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1 Joint Meeting With The School Board & Audit Committee October 31, 2007 Wednesday, 5:00 – 6:00 p.m.

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Presentation on theme: "1 Joint Meeting With The School Board & Audit Committee October 31, 2007 Wednesday, 5:00 – 6:00 p.m."— Presentation transcript:

1 1 Joint Meeting With The School Board & Audit Committee October 31, 2007 Wednesday, 5:00 – 6:00 p.m.

2 2 Audit Department Organization Chart

3 3 Staffing 9 Professional, 1 Administrative, 1 Vacancy 9 Professional, 1 Administrative, 1 Vacancy Collectively Collectively 9 Advanced Degrees 9 Advanced Degrees 9 Professional Certificates – CPA, CIA, CISA, and CMA 9 Professional Certificates – CPA, CIA, CISA, and CMA Over 150 Years of Auditing & Accounting Experience Over 150 Years of Auditing & Accounting Experience

4 4 Audit Activities During A. Internal Funds Audits B. Performance Audits C. Special Requests D. Charter School Audits

5 5 Results of 2006 Audits Middle and Elementary Schools Comparing to 2004 findings Comparing to 2004 findings Areas with noticeable improvements Areas with noticeable improvements Areas that need improvement Areas that need improvement Areas that need special attention Areas that need special attention

6 6 Internal Funds Audit 2006 Findings Compared to 2004 Findings Middle and Elementary Schools Areas with Noticeable Improvement: Accounting record keeping ( by 13) Accounting record keeping ( by 13) Timekeeping for payroll ( by 15) Timekeeping for payroll ( by 15) Timecards not signed by employees ( by 16) Timecards not signed by employees ( by 16) Program deficit / high staffing ( by 14) Program deficit / high staffing ( by 14) Access to drop safe ( by 14) Access to drop safe ( by 14)

7 7 Internal Funds Audit Analysis of 2006 Findings Areas With Improvements: Registration form ( by 11) Registration form ( by 11) Lease prequalification ( by 10) Lease prequalification ( by 10) Adjustment to records ( by 12) Adjustment to records ( by 12)

8 8 Internal Funds Audit Analysis of 2006 Findings Areas That Need Improvement : SACC students released without sign-out ( by 20) SACC students released without sign-out ( by 20) SACC students released to unauthorized person ( by 32) SACC students released to unauthorized person ( by 32) Timecard not signed by supervisor ( by 21) Timecard not signed by supervisor ( by 21) Inadequate support for disbursement ( by 47) Inadequate support for disbursement ( by 47) Lease agreement not adequately maintained ( by 28) Lease agreement not adequately maintained ( by 28) Lease – inadequate proof of insurance ( by 19) Lease – inadequate proof of insurance ( by 19) Lease – fees collected after use of facilities ( by 27) Lease – fees collected after use of facilities ( by 27) Lease – undercharged rentals ( by12) Lease – undercharged rentals ( by12)

9 9 Internal Funds Audit Analysis of 2006 Findings Areas That Need Special Attention : # Inadequate support for disbursement68 Inadequate support for disbursement68 Students released to unauthorized person48 Students released to unauthorized person48 Inadequate proof of insurance for facilities leasing47 Inadequate proof of insurance for facilities leasing47 Fundraisers not adequately documented40 Fundraisers not adequately documented40 Students released without parent sign-out38 Students released without parent sign-out38 Lease agreement not adequately maintained38 Lease agreement not adequately maintained38 Timecard not signed by supervisor30 Timecard not signed by supervisor (51% of total) 309 (51% of total)

10 10 New Areas of Focus Since 2004 Receipts Verify prepared deposits in schools drop safe & surprise check of monies collected Verify prepared deposits in schools drop safe & surprise check of monies collected More in-depth review & verification of monies collection records & revenues sources More in-depth review & verification of monies collection records & revenues sources Request financial records from banks, reconcile schools monies collection with deposit records Request financial records from banks, reconcile schools monies collection with deposit recordsDisbursements Ascertain the appropriateness of expenditures for selected accounts Ascertain the appropriateness of expenditures for selected accounts

11 11 New Areas of Focus Since 2004 SACC Program SACC Program Examine SACC student records & student release/dismissal procedures Examine SACC student records & student release/dismissal procedures Reconcile SACC revenues with student registration & attendance records Reconcile SACC revenues with student registration & attendance records Test SACC payroll Test SACC payroll Community School Program Reconcile Community School revenues with student registration and attendance records Reconcile Community School revenues with student registration and attendance records Test Community School payroll Test Community School payroll

12 12 New Areas of Focus Since 2004 Leasing of School Facilities More in-depth review of leasing operations & determine: More in-depth review of leasing operations & determine: Adequacy of documentation Adequacy of documentation Adequacy of insurance coverage Adequacy of insurance coverage Leasing revenues Leasing revenues

13 13 Principals Priority In Significant Findings

14 14 Implementation of New Rules & Procedures To Improve Controls and Accountability Sponsors retain the yellow copy of the MCR in order to match the deposit records on Official Receipts prepared by bookkeeper Sponsors retain the yellow copy of the MCR in order to match the deposit records on Official Receipts prepared by bookkeeper Remitters record monies put in the drop safe on the new Drop Safe Log Remitters record monies put in the drop safe on the new Drop Safe Log Incoming mails be received and opened by staff other than the bookkeeper. MCR for monies received in the mail be prepared by mail opener and submitted to bookkeeper for deposit Incoming mails be received and opened by staff other than the bookkeeper. MCR for monies received in the mail be prepared by mail opener and submitted to bookkeeper for deposit

15 15 Special Requests/Investigations During Special Requests/Investigations 12 Special Requests/Investigations Involved Involved 5 High Schools 5 High Schools 2 Middle Schools 2 Middle Schools 5 Elementary Schools 5 Elementary Schools Most of them were related to financial matters Most of them were related to financial matters Results were referred to School Police / Employee Relations for further investigation Results were referred to School Police / Employee Relations for further investigation

