Office of Shared Accountability MONTGOMERY COUNTY PUBLIC SCHOOLS Rockville, Maryland September 12, 2008 MEMORANDUM To Ms. Billie-Jean Bensen, Principal Herbert Hoover Middle School - From: Roger W. Pisha, Supervisor, Internal Audit Rupude Subject: Report on Audit of Independent Activity Funds for the Period ‘August 1, 2006, through April 30, 2008 This audit report presents the results of our examination of the financial records, reports, and internal accounting controls relating to the Independent Activity Funds (TAF) for Herbert Hoover Middle School for the period August 1, 2006, through April, 30, 2008. The examination was made to determine the adequacy of accountability over these funds, compliance with applicable Montgomery County Public Schools (MCPS) policies and procedures, and effectiveness of IAF management. Findings and Recommendations We met with you and Mrs. Susan Mapes, financial assistant, on September 10, 2008, to discuss the results of our audit. At our meeting we noted the progress made to improve conditions described in our previous report dated December 15, 2006. Accountability over PE uniform sales has been improved, the yearbook is now profitable, and transactions related to the drama production are recorded in a separate account. While we commended you for progress made, some conditions continue to need improvement. MCPS purchasing card users must record purchases on transaction logs and submit logs monthly with invoices and receipts attached for review and approval by the principal. Monthly summary reports from American Express are to be reviewed, signed and dated by the principal to ensure that purchases are appropriate and within established limits. We again found that purchasing card logs were not prepared monthly for all cardholders, nor were all logs and the summary reports reviewed by the principal. We also noted instances in which transactions were split to avoid transaction limits. One cardholder frequently paid sales taxes on purchases made with the card. We recommend purchasing cardholders be required to comply with the requirements of the MCPS Purchasing Card User Guide (pp. 3-5, see also the Principals Handbook). Disbursement of IAF must be controlled in a number of ways. Disbursements must be approved in advance and in writing using MCPS Form 280-54, Request for a Purchase. After a purchase is completed, the recipient of the goods or services should submit the invoice or documented evidence of purchase, noted to indicate the satisfactory receipt of the goods or services, to theMs. Billie-Jean Bensen -2- September 12, 2008 financial assistant. A check may then be drawn and it must bear two signatures, one of which is that of the principal or acting principal. We again found that for 67 percent of purchases requiring advanced approval, Form 280-54, was not signed by the principal in advance of the purchase. Of the 50 disbursements we sampled, 17 (34 percent) were not marked to indicate receipt of the goods or services. In addition to these previously identified weaknesses, the following additional conditions in the disbursement process and other conditions must be addressed: © For 18 disbursements from our sample (36 percent), documentation supporting the purchase was not stamped or marked “paid”; * Documentation was inadequate or missing in 7 instances (14 percent). Action is needed to correct these conditions and bring purchasing into conformity with MCPS requirements (see IAF manual, p. 8). Bank reconciliations should be prepared by a staff person who does not sign checks.or have access to the financial records of the school (see IAF manual, p. 9). We noted that the financial assistant prepared and signed checks as well as completed the monthly bank reconciliation. Preparation of the bank reconciliation by a staff member independent of the financial operation, and review of the reconciliation by the principal, will strengthen intemal control. We recommend that someone who does not sign on the account or maintain financial records be assigned this responsibility. Cash receipts shall be deposited promptly and always on the last working day of each month and before each weekend or holiday. Funds in excess of $250 must be deposited in a bank at the end of the school day. We found controls over cash receipts need improvement. Staff collecting funds for activities such as fund raisers, admission events, and some field trips were holding funds rather than remitting them timely to the financial assistant. Also, the financial assistant was not always making timely deposits, sometimes holding money in excess of permitted amounts. Large and infrequent deposits increase the possibility of loss of funds, decrease the ability to fund activities, and are contrary to the IAF manual. To minimize the risk of loss and provide assurance that available funds will be fully utilized to meet school needs, all funds collected should be given to the financial assistant daily, and deposited daily (see IAF manual, p. 6). Admission receipts for all events should be controlled according to MCPS Regulation DMB-RA, Control of Admission Receipts. Admissions must be controlled with serially numbered tickets, separation of duties, use of the required MCPS Form 280-50, Tickets and Cash Report of Admissions Manage, for tracking and reconciling sales, and perpetual inventory of tickets. We noted that the ticket control report was not always used for admission events. When used, ticket control reports often lacked one or more signatures from the ticket controller, admissions manager, or report auditor. We recommend that admission to all events be controlled in accordance with the above cited regulation.Ms. Billie-Jean Bensen -3- September 12, 2008 Payments for personal services must comply with federal tax requirements regarding the reporting of income and the withholding of taxes. In accordance with the chief operation officer’s memo of November 1, 2005, payments to employees must be made through the HRIS Payroll system. In accordance with MCPS Regulation DIA-RB, Payments for personal Services from School Independent Activity Funds, payments to independent contractors must be reported to the Division of Controller (DOC) using MCPS Form 280-47A, Report of Payments to Independent Contractors (see also IAF manual, p. 19). No payments should be made to independent contractors without first obtaining a completed IRS Form W-9, Request for Taxpayer Identification Number and Certification. We found that cash payments for security services were made to an employee out of the gate receipts of school dances. Also, not all payments to independent contractors were reported to DOC, and that some payments that were reported lacked identifying information such as taxpayer ID or address. We recommend that payments for personal service be made and reported in compliance with the applicable regulations and procedures. Fund raising at the school must conform to the Guidelines for Sponsoring an Independent ‘Activity Fund Fund Raiser. We found that there was a lack of adherence to these guidelines. Following these internal control procedures provides for accountability of funds raised as well as the opportunity to evaluate the results at the conclusion of the event. Each fund raiser should be approved by the principal in writing and the approval retained in the school office. Likewise, a completion report should be prepared that analyzes the results of the fund raiser. Any funds raised on behalf of charitable organizations must be disbursed to the advertised beneficiary. Completion reports should be reviewed by the:principal and retained in the school office (see IAF manual, p. 15). Analysis of the school checking account showed consecutive months when the balance exceeded immediate needs. Keeping high balances in the checking account limits the amount of interest the school could be earning. The principal is responsible for ensuring that funds in excess of current needs are invested in a manner that will earn a reasonable rate of return. A better use of the excess funds is to deposit them in the MCPS Centralized Investment Fund to maximize interest income. When needed to cover expenses, these funds are available for prompt return to the school (see IAF manual, p. 5). Other matters were discussed and satisfactorily resolved. We appreciated the cooperation and assistance of your staff, especially Mrs. Mapes. Please provide a response to Dr. Sherry Liebes, community superintendent, within 30 days of this report, with a copy to the Internal Audit office. RWP:VAD:r Copy to: Mr. Bowers, Dr. Lacey, Dr. Scott, Mr. Bedford, Dr. Liebes, Ms. DeGraba, Ms. Diamond, Mr. Doody