Finding 479128 (2021-003)

Criteria or Specific Requirement: Effective internal controls over payroll should be properly designed to provide assurance of meeting compliance requirements and should operate effectively. The District's payroll policies and procedures state that all employees should have an approved wage rate or salary contract. Condition: We noted a control deficiency over the payroll process, specifically with approved contracts. Of the twenty-five employee paycheck samples tested, one employee; representing five transactions, did not have a valid contract with an approved salary and that employee was paid $30,869 in gross wages during the period under audit. Context: We had a discussion with accounting staff and performed a walkthrough over the payroll process. Internal control over payroll testing was performed as a dual test for compliance and internal control effectiveness $411,441 of payroll is paid out of Impact Aid funds for the period under audit out of a total of $1,436,225 in payroll for the same audit period for the entire School. The samples are not a statistically valid sample. Questioned Costs: $30,869 Effect: Without effective internal controls over payroll, the potential for misstatement due to error or fraud occurring and not being detected greatly increases. Cause: Management did not assign priority to implementing effective internal controls over the payroll process. Timesheets have been processed without proper authorization. Repeat: No Auditor's Recommendation: We recommend that the District strengthen its internal control structure by following the policies and procedures to ensure compliance over payroll approval and documentation. The District should provide training to management and staff to further their knowledge on internal controls and compliance requirements. Views of Responsible Officials: The District agrees with the finding.