16 16 Special Requests/Investigations During Results (as of October 24, 2007) Some involve multiple employees 2 Ongoing Investigation 2 Ongoing Investigation 3 Reprimands 3 Reprimands 5 Employees Resigned 5 Employees Resigned 3 With Papers Referred to State Attorney 3 With Papers Referred to State Attorney 1 Unfounded 1 Unfounded 1 Results in Development & Implementation of New Procedures 1 Results in Development & Implementation of New Procedures

17 17 Possible Impacts for Audits Value added to our existing management controls and accountabilities Value added to our existing management controls and accountabilities Value added to the integrity of our system Value added to the integrity of our system Strengthening the control system Strengthening the control system

18 18 Possible Impacts for Audits Ultimate results: Protect our students Protect our students Protect school administrators Protect school administrators Safeguard assets and ensure compliance with laws, School Board Policies & guidelines Safeguard assets and ensure compliance with laws, School Board Policies & guidelines Better controls resulting in increase in revenues Better controls resulting in increase in revenues Better control in operating expenses Better control in operating expenses Provide deterrent for potential abuse of the system Provide deterrent for potential abuse of the system Promote public confidence in the school system through public transparency, professional independence, & objective reporting Promote public confidence in the school system through public transparency, professional independence, & objective reporting

19 19 Internal Funds Revenues Analysis Constant $ adjusted for inflation; 1996 base year. Source: Annual Internal Funds Audit Reports and Manatee Accounting System.

20 20 Internal Funds Revenues Analysis Constant $ adjusted for inflation; 1996 base year. Source: Annual Internal Funds Audit Reports, Manatee Accounting System, & Budget Executive Summary Reports.

21 21 Internal Funds Revenues Analysis Source: Annual Internal Funds Audit Reports and Manatee Accounting System.

22 22 Internal Funds Revenues Analysis Source: Annual Internal Funds Audit Reports and Manatee Accounting System.

23 23 SACC & Summer Camp Revenues Analysis Constant $ adjusted for fee increases and student enrollment; 2004 base year. Source: Manatee Accounting System and SACC Fee Schedules.

24 24 SACC & Summer Camp Revenues Analysis Source: TERMS System.

25 25 SACC & Summer Camp Revenues Analysis Source: Manatee Accounting System and SACC Fee Schedules.

26 26 SACC & Summer Camp Revenues Analysis Constant $ adjusted for fee increases and student enrollment; 2004 base year. Source: Manatee Accounting System and SACC Fee Schedule.

27 27 Leasing Revenues Analysis Constant $ adjusted for fee increases; 2004 base year. Source: Manatee Accounting System and Leasing Rate Schedules.

28 28 Leasing Revenues Analysis Constant $ adjusted for fee increases; 2004 base year. Source: Manatee Accounting System and Leasing Rate Schedules.

29 29 Leasing Revenues Analysis Source: Manatee Accounting System.

30 30 Leasing Revenues Analysis Constant $ adjusted for fee increases; 2004 base year. Source: Manatee Accounting System and Leasing Rate Schedules.

31 31 Other Involvements 1. Provide input for the Department of Accounting Services, After School Programming, and Adult & Community Education in developing and implementing new guidelines to strengthen controls for Internal Funds 2. Present audit results to principal groups at their regular meetings so that administrators can keep updated re: most common control weaknesses and new audit approaches to help administrators prevent and detect improprieties at their schools

32 32 Performance Audits 1. Audit of Implementation of Corrective Actions in Response to Auditor Generals 2004 Audit of Student FTE (August 2006) and 2. Audit of Corrective Actions in Response to Auditors Generals 2004 Audit of Student Transportation FTE (August 2006)

33 33 Performance Audits Audits of Corrective Actions for FTE Audits The Auditor Generals 2004 Student FTE Audit of the School District was released in 2005, and revealed certain weaknesses in documentation of our programs. That audit resulted in total negative adjustments of $2,020,203 in FEFP funding. We lost $2,020,203 in that year. The Auditor Generals 2004 Student FTE Audit of the School District was released in 2005, and revealed certain weaknesses in documentation of our programs. That audit resulted in total negative adjustments of $2,020,203 in FEFP funding. We lost $2,020,203 in that year. Based on a sample of 48 schools, instances of noncompliance found were related to six departments: Based on a sample of 48 schools, instances of noncompliance found were related to six departments: Exceptional Student Education Exceptional Student Education School Choice and Choice Programs School Choice and Choice Programs Compensation and Human Resource Planning Compensation and Human Resource Planning Multicultural Education Multicultural Education Transportation Transportation

34 34 Performance Audits Audits of Corrective Actions for FTE Audits These findings were in the areas of These findings were in the areas of Student Records for ESE Student Records for ESE Off-campus On-the-job Training (OJT) documentation, and Off-campus On-the-job Training (OJT) documentation, and Teacher Certification with regards to ESOL strategies compliance Teacher Certification with regards to ESOL strategies compliance Audit Exceptions were found involving reporting errors, missing records, or records that were not properly and accurately prepared. Audit Exceptions were found involving reporting errors, missing records, or records that were not properly and accurately prepared. The next FTE Audit will be performed for the records of School Year by The Auditor General during The next FTE Audit will be performed for the records of School Year by The Auditor General during Our own follow-up audit identified similar areas we have to address, based on a sample of 11 schools. Our own follow-up audit identified similar areas we have to address, based on a sample of 11 schools.

35 35 Performance Audits Audits of Corrective Actions for FTE Audits Districts Corrective actions must be fully implemented in all schools effective School Year. Districts Corrective actions must be fully implemented in all schools effective School Year. District staff were developing and implementing guidelines and procedures that all schools should to follow in order to address all issues. Eventually, the Districts goal is to eliminate the negative Funding adjustment imposed by the State. District staff were developing and implementing guidelines and procedures that all schools should to follow in order to address all issues. Eventually, the Districts goal is to eliminate the negative Funding adjustment imposed by the State.

