Sunday, September 14, 2014

Gloucester, Virginia School Activities Funds Accounting Nightmares


Greetings Doctor Clemons and School Board Members,

About a year ago rumors began to circulate about the possible misuse or theft of Gloucester County Public Schools’ (GCPS) athletic event entrance fees.  After hearing the rumors persist for a few months I and other Gloucester citizens began to take a look at how Activities Funds are handled.

On April 29, 2014 concerns pertaining to GCPS Activities Funds were presented to the School Board via email.  During the May 13, 2014 School Board meeting it was announced that a presentation and review of activities and athletics, audits, etc. would be scheduled for the July or August meeting of the School Board. The presentation actually occurred at the September 9, 2014 School Board meeting.

From the presentation it looks like some positive steps are being made to enhance accountability of Activities Funds.  However, the biggest deficiency seems to be those responsible for oversight (The School Board)being disengaged.  Based on the questions various board members asked, it is clearly evident they have not gone to the schools and witnessed first hand how Activities Funds are handled.  Another issue that should be explored is the School System’s reason for having its audit combined with the County’s.  Ms. Wright stated it was because of inconsistencies in reports that were received from the previous Auditors the school system procured independently.  What were the inconsistencies?  Were the other Auditors seeing shortcomings not normally pointed out by the currently used Auditor who has also been the sole Auditor for the County for several years?

(Excerpt from Audit Report)
Basis of Accounting
We draw attention to Note 1 of the financial statements, which describes the basis of accounting.This financial statement is prepared on the cash basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to that matter.
 
Accounting for over $1.4million annually using accounting procedures not generally accepted in theUnited States of America does not seem very responsible.  Are there “best practices” accounting procedures that could be implemented?
 
(Excerpt from Audit Report)
In accordance with Government Auditing Standards, we have also issued our report dated August 15, 2014 , on our consideration of County of Gloucester , Virginia School Activity Funds’ internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering County of Gloucester , Virginia School Activity Funds’ internal control over financial reporting and compliance.
 
In this excerpt the Auditor speaks to the scope of testing.  What is the test ratio used to determine how much of what is looked at during the audit?  The Auditor makes it clear that the audit is not a comprehensive analysis of internal control over financial reporting or on compliance. Who does a comprehensive analysis and how often?  Maybe a committee made up of students, teachers, School Board members,  bookkeepers and parents should be created to provide monthly oversight.

(Excerpt from Audit Report)
Internal Control over Financial Reporting
In planning and performing our audit of the financial statement, we considered County of Gloucester, Virginia School Activity Funds’ internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statement, but not for the purpose of expressing an opinion on the effectiveness of County of Gloucester, Virginia School Activity Funds’ internal control. Accordingly, we do not express an opinion on the effectiveness of County of GloucesterVirginia School Activity Funds’ internal control.
 
In this excerpt the Auditor makes it clear that the audit does not measure how effective or ineffective internal accountability procedures are.  If the annual audit does not measure compliance or effectiveness of internal accountability then who or what does? A monthly review committee could also provide oversight in this area.
 
(Excerpt from Audit Report)
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies.Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
 
In the excerpt the Auditor makes it clear that the Audit is not in depth enough to identify all instances of theft or misuse and acknowledges that theft or misuse may exist.  Amounts of money in question in the Audit Report should not be considered when deciding whether or not accountability procedures are being followed.  Only procedures followed in comparison to policy, the number of noted shortcomings in comparison to the sample ratio, shortcomings from previous years and any mitigating circumstances surrounding the shortcomings should be considered when determining if a further look is necessary.  An overall compliance determination cannot be made using only the Annual Audit Report. For all the Auditor or anyone else knows, there could be discrepancies involving tens or hundreds of thousands of dollars because oversight by the School Board is nonexistent.  Again, a monthly review committee could effectively provide that oversight.
 
(Excerpt from Audit Report)
Significant Accounting Policy:
The accounts and records of the school activity funds are maintained on a cash basis reflecting only cash received and disbursed. Therefore, receivables and payables, inventories, accrued income and expenses, equipment, and depreciation, which are material in amount are not reflected, and these statements do not present the overall financial position or results of operations. Minor additions and replacements of furniture and equipment intended to be paid for out of normally recurring income are included in costs and expenses in lieu of depreciation on the statements of cash receipts, disbursements, and balances.
 
In this excerpt the Auditor is stating that the School System’s Activities Funds Financial Statement is incomplete. It lacks quantified material values which are necessary to properly account for equipment, supplies, etc.  Are there policies and methods in place to account for the Activities Fund’s material inventory?
 
(Excerpt from Audit Report)
All Schools
Due to the nature of school activity funds, there is an inherent risk of misappropriation of assets associated with the lack of segregation of duties over the accounts, records, and financial reporting. Although this risk exists, the costs of segregating these duties would likely outweigh the benefits. We recommend those charged with governance and management implement review procedures and other monitoring activities to mitigate the risks associated with the lack of segregation of duties.
The above statement has been included in at least the last five years audit reports.  The following was provided in the presentation and is not included in the actual Audit Report contained in the online Agenda Packet.
 
(Excerpt from Presentation Slide)
School activity funds across the Commonwealth of Virginia have an inherent risk associated with the lack of segregation of duties over their accounts, records and financial reporting. An inherent risk is in the environment due [to] the lack of an accounting department in a school. By default, the fiscal responsibilities are typically handled by the school bookkeeper and reviewed by the individual school principals and certain school board staff and members. This review and oversight by management and those charged with governance mitigates the risk associated with this lack of segregation of duties. This inherent risk is present in every school activity fund across the Commonwealth of Virginia . This statement does not “suggest that there has been a continuing history of non-existent procedures and monitoring activities” It serves to report to management and those charged with governance about the importance of their involvement in the fiscal matters of the school activity funds to provide oversight and review activities. Ann Wall, Robinson, Farmer, Cox Associates
 
None of the audits performed by the Auditor within the last five years contained a scope directing or requiring an analysis to identify reoccurring or continuing shortcomings, trends, etc.  Each and every report for the last five years contains the following pointed statement:

(Excerpt from Audit Report)
We recommend those charged with governance and management implement review procedures and other monitoring activities to mitigate the risks associated with the lack of segregation of duties.
 
The above statement explicitly recommends the” implementation” of review procedures and monitoring activities. The Auditors have continually used the word “implement”, not other words like improve, enhance or continue.  Of course such a statement in a single report does not suggest a continuing history, but five years worth of reports containing the same statement certainly does exemplify that appearance.

Thank you for responding to the concerns previously presented.  In closing I would like to recommend the following link to Fairfax County’s policy pertaining to activities funds.  FairfaxRichmond and numerous other localities have comprehensive policies that could be used as models in developing policies here in Gloucester County.


Respectfully,
Kenny Hogge, Sr.
Gloucester Point


No comments:

Post a Comment

Thank You for taking the time to comment on this article. Please note, we moderate every comment before we allow it to post. Comments do not show up right away because of this.