Finding Text
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, 2025 The internal control deficiencies identified in Finding 2025-001 noted in the Financial Statement Findings also apply to this major federal program. 2025-001. 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 7 of 17 employees tested totaling $13,737. Unused vacation leave payout of $13,362. Non-payroll expenditures 13 of 63 non-payroll transactions tested totaling $129,795. Receipts Multiple receipts and revenue items. 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 and agrees with the auditors' recommendation. The following corrective actions have been taken or are underway: 1. Leave Balance Documentation and Vacation Payout Controls • All leave payout requests, including unused vacation at separation or year-end, must be supported by a complete leave history report from the District's leave tracking system, showing accrual, usage, and available balance. No payout will be processed without this documentation on file. • The Human Resources department will reconcile all employee leave balances monthly. Year-end balances will be certified by the Finance Director before any separation payout is calculated. 2. Additional Pay Authorization • All extra-duty pay, stipends, and additional compensation require an approved board resolution before payroll is processed. Payroll staff are instructed to reject any additional pay without complete documentation. • AMS Impact Group will perform a line-by-line review of each payroll run to verify every additional pay item has an approved authorization on file prior to disbursement. 3. Non-Payroll Expenditure Documentation • A pre-payment documentation checklist has been implemented for all non-payroll transactions. Payments will not be processed without an approved purchase order, vendor invoice, and receiving confirmation attached. • The Finance Director will conduct monthly spot-check reviews of non-payroll transactions to verify documentation completeness. Any gaps identified will be corrected within 30 days. 4. Receipt and Revenue Documentation • The District is establishing a standardized receipting procedure for all cash and check receipts. All incoming revenue will be recorded on a pre-numbered receipt, reconciled to deposit records, and reviewed by the Finance Director on a monthly basis. 5. Accountability and Oversight • AMS Impact Group will perform periodic internal reviews of financial documentation to identify gaps before year-end and provide corrective guidance to District staff.