36 36 Performance Audits 3. Audit of Boca Raton Middle School Internal Accounts (September 15, 2006) School staff became aware in June 2006, that Internal Accounts records were missing. All records and files for disbursements and receipts from July 1, 2005, through February 28, 2006, could not be located. As stated by the previous bookkeeper, who handled the books during that time, the records had been boxed and moved to a specific storage area. However, repeated searches of the specific area by school staff did not locate the records. School staff became aware in June 2006, that Internal Accounts records were missing. All records and files for disbursements and receipts from July 1, 2005, through February 28, 2006, could not be located. As stated by the previous bookkeeper, who handled the books during that time, the records had been boxed and moved to a specific storage area. However, repeated searches of the specific area by school staff did not locate the records.

37 37 Performance Audits 4. Audit of Seminole Ridge High School Deposit Records (November 17, 2006) Audit uncovered $31,000+ stolen by the school bookkeeper. Findings were referred to School Police for further investigation. Audit uncovered $31,000+ stolen by the school bookkeeper. Findings were referred to School Police for further investigation. Police later filed charges against the bookkeeper. Police later filed charges against the bookkeeper. The bookkeeper was arrested later. The bookkeeper was arrested later. With assistance provided by Accounting Services Department, corrective actions were developed and implemented immediately. Remedial actions included: With assistance provided by Accounting Services Department, corrective actions were developed and implemented immediately. Remedial actions included: Sponsors of fundraisers for future verification will maintain a copy of the Monies Collection Reports Sponsors of fundraisers for future verification will maintain a copy of the Monies Collection Reports Auditors will perform unannounced verification of monies in a drop-safe Auditors will perform unannounced verification of monies in a drop-safe Use of log book for all deposits in the drop-safe Use of log book for all deposits in the drop-safe

38 38 Performance Audits 5. Audit of Communications Department of Alexander W. Dreyfoos School of the Arts (November 17, 2006) Several issues were brought up by the school principal, including the balance of the Year Book Account, donation form the School of Arts Foundation, forging of signature on Check Requisition, and receipt of a laptop as gift from parents. Several issues were brought up by the school principal, including the balance of the Year Book Account, donation form the School of Arts Foundation, forging of signature on Check Requisition, and receipt of a laptop as gift from parents. The Year Book Account related issue was resolved. Causes of the problems were due to inclusion of unrelated expenditures in the Year Book Account. The Year Book Account related issue was resolved. Causes of the problems were due to inclusion of unrelated expenditures in the Year Book Account. Regarding donation from the School of Arts Foundation, the audit revealed that the proceeds were not spent inappropriately. Regarding donation from the School of Arts Foundation, the audit revealed that the proceeds were not spent inappropriately.

39 39 Performance Audits 6. Audit of Boynton Beach Community High School (January 19, 2007) $101,884 overpayments in payroll – There were widespread inconsistencies and unaccountable overpayments to staff. $101,884 overpayments in payroll – There were widespread inconsistencies and unaccountable overpayments to staff. Questionable pay widespread – The Community School secretary input hours into the payroll system for staff without proof of hours worked and supervisor approval for time and hours. Questionable pay widespread – The Community School secretary input hours into the payroll system for staff without proof of hours worked and supervisor approval for time and hours.

40 40 Performance Audits 6. Audit of Boynton Beach Community High School (January 19, 2007) Irregularities widespread in leases school facility. The audit identified repeated irregularities and noncompliance by staff in handing leases. Of the 81 executed leases, Irregularities widespread in leases school facility. The audit identified repeated irregularities and noncompliance by staff in handing leases. Of the 81 executed leases, Lessees underpaid $12,726 for their 29 leases because non- profit rates were applied; utility charges were waived; leases were granted undocumented fee-waivers. Lessees underpaid $12,726 for their 29 leases because non- profit rates were applied; utility charges were waived; leases were granted undocumented fee-waivers. 59 leases did not provide proof of adequate liability insurance. 59 leases did not provide proof of adequate liability insurance. 42 were not signed by lessees. 42 were not signed by lessees. Five did not have the approved Rental Prequalification. Five did not have the approved Rental Prequalification. 35 had not made the full payment before the use of facilities, as required by District guidelines. 35 had not made the full payment before the use of facilities, as required by District guidelines.

41 41 Performance Audits 6. Audit of Boynton Beach Community High School (January 19, 2007) Disbursements Not Properly Documented Disbursements Not Properly Documented Change Fund Not Properly Secured Change Fund Not Properly Secured Access to Schools Drop Safe Access to Schools Drop Safe Prenumbered Document Custodian Prenumbered Document Custodian

42 42 Performance Audits 7. Audit of Contract Compliance, WHLS of Florida, Inc. for Fiscal Year 2006 (January 19, 2007) The audit concluded that: WHLS did not achieve the objective that the percent of WHLS students making learning gains in reading and math will be significantly higher than the learning gains of students at other District alternative education sites. WHLS did not achieve the objective that the percent of WHLS students making learning gains in reading and math will be significantly higher than the learning gains of students at other District alternative education sites. WHLS did not achieve objective that 100% of WHLS students will earn a minimum of four credits in FY WHLS did not achieve objective that 100% of WHLS students will earn a minimum of four credits in FY The other 3 objectives were achieved: regarding students absences; dropout rate, and percent of seniors receiving employment. The other 3 objectives were achieved: regarding students absences; dropout rate, and percent of seniors receiving employment.

43 43 Performance Audits 8. Audit of Royal Palm Beach High School Cheerleading and ESE Field Trip Accounts (April 13, 2007) The audit revealed that $12,795 in cheerleading program monies were unaccounted for; and $2,128 in ESE field trip monies was also unaccounted for. The audit revealed that $12,795 in cheerleading program monies were unaccounted for; and $2,128 in ESE field trip monies was also unaccounted for. The Cheerleading sponsor resigned from the District and discipline was issued to the ESE teacher. The Cheerleading sponsor resigned from the District and discipline was issued to the ESE teacher.

44 44 Performance Audits 9. Audit of Olympic Heights High School Drama Ticket Sales (July 12, 2007) The audit concluded that there was a shortfall of $2,464 in the Spring 2007 Show Fundraiser account; unsold tickets were not retained; there was no independent reconciliation of ticket sales; and no documentation for inventory of tickets. The audit concluded that there was a shortfall of $2,464 in the Spring 2007 Show Fundraiser account; unsold tickets were not retained; there was no independent reconciliation of ticket sales; and no documentation for inventory of tickets.

