Finding Text
2022-001 Recommend continued evaluation and enhancements to limited segregation of duties over financial reporting Condition and context: Management and the Board of Trustees have taken steps to implement corrective actions during fiscal year 2022, to address certain significant deficiencies (lack of segregation of duties) identified in the prior year audit. The School is a small entity with limited personnel, ideal internal controls are often not achievable, and significant deficiencies often continue to exist. It is important for management and those charged with governance to continually perform risk assessments of established procedures to ensure that misstatements and errors (intentional or otherwise) that could affect the financial position of the School are prevented, detected, and corrected in a timely manner. As noted in the prior year, the Director of Business and Finance (Business Manager) is responsible for the maintenance of the School?s cash (bank accounts) as well as postings within the accounting system (general ledger). Additionally, the Business Manager serves as the treasurer/Board member and maintains the accounting records of the legally separate fundraising entity the Global Learning Charter Public School Foundation, Inc. which is considered a related entity and component unit of the School. Inherently these functions and duties increase the risks associated with financial reporting. During fiscal year 2022, the Board of Trustees and management implemented additional monitoring and oversight procedures involving the Treasurer of the School, reviewing details (vouchers, check registers) prior to actual payment, review of bank reconciliations, on-site inspection of invoices, as well as review of additional monthly financial reporting and other information prior presentation to the full Board. Additionally, management and the Board of Trustees has adopted and implemented a more formalized policies and procedures manual surrounding administration of federal award programs, the template for which they initially received from the Commonwealth of Massachusetts?s Department of Elementary and Secondary Education. Effect or potential effect: Limited segregation of duties surrounding financial recording and reporting create a reasonable possibility that misstatements and errors (intentional or otherwise) which could affect the financial position of the School are not prevented, detected, and corrected in a timely manner. Cause: The School is a small entity with limited personnel. Criteria: Internal controls surrounding financial reporting and compliance should be established which provide misstatements, errors, noncompliance are prevented, detected, and corrected in a timely manner. Identification as a repeat finding: As indicated above, this is a similar finding as reported in the immediate prior year; the School has addressed certain corrective action toward. Auditor?s recommendations: While the implementation of these additional procedures is of significant importance and an improvement, we would continue to recommend management evaluate additional enhancements and review of established policies and procedures to ensure risks are minimized as best possible (cost benefit) and to levels acceptable by the Board of Trustees We would recommend management and the Board?s continued evaluation include, but not be limited to the following: ? Organizational and operational structure of the Foundation and the in relationship to the School. (Business Manager lack of segregation of duties). ? Evaluate more formalized budget and actual reporting directly from the computerized financial management system; limiting the use of decentralized creation of summaries and reports, which will allow for more streamlined reporting of activity. ? Recommend posting of payroll activity processed through the third-party payroll provider to the financial management system on a weekly basis, rather than monthly basis. We recommend further streamlining the documentation for each posting thereof into one source document. Additionally, we recommend payroll activity between the third-party payroll provider and the ledger be reconciled and reviewed on a routine basis. ? We recommend evaluation of check signing authority and adopted thresholds for dual signatures ($5,000). Based upon the current year audit, excluding the renovation project costs, the majority of the School?s non-salary expenditures are below the dual signature threshold. ? We recommend evaluation of use of debit card linked to School?s account. While utilized to a limited extent, management should evaluate risks/benefits (debit card direct access to account funds) against other methodologies (i.e., credit card). Management should evaluate with financial institution. ? We recommend procedures addressing reimbursement of expenditures to individuals for credit card purchases (require additional proof of actual payment (i.e., of statement) and be made only after the transaction/event has taken place and proof of attendance). ? We recommend management review adopted policies and procedures surrounding federal award programs and compliance thereto, be enhanced by additional review to OMB Uniform Guidance and the Compliance Supplement to further delineate procedures directly with OMB guidance and the applicable requirements associated with each federal award program the School receives annually. Based upon our conversation with the Business Manager during the current audit, the Board of Trustees is continuing the process of evaluating additional procedure enhancements, and assessments of overall financial operations, inclusive of those involving the Foundation. It is important that this continue as an annual process and be documented accordingly. Management should refer to the federal ?Green Book? and Internal control- Integrated Framework published by COSO in updating and assessments of established internal controls over financial reporting and compliance.