Ed Management Services

Internal Controls

Fiscal Accountability Evaluation Checklist

TABLE OF CONTENTS

INTRODUCTION                                                                               

BOARD OF EDUCATION POLICIES AND PROCEDURES

BUDGETING    

PURCHASING   

ACCOUNTING AND AUDITING

INTERNAL CONTROLS – GENERALLY

FINANCIAL CONDITION


 

INTRODUCTION     

This checklist was developed by the Office of Operations and Management Services in cooperation with the Office of Audit Services of the New York State Education Department to provide a set of standards to test fiscal accountability in school districts. The checklist may be used in its entirety if  review of fiscal management operations as a whole is the objective. However, specific portions such as budgeting or accounting may be used if the reviewer feels that only those functions merit examination. In any case, where a standard is not met, the district should consider cost-effectiveness in determining the extent of corrective action to be taken.  

In the event that the district or the individual reviewer wishes to pursue further evaluation the financial and business management functions, an expanded document entitled School Business Management Checklist is available at www.emsc.nysed.gov/mgtserv/internalcontrols/. There are also other documents available at the same website which  provide helpful information regarding the standards set forth in the  Fiscal Accountability Checklist.  These are listed below. 

  • Fiscal Fitness: A Guide to Monitoring Your School District’s Budget  
  • Segregation of Duties: An Important Internal Control. How Well Is Your District Doing? 
  • Internal Auditor Pamphlet  
  • Budgeting Handbook   

In addition, the Office of the State Comptroller has several publications which provide guidance on fiscal accountability. These include the following titles:

  • Internal Controls  
  • Financial Condition Analysis  
  • Fiscal Oversight Responsibilities  
  • Strategic Planning  

These publications are available at www.osc.state.ny.us/localgov/muni/publist1.htm.

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BOARD OF EDUCATION POLICIES AND PROCEDURES

 1.     Does the board of education policy manual contain policies relating to all business management functions?

                                    Yes___            No___

            Standard:  Comprehensive policy in the business management area should include statements on areas such as budgeting, purchasing, accounting/auditing, transportation, school lunch, operation and maintenance, SOSHA, toxic substances, energy conservation, and disaster preparedness. The policies should be complete and updated as necessary. 

             Review Procedure:  Review the manual for all of the above policies and for whether or not the policies are current.  

2.     Have copies of the manual been distributed to district officials and staff affected by the policies? 

                       Yes___            No___           

Standard:  The board should make provisions for the availability of the completed manual to all members of the staff.  Staff cannot be held accountable for adhering to the board's policies if they do not know what those policies are.  Thus, it is important that a copy of the policy manual be readily available to the entire staff.  The district clerk should maintain a log of the numbers and location of each copy of the manual. 

Review Procedure:  Interview the district clerk or other custodian of the manuals to ascertain whether the manuals have been distributed and a log is maintained. 

3.     Does the board of education receive budget status reports for all funds, including special revenue funds, as specified in Section 170.2 of the Regulations of the Commissioner of Education? 

                        Yes___            No___ 

Standard:  Section 170.2(p) of the Commissioner's Regulations requires the treasurer to render a report at least quarterly--and monthly in the event that budget transfers have been made since the last report--for each fund, including no less than the revenue and appropriation accounts required in the State budget form.  This report must show the status of these accounts in at least the following detail: 

            Appropriation Accounts 

                        Original appropriations

                        Transfers and adjustments

                        Revised appropriations

                        Expenditures to date

                        Outstanding encumbrances

                        Unencumbered balance 

            Revenue Accounts 

                        Estimated revenues

                        Amounts received to date of report

                        Revenues estimated to be received during balance of fiscal year 

            The budget status report, together with the treasurer's report of bank balances, is the best source of financial information in summary form available to the board and should be used as a basis for financial decisions. 

Review Procedure:  Review minutes for receipt of the reports at the required intervals. Review a sample of the reports for format and completeness.   

4.     Does the board of education receive, on a monthly basis, a cash report and bank account reconciliations prepared by the district treasurer as required by Section 170.2 of the Regulations of the Commissioner of Education?           

                        Yes___            No___ 

Standard:  Section 170.2(o) of the Regulations of the Commissioner of Education requires the treasurer to render a monthly cash report for each fund showing: 

                        1)         the cash balance on hand at the beginning of the month; 

                        2)         receipts by source during the month; 

                        3)         total disbursements during the month; 

                        4)         the cash balance on hand at the end of the month; and 

                        5)         reconciliation with bank statements. 

            The report needs to show the district's total cash position, which would include checkbook balance, Certificates of Deposit, and government obligations.  Including the total cash position in the treasurer's report will comply with the Commissioner's Regulations and give the board a better idea of the district's fiscal status. 

            Review Procedure:  See procedure for budget status reports.          

5.   Has the board of education by resolution or by policy established the amount of the faithful performance bond for the treasurer, tax collector, central treasurer of the extra-classroom activity fund and the internal claims auditor?           

                        Yes___            No___           

            Standard:   Sections 2122 and 2130 of the Education Law and Section 170.2(d) of the Regulations of the Commissioner of Education require the board to set the amount of official undertaking/bond for the district treasurer, tax collector and internal claims auditor in accordance with the provisions of subdivision 2 of section 11 of the Public Officers Law.  In addition, Section 172.5 of the Commissioner's Regulations requires that at least the central treasurer of the extra-classroom activities be bonded. 

            The district should be sure to obtain additional bonding for the internal claims auditor, who is not a regular employee of the district and is, therefore, not covered under a Blanket Bond. 

             Review Procedure:  Interview the district clerk and the business official to determine the type and extent of bond.  

6.  Has the board made an effort to secure training through state agencies or professional associations regarding the role and responsibilities of board members in assuring fiscal accountability on the part of the district?  

            Standard:  In order to adequately perform their function, which is the development of policy, board members need to be able to read and interpret the financial statements provided to them by the district staff and to be familiar with major laws and regulations  governing the operation of school districts.   

