Audit 308164

Criteria The Academy’s internal control structure should ensure that the accounting data is appropriately calculated, reconciled, and reported in accordance with generally accepted accounting principles. Condition The Academy’s accounts required significant adjustments to the general ledger to properly reflect the appropriate balance after the books and records were presented for audit. Context We noted several accounts that required reconciling after the general ledger was closed. Cause and Effect The Academy did not perform proper reconciliation of accounts and the Academy did not have proper controls in place. Recommendation The Academy should institute monthly and yearly closing procedures to reconcile all accounts and match the general ledger. Management’s Response The Accounting Manager will adhere to the established monthly checklist and physically check off items as they are completed, including the date of completion. Management will review the monthly close procedural checklist to ensure established processes have been followed and completed and sign off on each month after completion/close is verified.

Criteria The Academy should have appropriate overall monitoring of the general ledger to ensure timely and accurate financial statements. Condition The Academy lacked appropriate overall monitoring of account balances during the year to compile complete and accurate financial reports that resulted in many auditor-proposed journal entries. Context We noted that the Academy didn’t have a process in place to ensure that financial statements were accurate and complete. Cause and Effect The Academy did not identify the resources necessary to ensure general ledger accounts were monitored and analyzed by appropriate individuals, including taking an overview of fund activity to finalize the accounting records. As a result of the lack of appropriate overall monitoring procedures, there were many auditor-proposed journal entries. Recommendation The Academy should develop an overall monitoring procedure to ensure that all fund activity is complete, accurate, and logical. This includes assigning an appropriate individual to each general ledger account, and several individuals are responsible for the entire general ledger and financial statements to perform monitoring, analytical analysis, and adjustment as needed. Management’s Response The Director of finance will review staffing resources and make appropriate adjustments to ensure that adequate levels of staffing and quality staff are recruited and retained. New ERP software has been purchased to facilitate input, reporting, and analysis of fund accounting and accurate GL classification.

Criteria A process should be in place to ensure that the Academy complies with laws and regulations. Condition There were instances identified where the Academy was not in compliance with laws and regulations. State School Aid Act MCL 388.1718 requires that annual audits be submitted by November 1 to the Michigan Department of Education. Finally, the Academy was in violation of the Uniform Budgeting and Accounting Act in that there was a deviation from the amended budget. Context We noted that the Academy didn’t monitor the budget to actuals on a regular basis. Also, there were shifts in the accounting staff that led to the submission delay. Cause and Effect There was a change in staff and staff shortages, which led to noncompliance with MCL 388.1718 and deviations in budget to actuals. Recommendation We recommend that the Academy implement a process that identifies specific individuals for identifying and monitoring applicable compliance requirements throughout the year. Management’s Response The necessary review and analysis of GL accounts will be completed according to the established month end and annual close procedure check lists. Audit engagement will begin no later than August for 2023 SY. Any new, as well as current staff, will receive periodic in-service centered around the MI Public School Accounting manual to ensure thorough understanding of the expectations and processes for school fund accounting.

Criteria The State School Aid Act of 1979 Article 10 Section 388.1702 does not allow for districts receiving funds under the act to operate under a deficit. Condition The Academy did not monitor the budget to actuals on a regular basis. Context We noted that the General Fund has an unassigned deficit fund balance as of June 30, 2023. Cause and Effect The academy lacked adequate budgetary controls. The Academy has filed a deficit elimination plan with the State. Recommendation The Academy should follow its deficit elimination plan and submit needed revisions as they arise. Management’s Response The Academy will monitor the budget to actual numbers on a monthly basis and review with the Board. We will also put in place tighter budgetary controls. The building leaders' and all other administrators' budgets will be monitored monthly, and budget overages will be resolved immediately. The Academy will follow the currently approved deficit reduction plan and submit revisions if needed.

