FINANCIAL MANAGEMENT
This chapter reviews the San Angelo Independent School District's (SAISD's) financial management function in the following sections:
- A. Fund Balance
- B. Planning and Budgeting
- C. Accounting Operations
- D. Payroll
- E. External and Internal Audit
C. ACCOUNTING OPERATIONS
School districts must maintain and operate effective financial management systems in a highly regulated environment. They must meet financial management requirements established by federal and state laws, rules and regulations. TEA's FASRG outlines accounting and reporting requirements for Texas school districts. Internally developed policies and procedures, Generally Accepted Accounting Principles (GAAP) and the GASB guidelines also affect school districts' financial management activities.
Texas school districts are required, under Texas law, to conduct school programs in accordance with the state constitution. The TEC spells out the specific requirements that school districts must comply with and authorizes the TEA to establish standards for all school districts.
The state's contribution to school districts is determined through three tiers of funding. Tier I is designed so that school districts and the state share in the basic cost of education. Funding allotments under the Tier I formula are based on the weighted number of students in average daily attendance (WADA). WADA is a measure of special needs such as special education, compensatory education, bilingual education and gifted and talented programs. Tier I formulas also provide partial funding for school transportation. Tier I allotments are adjusted for the individual district's property tax base. Therefore, a district's property wealth factors significantly into the state funding formula.
Tier II rewards the local taxing efforts of a district by guaranteeing that the state will provide a minimum amount of money per WADA depending on the amount of income generated by taxes in the current year beyond the required local share in Tier I. Tier II provides funds to school districts beyond the base funding level in Tier I. The Tier II tax rate generates money for education in the form of a guaranteed yield. One penny of local tax rate will generate $23 per student in WADA from a combination of local and state resources. Districts with wealth above $295,000 per WADA are subject to the wealth-reduction provisions of Chapter 41 of the TEC.
Senate Bill 4 of the 1999 Legislature added a new component to the education funding formula. Tier III funds, as the component is known, provides for local school districts to receive partial state funding for debt service requirements on previously issued bonds.
The Texas Constitution authorizes local governments, including school districts, to levy property taxes. School property taxes represent almost 60 percent of total property taxes levied in the state. Property taxes levied by school districts are important because they can significantly impact the amount of funding provided to individual districts by the state. There are two categories of property levies made by school districts. The maintenance and operations portion is used to cover routine operating costs of education, while the interest and sinking portion is used for debt service for financing building programs.
SAISD's accounting operations are conducted in the Business and Finance Department. Exhibit 7-18 illustrates the current organization structure of the department. The assistant superintendent of Business and Finance, who reports directly to the superintendent, manages all the financial and budgeting operations in addition to the purchasing, technology and risk management functions of the district.
Exhibit 7-18 Source: SAISD's Business and Finance Department.
SAISD Business and Finance Department
March 2001The functions of the Technology and Information Services director and the Purchasing director are discussed in other chapters of this report.
The comptroller manages the day-to-day activities of the Accounting Department, including general accounting, fixed asset accounting and bank reconciliations. The Accounts Payable supervisor, a general accountant, a data entry clerk and a fixed asset receptionist clerk report directly to the comptroller.
The general accountant is responsible for reconciling all bank statements for the district. The fixed asset clerk is responsible for reconciling the fixed asset accounts of the district and performing receptionist and cash receipt duties for the district. The function of fixed assets is reviewed in another chapter of this report.
The payroll supervisor also reports directly to the assistant superintendent of Business and Finance.
The Accounts Payable Department is staffed with a supervisor and two full-time accounts payable clerks. The department is responsible for processing all vendor payments for the district. The department staff usually receive vendor invoices through the mail, but sometimes receive them from schools and departments when the vendor sends the invoice to the user rather than the Accounts Payable Department. All invoices are filed alphabetically until they are processed. Invoices are not to be processed until a pink copy of the purchase order is received from the Purchasing Department and the user school or department receives the goods or services.
