State Of New Mexico Albuquerque Municipal School District No. 12 Schedule of Expenditures of Federal Awards June 30, 2008 Amounts are reported in doll

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8 State Of New Mexico Albuquerque Municipal School District No. 12 Schedule of Expenditures of Federal Awards June 30, 2008 Amounts are reported in dollars. Schedule V Page 1 of 3 Federal Grantor or Pass-Through Grantor / Program Title Passthrough Number Federal CFDA Number Federal Expenditures U.S. Department of Health and Human Services Passthrough State of New Mexico Children Youth & Families Department Hurricane Relief Title XX Health & Social Services ,547 Center for Disease Control and Prevention Technical Assistance ,253 Substance Abuse & Mental Health Services Subtotal - Passthrough State of New Mexico Children Youth & Families Department 950,800 Total U.S. Department of Health and Human Services 950,800 U.S. Department of Justice Direct to Albuquerque Public Schools Community Prosecution and Project Safe Neighborhoods ,088 Total U.S. Department of Justice 17,088 U.S. Department of Education Passthrough State of New Mexico Department of Education Title I (1) ,052,699 Entitlement IDEA B (1) ,982,371 Competitive IDEA-B Preschool IDEA-B ,447 Education of Homeless ,611 Mathematics & Science Partnerships B - Carl Perkins Vocational Tech Learn and Services ,827 Partnerships in Charter Education - Pilot V 325,652 Enhancing Education through Technology X 343,970 Comprehensive School Reform A - ELL Title III Incentive Awards A 4,695 Enhancing Education through Technology (E2T2) X 21,897 Title V Part A Innovative Ed Pro Strategies ,657 English Language Acquisition A 1,035,553 Title IIA - Teacher / Principal Training / Recruiting A 5,761,693 Safe & Drug Free Schools & Community A 791,194 21st Century Community Living Centers C 904,414 Title I School Improvement ,031 Refugee & Entrant Assistance School Renovation IDEA & Technology a - Reading First A - Carl Perkins Secondary - Current ,944 Carl Perkins Secondary - PY ,114 Carl D. Perkins-Secondary Redistribution ,043 Carl D. Perkins-HSTW Redistribution ,847 Teaching American History X 666,927 Bilingual Ed/Comp School Grants USDE U - Safe & Drug Free Schools A 365,435 Supporting Schedule V: Page MM-8

9 State Of New Mexico Albuquerque Municipal School District No. 12 Schedule of Expenditures of Federal Awards June 30, 2008 Amounts are reported in dollars. Schedule V Page 2 of 3 Federal Grantor or Pass-Through Grantor / Program Title Passthrough Number Federal CFDA Number Federal Expenditures U.S. Department of Education (cont.) Impact Aid Special Education ,421 Impact Aid Indian Education ,846 Anti Gang Initiative APS ,852 Asthma ,216 Magnet School Assistance A - Indian Education Formula Grant A 1,107,937 Title V Indian Healthcare Professional Development: Training for all Teachers B - Smaller Learning Communities L 306,839 After School Centers B - FTE Earmark K - Incentive Program C - Total U.S. Department of Education 60,728,132 U.S. Department of the Interior Direct to Albuquerque Public Schools Johnson O'Malley Total U.S. Department of the Interior - U.S. Department of Defense Direct to Albuquerque Public Schools Collaborative Research & Development ,755 Total U.S. Department of Defense 73,755 National Science Foundation Career Access Program NSF ,598 Total U.S. National Science Foundation 27,598 U.S. Department of Agriculture Passthrough State of New Mexico Department of Education School Lunch Program (1) ,299,523 Total U.S. Department of Agriculture 24,299,523 U.S.D.A Commodities ,877,750 Total Federal Financial Assistance 87,974,646 (1) Denotes Major Federal Financial Assistance Program Supporting Schedule V: Page MM-9

10 State Of New Mexico Albuquerque Municipal School District No. 12 Schedule of Expenditures of Federal Awards June 30, 2008 Schedule V Page 3 of 3 Notes to Schedule of Expenditures of Federal Awards 1. Basis of Presentation The accompanying Schedule of Expenditures of Federal Awards (Schedule) includes the federal grant activity of the Albuquerque Public School District (District) and is presented on the modified accrual basis of accounting, which is the same basis as was used to prepare the fund financial statements. The information in this Schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments and Non- Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of the financial statements. 2. Subrecipients N/A 3. Non-Cash Federal Assistance The District receives USDA Commodities for use in sponsoring the National School Lunch and Breakfast programs. The value of commodities received for the year ended June 30, 2008 was $1,877,750 and is reported in the Schedule of Expenditures of Federal Awards under the Department of Agriculture Commodities program, CFDA number Commodities are recorded as revenues and expenditures in the food service fund. 4. Reconciliation of Schedule of Expenditures of Federal Awards to Financial Statements: Total federal awards expended per Schedule of Expenditures of Federal Awards 87,974,646 Total expenditures funded by other sources 893,812,667 Total expenditures, all sources 981,787,313 Supporting Schedule V: Page MM-10