          Review Procedure:  Review board minutes and interview individual members to ascertain whether the whole board or individual members have in the past participated in training relating to a board of education’s role in promoting fiscal accountability.                                                             

7. Does the district have policies limiting the use of district owned assets such as automobiles, cellular phones, computers and credit cards to official business only?  

         Standard:  Article 8 of the New York State Constitution states that no school district shall give or loan money or property in aid of any individual. Districts need to establish policies to clearly communicate that district assets can only be used for official business. The policies should include a prohibition against the unauthorized use of personal property and the theft or conversion of personal property, a statement of the actions to be taken where staff violate the policy, the designation of staff responsible for enforcement of the policy, and procedures for  assuring that staff are informed of the policy.           

     Review Procedure:  Review board minutes and the district policy manual to ascertain if such a policy has been adopted and whether the policy contains the elements listed in the standard.  

8. Does the district code of ethics address conflict of interest transactions involving board members and employees?  

          Standard:  General Municipal Law Section 806 requires each district to adopt a code of ethics that sets forth standard of conduct for officers and employees. The code should be  communicated to all employees and be available for reference. Sections 800-803 of the General Municipal Law provide guidance on conflict of interest situations.  Generally officers and employees of the district may not have an interest in contracts with the district. Section 806 provides that the code shall contain standards with respect to holding investments in conflict with official duties, private employment in conflict with official duties, future  employment and other such standards relating to the conduct of officers and employees as  may be deemed advisable. The code should also reference the acceptance of gratuities by  officers and employees which is limited to $75.                  

          Review Procedure:  Review a copy of the code to ascertain activities prohibited and compare  to the standard which appears above. For further guidance, if necessary, review Sections 800-803 and the case notes under each Section.

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BUDGETING

  9. Does the district have a long-term financial plan for both operating expenses and capital  items which is updated at least annually?           

                        Yes___            No___ 

     Standard:  Most districts do have such a plan but no one pays any attention to it!  It is a valuable tool for budgeting purposes and should be used by the board.  Long-term does not have to mean "5 years"; a plan for three years may be just as good and will be even better if it is used wisely by the board. 

       Review Procedure: Interview the school business official to determine whether a long-term financial plan exists and whether it is updated regularly. Review the assumptions on which the  plan is based to determine if they are reasonable.

10. Are internal controls sufficient to prevent over-commitment of individual function-object appropriations, so that no negative balances appear at any time during the fiscal year?          

                        Yes___            No___ 

Standard:   The Uniform System of Accounts for School Districts, prescribed by Section 36 of the General Municipal Law, requires that an appropriation must be available before an expenditure is made.  This means that if there is an insufficient appropriation, transfers must be made before purchase orders can be released or a payment made. 

Review Procedure:  Review a sample of budget status reports for the past year for commitments which exceed function-object appropriations.  

11.  Are revenue estimates reviewed regularly during the fiscal year so that uncollected revenues are not overstated?           

                        Yes___            No___ 

Standard:  It is extremely important to review revenue estimates regularly throughout the fiscal year to avoid an operating deficit due to overestimating revenues that have not yet been collected and may in some instances become uncollectable. 

Review Procedure:  Review budget status reports the final month of the previous fiscal year and for the latest complete month of the current fiscal year to determine whether revenues are consistently overestimated. 

12.  Are budget transfers within the general fund made for only those items permitted by law and regulation?           

                        Yes___                        No___ 

Standard:   Since the budget is an estimated expenditure plan for underwriting the cost of education, it is not unusual that a condition may arise requiring transfers be made to maintain fiscal balance.  Transfers must be closely scrutinized to keep them in conformance with the restrictions of Section 170.2(l) Commissioner's Regulations and Chapter 436 of the Laws of 1997.  This allows: 

            a.         Transfers to be made between contingent expense codes.

            b.         Transfers to be made from a non-contingent expense code to a contingent expense code. 

            This regulation does not allow: 

            a.         Transfers to be made from contingent expense codes to non-contingent expense codes.

            b.        Transfers to be made between non-contingent expense codes.

            c.        Transfers which will exceed the cap on the administrative expense in the event of a contingent budget.           

            For an explanation of the term “contingent expense” see the Budgeting Handbook at   www.emsc.nysed.gov/mgtserv/budgeting/handbook/.            

            The practice of the board approving budget transfers "after the fact" is totally improper as the district cannot expend any monies under any category without having an appropriation available in that category. 

Review Procedure:  Review budget status reports, minutes and formal transfer request forms to determine whether transfers are properly authorized and are made only for teachers' salaries and ordinary contingent expenses and in accordance with the provisions of Chapter 436. 

13.  Are year-end fund balance projections using an estimated general fund balance sheet made regularly, beginning in January, so that the available balance which appears in the popular budget is as accurate as possible?           

                        Yes___                        No___ 

Standard:   One aspect of good budget administration is an accurate prediction of the year-end surplus--the amount of the unreserved fund balance.  Year-end surpluses are the result of revenues in excess of expenditures.  Thus, good stewardship starts with controlled spending of authorized appropriations to keep the level of expenditures below the revenues available.  Mass encumbering of all known contractual expenses anticipated for the fiscal year should be accomplished by the end of the first quarter in September. 

Information concerning fund balance is particularly valuable to the board of education and the administration when making final decisions about the upcoming budget, since the amount of surplus available has a direct effect on the amount of taxes necessary to be levied.  We recommend that a fund balance projection be started in January of each year.  A revised fund balance projection should then be calculated each month until the next year's budget is adopted.  

Review Procedure:  Interview the business official to determine whether fund balance projections are made and the method used to make these projections. 

14.  If individual administrators are held responsible for controlling other than personal services appropriations for specific buildings or programs, are budget status reports provided on a regular basis to these individuals?           

                        Yes___            No___ 

Standard:  The phrase "other than personal services appropriations" includes operating expenditures other than salaries, such as supplies and materials, equipment, travel expenses, and miscellaneous costs associated with a particular program or area of the budget--such as the transportation program, the operation of the business office, the school lunch program, the maintenance of buildings and grounds, etc. 

Review Procedure:  Review budget policy to determine whether program managers and principals are held responsible for location or program budgets. Interview several managers or principals to determine whether reports are regularly provided. 