SAISD's Budget Department is responsible for the budget preparation and monitoring functions. The director of Budget performs the daily budget functions with the assistance of the cash and investment manager. In addition, the assistant superintendent of Business and Finance is significantly involved in the district's budgeting process.
The cash and investment manager is primarily responsible for the receipt and investment of funds in the district. A significant portion of the cash and investment manager's daily responsibilities involves assisting the director of Budget. Cash management functions are addressed in the Asset and Risk Management chapter of this report.
FINDING
Early in 2000-01, SAISD vendors were not being paid in a timely manner. The Accounts Payable supervisor told the review team that earlier in the school year, certain vendors had threatened to cease doing business with the district as a result of nonpayment. There was no clear tracking system in place to determine when or if an invoice had been paid. Often, the invoices were not even entered into the accounting system. A significant portion of the department's daily activities dealt with responding to vendor complaints.
In February 2001, the Accounts Payable Department was reorganized. The district's vendors were divided alphabetically and assigned to a staff member. For example, vendors A-F are the responsibility of one clerk; vendors G-P are the responsibility of another clerk and Q-Z are the responsibility of the Accounts Payable supervisor.
The district's vendors now have a specific contact for dealing with their accounts. Within the department there is clear accountability with respect to the district's vendor accounts. Any questions can be quickly directed to the staff member that can provide immediate assistance. The number of complaints has been significantly reduced.
COMMENDATION
The district has reorganized accounts payable functions to better serve vendors.
FINDING
The district does not have formal accounting procedures in place to enable it to effectively and efficiently manage its operations. When the general accounting department was reorganized, staff members were unsure of what their new roles entailed. This increased the uneasiness of department staff. In many cases, they were performing new tasks for which they had no training or experience.
The district relies on employees that have been transferred to new positions to train their replacements while performing their new tasks. Although this is necessary in the short term the department cannot perform efficiently and run effectively this way in the long term.
Documented procedures and effective training methods provide the foundation for a successfully operated department. The district has an accounting procedures manual that is not being used and has not been updated to reflect the significant recent changes in the department. Reviewing the procedures manual provides a good opportunity to analyze the effectiveness of current procedures and determine what, if any, modifications may be necessary. It also provides a good training and guidance tool for new employees when staff turnover occurs. According to the assistant superintendent of Business and Finance, this issue will be addressed very soon.
Recommendation 65:
Update the Business and Finance Department's accounting procedures manual.
The procedures manual should outline in detail every activity for each critical function. At minimum, the manual should include:
- Budget policies and procedures;
- Payroll policies and procedures;
- Accounts payable policies and procedures;
- Activity fund policies and procedures;
- Treasury policies and procedures;
- District procedures governing approvals for checks and journal vouchers;
- Procedures for cash receipts and travel reimbursements;
- Procedures and controls for safeguarding the district's fixed assets;
- Descriptions of each process performed in the Business and Finance department;
- Detailed desk-level instructions for the most critical processes; and
- District procedures governing distribution of financial reports.
Updating the procedures manual and making the manual accessible should improve the productivity of new employees and help ensure compliance with district policies.IMPLEMENTATION STRATEGIES AND TIMELINE
1. The assistant superintendent of Business and Finance directs the department supervisors to review the procedures manual and update their sections. October 2001 2. Each supervisor updates their sections of the manual and develops detailed procedures for missing functions. November 2001 3. Supervisors present their section to the assistant superintendent of Business and Finance for approval. December 2001 4. The assistant superintendent of Business and Finance develops a procedure that requires annual reviews and updating of all procedures. December 2001 5. Each supervisor reviews their section of the manual and updates as necessary. November 2002 and Ongoing FISCAL IMPACT
This recommendation can be implemented with existing resources.
FINDING
The reconciliation of the district's bank statements are not current. The general accountant is responsible for this task under the supervision of the comptroller. As of April 13, 2001, the last reconciliation was for December 2000. The external auditor's management letter identified the bank reconciliation backlog as an issue, but it has not yet been addressed.
