U.S. DEPARTMENT OF EDUCATION PASSED THROUGH ARKANSAS DEPARTMENT OF EDUCATION TITLE I GRANTS TO LOCAL EDUCATIONAL AGENCIES- AL NUMBER 84.010A PASS-THROUGH NUMBER 4702 AUDIT PERIOD - YEAR ENDED JUNE 30, 2024 U.S. DEPARTMENT OF EDUCATION PASSED THROUGH ARKANSAS DEPARTMENT OF EDUCATION SPECIAL EDUCATION CLUSTER- AL NUMBERS 84.027A AND 84.173A PASS-THROUGH NUMBER 4702 AUDIT PERIOD - YEAR ENDED JUNE 30, 2024 The internal control deficiencies identified in Finding 2024-001 noted in Section II above also apply to these major federal programs. Financial statement finding 2024-001 detail below: 2024-001. Internal Control Criteria: Internal control is a process consisting of five interrelated components - control environment, risk assessment, information and communication, control activities, and monitoring. Management is responsible for adopting sound accounting policies and for establishing and maintaining internal control that will, among other things, initiate, authorize, record, process, and report transactions (as well as events and conditions) consistent with management's assertions embodied in the financial statements, and management should maintain supporting documentation for all transactions. The control environment sets the tone of an organization, which influences control consciousness of its employees, and is the foundation for all other components of internal control, providing discipline and structure. Additionally, Ark. Code Ann. § 6-13-701(e)(1)(B) requires a school district to have on hand approved invoices, payrolls that conform with written contracts, and other appropriate documentation that indicates an authority for disbursement. Ark. Code Ann. § 6-17-1205 requires a record of sick leave used and accumulated be established and maintained by each school district. Condition: Adequate supporting documentation could not be provided for the following: Payroll expenditures Employee leave balances. Additional pay for 13 of 19 employees tested totaling $26,446. Non-payroll expenditures 23 of 63 non-payroll transactions tested totaling $93,354. Credit card transactions totaling $93,017. Amazon business account transactions totaling $108,636. Journal entries 6 of 15 journal entries tested. 13 of the 15 journal entries lacked approval. Additionally, various contracts were executed by the Superintendent in excess of the limit of $21,604 permitted for the purchase of commodities, pursuant to Rule 7.5 of the School Board Policy, without obtaining prior approval from the Board." Cause: Management did not properly oversee internal control activities of the District. Additionally, the District experienced significant employee turnover in key positions. Effect or potential effect: Material misstatements of the financial statements or fraud would not be detected and corrected on a timely basis. Recommendation: The District should establish and maintain internal controls that will initiate, authorize, record, process, and report transactions consistent with management's assertions embodied in the financial statements and that will safeguard the District's assets. Additionally, adequate supporting documentation should be maintained for all expenditures. Views of responsible officials: The District acknowledges this finding. The breadth of documentation deficiencies identified reflects a period of significant employee turnover in key financial positions that disrupted established internal control procedures. The District is committed to the following corrective actions, several of which are already underway: 1. Supporting Documentation Policy • The District has adopted a revised Written Documentation Policy requiring that all expenditures, including payroll, non-payroll, credit card, and Amazon business account transactions, be supported by approved invoices, receipts, or equivalent documentation prior to payment processing. • A documentation checklist has been developed for accounts payable staff to use when processing each payment, ensuring consistent review before transactions are posted to the general ledger. 2. Additional Pay Authorization • All extra-duty pay, stipends, and additional compensation must now be supported by a resolution approved by Board of Directors prior to payroll processing. Payroll staff will reject any additional pay request without this documentation. • AMS Impact Group will conduct a secondary review of each payroll run to verify that all additional pay items have complete supporting authorization on file. 3. Credit Card and Amazon Business Account Controls • All credit card and Amazon business account purchases now require pre-approval by the applicable department head and submission of itemized receipts within five (5) business days of purchase. Transactions with missing receipts will be flagged, and repeat noncompliance will result in revocation of purchasing privileges. • Monthly credit card account statements will be reconciled to receipts and reviewed by the Finance Director before charges are posted. 4. Journal Entry Controls • Effective immediately, all journal entries must include written documentation of the purpose, supporting calculations or backup, and an authorized approval signature prior to posting. No journal entry will be recorded in the general ledger without documented approval. • AMS Impact Group will review and approve all journal entries. 5. Procurement Authority and Contract Compliance • The District has reinforced compliance with School Board Policy Rule 7.5. All contracts or commitments exceeding the $26,500 commodity threshold must receive Board approval before execution. A procurement review workflow has been established requiring the Finance Director to review all proposed contracts for threshold compliance before the Superintendent signs. • Contracts requiring Board approval will be placed on the next available Board agenda. Staff with purchasing authority have been notified of these requirements, and training will be provided. 6. Management Oversight and Staffing • The District has filled or is actively recruiting for key financial positions vacated during the audit period. AMS Impact Group and Finance Director will conduct quarterly reviews of internal control procedures to verify compliance and identify emerging gaps. • AMS Impact Group has been engaged to provide ongoing monitoring support and to assist with training of newly hired financial staff.