15. If the district voters have not adopted a budget by July 1, did the board adopt appropriations prior to expending or committing funds for the new fiscal year?           

                        Yes___                        No___ 

Standard:  The district cannot legally make any expenditures without first adopting appropriations.  It is important, therefore, that appropriations for necessary contingent expenses be adopted by the board before the new fiscal year begins. 

Review Procedure:  Review minutes to determine adoption date of the budget for the past two years. If adoption date is after July 1, review minutes for the adoption of specific appropriations for expenditures or commitments made prior to the adoption of an entire general fund budget. 

16.  If a contingent budget was adopted, does it include only those appropriations permitted by law and set forth in Formal Opinion of Counsel #213 and Chapter 436 of the Laws of 1997?           

                        Yes___                        No___ 

Standard:  It is recommended that the reviewer read the Budgeting Handbook put out by the State Education Department and includes Formal Opinion of Counsel #213 and Appendix F - Board of Education Responsibility for the Determination of Ordinary Contingent Expenses.  The Budgeting Handbook may be found at: http://www.p12.nysed.gov/mgtserv/budgeting/handbook/.     

Review Procedure:  Use the document cited in the Standard to review the district's appropriations for the current year, if the district budget was rejected in whole or in part by the voters.  Also review material provided by the State Education Department regarding Chapter 436 of the Laws of 1997. 

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PURCHASING 

17.  Does the purchasing policy contain all the elements required by Section 104-b of the General Municipal Law? 

                        Yes___            No___ 

Standard:   Section 104-b of the General Municipal Law requires boards of education to adopt internal policies and procedures governing all purchases of goods and services not required to be competitively bid pursuant to Section 103 of the General Municipal Law.  The policies and procedures must: 

                        a.         Prescribe procedures for determining whether a procurement is subject to competitive bidding and, if not, document the basis for such determination, with certain exceptions (such as for county and State contracts or from a preferred vendor).

                        b.         Provide that when competitive bidding is not required the dollar limits for the use of verbal and written quotations and the required procedures and documentation supporting all decisions made by the purchasing agent are specified.

                        c.         Require justification and documentation when a contract is awarded to other than the lowest dollar offerer of the reason such award furthers the purpose of this section.

                        d.         Set forth any circumstances when alternative proposals and quotations will not be in the best interest of the district. 

The board of education should annually solicit input from the purchasing agent regarding the purchasing policies and procedures, and annually review and readopt these policies. There is a sample policy in the State Education Department's 1995 edition of the  "Purchasing, School Business Management Handbook." 

Review Procedure:  Review existing policy to determine that the requirements of Section 104-b listed above have been satisfied.  

18.  Has the district designated a purchasing agent as required by Section 170.2(b) of the Regulations of the Commissioner of Education? 

                        Yes___            No___ 

Standard:  The board must designate the person to whom the purchasing function is delegated. The purchasing agent is the only person legally authorized to commit the school district for a purchase.  The appointment should be by a resolution duly adopted by the board at the annual organizational meeting.  Good purchasing procedures require that the purchasing agent exercise full authority as to how, when and where to purchase, and requisitioners should provide input by assisting with specifications and recommending suppliers to the purchasing agent.  The responsibilities of the purchasing agent should be included in administrative regulations.           

Review Procedure:  Review the minutes of the last two annual organizational meetings as well as the purchasing policy and any administrative regulations to determine whether a purchasing agent has been appointed and to determine the duties assigned to the purchasing agent.  

19.  Are all purchase orders signed by the purchasing agent?

                        Yes___            No___ 

Standard:  The purchasing agent is the only person legally authorized to commit the school district for a purchase.  Note: The board may not appoint a "deputy" purchasing agent to act in the absence of the purchasing agent. 

Review Procedure:  Review a sample of the current year's purchase orders to determine that they are signed by the purchasing agent. 

20.  Does the district avoid the use of confirmation type purchase orders, which tend to bypass the encumbrance process?                       

                              Yes___                 No___ 

Standard:  The practice of issuing a confirming purchase order--one issued after the order is placed with a vendor, bypasses the encumbrance process and does not permit the purchasing agent to consolidate orders or obtain the lowest possible prices.  And invoice purchase order--a purchase order typed and processed from an invoice after the products have been delivered--also bypasses internal controls designed to prevent unauthorized purchases.           

The invoice order procedure should never occur and the confirming order process should be used only in the case of a "real emergency" as they can easily lead to over-expenditure of appropriations and an eventual budget deficit.  encumbered for an estimated amount. 

Review Procedure:  Review purchase order files and interview the purchasing agent to determine how frequently confirming orders are used.   

21.  Are open purchase orders with a fixed monetary limitation used for local purchases of small dollar value?           

                        Yes___            No___ 

Standard:  The open purchase order technique permits the purchasing agent to select vendors where authorized employees may purchase needed items on short notice.  The advantages of this type of purchase order are twofold: 

a.                It eliminates the necessity of issuing separate orders for a group of items which are purchased frequently from the same vendor but are not readily identifiable ahead of time.  An example of this condition would be the day-to-day needs of the custodians for minor repair items. 

                        b.         It permits a staff person to acquire materials on an "as needed" basis when and where it is impractical to provide an inventory of such supplies ahead of time. 

Open purchase orders should be encumbered immediately for a specific amount, limited to a specific time period, and an amount which will not violate the bid law and authorized for use by specific individuals. 

Review Procedure: Interview the purchasing agent and review purchase order files and schedules of claims to determine the extent to which open purchase orders are used and the effectiveness of the controls. 

22.  Does a review of the purchases for the past 12 months indicate that the district adhered strictly to the provisions of Section 103 of the General Municipal Law with regard to competitive bidding?  (The thresholds for bidding for purchase and public works contracts are $20,000 and $35,000, respectively.)           

                        Yes___            No___           

Standard:  The district must be constantly vigilant to assure conformance to the requirements of Section 103 of the General Municipal Law.  There must be formal bidding with legal advertisement if a single item to be purchased exceeds $20,000 or the aggregate annual purchases of a reasonable commodity grouping will exceed that figure (Opinion of the State Comptroller 59-647).  The limitation on public works contracts is $35,000 before formal advertisement is required.           

