Fiscal Oversight Module 1 - New York State School Boards ...

Fiscal Oversight Fundamentals 

Module 1: School District Finances: 

Roles and Responsibilities 

© 2012 New York State School Boards Association, Latham NY

© 2012 New York State School Boards Association, Latham NY 

The Five-Point Plan 

1. Requires training for school board 

members 

2. Created Audit Committee 

3. New Internal Audit Requirement 

4. Improved External (Independent) Audit 

5. Claims Auditor position strengthened


Five Modules 

1. Roles and Responsibilities 

2. Building School District Fiscal Fitness 

3. Managing School District Fiscal Fitness 

4. Monitoring School District Fiscal Fitness 

5. Preventing Fraud, Waste and Abuse of 

District Resources

In this Module: 


The Claims Auditor 



What is a Claim? 

• A claim is a legal document (invoice) from 

a vendor or contractor, that demands 

money in consideration for goods or 

services delivered by them to the school 

district based upon a properly executed 

purchase order 

• The claims approval process ensures that 

all claims submitted for payment are 

supported by sufficient documentation.


The Claims Auditor 

• The Education Law requires audit and approval of 

claims prior to payment 

• Union Free, Central & Small City school districts with 

enrollment of 10,000 or more and large city school 

districts may adopt a risk based or sampling 

methodology of auditing claims pursuant to board 

resolution (expires 7/1/14) 

– Methodology must reasonably assure all claims represented in 

sample are proper charges. 

– The Comptroller will review the effectiveness of such methods to 

determine if adequate accountability is maintained and issue 

report to governor and legislature by 1/15/14.


The Claims Auditor - Two Ways 

• Board’s responsibility is to audit all claims 

• May delegate this authority by establishing 

position by board resolution 

– Position is paid 

– All or nothing 

• Board cannot audit some claims and leave 

remainder to claims auditor 

– Can be abolished by board resolution


Claims Auditor Duties 

• Audit each claim for payment against the 

district, verifying that: 

– The purchase is in compliance with law and 

regulation and is in accordance with district 

policy 

– All requisite forms are present and complete 

– All required authorization and signatures were 

obtained


Claims Auditor Duties Cont’d 

• Audit each claim for payment against the 

district, verifying that: 

– The claim is for an actual and necessary 

expense 

– The expenditure is supported by a budgetary 

appropriation 

In simple terms, the Claims Auditor is telling the 

Treasurer that they have certified the claim to be 

true and accurate, and to issue payment to the 

claimant.


Voucher Packet 

• Purchase order with appropriate authorization 

signed by the purchasing agent 

• Receiving report confirming that work was 

complete, goods/services were received 

satisfactorily 

• Documentation that purchasing agent approved 

voucher packet 

• Original invoice containing description, cost, and 

quantity of (if appropriate) goods/materials/svcs


Conditions for Claims Approval 

In addition, the Claims Auditor will verify: 

• The receiving copy was signed and dated, 

indicating that the materials or services were 

received; 

– Suggested legend: “I hereby certify that the work has 

been completed and/or the materials delivered 

satisfactorily to the District on dates stated.”



• The charges are not duplicates of an 

item(s) already paid 

• The proposed payment is for a valid and 

legal purpose 

• The unit price billed (invoice) does not 

exceed the bid or contract authorization 

• There is no “cancellation” or “paid” stamp 

on original invoice



Cont’d 

• If the expenditure was required to be bid 

are there supporting documents? 

• Do goods or services being paid for 

appear reasonable (i.e. are utilities being 

paid only for school district addresses?)



Cont’d 

• Compare actual check to voucher packet 

approved, (i.e., address, amount.) 

• Authorize treasurer to sign checks 

• Suggested legend: “To the District Treasurer: I 

hereby certify that this claim has been audited and 

allowed in the total amount of $ . You are 

hereby authorized and directed to pay the claimant 

the amount allowed, and charge to the proper 

fund.”


