Observation – Internal Control Weaknesses

Our review of district records and board policies through June 30, 2002 disclosed internal control weaknesses that need to be strengthened in the following areas:

• charges for copying public records; and
• treasurer’s report content and format.

Charges for Copying Public Records

A school board member was told that she was expected to pay $170 for a copy of the fully detailed, line item budget.

The district’s board policy for public records, Policy No. 801, states:


A citizen may obtain copies of the public records of the district upon payment of the cost of copying.

The policy further states:

Nothing in this policy shall be construed as preventing a board member from inspection of any record of this district in the performance of official duties.


District personnel treated the request as if it were not in the performance of the board member’s official duties.

After this incident occurred, the school board proposed a revision to the policy, which outlined the procedures for requesting records and the cost of reproduction and research of records.

However, upon review of this policy it is our opinion that the board could have done more to define what constitutes “performance of official duties.”

Therefore, it is our recommendation that the board further review this policy and more explicitly define “official duties” to help clarify under what circumstances board members will be charged for copies of public records.

Treasurer’s Report Content and Format

Our review of the district’s treasurer’s reports disclosed weaknesses and a lack of board policy and procedures addressing proper report presentation.

Weaknesses were disclosed, as follows:

• monthly treasurer’s reports provided to the board were inaccurate due to inadequate computer software;
 
• voided checks were not listed on the disbursements list, giving the appearance of missing checks;
 
• the treasurer’s reports did not reflect the status of the Capital Reserve Fund, which may hinder the board’s ability to make informed decisions;
 
• a $213,919 wire transfer, which was made from the General Fund in October 2001 to pay off a bond, was correctly included in the total expenditures report but was missing from the list of itemized disbursements; and
 
• the board was provided with summary reports for the Cafeteria Fund, however, itemized statements of receipts and disbursements could help the board make more informed decisions.

District personnel stated that the problem with the accuracy of the treasurer’s reports should be resolved with the upgrade of the computer software, beginning with the 2002-03 school year.

Had the board established policy and procedures addressing content and formatting for the treasurer’s report, we believe that most of the noted weaknesses could have been avoided.

Recommendations

We recommend the treasurer ensure that the computer software upgrade corrects the accuracy of data in monthly reports submitted to the board.

We also recommend that the board revisit board Policy No. 801 and consider a more explicit definition of “official duties” to help clarify under what circumstances board members would be charged when requesting copies of public records.

In addition, the board should establish policy and procedures concerning the treasurer’s report, with consideration given, as follows:

• indicate which accounts should be reported to the board and in what format;
 
• specify how voided checks will be handled, i.e. should they be on the list of checks provided, or should they not be listed;
 
• require that a report be presented each month for each of the accounts, including the accounts for the Capital Reserve Fund;
 
• specify how transfers between accounts and wire transfers are to be reported to the board, i.e. should they be included on the disbursements list or should they be included on a separate list; and
 
• include a list of accounts for which a list of checks should be presented.

Response of Management

Management provided the following response disagreeing with the observation:

It is the feeling of Management that adequate and appropriate
internal controls are, and have been, in place regarding the various
financial areas addressed. Management understands that the
observations noted were in reaction to circumstances brought about
in the District by a small group of citizens, whose lack of
understanding of accounting procedures prompted unfounded
allegations. However, Management and the Board of Directors of
the Littlestown Area School District will review the observations
that were shared and make any changes they may deem necessary.

Auditor’s Conclusion

Clarification of Policy No. 801 and the creation of a policy on treasurer’s reports, along with implementation of the recommendations, should provide board members with information on all accounts and may help to address concerns raised at board meetings.

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