies, furniture, advertising, charitable contributions, benevolent payments, etc. PSK selected 9 reimbursements to employees noting proper approval and support of each transaction except one. We noted 4 reimbursements to employees for operational expenses (supplies). c) That purchase is reasonable in the circumstances. Each transaction appears to be for an appropriate business expense. 5

8 d) Any amounts paid to employees representing compensation was reported via the PayChoice payroll system for inclusion in the employee s W-2 tax form. No transactions represented compensation. e) Inquire if any payee that is an individual is in fact an employee but is paid outside of the payroll process. Per inquiry with Hope Burton, accountant, all relationships with individuals paid for services are reviewed to ensure contractors and employees are classified properly. f) Review and conclude on the adequacy of procedures for setting up vendors for purposes of 1099 reporting at year-end. - Review the copies of the 1099 and 1096 tax forms for the prior calendar year. - For the prior calendar year, ascertain that a 1099 was prepared for all applicable vendors by reference to the supporting accounts payable report(s). For a sample of five 1099s, agree the reported amount to the underlying accounts payable/disbursement records. - Ascertain that a 1099 was not given to employees. PSK reviewed all 1099s issued in 2017 and compared each to the 2017 calendar year check register. Additionally, we requested the W-9s received for all vendors paid in PSK notes that all individuals paid more than $600 in 2017 were issued a The School did not issue a 1099 to any employees. 14) Determine that national and special collections are being remitted timely and in proper amounts: a) Review the amounts collected and remitted to the Diocese for 2 special collections. Include, in the final review report, the 2 special collections reviewed, dates of collection and remittance, and amounts for each. This step is not applicable. See separate report for St. Mary of Carmel Church. b) Review fiscal year-end balances in special collection general ledger accounts #2051 through #2066 and note, in the final review report, general ledger accounts with amounts outstanding in excess of 60 days (i.e. collections not yet remitted). This step is not applicable. See separate report for St. Mary of Carmel Church. 15) Determine that the Parish and/or School published its prior fiscal year s RightNetworks standardized reports #5 (Statement of Activities vs. Prior Year Natural) and #8 (Statement of Financial Positions vs. Prior Year) by October 15, Include, in the final review report, all pertinent details such as what reports were published, date of publication, length of publication, publication medium (e.g. bulletin, website, mailings) etc. The School uploaded the RightNetworks reports #5 and #8 to their website on October 17, 2017, and the reports remain accessible as of the date of this report. 16) (a) Meet with the entity s pastor/principal/administrator, business manager, and Finance Council and review the results of the annual financial review. This should include a review of the year-end report and the final review report noted in step #18. PSK met with the School Advisory Board on September 10, 2018 to discuss this report and our letter of comments and recommendations for improvements. 6

9 (b) Obtain a copy of the completed Letter from the Finance Council (required letter/report to the Bishop on Parish Pastoral Council and Parish Finance Council members and activities) and include it with the final review report. The Parish is to submit the original of this letter to the Diocesan Director of Parish & School Financial Reporting (Fred Villela). A copy of the Letter to the Bishop is included in the attachments section of this report. 17) Obtain a representation letter from the pastor/principal/administrator and the business manager/bookkeeper and include a copy of the letter in the final review report. A copy of the signed Management Representation Letter is included in the attachments section of this report. 18) Write a final report on the results of the review and all exceptions noted, and include recommendations for improvements in internal controls. The report should be addressed to the pastor/principal/director and delivered to them. This report includes the results of the review and all exceptions noted. The letter on recommendations for improvements in internal controls is included with this report. 19) A copy of the report should be delivered to Diocesan Director of Parish and School Financial Reporting (Fred Villela) as follows: - One (1) electronic copy of each report to fvillela@cathdal.org. - Parish only report two (2) hard copies - School only report three (3) hard copies. - Combined Parish and School report three (3) hard copies All electronic reports are submitted to the ShareFile account established for the Diocese. Bound copies, as outlined above, are sent via FedEx to arrive on or before the reporting deadline of September 14,

10 ATTACHMENTS Diocesan Annual Financial Reports for the year ended June 30, 2018: o Statements of Financial Position Comparative o Statements of Activities Comparative o Statement of Activities Budget to Actual List of Bank Accounts Key Documents in Collection Process Management Representation Letter Letter from the School Advisory Board