Criteria Michigan Department of Education (“MDE”) awarded the American Rescue Plan Elementary and Secondary School Emergency Relief (“ARP ESSER”) program to public school academies operating before fiscal year 2022. Under the program, Academies cannot transfer ESSER funding to other academies. Condition The Academy incurred related ESSER expenditures based on the intergovernmental agreement with Washington-Parks Academy. Pursuant to the intergovernmental agreement, which was approved by the relevant PSA Boards and the Authorizer, the Academy received ESSER funding as a second tier subrecipient. Also, Washington-Park’s consolidated application, which included ESSER allocations to the Academy, was approved by the MDE. Context During the year ending June 30, 2023, the Academy incurred allowable ESSER expenses pursuant to the intergovernmental agreement submitted to MDE as part of the Washington-Parks Academy Consolidated Application, which MDE approved on October 20, 2022. Cause and Effect The Academy relied on the intergovernmental agreement submitted as part of Washington-Parks Academy’s consolidated application, which MDE approved on October 20, 2022, and released funds pursuant to the application as authority to incur ESSER expenditures. Recommendation We recommend that the Academy return the ESSER dollars received from Washington-Parks Academy. Management’s Response While the Academy disagrees with this finding regarding noncompliance because of MDE’s position regarding the release of funds, it is willing to work to correct the issues and has taken the relevant steps to do so. The Academy relied on MDE by approving Washington-Parks Academy’s consolidated application and releasing funds during the fiscal year. It was not until August 29, 2023, that MDE made the Academy aware of itsconcerns with the intergovernmental agreement, and the Academy did not receive any ESSER funds after such notice from MDE. Moreover, expenditure reimbursements were initially made by the MDE pursuant to Washington-Parks Academy’s ESSER application that included the intergovernmental agreement and the Academy firmly disputes that the subsequent expenses were not reimbursable pursuant to the intergovernmental agreement because of the pre-approvals received by the Academy, but supports trying to resolve the relevant issues. As stated herein, the Academy disputes this finding of noncompliance, and will continue to review this matter in order to reach resolution and potential amendments of the Academy’s financial statements; but supports the submission of this audit in order to ensure continued per pupil funding for the students at the Academy.

Criteria The Academy’s internal control structure should ensure that the accounting data is appropriately calculated, reconciled, and reported in accordance with generally accepted accounting principles. Condition The Academy’s accounts required significant adjustments to the general ledger to properly reflect the appropriate balance after the books and records were presented for audit. Context We noted several accounts that required reconciling after the general ledger was closed. Cause and Effect The Academy did not perform proper reconciliation of accounts and the Academy did not have proper controls in place. Recommendation The Academy should institute monthly and yearly closing procedures to reconcile all accounts and match the general ledger. Management’s Response The Accounting Manager will adhere to the established monthly checklist and physically check off items as they are completed, including the date of completion. Management will review the monthly close procedural checklist to ensure established processes have been followed and completed and sign off on each month after completion/close is verified.

Criteria The Academy should have appropriate overall monitoring of the general ledger to ensure timely and accurate financial statements. Condition The Academy lacked appropriate overall monitoring of account balances during the year to compile complete and accurate financial reports that resulted in many auditor-proposed journal entries. Context We noted that the Academy didn’t have a process in place to ensure that financial statements were accurate and complete. Cause and Effect The Academy did not identify the resources necessary to ensure general ledger accounts were monitored and analyzed by appropriate individuals, including taking an overview of fund activity to finalize the accounting records. As a result of the lack of appropriate overall monitoring procedures, there were many auditor-proposed journal entries. Recommendation The Academy should develop an overall monitoring procedure to ensure that all fund activity is complete, accurate, and logical. This includes assigning an appropriate individual to each general ledger account, and several individuals are responsible for the entire general ledger and financial statements to perform monitoring, analytical analysis, and adjustment as needed. Management’s Response The Director of finance will review staffing resources and make appropriate adjustments to ensure that adequate levels of staffing and quality staff are recruited and retained. New ERP software has been purchased to facilitate input, reporting, and analysis of fund accounting and accurate GL classification.