11 Schedule VI Section I Summary of Audit Results Financial Statements: 1. Type of auditors report issued Qualified 2. Internal control over financial reporting: Federal Awards: a. Material weakness identified? Yes b. Significant deficiencies identified not considered to be a material weaknesses? Yes c. Noncompliance material to financial statements noted? Yes 1. Internal control over major programs: a. Material weaknesses identified? No b. Significant deficiencies identified not considered to be material weaknesses? Yes 2. Type of auditors report issued on compliance for major programs Unqualified 3. Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? Yes 4. Identification of major programs: CFDA Number Federal Program Title IIA Title I National School Lunch Carl Perkins 5. Dollar threshold used to distinguish between type A and type B programs: $2,639, Auditee qualified as low-risk auditee? No MM-11

12 Section II Financial Statement Findings FS Late Financial Audit Report Condition: APS issued the audit report subsequent to the November 15, 2008 deadline required by the State Auditor. Criteria: State Audit Rule (A), NMAC state that public schools are required to submit the audit report for the year ended June 30, 2008 on or before November 15, Effect: Not having current financial information can negatively impact the District s ability to issue new bonds. Cause: Late audit reports delay the release of the financial statements for the District. Not having current financial information can negatively impact the District s ability to issue new bonds. Auditor s Recommendation: APS must ensure that all future audit reports are filed in a timely manner. APS should ensure this process is timely in the future through communication with the new state auditor. Management Response: APS management agrees that audit reports need to be filed in a timely manner. Programming work has begun for the audit cycle in order to get a head start on it. Due to the complexity and size of the annual audit and the numerous component units that are reported with the District s results, APS has reallocated resources within the Finance Division that will allow the appropriate focus on this function. We will also coordinate closely with our component units to ensure they understand the importance of timely financial reporting. FS Capital Assets Recognition Condition: The District is maintaining a capital asset listing; however, audit procedures indicate that the finance department is not consistently provided necessary and accurate construction in progress information from the facilities department regarding the status of District construction in progress projects. In addition, capital asset lives are not being evaluated each year. Criteria: Per NMAC through 26, capital assets shall be acquired and accounted for through the development and implementation of a complete property control system. In addition, GASB 34 Implementation Guide states that it is necessary to review the estimated lives in later years. MM-12

13 Effect: The District has issued bonds for the purpose of constructing facilities to meet the needs of the District. Communication between the District s facilities department and the finance office is important to insure each asset owned by the District is recorded and recognized on the capital asset listing as required by Generally Accepted Accounting Principals and Governmental Accounting Standards. The process is important to insure the District s assets are accurately recognized in the financial statements which affect the District s bonding issues relating to the construction and maintenance of District Facilities. Additionally, there are capital assets in use on the books that are fully depreciated. Cause: The District is extremely active with construction transactions as a result of a growing community and increased student counts. Auditor s Recommendation: We recommend that the District implement a system in which finance office receives timely and accurate information relating to construction transactions from the District s facilities department in a form which complies with related accounting principals. Management Response: APS management agrees with the importance of obtaining timely and accurate information relating to construction transactions. The finance department will review existing policies regarding fixed assets and construction projects in progress. A draft will be prepared to reflect current regulatory information. Additionally, the finance department will utilize Lawson consultants for a more accurate methodology to capture completed project information as an asset in the Lawson Asset Management module. Historically, APS finance division obtained annually information from Facilities Design and Construction department regarding completed projects. The finance division will inquire, Facilities Design and Construction, about completed projects on a semi-annually basis. FS Cash Receipts Condition: During our audit, we noted 2 of the 22 receipts that were not deposited within 24 hours of receipt. Criteria: NMAC states that a School District shall establish and maintain a cash management program to safeguard cash and provide prompt and accurate reporting that adheres to cash management requirements of the office of management and budget (OMB) Circular 102, and applicable state and federal laws and regulations. Effect: The District failed to follow state regulations and District policies resulting in non-compliance with State Statute. MM-13