45 45 Performance Audits 10. Audit of E-Rate Revenue Collection (July 12, 2007) The audit revealed that: The audit revealed that: The School District received a total of $5,342,554 in E-Rate funds for Fiscal Years 2005 and The School District received a total of $5,342,554 in E-Rate funds for Fiscal Years 2005 and $379,567 in cellular services E-Rate revenues were missed due to misunderstanding of requirements for funding. $379,567 in cellular services E-Rate revenues were missed due to misunderstanding of requirements for funding. District E-Rate procedures were not adequately documented in writing. District E-Rate procedures were not adequately documented in writing.

46 46 Performance Audits 11. Audit of Palm Bach Central High Schools Facilities Leasing (July 12, 2007) During School Year 2006, the school administered 91 Lease Agreements and collected a total of $184,290 in leasing revenues. The audit revealed widespread of irregularities. Specifically, During School Year 2006, the school administered 91 Lease Agreements and collected a total of $184,290 in leasing revenues. The audit revealed widespread of irregularities. Specifically, Sixty leases (66%) did not have the required prequalification. Sixty leases (66%) did not have the required prequalification. Thirty-two leases (35%) did not have proof of adequate liability insurance. Thirty-two leases (35%) did not have proof of adequate liability insurance. All 91 Lease Agreements were not properly executed. All 91 Lease Agreements were not properly executed. None of the Lease Agreements were signed by Principal. None of the Lease Agreements were signed by Principal.

47 47 Performance Audits 11. Audit of Palm Bach Central High Schools Facilities Leasing (July 12, 2007) Five leases were neither signed by the lessees nor a school representative. Five leases were neither signed by the lessees nor a school representative. 48 leases were not signed by the lessees. 48 leases were not signed by the lessees. 81 leases were not signed by a witness as required by the lease document. 81 leases were not signed by a witness as required by the lease document. School lost $97,223 in revenues due to undercharged rentals. Leasing charges for 53 (58%) of the 91 leases were below the District approved rate schedule, resulting in a total loss of $82,464 in rental income during School Year School lost $97,223 in revenues due to undercharged rentals. Leasing charges for 53 (58%) of the 91 leases were below the District approved rate schedule, resulting in a total loss of $82,464 in rental income during School Year 2006.

48 48 Performance Audits 11. Audit of Palm Bach Central High Schools Facilities Leasing (July 12, 2007) $14,759 in total rental charges were waived for seven leases without obtaining the prequalification approval from the Real Estate Services Department. $14,759 in total rental charges were waived for seven leases without obtaining the prequalification approval from the Real Estate Services Department. Rental charges not timely collected. Rental charges not timely collected. Monies not timely deposited. Monies not timely deposited. Sales Tax not collected for Commercial Leases. Sales Tax not collected for Commercial Leases. Incorrect allocation for utility charges. Incorrect allocation for utility charges.

49 49 Performance Audits 11. Audit of Palm Bach Central High Schools Facilities Leasing (July 12, 2007) Employee accepting payment from lessee. During August 2006, a lessee sent a $180 check to the school for payment of theater technicians services. However, the check was made payable to the technician instead of the school. Employee accepting payment from lessee. During August 2006, a lessee sent a $180 check to the school for payment of theater technicians services. However, the check was made payable to the technician instead of the school. No supervisor review and approval was obtained prior to inputting into the payroll system. No supervisor review and approval was obtained prior to inputting into the payroll system. Audit conclusions were referred to Police and Personnel for further investigations. Audit conclusions were referred to Police and Personnel for further investigations.

50 50 Performance Audits 12. Audit of Vending Machines (September 14, 2007) The audit concluded that: Schools with full-service vending machines appeared to be 3% to 30% more profitable than those with self-service vending machines. Schools with full-service vending machines appeared to be 3% to 30% more profitable than those with self-service vending machines. Schools with both services seemed to perform even better. Schools with both services seemed to perform even better.

51 51 Performance Audits 12. Audit of Vending Machines (September 14, 2007) As a result, the audit recommended that schools consider using full-service vending machines. Other advantages of having full-service machines include: As a result, the audit recommended that schools consider using full-service vending machines. Other advantages of having full-service machines include: Eliminating the risk of inventories loss or loss in cash collections involved with self-service vending machines Eliminating the risk of inventories loss or loss in cash collections involved with self-service vending machines Eliminating carrying cost for inventories Eliminating carrying cost for inventories Reducing staff time associated with maintaining vending machines Reducing staff time associated with maintaining vending machines

52 52 Performance Audits 13. Audit of IT Security Enhancement & Control (September 14, 2007) In response to a hacking incident with the District Student records during , the Department of Information Security (IT Security) took an initiative to strengthen the overall security infrastructure for the Districts computing environment. As of June 2007, various security enhancement procedures had been developed and implemented. In response to a hacking incident with the District Student records during , the Department of Information Security (IT Security) took an initiative to strengthen the overall security infrastructure for the Districts computing environment. As of June 2007, various security enhancement procedures had been developed and implemented. Overall, the security enhancements and procedures appeared sufficient, and should be able to detect and prevent unauthorized access to the Districts computer system. Overall, the security enhancements and procedures appeared sufficient, and should be able to detect and prevent unauthorized access to the Districts computer system.

53 53 Performance Audits 14. Audit of Purchasing Card Program (September 14, 2007) The primary objectives of this audit were to determine if: (1) transactions exceeded the allowed limits, (2) transactions were split in order to circumvent the transaction limit, (3) P-Card transactions complied with related policies and guidelines, and (4) appropriate oversight and reconciliation of purchases were in place to detect and deter improper transactions. The primary objectives of this audit were to determine if: (1) transactions exceeded the allowed limits, (2) transactions were split in order to circumvent the transaction limit, (3) P-Card transactions complied with related policies and guidelines, and (4) appropriate oversight and reconciliation of purchases were in place to detect and deter improper transactions.