Claims Auditor Appointment 

• Can be anyone except: 

– Board member, clerk or treasurer 

– Superintendent 

– Business official or other district official (i.e. 

audit committee member) 

– Purchasing agent 

– Anyone associated with the business functions 

of the district or under the direct supervision of 

the superintendent 

– Internal and external auditor


Claims Auditor Appointment 

• Can also delegate authority using: 

– Inter-municipal cooperative agreements 

– Shared services to the extent authorized by law 

– Independent contractors 

• Does not have to be a district resident, and 

may be an employee of the district or 

BOCES

The Audit Committee 



Audit Committee Function 

• Advises the board on issues relating to the 

internal and external audits 

• Assists with interpreting complex financial 

documents, reports and recommendations 

• Responsible for asking the right questions 

and getting answers in order to keep the 

board informed 

– Communication between the audit committee, 

auditors, and board is key 

• Hold regularly scheduled meetings and report 

to the board at least once per year


Audit Committee Duties 

• Assist in coordinating the external audit processes 

• Provide recommendations to the board regarding 

the appointment of the external auditor 

– Interview process 

• Meet with the external auditor prior to 

commencement of the audit 

– Understand the engagement letter 

– Discuss the audit plan and risk assessment 

– Review drafts or anticipated representation letters 

– Review drafts of anticipated audit opinions



• Providing recommendations to the school board 

regarding the acceptance of the external 

auditor's audit report and management letter 

• Reviewing a correction action plan developed in 

response to an audit report and assisting with 

the implementation of that plan



Also assists with the oversight of the internal 

audit function: 

– Provide recommendations regarding the 

appointment of the internal auditor 

– Review and discuss the annual internal audit 

plan to ensure that high risk areas and key 

control activities are periodically evaluated 

and tested



Also assists with the oversight of the internal 

audit function (cont’d): 

– Review all significant findings and 

recommendations of the internal auditor 

– Monitor the school district’s implementation of 

the internal auditor’s recommendations 

– Assist in the evaluation of the internal auditor 

by providing feedback on the performance of 

the internal audit function


Audit Committee Meetings 

• Meetings should occur quarterly 

– Minimum is annually 

– Subject to Open Meetings Law 

– Can enter executive session as defined by law 

and commissioner’s regulations 

– Also can enter executive session for reasons 

pertaining to External Audit: 

• Meet with external auditor prior to audit 

• Review with external auditor the risk assessment 

• Receive and review the draft annual report and 

management letter (interpret with External Auditor)


Audit Committee Composition 

• All, some, or none of the board 

– Minimum of three members 

– Members do not have to be a district resident 

– Do not need to be a financial professional 

• For non- board members, can be anyone except: 

– District employee 

– Recent employee (within two years) 

– Internal, External, or Claims Auditor 

– Close or immediate family member of employee or 

recent employee, trustee, contractor or anyone 

holding a business interest with the district


Audit Committee Charter 

• Required 

• Submitted to board for approval 

• Establishes guidelines, procedures and 

requirements to allow committee to operate 

effectively 

• Should specify: 

– Purpose/mission 

– Duties/responsibilities 

– Membership and meeting frequency 

– Reporting requirements 

– Self -evaluation requirements


Audit Committee Self-Evaluation 

Areas of Focus: 

– Working relationship with management, 

auditors, and board. 

– Participation level and contribution of 

members. 

– Do committee members possess the 

appropriate skills to do the job? 

– Is the size of the committee appropriate? 

– Does the committee meet regularly enough?


Audit Committee Self-Evaluation 

Areas of Focus (cont’d): 

– Does the committee encourage a tone at the top? 

– Does the committee evaluate the internal auditor 

to ensure overall effectiveness and compliance 

with expectations? 

– Has the committee reviewed all significant control 

deficiencies identified by the internal/external 

auditors as well as management’s corrective 

action plan to address recommendations?