Should the value of the district's purchases exceed the limits established by General Municipal Law, Section 103, the district's board of education must award the bid and the advertisement must appear in a newspaper having general circulation within the district.  The spirit of competition can often result in a savings to the district which will offset the cost of the bidding process.  It is the purchasing agent's responsibility to use this process in all cases where a potential savings for the district can be realized.  The primary objective of the bidding law is to ensure cost effective, efficient management of the purchasing function and to increase competition by giving vendors equal opportunity to furnish the district's needs.

 Review Procedure:  Review a sample of the purchase orders for the past year and the district bid files to determine adherence to the law. 

23.  Does the district consistently take written or verbal quotations for items not subject to competitive bid? 

                        Yes___            No___           

Standard:  The purpose of obtaining bids or quotations is to encourage competition in the procurement of supplies, equipment, and services which will be paid for from public funds.  It has the further purpose of discovering what a given item will cost, where it can be obtained, and when delivery will be made.  Quotation can and should be requested on items involving an expenditure that does not exceed the dollar limits established by law which require competitive bidding.  While the basic principles apply to all procurement, the procedure may vary in detail depending on the dollar value of the item purchased. 

Review Procedure:  Interview the purchasing agent, review district files and the purchasing policy to determine the extent to which quotations are taken.                      

24.  Are receiving reports on file for all claims for equipment, supplies and materials in the paid claims file?           

                        Yes___            No___ 

Standard:  When items have been received, the person receiving the shipment checks the items and indicates on the receiving copy the date of receipt, condition of the shipment, signs the copy, attaches it to the invoice and/or packing slip and forwards those documents to the business office.  The receiving copy and invoice are then checked for accuracy by the accounts payable clerk in preparation for audit by the internal claims auditor.  The purchasing agent then signs and approves each order or certifies the schedule of claims as "officer giving rise to the claim".  The receiving copy eventually becomes part of the paid claims file.   

Review Procedure:  Review a sample of paid claims for the past year to determine whether receiving reports are routinely included with the claim.  

25.  Are signatures and dates on receiving reports sufficiently legible to determine the person receiving the merchandise and date of receipt?           

                        Yes___            No___ 

Standard:  The receiving report, or the copy of the purchase order used by the receiver when checking in the merchandise, should be signed and dated by the receiver, not initialed, and the signature should be legible so that anyone who looks at the receiving report can identify the receiver by name. 

Review Procedure:  Review a sample of claims to determine whether signatures and dates are legible.

26.  Are lease-purchase agreements drawn and processed in accordance with law and regulation?  (See General Municipal Law, Section 109-b and Education Law, Section 1725-a.) 

                        Yes___            No___ 

Standard:   Section 109-b of the General Municipal Law deals with installment contracts.  There are a few very important points to be heeded under this law including the fact that such contracts are subject to competitive bidding requirements; that the term of such contract cannot exceed the period of probable usefulness of the equipment, machinery or apparatus being financed under the contract; that the contract shall contain a clause limiting it to the extent of monies appropriated and available for the purpose of the contract; and that the authorization required for obligations to be issued to finance the equipment, machinery or apparatus is the same for entering into the contract itself. 

Section 1725-a of the Education Law authorizes boards of education to enter into lease-purchase agreements for instructional equipment but requires the prior written approval of the Commissioner of Education before such agreements can be executed.  It also states that these agreements are subject to the bidding requirements of the General Municipal Law. 

Review Procedure:  Interview the business official and review the most recent independent audit report to determine whether lease purchase agreements, installment purchase agreements or capital leases exist. Obtain copies and review them for compliance with the statutes.          

27. Has the district explored the possibility of participating with other districts in cooperative bidding arrangements for commodities commonly used by the districts where large quantity  purchases result in reduced prices for all participants? 

            Yes___            No___ 

  Standard:  The benefits to be derived from increasing purchasing volume and reducing cost of purchases through the use of municipal cooperation agreements in accordance with the provisions of  Article 5-G of the General Municipal Law are becoming more significant

as the unit prices of commonly used goods increase. Districts are encouraged consult with other political subdivisions in their area and to utilize cooperative purchasing wherever it is feasible. Such agreements should be consistent with the provisions of Article 5-G.           

            Review Procedure: Review board of education minutes for the past two years and interview  the purchasing agent to ascertain whether cooperative purchasing agreements have been utilized or explored. Where such agreements have been used, review the agreements and procedures for compliance with the General Municipal Law. Guidance regarding the agreements is available at www.emsc.nysed.gov/mgtserv/purchasing/coopurch.htm.     

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Accounting and Auditing

28.  Does the district have a formal policy regarding accounting and auditing which deals with audit scope, and internal controls?

                                    Yes___            No___ 

Standard:  The staff should be provided with policy guidelines within which they should function so that necessary duties will be properly performed.  A comprehensive policy should cover all phases of the fiscal management process but the statements should not be so specific as to inhibit their administration. A suggested policy is available at www.emsc.nysed.gov/mgtserv/accounting/

Review Procedure:  Review policy manual and minutes to determine the extent to which policy has been adopted and interview business office staff to determine whether they are familiar with the policy.  

29.  Are trial balances taken at least monthly for general ledgers for all funds?           

                        Yes___            No___           

            Standard:  Trial balance should be done on a no less than a monthly basis for all general ledgers. 

Review Procedure:  Obtain record of trial balance for the most recent month from the treasurer or the account clerk.   

30.  Is there a system in place to assure that encumbrances are placed prior to the release of purchase orders, and does the system prevent the release of the order if the appropriation is insufficient?           

                        Yes___            No___ 

Standard:  The encumbering process, as prescribed by the Uniform System of Accounts, is intended to guard against the creation of liabilities in excess of approved appropriations.  It further aids in identifying line item accounts where unencumbered appropriations are available for transfer and in the forecast of year-end fund balance.           