54 54 Performance Audits 14. Audit of Purchasing Card Program (September 14, 2007) The review of sample transactions found that: The review of sample transactions found that: Eight non-travel related items purchased exceeded the $750 single transaction limit Eight non-travel related items purchased exceeded the $750 single transaction limit Nine receipts were missing Nine receipts were missing Review of transactions for 639 cardholders indicated that: Review of transactions for 639 cardholders indicated that: 48 (or 8%) of them split charges for non-travel related transactions 48 (or 8%) of them split charges for non-travel related transactions 87 (14%) of 639 cardholders P-Cards were never used, but are still valid. 87 (14%) of 639 cardholders P-Cards were never used, but are still valid. 22 (17%) of 126 monthly End-of-Cycle Checklist for Cardholder Forms were not completed as required. This form provides program oversight and reconciliation for purchases. 22 (17%) of 126 monthly End-of-Cycle Checklist for Cardholder Forms were not completed as required. This form provides program oversight and reconciliation for purchases.

55 55 Performance Audits 15. Audit of Corrective Actions for Leasing of School Facilities (October 12, 2007) The 2004 and 2005 Annual Audits of School Internal Funds revealed widespread inconsistencies and non- compliance in leasing of school facilities; specifically, lease and timelines in collection of rentals. The primary objective of this audit was to assess the sufficiency of corrective actions implemented by the Department of Real Estate Services. The 2004 and 2005 Annual Audits of School Internal Funds revealed widespread inconsistencies and non- compliance in leasing of school facilities; specifically, lease and timelines in collection of rentals. The primary objective of this audit was to assess the sufficiency of corrective actions implemented by the Department of Real Estate Services. Noncompliance Continued – The audit selected nine sample schools for site review, and revealed repeated noncompliance with leasing procedures identified in 2004 and 2005 Internal Funds Audits. Noncompliance Continued – The audit selected nine sample schools for site review, and revealed repeated noncompliance with leasing procedures identified in 2004 and 2005 Internal Funds Audits.

56 56 Performance Audits 15. Audit of Corrective Actions for Leasing of School Facilities (October 12, 2007) Some Staff did not Receive Training – Leasing coordinators from middle schools and high schools without community school program do not receive training. Some Staff did not Receive Training – Leasing coordinators from middle schools and high schools without community school program do not receive training. Prequalification Request Should Include Supporting Documentation – Neither proof of insurance nor proof of non-profit status was required to be submitted to Real Estate for the prequalification process. As a result, there was no assurance that prequalification and fee-waiver were approved accordingly. Prequalification Request Should Include Supporting Documentation – Neither proof of insurance nor proof of non-profit status was required to be submitted to Real Estate for the prequalification process. As a result, there was no assurance that prequalification and fee-waiver were approved accordingly.

57 57 Performance Audits 15. Audit of Corrective Actions for Leasing of School Facilities (October 12, 2007) Standardization at Schools Needed Standardization at Schools Needed Inconsistent Policies, Procedures, and Documents – Currently, there are nine sources of rules and regulations governing community use of school facilities. Each school also has its own way of disseminating information to appropriate contacts. Due to the multiple channels of information distribution, inconsistent interpretation among various policies and procedures could happen and results in confusion and noncompliance. Inconsistent Policies, Procedures, and Documents – Currently, there are nine sources of rules and regulations governing community use of school facilities. Each school also has its own way of disseminating information to appropriate contacts. Due to the multiple channels of information distribution, inconsistent interpretation among various policies and procedures could happen and results in confusion and noncompliance. Leasing Documents Need Clarification Leasing Documents Need Clarification

58 58 Performance Audits 15. Audit of Corrective Actions for Leasing of School Facilities (October 12, 2007) In response, In response, The Real Estate Department has increased the number of group and individual one-on-one training sessions. The Real Estate Department has increased the number of group and individual one-on-one training sessions. Current Rent Fee Schedules have been provided to all schools and is now available on the Real Estate Services Department website. Current Rent Fee Schedules have been provided to all schools and is now available on the Real Estate Services Department website.

59 59 Performance Audits 15. Audit of Corrective Actions for Leasing of School Facilities (October 12, 2007) The Facilities Management Division is working on a Computer-Aided Facilities Management (CAFM) Leasing component that will include a knowledge base to help answer bookkeeper and school leasing personnels questions and further aide with the ongoing training program. The Facilities Management Division is working on a Computer-Aided Facilities Management (CAFM) Leasing component that will include a knowledge base to help answer bookkeeper and school leasing personnels questions and further aide with the ongoing training program. A training program on policy, procedures and proper completion of forms has been created and implemented in This supplemental program was offered four times focusing on the four different geographic locations within the County. A training program on policy, procedures and proper completion of forms has been created and implemented in This supplemental program was offered four times focusing on the four different geographic locations within the County.

60 60 Performance Audits 15. Audit of Corrective Actions for Leasing of School Facilities (October 12, 2007) The attendance at this program was strongly recommended and well attended. This programs attendance will become mandatory starting in FY 07/08. The CAFM Leasing component will have an online training supplement that will not replace, but complement the ongoing training program. The attendance at this program was strongly recommended and well attended. This programs attendance will become mandatory starting in FY 07/08. The CAFM Leasing component will have an online training supplement that will not replace, but complement the ongoing training program. Prospective lessees are provided with a checklist of documents, at the time of prequalification. Prospective lessees are provided with a checklist of documents, at the time of prequalification.

61 61 Charter Schools 1. Analysis of Charter School Audit Reports for Fiscal Year 2006 (February 16, 2007) This report presents a summary of significant audit findings conducted by independent CPAs, and financial analysis for the 36 charter schools operating in Palm Beach County during fiscal year This report presents a summary of significant audit findings conducted by independent CPAs, and financial analysis for the 36 charter schools operating in Palm Beach County during fiscal year (39%) of the 36 charter school audit reports had no major findings to report (Amended subsequent to meeting) 14 (39%) of the 36 charter school audit reports had no major findings to report (Amended subsequent to meeting) The other 22 (61%) charter school audit reports included other major findings in internal control deficiencies or instances of noncompliance with applicable laws of rules, and need to be addressed by the management of the school. The other 22 (61%) charter school audit reports included other major findings in internal control deficiencies or instances of noncompliance with applicable laws of rules, and need to be addressed by the management of the school.

