The Georgia Department of Audits and Accounts recently completed their audit of DeKalb Schools financial statements for the school year ending June 30, 2017. On Monday the board will be discussing the audit. While the audit itself is disappointing, the letter to management is nothing short of alarming.
The state audit reviews the required Annual Financial Statement for the school district. Additionally, the audit includes a review of controls over financial reporting, determines the ability of the system to detect or prevent fraud, and tests various processes and documentation for accuracy.
The first disturbing fact is that the school district did not meet the statutory deadline for submitting all documents to the state for audit. The deadline was December 31, 2017. The school district did not submit all the required documents until September 29, 2018.
Other facts gleaned from the audit include: (1) material weakness and significant deficiencies were identified with the review of the school district’s financial statements; (2) controls provide very low assurances that fraud can be detected or prevented; (2) the district had to make a number of adjustments and reclassifications because of mistakes or inaccuracies in the preparations of the annual statements; (3) sample testing of physical assets discovered these assets to be missing or nonexistent; and (4) sample testing of Human Resource files found missing and inaccurate employee files that included incorrect compensation.
Is this normal? I’m proud to say that Commissioner Nancy Jester has been chair of the Finance, Audit and Budget (FAB) committee at DeKalb County (not the school district) for the last couple years. For the first time in six years, DeKalb County’s Comprehensive Annual Financial Report was delivered on time and without material weaknesses. Additionally, the county also eliminated five areas of deficiency from findings documented in the fiscal year 2016 audit.
In the normal course of the audit process, the auditor is required to obtain an understanding of DeKalb Schools and its environment. In addition to the Auditor’s Financial Report with control deficiencies and material weaknesses, the auditor met with management and discussed additional observances listed in the Letter To Management.
Side Note: Given the magnitude of these observations, I’m disappointed that the state auditor noted in this letter
“This communication is intended solely for the information and use of management, those charged with governance, others within the organization and Georgia Department of Education and is not intended to be and should not be used by anyone other than these specified parties.”
Observation – Employee Compensation
• The salary paid to some employees did not match their contract.
• Some employees received retroactive salary payment that was not reported on the salary and travel
data reported to the Department of Audits and Accounts.
• No salary scale or documentation for the salary rate paid could be provided for some employees.
• No documentation of extra pay could be provided for some employees.
• A variance existed in the auditor’s salary recalculation for some employees and no documentation
of explanation could be provided.
• An I-9, driver’s license, or Social Security Number card could not be provided for some employees.
Observation – Bank Reconciliation – Cash Maintenance
• The School District has a lack of controls surrounding the bank reconciliation process over the central office bank accounts. Specifically, the controls and procedures surrounding preparing reconciliations timely and ensuring the preparer and approver date and sign off on each reconciliation.
• Reconciling items dating back to 2010 remain on the School District’s books.
• Reconciliations were not completed for all central office bank accounts. The accounts where reconciliations were not completed have minimal activity and are insignificant.
Observation – Bank Reconciliation – School Activity Accounts
• The School District did not establish adequate separation of duties for the key accounting functions of cash receipting, deposit preparation, record keeping, reconciling and cash custody.
• Multiple school activity account reconciliations were not prepared timely.
• Several school activity account reconciliations lacked evidence of who prepared and/or reviewed the reconciliation and when it was prepared or reviewed.
Observation – Untimely Submission of Financial Statements
The State Board of Education required all school districts to submit a complete set of financial statements, ready for audit, by December 31, 2017. DeKalb Schools did not submit their financial statements, disclosures, and supplementary information by this deadline. The financial statements were submitted on September 29, 2018.
The state auditor conducted an audit in accordance with auditing standards and GASB accounting standards (General Accounting Standards Board). On a side note, the CFO for SACS was the lead financial interviewer for the SACS review we had a few years ago. I wanted to go over these state audits with her, but she had never heard of GASB, so I was not able to have a financial conversation with her about any material issues.
The policies and procedures of the School District did not provide adequate internal controls over
• A review of 25 expenditures for compliance with procurement requirements revealed that DeKalb Schools could not provide evidence that an adequate number of rate or price quotations were obtained from qualified sources for four small purchase expenditures reviewed.
The School District did not have adequate controls in place over the financial statement reporting
process to ensure all required activity was correctly included in the financial statement information
presented for audit.
• School activity agency account balances for cash and funds held for others were overstated by $196,599 due to the financial statements not being properly adjusted for the current year activity.
• Charges for services revenues were understated by $14,050,108 and $14,028,324, respectively, due to the financial statements not being properly adjusted for the current year activity.
• Cash was overstated and investments were understated by $34,552,492 due to incorrectly classifying cash accounts
The School District did not maintain an adequate and complete equipment listing for the Child Nutrition Cluster.
• Three out of the 15 equipment items selected from property records for testing could not be physically located.
• Two out of the 15 equipment items selected from the property records for testing did not reflect the appropriate use and condition
• Five equipment items being utilized within the lunchrooms selected for physical inspection did not appear to be reported on the School District’s equipment listings.