In order for a school district to maintain budgetary control and to arrive at an accurate estimate of its uncommitted appropriations, it is necessary to encumber all of its known obligations.  Following mass encumbering, it may be necessary to make budgetary transfers among appropriations to insure that a proper balance is maintained in the expenditure side of the budget.  It is extremely important to keep in mind the fact that appropriations must be available before an obligation can be incurred. 

Review Procedure:  Review the most recent budget status report to determine whether other than personal service codes have been over-commited through issuance of purchase orders where appropriations are insufficient. 

31.          Are treasurer's receipts issued in duplicate for all money received by the treasurer where no other adequate evidence of receipt is available? 

                        Yes___            No___ 

            Standard:   Since the treasurer is ultimately responsible for the district's funds, the majority of district moneys should be received and deposited by the treasurer.  Upon receipt of moneys, one of the duties of the treasurer is to issue pre-numbered receipts printed in duplicate as required under Section 170.2(h) of the Commissioner's Regulations.  The receipt copies are distributed as follows:  original to the payer and second copy retained by the treasurer.  The treasurer should prepare and record receipts for all cash and checks received for all funds.  The revenue code should be written on the face of the receipt for ease in recording and should be recorded consistent with the procedures established in the Uniform System of Accounts. 

            Review Procedure:    Review treasurer’s receipt book and revenue account postings for several months to ascertain that receipts are issued for all cash transactions. 

32.          Are receipts in triplicate issued by employees, other than the treasurer, who collect cash, and is one copy of the receipt routinely provided to the treasurer? 

                        Yes___            No___ 

Standard:  The board may authorize persons other than the treasurer to receive money. However, they must use a pre-numbered triplicate form, pursuant to Section 170.2(i) of the Commissioner's Regulations.  The copies are required to be used in the following manner:  original to the payer; copy to the treasurer along with the money or bank deposit receipt; and a copy retained by the person authorized to receive money. 

            Review Procedure:  Review the method used in collecting income such as adult education tuition to ascertain whether or not three part receipts are used by persons other than the treasurer who receive cash on behalf of the treasurer.           

33.  Has the board of education adopted rules and regulations for petty cash funds as required by Section 170.4 of the Regulations of the Commissioner of Education and are the rules followed? 

                        Yes___            No___ 

Standard:  Section 170.4(a) of Commissioner's Regulations states:  "a board of education which has established petty cash funds shall adopt rules and regulations regarding the operation of such funds.  These rules and regulations shall: 

            (1)       designate the person(s) responsible for the funds;

            (2)       specify the maximum amount of each fund, subject to the restrictions set forth in subdivisions (b) and (c) of this section;

            (3)       prescribe the method of recordkeeping; and,

            (4)       provide for the kinds of payment which may be made from such funds subject to the provision (d) of this section."

            Section 170.4(d) states:  "Payments from petty cash funds may be made for materials, supplies or services only when payment is required upon delivery."           

            Review Procedure:  Review board minutes to ascertain that regulations have been adopted and review at least several months of petty cash expenditures to ascertain that they are followed.                                 

 34.          Has the board of education adopted rules and regulations for the operation of the  extra-classroom activity fund as required by Section 172 of the Regulations of the Commissioner of Education? 

                        Yes___             No___ 

            Standard:  Section 172.2 requires the board of education of each school district having a population of less than one million and an educational program beyond the 6th grade to make rules and regulations for the establishment, conduct, operation, and maintenance of extra-classroom activities and for the safeguarding, accounting and audit of all moneys received. 

Review Procedure:   Examine minutes of the Board of Education and the Policy Manual to determine whether regulations have been adopted. 

35.            Are reports showing receipts, disbursements, and balances for each activity provided to the board of education at least quarterly? 

                        Yes___            No___ 

            Standard:  Section 172.3(b) of the Commissioner's Regulations requires that records of receipts and expenditures be maintained and that reports be made at least quarterly to the board of education. 

            Review Procedure:  Use Board of Education minutes for the last 12 months to ascertain whether reports are prepared and provided to the board of education at least quarterly. 

36.            Is an audit of extra-classroom activity funds performed annually in conjunction with the independent audit of school district records? 

                        Yes___                        No___ 

            Standard:  Section 172.3(d) of the Commissioner's Regulations requires that an independent and impartial audit of the accounts for the extra-classroom activity fund be made at least annually in conjunction with the audit of the district's records.  Therefore, the independent auditor appointed by the board of education to make an annual audit of all school district finances should also be required to include the extra-classroom activity fund as part of that annual audit report. 

Review Procedure:   Inspect most recent independent audit report to determine whether extra-classroom activity fund is included.

37.            Are the extra-classroom activity funds free of accounts which are not legitimate student activities (e.g., scholarship funds administered by the board of education, faculty gift and  flower funds)? 

                        Yes___                        No___ 

            Standard:  Section 172.1 of the Commissioner's Regulations, a copy states that "an organization within a school district whose activities are conducted by students and whose financial support is raised other than by taxation or through charges of the board of education shall be known as an extra-classroom activity and the moneys received by it as extra-classroom activity funds."  As a general rule for determining extra-classroom activity status, only accounts having student officers, a student membership, and an appointed advisor would qualify as acceptable in this fund.

            Review Procedure:  Examine ledgers and organization records to determine that the accounts included meet the criteria for student activities. 

38.            Is the special aid fund used only for grants and types of funds which meet the criteria set forth in the Uniform of System of Accounts for  inclusion in that fund? 

                        Yes___             No___ 

            Standard:  The Uniform System of Accounts requires that special projects or programs supported in whole or in part by federal funds or state-funded grants be accounted for in the Special Aid Fund.  The basis of accounting for this fund is substantially the same as that for the General Fund including the use of budgetary, revenue and expenditure accounts.  Each project must be accounted for separately. Items which do not meet these criteria should be accounted in the General Fund and included in the budget presented to the voters.  

            Review Procedure:  Use  criteria set forth on Page F-1 of the Uniform System of Accounts for School Districts to determine whether each of the programs is eligible for inclusion.  It should be noted that summer programs under Section 4408 of the Education Law are also eligible for inclusion in the fund  even though they are entitlements and not grants. 