Internal Audit Function 



Internal Audit Purpose 

• To assist the board in ensuring that 

financial risks are identified and that 

appropriate internal controls are in place to 

address these risks 

• The internal audit function assists the 

board in its oversight responsibility through 

its capacity as an objective third party


Internal Audit Responsibilities 

• Development of an initial risk assessment 

of district operations including, but not 

limited to, a review of district financial 

policies, procedures and practices 

• An annual review and update of the risk 

assessment 

• Annual testing and evaluation of one or 

more areas of the district's internal 

controls


Internal Audit Responsibilities (cont’d) 

• Report to the board with analysis of 

significant risk assessment findings 

• Recommend changes for strengthening 

controls and reducing identified risks 

• Agreement with auditor should be 

documented in an engagement letter.


Areas of Focus for the 

Internal Audit 

• Payroll 

• Purchasing 

• Food service 

• Fixed asset policy 

• Extra-curricular activities fund 

• Budget transfers 

• Bank statements


Risk Assessment – Evaluation 

• Need to identify the kind of risk in order to 

reduce the following risks: 

– That financial results will be manipulated by 

recording revenue or expenditures in the 

wrong year so that the resulting fund balance 

will meet projected targets 

– That Individual assets will be stolen 

– The risk of an unintentional error


Internal Audit Evaluation 

Focus Areas: 

– Is the experience level of the auditor 

adequate? 

– Is the scope of the internal audit adequate? 

– Relationship with Audit Committee and 

Management. 

– Does the Internal Auditor meet with the Audit 

Committee to provide and discuss the audit 

plan prior to the audit?


Internal Audit Evaluation 

Focus Areas: 

– Does the auditor report significant findings to 

the attention of the Audit Committee? 

– Is the frequency of reporting and level of 

detail sufficient to ensure effective action by 

management and the Audit Committee?


Appointing Your Internal Auditor 

• Can be: 

– District staff (no responsibility to business 

operations, i.e. math teacher) 

– Inter-municipal cooperative agreements 

– Shared services to the extent authorized by law 

– Independent contractors 

• Is not required to be a financial profession or 

hold any financial certification (but should)


Additional Resources for the 

Internal Audit: 

• The Institute of Internal Auditors: 

– www.theiia.org 

• Association of Certified Fraud Examiners 

– www.acfe.com/fraud/view.asp?ArticleID=13 

• The American Institute of CPAs 

– www.aicpa.org 

• Getting the Most Out of Your Internal Audit Function, NYS 

Office of the Comptroller: 

– http://www.osc.state.ny.us/localgov/pubs/internalauditfunction.pdf 

• Internal Controls, NYS Office of the Comptroller: 

– http://www.osc.state.ny.us/localgov/pubs/lgmg/internal_controls.pdf

External Audit Function 



External Audit Purpose 

• Section 2116-A of Ed. Law and Section 

170(r) of Commissioner Regulations 

require each board of education employing 

eight or more teachers to secure an 

annual audit by an independent auditor


External Audit Purpose 

• Principal goal of the external auditor is to 

opine on the district’s financial statements 

– Are the financial statements a fair presentation of 

the financial position of the district? 

• Audit report is presented to the board 

– Draft to audit committee 

– Management must prepare corrective action plan 

for any findings in audit report or management 

letter within 90 days, and begin implementing by 

end of next fiscal year


Appointing Your External Auditor 

• District MUST use an RFP (request for 

competitive proposal) when hiring external 

auditors 

– Lowest responsible bidder 

• No engagement can exceed five years 

– After five years, new RFP must go out 

– Can use same firm if they win bid, but use 

different partner within firm 

• Existing contracts can continue until 

expiration


External Auditor Qualifications 

• MUST be a financial professional 

– Be registered and licensed to practice public 

accountancy in New York State 

– Meet the qualifications requirement including 

the completion of at least 80 hours of 

continuing professional education every two 

years 

– Have an appropriate internal quality control 

system in place and undergo an external 

quality review at least once every three years


External Auditor Qualifications 

• MUST be a financial professional 

– Possess experience in audits of governmental 

entities and federal Single Audits 

– Meet government auditing standards 

– Possess sufficient staff to complete the audit 

in a timely manner 

– Be independent in fact and appearance

Treasurer 



Treasurer 

• Appointed by the Board at re-org meeting 

• Deputy Treasurer is highly recommended 

to handle duties in absence of Treasurer 

• Must be bonded in an amount determined 

by the board 

– No set or recommended amount 

– Can be covered by a blanket bond 

• Conduit for monitoring fiscal condition


Treasurer 

• Must provide quarterly budget status 

report (monthly if budget transfers have 

been made since last report). 

