PASBO Conference 3/14/2007 1 School District Business Operations – Efficiencies and Internal...

PASBO Conference 3/14/2007

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School District Business Operations –Efficiencies and Internal Controls

Matthew J. MalinowskiBusiness ManagerSusquehanna Township School District

Laura E. Cowburn, PRSBAAsst. to Supt. for Business ServicesColumbia Borough School District



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Introduction

Internal controls:– A process effected by the entity’s board,

management, and other personnel, designed to provide reasonable assurance regarding the achievement of objective in effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations.


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Internal Control Myths an Facts

MYTHS Internal control starts with a

strong set of policies and procedures

Internal control – That’s why we have external/internal auditors.

Internal control is a finance thing

Internal controls are essentially negative, like a list of “thou-shalt-nots.”

Internal controls take time away from our core activities – serving students.

FACTS Internal control starts with a

strong control environment While external/internal auditors

play a key role in the system of control, management is the primary owner of internal control

Internal control is integral to every aspect of business

Internal control makes the right things happen the first time

Internal controls should be built “into,” not “onto” business processes.


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Segregation of Duties

Segregation of duties means separating the recordkeeping function from the operational responsibility of that activity and from those who exercise physical control over the records.

Categories of duties: – Authorization– Custody– Record keeping– Reconciliation


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State Audit

Internal Control Review (sample questions)– Is cash deposited in tact and on a timely basis?– Are checks restrictively endorsed immediately upon receipt?– Are changes in employment, salaries, wage rates, and payroll deductions

authorized by the board and the dollar amounts listed in the minutes?– Are employee files maintained by a person independent of payroll

processing?– Is the payroll register approved by authorized personnel prior to final

processing?– Are invoices checked in the business office against purchase orders and

evidence of receipt noted prior to payment?– Are the purchasing and receiving functions separate?


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Assessment Criteria

A Balanced Assessment should take into account the following:

Significance- The degree of harm that could result

Likelihood of Occurrence- What is the probability the a given risk will materialize?

Inherent Risk – Where will there always be risk?


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Example of Maintaining the Three Separate Functions

Purchasing person issues a purchase order based on a requisition completed beforehand.

Person who ordered the item verifies that the goods are received (Sign off on PO copy)

Separate Person in the business office issues or authorizes payment.


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Identifying Potential Risks

Assertions to ensure that all significant risks are identified in a purchasing cycle:

1) Has a purchase been recorded for goods not yet received? Has a vendor been paid twice?

2) Have purchases been made, but not recorded?

3) Were all purchases properly authorized?4) Were charges to appropriate accounts?


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Compensating Controls

Control related policies to compensate for risks.

Examples: – Purchases orders must be approved by

department head or other designated official. – Policy to only pay off of an original invoice– Reconcile encumbrances to open purchase

orders


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What are you reporting to your board?

Treasurers Report on all Cash Balances Special Fund Reports (Food Service, Capital,

Special Revenue, Activity) YTD Budget Report Budget Transfers All Tax Exonerations Bill List (Include monthly, emergency, wires)


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Common Types of Public Sector Fraud

Payroll Fraud Benefit Fraud Double Payments Charge Off Fraud Disposal Fraud Travel Claim Fraud


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Examples of Internal Controls

Budget preparation, monitoring Purchasing/Payroll functions Tax Collection/Reporting Investments Records


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Other Examples

Internal Control Components Assessment Factors Risk Evaluation Occupational Fraud and Abuse

Quiz – What’s Your Fraud IQ?


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Additional Resources/Information

U.S. Government Accountability Office (GOA) – New Edition Yellow Book – http://www.gao.gov/govaud/ybk01.htm download. See pages 81-87.

Roslyn School District, New York - http://www.osc.state.ny.us/localgov/audits/2006/scho

ols/roslynfoll.pdf (a real life scandal)

AICPA -https://antifraud.aicpa.org/Resources/CPA+Services+for+Fraud+Prevention+and+Detection.htm

PASBO Conference 3/14/2007 1 School District Business Operations – Efficiencies and Internal...

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