39.            Is the annual audit report accepted by the board of education by resolution?  

            Standard:  The board must accept the annual audit report by formal resolution and must include a certified copy of that resolution with the audit report that is filed with the State Education Department. This is to help to assure that be boar is familiar with the findings and recommendations contain in the report as well as the auditor’s assessment of the financial condition of the district. 

                        Yes___            No___           

Review Procedure:  :Review Board of Education minutes to determine whether the report was accepted.  State Education review letter will note any failure to file the resolution with the audit report. 

            Yes___            No___ 

40.            Are the recommendations of the auditor contained in the management letter routinely  reviewed and implemented, where appropriate? 

                        Yes___            No___ 

            Standard: The purpose of the management letter is to bring attention to the board of education findings, as observed by the certified public accountant, which require review and corrective action by the board.  The board should review the management letter, as well as the audit review memorandum sent by the State Education Department, to determine the need for corrective action to be taken. 

            Review Procedure:  Review each finding and recommendation to determine if corrective action was taken and the reason for not taking action on specific recommendations. 

41.            Where the findings of the auditor require adjustment to accounts or financial schedules, are the adjustments made promptly? 

                        Yes___            No___              

            Standard:  Findings which require adjustment to accounts or financial schedules should be implemented immediately and all corrective actions should be accomplished before the next annual review begins. 

Review Procedure:  Compare annual financial report (ST-3) with the with the audit report and review the general journal for the next subsequent years to determine whether accounting corrections and adjustments were made. 

42.            Is a physical inventory taken periodically to verify fixed asset records? 

                        Yes___            No___  

            Standard:  An effective control of fixed assets is an annual physical inventory.  This inventory would spot any equipment deletions and should be used to reconcile existing fixed assets against current inventory lists.  The physical inventory system should be designed to be consistent throughout the district.  Teachers and staff members should be held accountable for items within their areas of responsibility.  After each inventory the employee should forward the results to the Superintendent or his/her designee.  Discrepancies should be noted, traced and adjustments to the inventory entered.  Book values would then reflect a more accurate inventory and cost for the equipment portion of the fixed assets accounts.  The Uniform System of Accounts published by the Office of the State Comptroller recommends that a  physical inventory be  done annually.           

            Review Procedure: Interview responsible staff to determine frequency of physical inventories and accountability for missing property.              

43. Is cash segregation maintained for proceeds of obligations as required by Section 165.00 of the Local Finance Law?  

           Standard: This section of law states that proceeds from the sale of bonds, bond anticipation notes, capital notes, urban renewal notes or budget notes shall be deposited in a special account and shall not be commingled with other funds of the issuer, and shall be expended only for the object or purpose for which such obligations were issued.

            Review Procedures:  Review bank accounts to determine whether or not cash from capital obligation has been co-mingled with operating cash.  Review inter-fund loan and transfer and loan accounts to determine whether restricted cash has been transferred or loaned to another fund.

44.  Does the district have an investment policy which contains the elements listed in Section 39 of the General Municipal Law? 

                        Yes___            No___ 

            Standard:   Pursuant to this law, the board must adopt a comprehensive investment policy which includes, at a minimum, certain items--such as a list of the permitted types of investments, procedures for securing the districts financial interest, standards for written agreements, procedures for monitoring the investments, standards for security and custodial agreements, standards for diversification of investments, and standards for qualifying investment agents. 

            Review Procedure:  Review district policy to ascertain whether the items listed in the standard appear in the policy. Further review might involve comparison of the district’s policy with the model policy in the Financial Management Guide for Local Government published by the Office of the State Comptroller. In addition review investments for the current year to determine whether or not they are consistent with the district policy.  

45. Is an official of the district assigned to verify periodically that securities pledged by depositories to cover time deposits in excess of $100,000 meet the requirements of Section11 of the General Municipal Law and that an adequate amount has been pledged and is in possession of a third party holder. 

Standard:  Section 10 of the General Municipal Law requires the pledge of eligible securities for municipal deposits in excess of $100,000 and a custodial agreement with the bank or trust company holding the pledged collateral.  A model custodial agreement is contained in the Financial Management Guide for Local Government.             

            Review Procedure: Interview the District Treasurer to determine whether a custodial agreement exists and whether reports of collateral are received regularly and that market value is sufficient to guarantee deposits in excess of FDIC guarantee.    

46. Are school district checks including hand-drawn checks safeguarded against theft, loss and  misuse?           

                        Yes___                        No___ 

            Standard:  Checks should be available only to authorized individuals and should be kept in a safe place, such as a locked vault. 

            Review Procedure:  Determine where unused checks are stored and whether or not security is adequate. That is, are only those employs authorized by policy allowed access to checks. 

47.   Are there adequate internal controls over check signing devices and signature plates? 

                        Yes___            No___ 

            Standard:   Section 1720 of the Education Law authorizes a school district to use a "machine or device commonly known as a check-signer" to reproduce signatures on checks.  This section of the law requires the signature of the treasurer on each school district check.  A deputy treasurer is also authorized for the purpose of signing checks during the absence or the inability of the treasurer to serve.  The value of having a check-signing device is to reduce the time consumed in the signing of checks as well as provide increased security and control over the issuance of checks.  Along with the authorization of a check-signing machine, there are inherent safeguards which must be built in to its use.  These safeguards include authorization of its use, control and safeguarding the signature plate, and protection of the district's checks.  

            Policy governing the use of the check-signing machine should be developed by the board of education with the assistance of the superintendent and the treasurer of the district to include all the following safeguards: 

1)               The treasurer should retain a key to the machine and should not surrender or delegate that responsibility to any other individual.  The treasurer should be present and should control the affixing of his/her signature when checks are run. 

2)               The check-signing machine should be maintained in a protected area.  This may be done by locking the machine with the plate in it and placing it in a safe place or by removing the plate and placing the plate in a safe place. 

3)               Checks and the check-signing machine should not be available to unauthorized individuals.  (If possible, these should be kept in a locked vault.) 