– Must show at least the status of the district’s 

revenue accounts and appropriation accounts 

required in the state budget form. 

• Estimated revenues, amounts received as 

appropriation accounts, original appropriations, 

transfers and adjustments, revised appropriations, 

expenditures to date, outstanding encumbrances, 

and unencumbered balances


Treasurer 

• Provide monthly report for each fund 

showing: 

– Cash balance on hand at the beginning and 

end of month 

– Receipts by source 

– Total disbursements 

– Reconciliation with bank statements


The “Sixth Point” 

• Comptroller audits of school districts, BOCES 

and Charter Schools 

• Focus on internal controls, policies, practices 

and operations to ensure adequate protection 

against fraud, waste and abuse. 

– Will not duplicate the work of the external auditor 

• Subsequent audits can occur and will be 

determined using a risk assessment process 

– Previous audit findings 

– Investigation of alleged improprieties 

– Other financial indicators


Comptroller Audit Findings 

• Information Technology 

– Security issues relating to access of data and 

systems 

– Lack of policies for acceptable use standards for 

computers, internet and email 

– Access rights above what was required for job 

duties 

– No requirement to change user password 

– No audit logs to determine who, where and when 

information was access or changed. (similar to 

lack of segregation of duties) 

– Lack of data backup and disaster recovery plans


Comptroller Audit Findings (cont’d) 

• Claims Audit Deficiencies 

– Incompatible business functions (authorize 

and approve a payment) 

– Reported to management rather than board 

– Deficient auditing of claims 

• Lack of documentation 

• Lack of department review or approval



• Payroll Issues 

– Separation Payments 

• Lack of Board oversight regarding accuracy of leave 

balances or that payments were made in accordance 

with employment contracts 

• Insufficient or lacking payroll policies 

– Payment for personal services without contracts 

• Again, related to inadequate internal controls and 

policies over payroll 

• Loose employee contracts did not specify entitlement to 

salary and benefits; as a result offending districts paid 

these officials far more than they were entitled



• Financial Condition Issues 

– Inaccurate recording and reporting of district 

financial data. 

• Prevented boards from monitoring the districts 

fiscal condition in a timely manner. 

• Over-expending appropriations and fund balances 

deteriorated, often to a deficit. 

– Over- reliance on fund balance, or using nonrecurring 

revenue sources to fund 

expenditures.


Key Points to Remember 

• Board is ultimately accountable for 

oversight of district financial operations. 

– Failure of one component, i.e. Audit 

Committee, is still the board’s responsibility 

• Listen! 

– Follow up on anything that is not easily 

understood! 

• Seek Additional Training


Additional Resources 

• NYS Comptroller’s Office Local 

Government and School Accountability 

landing page: 

– www.osc.state.ny.us/localgov/index.htm 

– Contains a wealth of information specific to 

maintaining and improving school district 

fiscal health such as: 

• School District Financial Toolboxes, which provide 

additional information on Claims Auditor, Audit 

Committee, Internal and External Audit functions



• Statement on the Governance Role of a 

Trustee or Board Member, Board of 

Regents, USNY, November 2007 

http://www.regents.nysed.gov/about/state 

ment_governance.html



• www.openbooknewyork.com 

– Provides financial transparency for all 

government institutions in NYS 

– Excellent resource for determining how school 

districts generate their revenues and what 

activities and services those revenues support 

• Can compare revenues/expenditures from other 

districts to your own to identify potential 

efficiencies



• NYS State Education Department Office of 

Education Management Services landing 

page: 

– www.emsc.nysed.gov/mgtserv/

Fiscal Oversight Module 1 - New York State School Boards ...

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