14 Cause: Albuquerque Public School District policies and procedures require the District and its employees to follow required state statutes and regulations. Auditor s Recommendations: We recommend that the District review cash management procedures with the responsible individuals annually to ensure that each is aware of the requirements so as not to violate State Statute NMSA, 1978 and NMAC Management Response: All cash receipts received directly in the Accounting Department are deposited within one business day of receipt. Problems do occur when other departments/schools receipt funds but do not forward them to the Accounting Department for deposit in a timely manner. We will continue to communicate directly to sites not complying with statute informing them of the need to get funds to accounting within 24 hours of receipt for deposit purposes. FS Journal Entries Condition: During our testwork over the journal entry process we found that there is no review or approval process for journal entries. We also noted several cases where entries were reversed and corrected. Criteria: According to the State Board of Education Title 6, section , policies and procedures documenting administrative and accounting controls in accordance with Generally Accepted Accounting Principles is required. Sound business practices recommend review and approval of all non-standard journal entries. Effect: The Districts ability to effectively manage its operations in order to meet its mission, goals, objectives, statutory mandates and compliance requirements was impaired. The risk that errors or fraud could go undetected was significantly increased. Cause: The Districts accounting department suffered turnover during the year. Auditor s Recommendations: We recommend that APS implement controls in order to ensure that journal entries are appropriately reviewed and approved prior to posting. Management Response: To reduce the risk of error or fraud, the District agrees that there needs to be an appropriate review and approval of journal entries, prior to processing. APS plans to develop a process flow within the business system that will allow journal entries to automatically flow to the appropriate accounting department approver for processing. Currently the Operational Controller is reviewing and approving those entries processed by her staff. The Director of Accounting is reviewing and approving all other journal entries. MM-14

15 FS Disbursements Condition: During fieldwork we noted that an invoice was not approved in Lawson but the disbursement was still paid. Criteria: According to the State Board of Education Title 6, section , policies and procedures documenting administrative and accounting controls in accordance with Generally Accepted Accounting Principles is required. Sound business practices recommend review and approval of all expenditures including invoices and Purchase orders prior to payment of the expenditure. Effect: The Districts ability to effectively manage its operations in order to meet its mission, goals, objectives, statutory mandates and compliance requirements was impaired. The risk that errors or fraud could go undetected was significantly increased. Cause: When converting to the most recent Lawson system, APS intended to allow internal requisitions for APS Warehouse orders without Finance Department approval during conversion and this particular invoice was coded internal, therefore, allowing the expenditure without approval. Auditor s Recommendations: We recommend that APS ensures they are getting all required approval before making payment to vendors. Management Response: APS management understands the need for approvals before payment is made. The approvals referred to in this finding are automated, and changes to the setup were not well understood at the time of this occurrence. Additional Lawson training and oversight of this module will minimize the chances of this re-occurring. FS Board of Education Reimbursement Condition: It was noted during our inquiry of the client and review of accounts payable checks that the member s of the board are not paid through payroll, rather they are paid through regular disbursements through accounts payable. Criteria: Publication 963, Chapter 4 and IRC 3401(c), states that the term employee includes an officer, employee, or elected official of the United States, a State, or any political subdivision thereof. In other words, an officer, employee, or elected official of a state or local government is an employee for income tax withholding purposes. For purposes of social security and Medicare (FICA) taxes, employee status is determined under the common-law control test, unless a Section 218 Agreement is in place and specifically covers the position. Cause: The District was not aware of the publication requirements and processed board reimbursements through accounts payable. MM-15

16 Effect: The District is not in compliance with state and federal wage laws. Auditor s Recommendation: We recommend that the District begin processing board reimbursements accordingly in order to avoid potential penalties for not complying with state and federal wage laws. Management Response: APS Administration recognizes this IRS Regulation and acknowledges that a conflict in Federal and State law exists. However, the Board of Education has directed us to request an Attorney General opinion and a ruling from the IRS on reporting requirements for these payments. Changes to our current process will be delayed until this additional information has been received. FS Unapproved Audit Contract Condition: Albuquerque Public Schools (APS) entered into a professional services contract with an independent public accountant (IPA) firm without state auditor approval. Criteria: Section of the 2008 Audit Rule sates, In accordance with Section , the agency and IPA shall not enter into any financial, special audit or any other nonaudit service contract without the prior written approval of the State Auditor. Effect: APS could knowingly enter into a contract with an IPA who does not have the required waiver to perform State Auditor financial statement audits or special audits. Cause: The departments were contracting directly with IPA s to perform professional services. Recommendation: Ensure written approval of the audit contract is obtained from the State Auditor prior to the commencement of all financial statement, special audit or other nonaudit service contracts. Management Response: APS Management understands the 2008 Audit Rule, and is dismayed that this error occurred. This happened during a very tumultuous time in the recent history of the Finance Department, and this process was overlooked. More diligence will be applied to this rule in the future to assure that this does not reoccur. FS Internal Control Policies Condition: During internal control documentation and review of a separate report issued by another independent CPA, it was noted that the District does not have proper written internal control procedures over accounting and other financial functions in place. MM-16