4)               A check-signature register should be maintained by the treasurer which will record the first and last number of checks run, the date of the run, the sequential number of voided checks within each run and the signature of the treasurer.  It should be audited by an individual who is not a member of the business office staff.  This audit should be conducted at intervals approximating the payroll periods to verify the accuracy of the register against the machine's tally counter. 

5)               The signing of blank checks should be expressly forbidden. 

6)               All void or spoiled checks should be marked and retained. 

7)         Reconciliations should be made promptly (if possible, reconciliation should be completed the same day that canceled checks are received from the bank). 

            During the development of the administrative regulations concerning safeguards and use of the check-signer, particular attention should be given to the use of a check- signing register, security of the check-signing equipment and the need for the treasurer and/or the deputy treasurer to be present and supervise the operation of the check-signing machine.  Written procedures are needed to insure that proper practices for the check-signing process will be consistently followed. 

            Review Procedure:  Evaluate the security of check signing processes using the criteria listed above. 

48. Has the district appointed an internal claims auditor to assure the prompt payment of bills  and to improve the work flow in the business office? 

                        Yes___            No___ 

            Standard:  Section 1724 of the Education Law requires that the board of education audit and approve each claim except for contracted wages and debt service.  The board may, by resolution, authorize the payment in advance of audit claims for public utility charges, postage and cartage, provided that such claims are presented at the next regular meeting for audit.  If the board were to perform this auditing function themselves, it would take an inordinate amount of time.  Fortunately, Section 1709.20(a) of the Education Law further authorizes the board to adopt a resolution to appoint an internal claims auditor to perform this important function in their stead. 

               This method of auditing claims, if done correctly, may provide many desirable features such as  saving of board time, prompt payment of bills, taking advantage of any discount offered for prompt payment and a leveling of the workload within the business office. A pamphlet describing the duties of the internal auditor is available at www..emsc.nysed.gov/mgtserv/gemsho.htm. 

            Review Procedure:  Review minutes of the district organization meeting to determine whether an internal claims auditor has been appointed.  Review a sample of paid claims and warrants to determine that the standards outlined in the pamphlet are being met. 

49. Regardless of whether an internal claims auditor is utilized, are claims subjected to sufficient scrutiny to assure their accuracy prior to their inclusion on a warrant and schedule of claims? 

                        Yes___            No___ 

            Standard:  A review of the system being used should be made.  A comparison of that system to what is recommended under Question 49, above, should reveal the accuracy and validity of the current system. 

            Review Procedure:  See Question 49 above.   

50. Are payroll supporting documents adequate to assure that payment is made only for services actually rendered? 

                        Yes___            No___ 

            Standard:  Section 1720 of the Education Law provides that payment for compensation for services of officers or employees engaged at agreed wages by the hour, day, week, month or year may be paid only upon presentation of a duly certified payroll.  There should be established procedures which include the forms required and instructions for collecting source data for payroll preparation, the steps in producing the payroll document and related reports, the creation and distribution of checks, certification of the payroll and titles of people responsible for each task in the payroll process. 

            Review Procedure:  Select several payrolls and review support documents, internal controls distribution of payroll checks, and required certifications. 

51.Do district policy and practices preclude payments to employees in advance of the time  service is actually rendered? 

                        Yes___            No___ 

            Standard:  Section 3015 of Education Law expressly prohibits a board of education from paying employees in advance of service.  

            Review Procedure:  Review the initial September payroll to ascertain that sufficient days are worked prior to payment.  Sample initial pay for non-employees to determine that payments are not made in advance of service..

53.  Are all payroll registers certified by an official designated by the board of education in accordance with the provisions of Section 170.2 of the Regulations of the Commissioner of Education? 

                        Yes___            No___ 

            Standard:  In most districts, the superintendent is designated by the board of education as the person responsible for certifying the payroll.  A certified payroll is one that has been examined and approved by an administrator who certifies that the persons included in the payroll have regularly performed their duties in accordance with the terms of their employment by the board of education and that any additions to or deductions from normal salary payments have been made pursuant to the bylaws of the district and on the basis of personnel records that have been maintained by the district. 

            It is also recommended that procedures be put into place for verifying that the individuals on the payroll actually receive the checks which are issued by having each employee come into the business office once a year to pick up their check and sign for the check. 

            Review Procedure:  Review a sample of payroll registers to determine whether they are properly certified. 

54.    Does the district have a policy governing authorization and reimbursement of  expenses incurred by board members, officers and employees as a result of conference attendance or other travel?          

                        Yes___            No___                          

            Standard:  Many districts do not have a policy dealing with the authorization and  reimbursement of travel expenses for officers and employees who attend  conferences and workshops, but we highly recommend that every district put into  effect a formal policy governing these types of expenses.  The policy should be  formally adopted by the board, included in the policy manual, and all employees  should be made aware of the content of such policy. 

            Review Procedure:  Review the board of education minutes and the policy manual to determine whether a travel policy has been approved.  Compare the contents of any existing policies with the provision of Section 77-b and 77-c of the General  Municipal Law governing travel expenses of public officials and taxpayers. 

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INTERNAL CONTROLS – GENERALLY

55.    Is there a sufficient separation of duties between the treasury and accounting functions of  the district?

Yes ____         No____             

            Standard:  Duty assignments in the business office should be arranged so that persons handling cash  or preparing checks do not also post the books of account. This provides for dual control of receipts and disbursements.  

            Review Procedure:  Review job descriptions for employees to ascertain whether or not  these two functions are separated.  

56.     Is there sufficient separation of duties within the treasury function to provide for internal control ?  

Yes____          No____ 

     Standard:  The reconciliation of bank accounts should be performed by someone other than the person responsible for the receipt and deposit of money.  

    Review Procedure:  See Question 55 above.  

57.      Is there sufficient separation of duties between the purchasing and accounting functions to  provide for internal control?  

Yes____          No____     

  Standard:  The purchasing agent should not be involved in the accounting function or  payment process.  

  Review Procedure:  See Question 55 above.             