62 62 Charter Schools 1. Analysis of Charter School Audit Reports for Fiscal Year 2006 (February 16, 2007) Findings included (in order of frequency):Findings included (in order of frequency): Charter Contract Compliance Charter Contract Compliance Capital Assets Capital Assets Records Management Related Records Management Related Other Expenditures/Revenue Related Other Expenditures/Revenue Related Cash Controls Cash Controls Payroll & Personnel Administration Payroll & Personnel Administration Budget Administration Budget Administration Separation of Duties Separation of Duties Policies & Procedures Policies & Procedures Miscellaneous Findings Miscellaneous Findings Charter School Board Findings Charter School Board Findings

63 63 Charter Schools 1. Analysis of Charter School Audit Reports for Fiscal Year 2006 (February 16, 2007) 26 (72%) of the 36 charter schools reported a positive year- end net assets, while 10 (28%) schools reported a negative net assets balance. 26 (72%) of the 36 charter schools reported a positive year- end net assets, while 10 (28%) schools reported a negative net assets balance. None of the 36 audit reports included findings that were considered by their independent auditors to be material weaknesses in internal control. None of the 36 audit reports included findings that were considered by their independent auditors to be material weaknesses in internal control. Audit reports for 10 of the charter schools indicated a Financial Emergency Condition pursuant to Florida Statute s definition. Six of these 10 audit reports included a statement by the CPAs discussing the schools financial stability or ability to continue operations on an ongoing basis. Audit reports for 10 of the charter schools indicated a Financial Emergency Condition pursuant to Florida Statute s definition. Six of these 10 audit reports included a statement by the CPAs discussing the schools financial stability or ability to continue operations on an ongoing basis.

64 64 Charter Schools 1. Analysis of Charter School Audit Reports for Fiscal Year 2006 (February 16, 2007) Pursuant to Florida Statute , and (9)(g), charter schools must notify the School District within 30 days after receipt of a financial audit that finds the charter school to be in a state of financial emergency, and must file a detailed financial recovery plan. Pursuant to Florida Statute , and (9)(g), charter schools must notify the School District within 30 days after receipt of a financial audit that finds the charter school to be in a state of financial emergency, and must file a detailed financial recovery plan. None of the 36 audits reports included findings that were considered by their independent auditors to be material weaknesses in internal control. None of the 36 audits reports included findings that were considered by their independent auditors to be material weaknesses in internal control.

65 65 Charter Schools 2. Follow-up Audit of Survivor Charter Schools to The Audit Committee (December 8, 2006) The Follow-Up Audit found additional evidence supported and confirmed many of the January 13, 2006, conclusions: The Follow-Up Audit found additional evidence supported and confirmed many of the January 13, 2006, conclusions: The compensations paid to the West Palm Beach and Boynton Beach Principals ($139,378 and $163,412 respectively), as well as the schools bookkeeper ($61,027) appeared to be excessive, in comparing to the Districts average salaries for respective employees. The compensations paid to the West Palm Beach and Boynton Beach Principals ($139,378 and $163,412 respectively), as well as the schools bookkeeper ($61,027) appeared to be excessive, in comparing to the Districts average salaries for respective employees. The $25,028 in bonuses given to the West Palm Beach Principal appeared to be inappropriate. The $25,028 in bonuses given to the West Palm Beach Principal appeared to be inappropriate.

66 66 Charter Schools 2. Follow-up Audit of Survivor Charter Schools to The Audit Committee (December 8, 2006) The West Palm Beach campus paid the Boynton Beach Principal $10,500 for unused sick leave, even though he was not employed by that campus. The West Palm Beach campus paid the Boynton Beach Principal $10,500 for unused sick leave, even though he was not employed by that campus. The Boynton Beach Principal received $15,000 in regular wages while on personal leave for six weeks. The Boynton Beach Principal received $15,000 in regular wages while on personal leave for six weeks. West Palm Beach Campus transferred $50,000 to establish a legal defense Fund, and apparent violations of Florida Sunshine Law. West Palm Beach Campus transferred $50,000 to establish a legal defense Fund, and apparent violations of Florida Sunshine Law. Parents not members of governing board as required. Parents not members of governing board as required. Some assets not recovered from both campuses. Some assets not recovered from both campuses.

67 67 Charter Schools 3. Audit of Corebridge Educational Academy Charter School (January 19, 2007) Although the school was closed abruptly by the charter school operation during our audit, and certain information was not available, the District was required by Auditing Standards and School District Policy to release the report. Due to the failure of Corebridge to provide the District with certain information, several areas could not be audited. Although the school was closed abruptly by the charter school operation during our audit, and certain information was not available, the District was required by Auditing Standards and School District Policy to release the report. Due to the failure of Corebridge to provide the District with certain information, several areas could not be audited.

68 68 Charter Schools 3. Audit of Corebridge Educational Academy Charter School (January 19, 2007) Major conclusions of the Corebridge Audit include: Major conclusions of the Corebridge Audit include: Confidential Student Information and Financial Records Discarded, Scattered around Dumpster – On June 20, 2006, school financial records and confidential student records were found scattered around a garbage dumpster area outside the school facility. Discarding of public records is a violation of Florida Statute 119. Also, Florida Statute stipulates that every student has the a right to privacy with respect to educational records. Confidential Student Information and Financial Records Discarded, Scattered around Dumpster – On June 20, 2006, school financial records and confidential student records were found scattered around a garbage dumpster area outside the school facility. Discarding of public records is a violation of Florida Statute 119. Also, Florida Statute stipulates that every student has the a right to privacy with respect to educational records.

69 69 Charter Schools 3. Audit of Corebridge Educational Academy Charter School (January 19, 2007) Dysfunctional Governing Board – The Governing Board of Corebridge Education Academy did not properly discharge its fiduciary responsibilities by not maintaining an adequate number of members, not providing effective oversight over the schools operations, and allowing the school to operate with a poor system of internal controls and be financially mismanaged. Dysfunctional Governing Board – The Governing Board of Corebridge Education Academy did not properly discharge its fiduciary responsibilities by not maintaining an adequate number of members, not providing effective oversight over the schools operations, and allowing the school to operate with a poor system of internal controls and be financially mismanaged. Required Insurance Coverage Cancelled for Non Payment of Premium – The schools Commercial Insurance Package including Automobile, and Excess Liability coverages were cancelled as of October 25, 2005, and workers compensation coverage was cancelled as of November 16, Required Insurance Coverage Cancelled for Non Payment of Premium – The schools Commercial Insurance Package including Automobile, and Excess Liability coverages were cancelled as of October 25, 2005, and workers compensation coverage was cancelled as of November 16, 2005.