The lack of up-to-date monthly bank reconciliations creates the following problems for the district:
- Late discovery of errors made by the banking institution;
- Inaccurate general ledger accounts;
- Inaccurate management reports;
- Decreased cash investments; and
- Delay in discovering posting errors of expenditures to the general ledger.
Typically, bank statements are reconciled and necessary corrections made within 30 days following the receipt of the statement from the bank. The district has an electronic process to identify and account for outstanding checks as a part of its reconciliation process. One full-time staff member is dedicated to performing this task.
Recommendation 66:
Reconcile all district bank accounts and make necessary corrections within 30 days following receipt of bank statement.
Reconciliation of the bank statements should be given top priority. All bank statements should be reconciled and corrections made within 30 days after receipt.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The assistant superintendent of Business and Finance revises the bank reconciliation procedures. September 2001 2. The assistant superintendent of Business and Finance distributes the revised procedures and instructs staff of the new requirements. October 2001 3. The comptroller monitors the reconciliation process to ensure the 30-day requirement is met. October 2001 and Ongoing 4. The comptroller makes a monthly report to the assistant superintendent of Business and Finance providing the status of bank reconciliations. October 2001 and Ongoing FISCAL IMPACT
This recommendation can be implemented using existing resources.
FINDING
Three different departments have the ability to establish vendor files in the district's financial accounting system: purchasing, accounts payable and grounds maintenance. Before a payment can be processed to a vendor, the district's accounting system requires information on the vendor to be recorded in a vendor database maintained in the system. Creating a vendor prior to making a payment is an internal control measure that restricts payments from being made to vendors that have not been reviewed and a file established for them. A significant internal control weakness exists when the department that issues vendor checks also has the ability to set up new vendors in the accounting system.
Although no improprieties were identified, this practice provides the opportunity for a check to be issued to an inappropriate vendor.
Recommendation 67:
Restrict Accounts Payable's ability to create new vendors in the district's financial accounting system.
Since Accounts Payable has the authority to issue payments to vendors, it should not have the authority to create new vendors in the accounting system. Accounts payable should only have the authority to maintain existing vendor files, such as changing the vendor's address or telephone numbers.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The assistant superintendent of Business and Finance meets with the director of Technology to identify changes needed to restrict Accounts Payable's ability to create new vendor files. September 2001 2. The director of Technology removes accounts payables access to the vendor creation module of the district's financial accounting system. October 2001 3. The Accounts Payable supervisor develops a procedure to be followed by staff when a payment is needed to be processed and a vendor has not been created in the accounting system. October 2001 FISCAL IMPACT
This recommendation can be implemented using existing resources.
FINDING
The district does not have sufficient control over vendor payment checks. The accounts payable procedure is for accounts payable staff to match the pink purchase requisition form to the purchase order, match the purchase order to the invoice and receive confirmation that the materials or services have been received before a payment is processed. The district's current policy is for the assistant superintendent of Business and Finance to review, approve and sign only checks that are in excess of $10,000. All other vendor checks are run through a stamping machine for signature.
There are relatively few checks written by the district that are more than $10,000. Therefore, the majority of vendor checks are released without being reviewed and approved by the assistant superintendent of Business and Finance. Also, many of the invoices paid do not have the proper documentation attached. The district told the review team that nearly half of the invoices are paid without a purchase order attached.
Most checks are routed through a stamping machine where a signature is placed on the check, and then the checks are placed in the mail. The district has inadequate controls to protect itself against fraudulent invoices. It would be relatively easy for an accounts payable staff member to issue a check for a false purchase as long as it is coded to a budget line item that has available funds.
Effective internal controls over payment processing requires a proper level of reviews and approvals. Larger payments are reviewed and approved at a higher organizational level than smaller payments and all payments are reviewed by supervisory staff to ensure they are supported by proper documentation.