17 Criteria: According to the State Board of Education Title 6, section , policies and procedures documenting administrative and accounting controls in accordance with Generally Accepted Accounting Principles is required. Each school district shall develop, establish and maintain a structure of internal accounting controls and written procedures to provide for segregation of duties, a system of authorization and recording procedures, and sound accounting practices in performance of duties and functions. Effect: The Districts ability to effectively manage its operations in order to meet its mission, goals, objectives, statutory mandates and state auditor compliance requirements was impaired. The lack of written procedures can present Financial Statement errors to go undetected. Cause: The District does not have an up to date written policies and procedures over internal controls. Recommendation: We recommend that internal control policies and procedures over accounting be examined, and updated in a formal policy manual Management Response: APS management agrees that current policies are in conflict with the 2008 State Auditor rules. FS Incorrect GL Coding Condition: During the process of selecting a travel and per-diem sample for State Auditor compliance testwork, it was noted that two selections out of six, were coded travel and per-diem but one should have been for furniture and the other for P-card reimbursement. Criteria: According to the State Board of Education Title 6, section , Financial Standards, General Ledger. All school districts shall establish and maintain a general ledger in accordance with GAAP. Effect: The Districts ability to effectively manage its operations in order to meet its mission, goals, objectives, statutory mandates and compliance requirements was impaired. The risk that errors or fraud could go undetected was significantly increased. Cause: The district did not code two expenditures to the correct general ledger account. Recommendation: We recommend that internal control policies and procedures over accounting be examined, and updated in a formal policy manual Management Response: This recommendation will be met with the response above. APS is in the midst of re-writing these policies and procedures. General ledger coding and MM-17

18 descriptions are defined by the Public Education Department and published in their Supplement 3. Efforts are ongoing to educate all financial staff on this issue. FS Budgetary Conditions Condition: The district has expenditure functions where actual expenditures exceeded budgetary authority Food Service $1,333, Entitlement IDEA-B $361, Education of the Homeless $ Title XX Health & Social Services $75, Impact Aid Special Education $35, Obesity Program $24, Capital Improvements HB-33 Fund $39, Capital Improvements SB-9 Fund $31, Debt Service Fund $ 4,803 Total $1,907,162 Criteria: Sound financial management and (A) NMAC and to NMSA 1978 require that budgets not be exceeded at the level of control. For school districts, the expenditure function is the legal level of control. Effect: The district is over-expending its budget. Cause: The District did not have the procedures in place to monitor their budgets effectively. Auditor s Recommendation: The district should establish a policy of budgetary review at year-end and make the necessary adjustments. Management s Response: As the District re-organization falls into place, these types of controls will become easier. Additional training on the Lawson System and Lawson reporting has been made available so that this type of monitoring is possible. At this time, reports that total at the function level are readily available. MM-18

19 FS Pledged Collateral Condition: During the year ended June 30, 2008 the agency funds maintained and utilized deposited with financial institutions which were not covered by 50% of pledged collateral as required by the State of New Mexico Statutes. Criteria: Cash equivalents and deposits must be covered by 50% of pledged collateral in accordance with NMSA 1978 Section Effect: Lack of proper collateralization may result in non-compliance with state statutes and increase potential liability and exposure to the loss of the District s public funds in the event of bank closure. Cause: The District did not monitor accounts for proper collateralization. Auditor s Recommendation: The school should assign an individual within the Finance Office responsible for reviewing monthly reports, investigating differences, and resolving discrepancies. Management s Response: APS understands the importance of collateralization of cash on hand. This finding is due to the agency funds that the schools maintain for the students. There is currently a District Policy that states that no school may keep any more than $100,000 in any one bank. Management will reiterate that policy. Note: In September 2008, the threshold was changed to $250,000 under the FDIC regulations. FS Reporting Late PED Filing Condition: The first quarterly report to PED was due 10/30/2007 (30 days after the quarter). The report was not submitted until March 11, Criteria: Per NMAC reports are due at the department by the last working day of the month following the end of the required reporting period. Effect: APS was not in compliance with the state laws and there may be some risk that federal funding could be negatively impacted. Cause: APS lacked adequate monitoring controls over financial reporting deadlines. Auditor s Recommendation: We recommend that APS implement a monitoring system to remind those reporting of pertinent financial reporting deadlines. MM-19

20 Management Response: Systems are being put in place to elevate the importance of reporting deadlines. As our reorganization becomes more effective, this will be an area of focus for more effective data generation to meet the needs of various types of reporting. FS Activity Funds Condition: During our test work we noted 2 out of 4 schools tested that were noncompliant with the APS internal audit. At one school the checkbook was unsafely stored and records were not on-site to test or school could not provide. One school was noted as not having activity fund reconciled since October 2007, receipts were not filled out correctly and voucher purchase orders were not endorsed by Principal. Criteria: Per NMAC every school district shall establish and maintain and internal control structure to provide management with reasonable assurance that assets are safe-guarded against loss from unauthorized use or disposition, that transactions are executed in accordance with management s authorization and recorded properly to permit the preparation of general purpose financial statements in accordance with GAAP, and that state and federal programs are managed in compliance with applicable laws and regulations. Effect: Because of the School s lack of internal controls over agency funds the risk of any fraudulent activity is high. Cause: Schools are not following policies and procedures regarding agency funds. Auditor s Recommendation: We recommend that APS implement controls in order to ensure that schools are following policies and procedures regarding agency funds. Management Response: In the reorganization of the APS Finance Department, resources will be available for this type of service. At this time, the position is frozen due to the current hiring freeze. The intent is to work closely with the Internal Audit Department in solving these types of issue. 21 st Century FS Internal Controls over Journal Entries Condition: The Charter School does not have adequate internal controls over nonstandard journal entries entered into its accounting system. MM-20