Criteria A process should be in place to ensure that the Academy complies with laws and regulations. Condition There were instances identified where the Academy was not in compliance with laws and regulations. State School Aid Act MCL 388.1718 requires that annual audits be submitted by November 1 to the Michigan Department of Education. Finally, the Academy was in violation of the Uniform Budgeting and Accounting Act in that there was a deviation from the amended budget. Context We noted that the Academy didn’t monitor the budget to actuals on a regular basis. Also, there were shifts in the accounting staff that led to the submission delay. Cause and Effect There was a change in staff and staff shortages, which led to noncompliance with MCL 388.1718 and deviations in budget to actuals. Recommendation We recommend that the Academy implement a process that identifies specific individuals for identifying and monitoring applicable compliance requirements throughout the year. Management’s Response The necessary review and analysis of GL accounts will be completed according to the established month end and annual close procedure check lists. Audit engagement will begin no later than August for 2023 SY. Any new, as well as current staff, will receive periodic in-service centered around the MI Public School Accounting manual to ensure thorough understanding of the expectations and processes for school fund accounting.

Criteria The State School Aid Act of 1979 Article 10 Section 388.1702 does not allow for districts receiving funds under the act to operate under a deficit. Condition The Academy did not monitor the budget to actuals on a regular basis. Context We noted that the General Fund has an unassigned deficit fund balance as of June 30, 2023. Cause and Effect The academy lacked adequate budgetary controls. The Academy has filed a deficit elimination plan with the State. Recommendation The Academy should follow its deficit elimination plan and submit needed revisions as they arise. Management’s Response The Academy will monitor the budget to actual numbers on a monthly basis and review with the Board. We will also put in place tighter budgetary controls. The building leaders' and all other administrators' budgets will be monitored monthly, and budget overages will be resolved immediately. The Academy will follow the currently approved deficit reduction plan and submit revisions if needed.

Criteria Michigan Department of Education (“MDE”) awarded the American Rescue Plan Elementary and Secondary School Emergency Relief (“ARP ESSER”) program to public school academies operating before fiscal year 2022. Under the program, Academies cannot transfer ESSER funding to other academies. Condition The Academy incurred related ESSER expenditures based on the intergovernmental agreement with Washington-Parks Academy. Pursuant to the intergovernmental agreement, which was approved by the relevant PSA Boards and the Authorizer, the Academy received ESSER funding as a second tier subrecipient. Also, Washington-Park’s consolidated application, which included ESSER allocations to the Academy, was approved by the MDE. Context During the year ending June 30, 2023, the Academy incurred allowable ESSER expenses pursuant to the intergovernmental agreement submitted to MDE as part of the Washington-Parks Academy Consolidated Application, which MDE approved on October 20, 2022. Cause and Effect The Academy relied on the intergovernmental agreement submitted as part of Washington-Parks Academy’s consolidated application, which MDE approved on October 20, 2022, and released funds pursuant to the application as authority to incur ESSER expenditures. Recommendation We recommend that the Academy return the ESSER dollars received from Washington-Parks Academy. Management’s Response While the Academy disagrees with this finding regarding noncompliance because of MDE’s position regarding the release of funds, it is willing to work to correct the issues and has taken the relevant steps to do so. The Academy relied on MDE by approving Washington-Parks Academy’s consolidated application and releasing funds during the fiscal year. It was not until August 29, 2023, that MDE made the Academy aware of itsconcerns with the intergovernmental agreement, and the Academy did not receive any ESSER funds after such notice from MDE. Moreover, expenditure reimbursements were initially made by the MDE pursuant to Washington-Parks Academy’s ESSER application that included the intergovernmental agreement and the Academy firmly disputes that the subsequent expenses were not reimbursable pursuant to the intergovernmental agreement because of the pre-approvals received by the Academy, but supports trying to resolve the relevant issues. As stated herein, the Academy disputes this finding of noncompliance, and will continue to review this matter in order to reach resolution and potential amendments of the Academy’s financial statements; but supports the submission of this audit in order to ensure continued per pupil funding for the students at the Academy.