Recommendation 68:
Require all checks above $5,000 to be approved by the assistant superintendent of Business and Finance and randomly select checks for review by the comptroller.
The Accounts Payable supervisor should review each check run before it is released for processing. If a check request does not have adequate documentation attached, no check should be issued. Each Accounts Payable clerk should be held accountable for making sure that the supporting documents have been reviewed and are attached to the check request. A random sample of five checks from each check run should be pulled and taken to the comptroller for review and approval
The $10,000 threshold for checks to be approved by the assistant superintendent of Business and Finance is too high. By lowering the threshold to $5,000, the payments that must be reviewed by the assistant superintendent of Business and Finance will provide for review and approval at a more appropriate level.
The random selection and review by the comptroller will provide an audit of the smaller payments being made to ensure that they are justified. Both measures will provide the assistant superintendent of Business and Finance with an acceptable comfort level that all payments made are appropriate.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The assistant superintendent of Business and Finance revises accounts payable procedures. September 2001 2. The assistant superintendent of Business and Finance distributes revised procedures and instructs staff of new requirements. October 2001 3. Revised procedures are put into use and the assistant superintendent of Business and Finance monitors compliance. October 2001 and Ongoing FISCAL IMPACT
This recommendation can be implemented using existing resources.
FINDING
The Technology Department does not take advantage of the expertise of the accounting staff before installing system upgrades and/or software revisions to the district's financial accounting system, and no testing is done before updating the system with software revisions. There have been instances when an upgrade was installed in the accounting system over the weekend, and the accounting staff became aware of it only when they noticed additional fields on their screen the next time they used the system. No testing was completed to ensure that the system would still process transactions correctly. In one instance, two reports were generated using the same data that provided different results. An investigation of the problem revealed that the data had changed when a software revision had been implemented over the weekend.
The potential for serious problems exists when changes are made to accounting systems that have not been adequately tested. When financial data is not processed correctly, the possibility exists that the financial reports generated contain inaccurate data. Inaccurate financial reports lead to inappropriate management decisions and possible financial losses.
A practice to ensure financial system updates and revisions will process transactions accurately is for accounting staff to test the updates and revisions prior to putting them into operation.
Recommendation 69:
Require accounting staff to test all revisions and upgrades to software prior to installing the upgrades in the district's financial accounting system.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The assistant superintendent of Business and Finance develops a policy that no updates or revisions are to be made to the accounting system without being tested by accounting staff. September 2001 2. The Technology and Information Services director informs the assistant superintendent of Business and Finance whenever a revision to the software is ready to be installed. One week before scheduled installation. 3. The assistant superintendent of Business and Finance determines which staff should test the changes. The day after being informed of the change. 4. The assistant superintendent of Business and Finance assigns the appropriate supervisor to test the software revision with the technology support staff member. Three days before scheduled installation. 5. Once tested and approved, the revision is loaded to system. As scheduled FISCAL IMPACT
This recommendation could be implemented using existing resources.
FINDING
There is a lack of communication within the Business and Finance Department. It has been a difficult year for the department with high staff turnover, public scrutiny, organizational restructuring of job duties and changes in management. Within the last year, the department has lost its assistant superintendent of Business and Finance and comptroller.
In the past, the Accounting Department staff was physically located together in one open room. However, the architecture has changed and the department has been compartmentalized behind walls and partitions. Many of the staff members interviewed expressed the feeling of being isolated and no longer a part of the department. This physical separation has intensified the communication issues within the department. Only a few staff members feel they are in the loop; most feel they are not being kept apprised of what is happening in the district or even in their own department.
The department does not hold regular staff meetings to bring all staff in the department together. For staff of an organization to perform work in an efficient manner and to feel a part of the organization, each employee must be kept informed. The primary reason cited for not conducting staff meetings was the lack of time.
Recommendation 70:
Institute bi-weekly staff meetings for the Business and Finance Department and circulate minutes.