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21 St. Mary of Carmel Collection Procedure St. Mary of Carmel follows the collection procedure outlined in the Diocesan Handbook of Polices and Procedures for Schools as well as the Diocesan Accounting Standards Handbook. As it specifically relates to the collection and recording of fees and other revenues, the following procedures are implemented. All tuition and fees are either billed through FACTS or due and payable at school, such as carnival tickets and other fundraisers. A spreadsheet is kept to track those payments. Process for Payments Received at School All payments/monies received from parents/students or collected by teachers for buck-a-jean, field trips, etc., will be recorded on a daily activity sheet. Donations and other miscellaneous checks, such as DEET, etc., will be processed as a separate deposit. The activity sheet is to be completely daily. Checks and cash will be counted daily, either that afternoon or in the morning of the next day and reconciled with the daily activity sheet. Receipts are also written for all monies received from parents/students whether cash, check or credit card. Office staff will fill out the daily sheet as follows: The date is noted at the top of the sheet. The name of the family of student, brief description of what the payment is for and the method of payment (cash, check, money order, etc.) is also included on the daily report. Staff should indicate whether it s a prepayment of payment for existing balances in FACTS. This applies to anything billed in FACTS, not just lunch and after school care. If possible, the parents should be asked if they are paying on a FACTS balance. This helps identify the payments that need to be posted to FACTS. This should be done in a timely manner. Cash and checks should balance with items on the daily activity sheet and with the receipts written for that day. Office staff will count cash/checks and verify that it matches what is on the daily sheet. They will include a breakdown by denomination at the bottom of the daily sheet or on an adding machine tape attached to the daily sheet. A second person of the office staff will do a second count and also verify that the breakdown by denomination and the total matches what is on the daily sheet. If there is a discrepancy, staff will write a note on the daily sheet and notify the principal. She will do a third count and assist with conciliation if necessary and return to Ms. Deleon for corrections. If the count is done in the afternoon, rather than the next day, any additional money received can be included in the next day s sheets. Cash and checks will be put in an envelope or bank bag immediately after the receipt is written. Especially when there is a large amount of cash received, the envelope or bag should be kept in the safe throughout the day and definitely overnight.

22 On Tuesday, Ms. Ibarra will collect all the checks and cash received for the previous week and prepare the weekly deposit. Credit Card Payments A credit card payment form should be completed and attached to the merchant copy of the credit card receipt from the terminal. This paperwork should be turned into Ms. Ibarra daily so payments can be applied in FACTS immediately. A daily settlement report is printed automatically on the credit card terminal and used to reconcile with the credit card statement at the end of the month as well as with the daily receipts. Recording of Tuition, Fees and Other Revenue All revenue will be recorded in QuickBooks in a timely manner, either through an automated FACTS transfer or by the Diocesan Shared Accounting Services (SAS) staff assigned to St. Mary of Carmel. SAS staff will verify the accuracy of FACTS transmissions and reconcile tuition and revenue accounts.

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25 August 22, 2018 Ms. Kaitlyn Aguilar, Principal St. Mary of Carmel Catholic School 2900 Vilbig Road Dallas, Texas In accordance with a request from the Diocese of Dallas, PSK LLP performed an Agreed Upon Procedures Review at St. Mary of Carmel Catholic School. The findings of these agreed upon procedures was presented in a separate report. Accompanying this letter are certain recommendations we wish to make to St. Mary of Carmel Catholic School and its leadership and staff. Many are based on the standards promulgated by the Diocese of Dallas in its Accounting Standards Handbook. Other suggestions arise from our experience and expertise in serving churches and not-for-profit organizations for many years. We will try to distinguish between those practices that are required by Diocesan policy and those that we believe are appropriate controls and procedures for you. Three copies of this report are being provided to the Diocese of Dallas through Mr. Fred Villela. Thank you for your cooperation, as well as the hospitality your staff afforded us. PSK appreciates this opportunity to work with you and is most willing to be of assistance in the future, if the opportunity presents itself. God bless you in your ministry. Respectfully submitted, PSK LLP

26 COMMENTS AND RECOMMENDATIONS 1. Budget Approval and Board Meetings. During our review, we noted that the Budget was not formally approved by the School Advisory Board. Per discussion with Kaitlyn Aguilar, Principal, the Board stopped meeting during the year. Despite the School s attempts to encourage attendance, members have not attended the scheduled meetings. We recommend that the School assemble a new School Advisory Board for the year and ensure that the Board meets regularly and approves the Budget. 2. Bank Account Reconciliations. During our review, PSK noted that the June 30 th reconciliation for the Compass Bank account was not performed as of the date of our review. PSK recommends that the School perform all bank reconciliations within 30 days after each month end. 3. Salary Approval. During our review of personnel records, PSK noted that compensation arrangements and approvals were not documented in writing for one employee. PSK encourages the School to annually review employee compensation arrangements and retain signed documentation of approval for all employees in order to maintain compliance with Diocesan expectations. 4. Employee Files. During our review of personnel records, PSK noted that one employee did not have a properly completed I-9. PSK encourages the School to ensure that a properly completed I-9 is on file for every employee. 5. Other Revenue Procedures. During our walkthrough of other revenues, we noted that there were 5 transactions that were not deposited within 7 days. We recommend that the School implement procedures to ensure that all funds are deposited to the bank within 7 days to ensure compliance with the Diocesan policy. 6. Disbursements. During our review of disbursements, we noted 4 of the 9 employee reimbursements tested were for operational expenses of the School. We recommend that the School directly pay for all operational expenses when possible, rather than having an employee pay and request reimbursement. We also noted that one disbursement did not have proper approval or support attached. This disbursement was related to petty cash. We recommend that the School maintain support for all disbursements, including those made with the petty cash fund.