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Tue, June 18

Auditor General tells HUSD to shape up its financial practices

When the new financial director for the Humboldt Unified School District detected inconsistencies in its financial procedures and recommended the hiring of an internal auditor manager in October, she was a step ahead of the Auditor General's Office, but the writing was already on the wall.

The AGO validated Cynthia Windham's findings in December when it issued a notice of non-compliance for the 2005-2006 school year in four areas: recording attendance, employees' salaries, cash transactions, and vendor bidding process.

Former Financial Director Kirk Waddle left the district in July, and he left the new director to discover several areas needing improvement. In October, Windham asked the governing board to create a position called Internal Audit Manager and to hire Kaye Schrenk to fill it. Schrenk's job duties fulfill several of the AGO's recommendations for corrections.

In its December review, the AGO reminded HUSD that the district is financially accountable to taxpayers for more than $44 million it received in fiscal year 2006.

"The district should use effective internal controls to demonstrate responsible stewardship for the tax dollars it receives," said Debra Davenport, Auditor General.

For each of the four "significant deficiencies," the AGO provided recommendations for corrective action, and requires the district to implement the recommendations within 90 days.

Attendance records

The AGO recommended that a second employee verify attendance records and review the annual financial report for accuracy. Hiring Schrenk, Supt. Henry Schmitt said, "will enable the district to fully comply with all of the auditor's recommendations."

The AGO found that HUSD inaccurately recorded entry and withdrawal dates in the computerized attendance system, which did not always agree with supporting documentation. Reporting of partial-day absences at the elementary and middle school grades, and attendance minutes at the high school were inaccurate.

"In addition, the district included non-instructional time in its attendance submitted to ADE," the report states.

Because of the inaccuracies, the district may have received an inappropriate amount of money.

Schmitt said, in addition to hiring Schrenk, the district also purchased a new software package to assist with the verification process.

"Regarding 2005-2006 student funding, all data has been verified and no adjustments are expected," he said.

Unreliable accounting

methods

The AGO found that expenditures on the district's annual financial report didn't always agree with the accounting records. The district did not always record its share of intergovernmental agreement expenses in a timely manner, and it did not always record its capital assets at the items' actual costs.

Sometimes the district's financial staff did not properly allocate employees' salaries between the funds indicated in their contract, and the district reported an incorrect amount on employees' Quarterly Federal Tax Return forms.

Among the AGO's recommendations for correction is for the district to "ensure that sufficient cash or budget capacity is available before making expenditures and that restricted monies are not commingled with unrestricted special revenue monies."

Windham said earlier this month that she has gone through each and every employee contract to make sure all codes are correct. She found that overtime and over contract hours for classified staff has cost $90,000 so far this school year, and she estimates the cost to total $180,000 by June. No corresponding line item exists in the budget for this expenditure, she said.

During the classified Meet and Confer meeting on Jan. 16, members talked about updating contracts to match work hours with the hours listed on the contracts.

Improper cash

transactions

With regard to improper cash collections, deposits and documentation, the district has met one of the corrective recommendations when it closed its invalid student club accounts this past year after an administrative secretary served time in jail for mismanaging about $23,000 in an improper checking account.

Other recommendations include daily or weekly deposits of all cash receipts, and preparation and retention of supporting documentation.

Questionable purchases

and credit card use

In the fourth area, the AGO found that HUSD's bidding and purchase procedures did not follow the state's School District Procurement Rules or Uniform System of Financial Records guidelines. The district also has no formal, written policies governing the use of credit cards.

It recommends that the governing board establish written policies and procedures to specify purposes for which the cards may be used, dollar amount limits, and to set up an effective accounting system.

The district's lack of policies resulted in findings that receipts did not identify employees who made credit card purchases, the district did not retain hotel receipts to support travel expenditures, and reimbursements were not always within the maximum amounts established by the Arizona Department of Administration.

Schmitt said he does not foresee that HUSD will need to make additional expenditures to correct or balance the books.

"With the recent hiring of our new internal audit manager, this will enable the district to fully comply with all of the Auditor's recommendations," he said.

Every district undergoes an annual independent audit, Windham said, and the 2006-2007 audit is just now concluding.

If the auditors uncover findings similar to the 2005-2006, she doesn't anticipate further notices.

"They will look at the measures we put in place to ensure that we've come into compliance, and verify that we're on the right track. They will take that into consideration," she said.

"Bottom line is, it's about paying attention to detail."

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