21 Criteria: According to State Board of Education Title 6, section , Policies and Procedures documenting administrative and accounting controls in accordance with Generally Accepted Accounting Principles are required. Supporting documentation should be maintained for all non-standard journal entries. Effect: There could be incorrect or inappropriate journal entries posted to the general ledger. Cause: The school recently began operations and is continually updating its policies and procedures manual. Auditor s Recommendation: We recommend the School update their policies and procedures manual regarding the maintenance of supporting documentation of journal entries. Management s Response: Management will make copies of any applicable documents to support journal entries as needed. FS PED Reports Condition: The School s cash report to the Public Education Department did not match the General Ledger. Difference of $158,196. Criteria: According to State regulation (B) (6), NMAC and Regulation SBE-6, the reports sent to the New Mexico Public Education Department (PED) must agree to the general ledger. Effect: PED does not have an accurate accounting of the school activity. Cause: The report sent to PED was not reviewed to ensure that it reflects what is in the general ledger. The school is in violation of NMAC (b) (6) and Regulation SBE-6. Auditor s Recommendation: The appropriate personnel should complete the PED report based upon the general ledger. Additionally, an individual should review the report to ensure that the report does match the general ledger. Management s Response: Management changed banks during fiscal year. Differences in the general ledger and the PED report are due to the fact that the accounting system could only recognize one bank at a time. PED reports were generated by the accounting system and the cash report was generated by the bank statements. MM-21

22 FS Timely Deposits Condition: During our test work, we noted 6 of the 18 deposits tested, in the amounts of $2,500.00, $68.50, $980.00, $223.50, $72.50 and $ that were not made until several days after the money was received. Criteria: NMSA requires that the school makes all deposits within 24 hours of receiving the money. Effect: The school has exposed itself to possible misappropriation of assets. Cause: The likely cause is forgetting to make the deposit. Auditor s Recommendation: We recommend the school implement procedures to ensure deposits are made within 24 hours of receipt. Management s Response: Management has changed banks and as of April 2008 contracted a currier to make deposits in a timely manner. FS Cash Receipts-Inadequate Documentation Condition: There were 9 out of 18 instances, for a total amount of $2,703.50, for which there was no receipts available, 3 of the 18, for a total amount of $1,041.96, that did not have adequate supporting documentation for the receipts and 2 of the 18 that the deposits did not match the receipts. Criteria: Per NMAC Cash Control Standards, school districts shall establish and maintain a cash management program to safeguard cash and provide prompt and accurate reporting. Effect: Lack of supporting documentation increases the risk of an entry that is fraudulent to be posted to the system. Cause: Due to possible errors in record keeping, supporting documentation may not be properly completed or may be misplaced. Auditor s Recommendation: We recommend that policies and procedures be implemented that tracks and maintains all items relating to cash receipts. Management s Response: Management continues to train all responsible parties the procedures in place to handle cash receipts. FS Internal Control Structure Condition: During our fieldwork we noted the following: MM-22

23 1 of the 3 travel expenses tested was posted in travel when it should have been training. We noted that a check was entered into the system twice. An AJE was done to correct the double payment. We noted that an expense for a contract employee was incorrectly posted into the Repairs and Maintenance account. We could not trace one out of three disbursements and one of three cash receipts tested to the General Ledger. We noted that school is not completing reimbursement requests for IDEA B monies correctly. We noted capital expenditure amounts that were posted incorrectly into the general fund. Criteria: Per NMAC Internal Control Structure Standards, every school district shall establish and maintain internal control structure to provide management with reasonable assurance that assets are safe-guarded against loss from unauthorized use or disposition, that transactions are executed in accordance with management s authorization and recorded property to permit the preparation of general purpose financial statements in accordance with GAAP. Effect: The financial statements could be misleading. Cause: Management posted expenses to the wrong expense accounts. Additionally, management did not follow the school s policies for disbursements. Auditor s Recommendation: Account coding should be carefully checked against invoice and purchase order. Additionally, management should ensure they are following school s policies when making disbursements. Management s Response: Management will use contracted CPA to ensure accuracy against human error when entering account codes. FS Checks Issued Condition: During review of cancelled checks, we noted that the checks do not have void after one year from date written on face. Criteria: According to NMAC cash control standards, each warrant or check issued is required to have printed on its face the words, void after one year from date. Whenever any warrant or check is unpaid for one year, the fiscal officer shall cancel it in accordance with Section (A), NMSA Effect: The school could be liable for checks potentially cancelled. Cause: School does not order checks with required words on face. MM-23