58.     Are personnel in the purchasing, accounting and other business management functions cross trained to provide staff flexibility and to allow the various functions to be  performed when the regular employee is on vacation or absent for any other reason?

                     Yes____          No____     

      Standard:   Personnel involved  in financial and business operations of the district should be sufficiently cross trained so that each function can be performed during absences and vacations. Each employee should be required to take at least two consecutive weeks of  vacation each year during which time another employee performs that employee’s job.        

          Review Procedure: Review personnel policy and job duty statements to ascertain whether employees are cross  trained and whether vacations for two consecutive weeks are required. 

59.  Is there adequate control of receipt, opening and distribution of  in-coming mail? 

                     Yes____          No____   

       Standard: The receipt, opening and distribution of mail should be performed by a person not involved with deposit of funds or the posting of revenues and expenses.  

       Review Procedure: Review job duty statements to ascertain how responsibility for  opening  and distribution of mail is assigned.  

60. Is there adequate supervision of each of the financial and business management functions? 

                     Yes____          No____ 

Standard: Supervisors should be sufficiently familiar  with each of the business and management    functions (e.g. accounting, purchasing, payroll preparation ) to determine whether or not the duties in involved in these functions are being faithfully performed. Supervisors should regularly review the work of each employee.   

Review Procedure: Interview supervisors and staff to determine depth of knowledge of each supervisor and frequency with which work is reviewed. 

61. Does the board periodically review the current arrangement for the provision of external  audit services to determine whether or not a new firm should be selected for the ensuing  year? 

                        Yes___            No___       

Standard: Where the same firm has been used for an extended period (e.g. 5 years), the board should consider other firms to determine whether or not to offer another  engagement to the current auditor.           

Review Procedures: Review board of education minutes or determine whether or not a change of the audit firm has been made or contemplated within the past five years.    

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Financial Condition   

62.   Are general fund cash advances to other funds such as the school lunch fund repaid promptly?                          

                          Yes___          No___ 

Standard:  Advances of cash should be short term in nature and the source of cash to repay, the loan should be identified at the time the loan is made. Where loans are outstanding for long periods because the receiving fund lacks the resources to repay, the  solvency of the general fund may be impaired.  

Review Procedure: Review year end financial statements for the past three fiscal    years to ascertain whether those funds receiving advances have positive fund balances which would enable them to repay the outstanding loans.  

63.   If the district has outstanding revenue or tax anticipation notes at year end, do the financial statements indicate cash, investments and accounts receivable at least equal to the value of  the notes?  

                           Yes___            No___  

               Standard: The Local Finance Law which permits year end borrowing for subsequent year’s expenses against subsequent year’s revenue, does not authorize such  borrowing to cover current year’s expenses. This latter type of borrowing indicates failure to produce sufficient current year revenue to cover current year expenses and may in fact create a  year end general fund deficit.  

                 Review Procedure: Review year end financial statements for the past three years to  ascertain whether or not there are revenue or tax anticipation notes outstanding at  year end and whether cash, receivables and investments shown on the general fund   balance sheet are sufficient to cover them.                  

64. Has the assessed value of real property which constitutes the tax base for the district remained relatively stable or increased over the past five years?  

                           Yes___            No___ 

       Standard: The major source of revenue in most school districts is real property  taxes. Where the tax base is declining , the district may face increasing difficulty in   financing operations in future years. In addition, declining assessed value may   result in increased tax rates to merely maintain the current expenditure level.   

       Review Procedure: Review school tax rolls for the past five years to ascertain an upward or downward trend in assessed values. 

65. Has bond rating assigned to the district by a bond rating service such as Moody Investors Service or Standard and Poor remained the same or been upgraded over the past several years? 

                           Yes___            No___

       Standard: The bond rating services evaluate the ability of a school district or     municipality to redeem bonds that have been issued. A lowered rating indicates  that the service considers the obligations of the local entity  to involve more risk than had  previously been the case. A decreased rating may also result in higher rate of interest on  new bonds which are issued. Increases or decreases in rating usually indicate that the  service believes that the entity has increased or decreased fiscal capacity.  

                Review Procedure: Interview the business official or the district treasurer to   ascertain whether the district’s bond rating has changed for obligations issued within the past five years. 

66. Do the various governmental funds have positive fund balances at year end or a means  funding any deficit that may exist?  

                           Yes___            No___  

      Standard: School districts are required to maintain a balanced budget and  the law makes no provision for incurring a year end deficits. Bonds or short term  obligations may be used to fund a deficit but only with specific legislative approval.  Therefore, the only means available to the district to fund a deficit, absent legislative  approval for obligations, is increased local taxes.  

       Review Procedure: Review year end financial statements for all governmental  funds for the most recent year to ascertain whether any of the funds show a deficit.    In evaluating any capital projects fund with a deficit balance, ascertain if there are   sufficient unissued bonds for the project to cover the deficit.  

67.  Has the amount of fund balance available at year end to support the next year’s budget been managed in a manner which prevents large swings in the tax rate from year to year?  

                        Yes___            No___  

      Standard: Fund balance should be estimated as accurately as possible prior to the  adoption of the budget to assist in making an accurate determination of the required tax. Various sections of law permit portions of the fund balance to be reserved for  future use to meet specific financial needs.    

                  Review Procedure: Review year end financial statements and true value tax rates for the past three years to determine whether there are large differences in the amounts of fund balance applied to the tax levy in each and whether there have   been large percentage changes in the rates. 

68. Has the district made an attempt to fund long term liabilities such as compensated  absences of offset the effect of these liabilities in future years?

                             Yes___            No___ 

        Standard: School Districts are permitted to compensate retiring employees for unused leave that has been accrued during the employees’ time of service. The General Municipal Law provides for a reserve to be used to fund or partially fund the cost of this program. The types of leave credit and the amount of leave which may be accrued and compensated is to be determined by the district. Since the accrual could constitute a significant long term liability, the district should consider the  establishment of such a reserve.  

       Review Procedure: Review the financial statements for the most recent fiscal year  to determine the liability for compensated absences and whether or not a reserve   has been established. Interview district officials to determine types of leave included in the program

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Last Updated: August 3, 2010