70 70 Charter Schools 3. Audit of Corebridge Educational Academy Charter School (January 19, 2007) School Continually Unwilling to Provide Financial Records – The Principal had continually denied the School District from access to financial records, despite repeated requests made to the Principal before, during, and subsequent to audit fieldwork. School Continually Unwilling to Provide Financial Records – The Principal had continually denied the School District from access to financial records, despite repeated requests made to the Principal before, during, and subsequent to audit fieldwork. Repeatedly Failed to Take Corrective Action – Management Letters issued in September 2003, 2004, 2005, repeatedly reported (1) the school did not prepare formal voucher disbursements for its payables, (2) disbursements were paid based on a copy of the invoice, and management had not corrected these recurring problem. Management Letters issued in September 2004, and 2005, reported that the school (1) physically held checks from its operating account due to insufficient cash-flow. Repeatedly Failed to Take Corrective Action – Management Letters issued in September 2003, 2004, 2005, repeatedly reported (1) the school did not prepare formal voucher disbursements for its payables, (2) disbursements were paid based on a copy of the invoice, and management had not corrected these recurring problem. Management Letters issued in September 2004, and 2005, reported that the school (1) physically held checks from its operating account due to insufficient cash-flow.

71 71 Charter Schools 3. Audit of Corebridge Educational Academy Charter School (January 19, 2007) Financial Emergency – According to the schools Independent Auditors Report and Financial Statements for the year ended June 30, 2005, the school was in state of financial emergency for failure to transmit to the Federal Government (1) income tax withholdings, and (2) social security taxes for employer and employees. The Auditors Report also indicated that as of September 22, 2005, the school had not paid payroll taxes because it had no cash. Financial Emergency – According to the schools Independent Auditors Report and Financial Statements for the year ended June 30, 2005, the school was in state of financial emergency for failure to transmit to the Federal Government (1) income tax withholdings, and (2) social security taxes for employer and employees. The Auditors Report also indicated that as of September 22, 2005, the school had not paid payroll taxes because it had no cash. Inappropriate Uses of Public Monies – The school was unable to provide 44, or 73% of the 60 requested invoices or documentation for the selected expenditure. The audit could not ascertain if these expenditures were appropriate uses of public funds. Inappropriate Uses of Public Monies – The school was unable to provide 44, or 73% of the 60 requested invoices or documentation for the selected expenditure. The audit could not ascertain if these expenditures were appropriate uses of public funds.

72 72 Charter Schools 3. Audit of Corebridge Educational Academy Charter School (January 19, 2007) Other findings included: Total Lack of Accountability and Internal Controls Total Lack of Accountability and Internal Controls Some Assets Not Recovered from the School Some Assets Not Recovered from the School

73 73 Charter Schools 4. Audit of The IMAGINE Charter School, Inc. (January 19, 2007) The audit was conducted in response to the request of the Charter Schools and Accounting Departments. During the audit, the school notified the School District of its intent to cease operations effective July 1, The audit revealed the following major conclusions: The audit was conducted in response to the request of the Charter Schools and Accounting Departments. During the audit, the school notified the School District of its intent to cease operations effective July 1, The audit revealed the following major conclusions: Deteriorating Financial Condition – The school had been unable to achieve the budgeted enrollment levels, and enrollment had been steadily decreasing. The schools financial condition had been steadily deteriorating and resulted in increasing negative fund balance, perpetual cash overdraft, and failure to contribute to retirement plan. Deteriorating Financial Condition – The school had been unable to achieve the budgeted enrollment levels, and enrollment had been steadily decreasing. The schools financial condition had been steadily deteriorating and resulted in increasing negative fund balance, perpetual cash overdraft, and failure to contribute to retirement plan.

74 74 Charter Schools 4. Audit of The IMAGINE Charter School, Inc. (January 19, 2007) Potentially Fraudulent Documents – The school submitted potentially fraudulent documents to the School District for cost reimbursements under three separate grant programs. Potentially Fraudulent Documents – The school submitted potentially fraudulent documents to the School District for cost reimbursements under three separate grant programs. Potentially Fraudulent Documents – Other potentially fraudulent documents discovered during audit included a fake invoice and a fake lease document. Potentially fraudulent documents were referred to the School Districts Police Department for further investigation. Potentially Fraudulent Documents – Other potentially fraudulent documents discovered during audit included a fake invoice and a fake lease document. Potentially fraudulent documents were referred to the School Districts Police Department for further investigation. Poor Fiscal Management – The audit revealed widespread fiscal mismanagement and unsound business practices. Poor Fiscal Management – The audit revealed widespread fiscal mismanagement and unsound business practices.

75 75 Charter Schools 4. Audit of The IMAGINE Charter School, Inc. (January 19, 2007) Conflicts of Interest and Related Party Transactions – The school principal is the owner of at least five other businesses that either utilize schools facilities or use the business address for correspondence. The school has an agreement with one of the principals private companies to administer health and workers compensation insurance plans, as well as the employee retirement plan. The principal recently used pension plan funds, along with his personal funds, along with his personal funds, for down payment on a house. Conflicts of Interest and Related Party Transactions – The school principal is the owner of at least five other businesses that either utilize schools facilities or use the business address for correspondence. The school has an agreement with one of the principals private companies to administer health and workers compensation insurance plans, as well as the employee retirement plan. The principal recently used pension plan funds, along with his personal funds, along with his personal funds, for down payment on a house. The Principal neither demanded payment from the private school, nor paid all monies owed the IMAGINE school. Also, the school allowed one of the principals other private schools to utilize a portion of the IMAGINE schools facilities for free, and without a written sub-lease agreement. The Principal neither demanded payment from the private school, nor paid all monies owed the IMAGINE school. Also, the school allowed one of the principals other private schools to utilize a portion of the IMAGINE schools facilities for free, and without a written sub-lease agreement.