24 Auditor s Recommendation: We recommend the school order checks that have the words void after one year from date printed clearly on face of warrant or check. Management s Response: Management has corrected this finding after exit conference in April of FS SAS 112 Compliance Condition: The individuals responsible for the accounting and reporting functions for the Charter lack the skills and knowledge to apply generally accepted accounting principles in preparing the entity s financial statements. Criteria: Statement on Auditing Standards (SAS) 112, Communication of Internal Control Related Matters Identified in an Audit, requires that management clearly accept responsibility for preparing all financial information and company s financial statements. Effect: The Charter, without the aid of its auditors, is unable to accurately prepare financial statements in accordance with governmental accounting standards with regard to applying generally accepted accounting principles. Cause: Individual s responsible for the accounting and reporting functions for the Charter does not have the knowledge in preparing government financial statements in accordance with GASB (Governmental Accounting Standards Board) Statement No. 34 and subsequent pronouncements. Auditor s Recommendation: We recommend the Charter s accounting management receive the training relating to the preparation of the Charter s financial statements in accordance with generally accepted accounting principles. This would give the individuals responsible for the accounting and reporting functions the skills and knowledge to apply generally accepted accounting principles to the financial statements. Management s Response: Management has contracted the services of a CPA to reconcile the bank accounts and manage the financial statements. FS 08-9 PED Chart of Accounts Condition: The chart of accounts that the school is using not in compliance with the State of New Mexico s Public Education Department Uniform Chart of Accounts (UCOA). MA noted account number the following account numbers not on PED s UCOA: Cash account Other Accounts Receivable Payroll Deductions and Withholdings MM-24

25 Voluntary Deductions Voluntary Deductions Employee Insurance Employee Insurance Fund Balance Criteria: Per the School Budget and Analysis Bureau, school districts are required to uses the UCOA. Effect: PED does not have an accurate accounting of the school activity. Cause: The school has an account number that is not on the PED UCOA. Auditor s Recommendation: We recommend that the school implement a chart of accounts that is compliant with the State of New Mexico Public Education Department s requirements for chart of account. Management s Response: Management has a fund code for unreserved fund balance ( ) for our records which does not appear on the PED UCOA. Management will work with the CPA to reallocate any funds in this account code to the appropriate codes. FS Stale Dated Transactions Condition: The school had 1 item for a total of $ as of June 30, 2008 that was over one year old. Criteria: New Mexico Statutes, Section , NMSA 1978 compilation requires local public bodies to cancel or void any check that is unpaid for one year after it is written. Effect: Cash balances are not accurately reflected. Cause: School failed to void checks after one year. Auditor s Recommendation: We recommend the school implement procedures to review the outstanding check listing for all bank accounts and track stale-dated transactions. If transactions on the outstanding check list are greater than one year old, we recommend these checks be voided. Management s Response: Management will void any checks or one year old. FS RHC Contributions Condition: We noted the following RHC care reports were late: Report for July 31, 2007 ($1,384.60) was not submitted until August 28, 2007, report for August 31, 2007 MM-25

26 ($1,493.97) was not submitted until October 3, 2007, report for September 30, 2007 ($1,557.07) was not submitted until October 19, 2007, report for November 30, 2007 ($1,576.52) was not submitted until December 18, 2007, report for December 31, 2007 ($1,577.09) was not submitted until January 17, 2008, report for April 30, 2008 ($1,572.19) was not submitted until May 23, 2008, report for May 31, 2008 ($1,590.19) was not submitted until June 24, 2008, and report for June 30, 2008 ($1,580.33) was not submitted until July 21, Criteria: Per NMAC C states Monthly contributions from employees and local administrative units shall be postmarked no later than the fifteenth (15 th ) day of the month following the month for which contributions are withheld. Effect: The school was in violation of RHC requirements and could be subject to penalties. Cause: The school failed to make the RHC contributions timely. Auditor s Recommendation: We recommend that school management implement an internal control system to insure that RHC contributions are processed and paid timely. Management s Response: Management will implement internal controls to make sure all RHC payments are processed and paid in a timely manner. FS Difference with General Ledger and 941 and ERB contributions Condition: 941 reports did not reconcile to the general ledger for the year ended June 30, reports had an irreconcilable difference of $22,356. ERB reports did not reconcile to the general ledger for the year ended June 30, ERB reports had an irreconcilable difference of $17,927. Criteria: Per NMSA 1978 Section , require the annual financial and compliance audit agencies to set out in detail, in a separate section, any violation if law or good accounting practices found by the auditor or examination. Therefore, any instance of weakness in internal control as defined by GAGAS 5.13 and SAS AU must be reported. Effect: This could result in penalties and/or interest being assessed to the school. Cause: The school is not periodically reconciling to the general ledger to what is being reported on the 941 reports and ERB reports. Auditor s Recommendation: The School must reconcile the general ledger to the 941 and ERB contributions to ensure the correct contributions are being submitted. MM-26

27 Management s Response: Management will direct the CPA, and the payroll / insurance officer to reconcile the general ledger to the 941 and ERB contributions to ensure the correct contributions are being submitted. FS Cash Disbursements Condition: During our testwork we noted the following exceptions: Documentation could not be located for 1 out of 3 items tested for travel. 1 of 21 disbursements tested did not have a required purchase order. 1 of 21 disbursements tested was paid off a statement, not an invoice. We were unable to verify signatory authority on 5 of 21 disbursements tested. Criteria: NMAC states that each school shall establish and implement written policies and procedures for purchasing, which shall be in compliance with the procurement code Section , NMSA Effect: The proper maintenance of supporting documentation relating to financial transaction is necessary to mitigate possible dual payments of invoices, resolution of disputes with vendors, etc. Cause: The business manger stated that this was human error. Auditor s Recommendation: We recommend the School follow all policies and procedures. Management s Response: Management will follow all policies and procedures for cash disbursements. FS Minutes Condition: A closed meeting was held at the beginning of Fiscal year 2008, however, no documentation could be provided showing the meeting went into closed session. Criteria: Chapter 10, Article 15 NMSA 1978 states that the board, commission or other policymaking body shall keep written minutes of all its meetings. The minutes shall include at a minimum the date, time, and place of the meeting, the names of board members in attendance and those absent. Draft minutes shall be prepared within ten working days after the meeting and shall be approved, amended or disapproved at the next meeting where a quorum is present. Effect: There could be issues that were discussed in the meeting that could affect the outcome of the audit. MM-27

28 Cause: The School failed to keep notes on the special meeting held in November Auditor s Recommendation: We recommend the school follow the open meetings act Chapter 10, Article 15 NMSA 1978 and have minutes drafted within ten working days after the meeting and approved at the next meeting. Management s Response: Management has directed the Governance Council to provide minutes of the closed session meeting for the record in a timely fashion and to have the minutes approved at the next meeting. The governance council has contracted a scribe to record and publish all minutes in a timely fashion. FS Budgetary Conditions Condition: The School has expenditure functions where actual expenditures exceeded budgetary authority. General Fund Instruction $ 31,573 Instructional Materials Instruction $ 13,243 Support Services $ 2,842 Libraries SB 301 Support Services $ 324 Criteria: Sound financial management and (A) NMAC and to NMSA 1978 require that budgets not be exceeded at the level of control. For school districts, the expenditures are the legal level of control. Effect: The control established by the use of budgets has been compromised. Continued over-expenditure of budgeted balances may result in unnecessary usage of operating funds to cover over-expenditures. Cause: The Business Manager failed to perform BARS at year end. Auditor s Recommendation: The school should establish a policy of budgetary review at year-end and make the necessary adjustments. Management s Response: The school will establish a policy of budgetary review at yearend and make the necessary adjustments. Academia de Lengua Y Cultura FS Budgetary Conditions MM-28

29 Condition: The School has expenditure functions in which actual expenditures exceeded budgetary authority in the following funds: Instructional Materials Support Services Instruction (643) Title III English Language Acquisition Support Services Instruction (3,024) COA Elementary and Middle School Initiative Instruction (6,885) Support Services School Admin (209) Beginning Teacher Mentoring Fund Instruction (1,760) Criteria: Sound financial management and state regulation (A), NMAC and state statutes through , NMSA 1978, require that budgets not be exceeded at the legal level of control. For school districts, the expenditure function is the legal level of control. Effect: As a result, the School is in non-compliance with New Mexico state law, and the control established by the use of budgets has been compromised. Continued overexpenditure of budgeted balances may result in unnecessary usage of operating funds to cover the over-expenditures. Cause: The School did not make the appropriate budgetary adjustment requests and transfers to alleviate possible over-expenditure within functions prior to the year-end. Auditor s Recommendation: The School should establish a policy of budgetary review at year-end and make the necessary budget adjustments. Management s Response: A monthly forecast to ensure all line items are not over expensed and are within budget will be conducted. If the forecast determines budget amounts need to be redistributed an intra-function BAR or BAR is done and the appropriate BAR procedure follows. Additionally, Director ensures expenses are distributed accordingly prior to any purchase made. FS Segregation of Duties Condition: The Business Manager for Academia De Lengua Y Cultura performs all accounting related functions with no oversight or review from the Principal or the Board. The Business Manager does provide a detailed payroll report for each payroll run and that is given to the Principal and the Board. This is the only oversight of the accounting department. Criteria: According to NMSA 1978 Section 6-5-2, segregation of duties must be maintained. MM-29