76 76 Charter Schools 5. Audit of G-Star School of the Arts for Motion Pictures and Television (January 19, 2007) The audit concluded that: The audit concluded that: The school did not maintain documentation that demonstrated the reimbursement amount fully compensated the school for the Caribbean Cruise expenses incurred. An account receivable related to this event was not recorded on the schools financial records, and partial reimbursement was received more than one year after the school incurred the expenses. The school did not maintain documentation that demonstrated the reimbursement amount fully compensated the school for the Caribbean Cruise expenses incurred. An account receivable related to this event was not recorded on the schools financial records, and partial reimbursement was received more than one year after the school incurred the expenses. The Governing board awarded the founder a $150,000 bonus but it was not disclosed or recorded on any of the schools financial records. The schools independent auditors notified them of the potentially undisclosed $150,000 debt, as well as other issues identified in this report. The Governing board awarded the founder a $150,000 bonus but it was not disclosed or recorded on any of the schools financial records. The schools independent auditors notified them of the potentially undisclosed $150,000 debt, as well as other issues identified in this report.

77 77 Charter Schools 5. Audit of G-Star School of the Arts for Motion Pictures and Television (January 19, 2007) Free use of facilities by for-profit businesses. Free use of facilities by for-profit businesses. Supplies and two-year free use of a building for a private for- profit company. Supplies and two-year free use of a building for a private for- profit company. $2,700 paid to contractor. $2,700 paid to contractor. Poor record keeping. Poor record keeping. School founder overpaid in error. School founder overpaid in error.

78 78 Charter Schools 5. Audit of G-Star School of the Arts for Motion Pictures and Television (January 19, 2007) Fix assets not adequately tagged or recorded (Note: District Auditors Office will perform an updated inventory of the school, and the results will be released as a subsequent event report.) Fix assets not adequately tagged or recorded (Note: District Auditors Office will perform an updated inventory of the school, and the results will be released as a subsequent event report.) Use of facilities without lease agreements. Use of facilities without lease agreements. Inadequate backup documentation maintained. Inadequate backup documentation maintained. Tenant did not undergo required criminal background screening. Tenant did not undergo required criminal background screening.

79 79 Other Involvements 1. Assist the Charter School Department in revising the model Charter Agreement for charter schools 2. Assist Legal Department in preparing for legal proceedings related to audits 3. Assist School Police & Employee Relations Departments in their investigation of improprieties 4. Assist Employee Relations Department in designing training for certain employees

80 80 Possible Impacts for Audits Value added to our existing management controls and accountabilities Value added to our existing management controls and accountabilities Value added to the integrity of our system Value added to the integrity of our system Strengthening the control system Strengthening the control system

81 81 Possible Impacts for Audits Ultimate results: Protect our students Protect our students Protect school administrators Protect school administrators Safeguard assets and ensure compliance with laws, School Board Policies & guidelines Safeguard assets and ensure compliance with laws, School Board Policies & guidelines Better controls resulting in increase in revenues Better controls resulting in increase in revenues Better control in operating expenses Better control in operating expenses Provide deterrent for potential abuse of the system Provide deterrent for potential abuse of the system Promote public confidence in the school system through public transparency, professional independence, & objective reporting Promote public confidence in the school system through public transparency, professional independence, & objective reporting

82 82 Others KPMGs Management Letter for Year-Ended June 30, 2006 (February 16, 2007) No changes in significant accounting policies. No changes in significant accounting policies. No significant unusual accounting transactions were encountered for which there is lack of authoritative guidance or consensus. No significant unusual accounting transactions were encountered for which there is lack of authoritative guidance or consensus. Audit adjustments were done without objections from the District. Audit adjustments were done without objections from the District. There was one Reportable Condition and four other comments in the Management Letter. There was one Reportable Condition and four other comments in the Management Letter.

83 83 Others KPMGs Management Letter for Year-Ended June 30, 2006 (February 16, 2007) Reportable Conditions: Detailed Account Analysis - The accounting department did not perform reviews and analyses of general ledger accounts to ensure that information is accurately and completely reported. This represents a deficiency in the design or operations of internal control and could adversely affect the School Districts ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. Detailed Account Analysis - The accounting department did not perform reviews and analyses of general ledger accounts to ensure that information is accurately and completely reported. This represents a deficiency in the design or operations of internal control and could adversely affect the School Districts ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. Staff agreed with the finding, and stated that some key accounting staff members and the dedication of resources to the ERP implementation limited the departments level of account analysis. The increasing complexity of some financial transactions also requires additional analysis. The District plants to fill current accountant vacancies and provide staff development to ensure accounts are analyzed at an in-depth level on a periodic basis. Staff agreed with the finding, and stated that some key accounting staff members and the dedication of resources to the ERP implementation limited the departments level of account analysis. The increasing complexity of some financial transactions also requires additional analysis. The District plants to fill current accountant vacancies and provide staff development to ensure accounts are analyzed at an in-depth level on a periodic basis.

84 84 Others KPMGs Management Letter for Year-Ended June 30, 2006 (February 16, 2007) Other Comments Compensated Absences – Terminal Leave Payout - The School Districts written policy regarding annual and sick leave payout upon separation is not consistent with the practice that has been implemented by management. Compensated Absences – Terminal Leave Payout - The School Districts written policy regarding annual and sick leave payout upon separation is not consistent with the practice that has been implemented by management. Testing of Recovery Procedures - Formal testing of recovery procedures is not part of the School Districts regular backup and recovery process. Testing of Recovery Procedures - Formal testing of recovery procedures is not part of the School Districts regular backup and recovery process. Password Change Policy - The School Districts policy for password maintenance can be overridden by system Super-users. Password Change Policy - The School Districts policy for password maintenance can be overridden by system Super-users. Improved Security Process - KPMG became aware of security incident regarding the information system during the audit. Once made aware, the School District personnel made several changes over the security. Improved Security Process - KPMG became aware of security incident regarding the information system during the audit. Once made aware, the School District personnel made several changes over the security.

85 85 Projects for Audit Plan


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