30 Effect: Without proper supervision and review, it may be difficult to detect and correct mistakes and deter potential fraud. Cause: Academia De Lengua Y Cultura relies solely on the expertise of the Business Manager to perform accounting related functions. Auditor s Recommendation: The School must ensure that journal entries are reviewed and approved, bank reconciliations are reviewed. Internal controls should be in place and routinely followed. Management s Response: Beginning FY 07/08 all Journal Entries were reviewed and signed. All entries were placed in a binder in the Business Manager s office. Bank statements are reviewed and signed by the Director prior to giving the statement to the Business Manager. Payroll is reviewed and signed by the Director and a Board Member. FS Payroll Transactions Condition: During our payroll testwork we noted one instance where gross wages did not agree to the stated contract amount. Criteria: NMAC states that schools must have internal controls in place so that employees are paid the correct amounts. Effect: Employee was not paid at the correct rate. The school could be liable for the difference. Cause: Contract amounts appear to differ from what was in AptaFund. Auditor s Recommendation: The School must ensure that every signed contract amount agrees to what is entered into AptaFund. Management s Response: The contract in question does appear confusing because the previous business manager was trying to establish that the budgeted salary for the position was based the full fiscal year for a salary of $45,000. The next statement establishes that the instructor would be paid in 13 installments, establishes a beginning date and is based on a prorated salary due to the fact instructor was hired in the middle of the fiscal year. The amount recorded in APTA and actual disbursements correlates to a prorated salary of $22,500. The wording on current contracts has been changed and will account for pro-rated salary amounts so that information is clear and concise. Additionally, salary amounts and accrual has been verified against contracts for all employees. MM-30

31 FS SAS 112 Compliance Condition: The individuals responsible for the accounting and reporting functions for the Charter lack the skills and knowledge to apply generally accepted accounting principles in preparing the entity s financial statements. The accounting management has not obtained training to adequately apply generally accepted accounting principles, which includes GASB 34 and subsequent pronouncements. Criteria: Statement on Auditing Standards (SAS) 112, Communication of Internal Control Related Matters Identified in an Audit, requires that management clearly accept responsibility for preparing all financial information and company s financial statements. Effect: The Charter, without the aid of its auditors, is unable to accurately prepare financial statements in accordance with governmental accounting standards with regard to applying generally accepted accounting principles. Cause: Individuals responsible for the accounting and reporting functions for the Charter have not received training in preparing governmental financial statements in accordance with GASB (Governmental Accounting Standards Board) Statement No 34 and subsequent pronouncements. Auditor s Recommendation: We recommend the Charter s accounting management receive the training relating to the preparation of the Charter s financial statements in accordance with generally accepted accounting principles. This would give the individuals responsible for the accounting and reporting functions the skills and knowledge to apply generally accepted accounting principles to the financial statements. Management s Response: New Business Manager was hired August 2008; employee has experience and knowledge of preparation of financial statements in accordance with GASB Statement No. 34. Additionally, Director continues to attend all classes offered by Albuquerque Public Schools (APS), Public Education Department (PED), New Mexico Coalition of Charter Schools and New Mexico School Business Officials (NMASBO). FS Timely Deposits Condition: During our review of cash receipt transactions and procedures, we noted that three of fifteen tested were not deposited within the 24 hour requirement. Additionally, we noted that three of fifteen tested did not have supporting documentation attached. Criteria: NMAC states that monies received and receipted shall be deposited in the bank within 24 hours. Effect: Not depositing funds within 24 hours increases the chances that funds could be misappropriated. MM-31

32 Cause: The School procedures and State of NM Statutes are not being properly followed by the School Administration. Auditor s Recommendation: Deposits should be made within the 24 hour required period. Additionally, supporting documentation must be maintained. Management s Response: School has implemented policy to only receive monies on Fridays, at which time the Secretary receives money and prepares a deposit slip, Director makes the deposit and Business Manager will post the cash receipt. If at any time monies are received any other day of the week, the same process will be followed and the deposit will be made that day. FS Fixed Asset Inventory Condition: For the 2007/2008 year, the School did not perform an annual inventory of fixed assets. For audit testwork the school relied on a prior year audit document for a fixed asset listing. Criteria: Per NMAC Annual Inventory, at the end of the fiscal year, each agency shall conduct a physical inventory of its fixed assets consisting of those with a historical cost of five thousand dollars ($5,000) or more, under the control of the governing authority. Effect: The School is noncompliant with NMAC and does not have internal controls implemented for safeguarding them and establishing accountability for their custody and use. Cause: The School was unaware of this requirement. Auditor s Recommendation: The School should ensure a policy to conduct an annual inventory of fixed assets is implemented. Management s Response: The School has always completed an audit of books, fixed assets and materials and insures that such materials are checked out and accounted for. The only items missing from the inventory were additions purchased at the end of the fiscal year. A new inventory software system was recently purchased. Currently a full physical inventory is being conducted. All materials, supplies and assets will be accounted for and depreciated accordingly. The new system will produce physical inventory tags that will be attached to each item and that correspond to the physical inventory. The Business Manager will conduct random blind audits to insure that items are accounted for. FS Board Minutes Condition: During our audit, the client was unable to provide minutes for any meetings during the year. MM-32