A bi-weekly staff meeting will provide the opportunity for all Business and Finance employees to meet face-to-face and identify and address any concerns. It will also help develop a team spirit and make each staff member feel they are on the team. The goals and objectives of the department should be clearly expressed in these meetings. Each staff member should clearly understand their role in the department's overall functions and responsibilities.
Better communication will increase the likelihood for success of improvements the assistant superintendent of Business and Finance wishes to make. In time, these meetings can be reduced to once a month.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The assistant superintendent of Business and Finance prepares a schedule for bi-weekly staff meetings and distributes to all employees of the department. September 2001 2. The assistant superintendent of Business and Finance prepares an agenda and distributes to all employees of the department. September 2001 3. The initial staff meeting is held. September 2001 4. The secretary prepares and distributes minutes of staff meeting. September 2001 5. Bi-weekly staff meetings are held and minutes distributed. October 2001 and Ongoing FISCAL IMPACT
This recommendation can be implemented using existing resources.
FINDING
The district does not provide adequate training for staff using the financial management system. The district began using SunGard Pentamation as its financial accounting system at the beginning of 1996-97. Computerized applications include budgeting, general ledger, purchasing, accounts payable, cash receipts, warehouse, fixed asset inventory and payroll.
Much of the training for the system is "learn as you go." When the system was first implemented, the accounting staff could interact directly with the in-house technology support person that was most familiar with the system. However, in the last school year, the Information Technology Department has been reorganized so that accounting personnel are no longer able to interact directly with in-house technical support. The reason provided by the director of Technology for this change was that his staff was constantly being taken away from their other job tasks to troubleshoot situations with the district's financial accounting system. The current process requires bringing the problem to the attention of the assistant superintendent of Business and Finance who then informs the director of Technology who deals directly with vendor. The accounting staff can deal directly with the vendor's help desk.
The accounting staff is unfamiliar with the system itself and do not always know what questions to ask when contacting the vendor's help desk. This results in an inefficient operation and a large amount of time being wasted trying to find answers to problems due to inadequate training.
Recommendation 71:
Provide training to accounting staff and assign a full-time technology support staff member to the accounting system.
In-house technology staff must support the Business and Finance department when daily problems arise with the district's financial accounting system. By eliminating the in-house technology support person, the process has become protracted and inefficient. When adequate training is provided for the accounting staff, the number of questions directed to this dedicated technology support person will be reduced and will eventually reduce the time the in-house support is needed.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The director of Technology assesses staff assignments and identifies a support staff member to be assigned to the accounting system. September 2001 2. The assistant superintendent of Business and Finance develops and distributes information to staff explaining the duties and how to contact the full-time technology support member assigned to the accounting system. September 2001 3. The assistant superintendent of Business and Finance submits a purchase request for staff training. September 2001 4. The assistant superintendent of Business and Finance negotiates a three day training course with the department's financial accounting system vendor. October 2001 5. The district's financial accounting system vendor provides a three day in-house training session for the Business and Finance Department. November 2001 6. The assistant superintendent of Business and Finance assesses the success of the training course and continues to monitor staff's training needs. November 2001 and Ongoing FISCAL IMPACT
According to the director of Technology, the cost for a representative of the district's financial accounting system vendor to come to the district and conduct a training class is $1,200 per day. For a three-day course, the total cost will be $3,600. Dedicating a support staff member for the accounting system would only require a restructuring of existing staff assignments.
Recommendation 2001-02 2002-03 2003-04 2004-05 2005-06 Provide training to accounting staff and assign a full-time technology support staff member to the accounting system. ($3,600) $0 $0 $0 $0 FINDING
Workloads are not effectively distributed in the Business and Finance Department. The accounts payable function is overstaffed. The fixed asset clerk is split between fixed assets and receptionist duties. One staff member is unable to adequately perform the duties of the job while others do not have sufficient workloads to keep them busy.
The accounts payable function is staffed with two accounts payable clerks as well as a supervisor. There is insufficient accounts payable workload to justify three full-time employees. The number of invoices that must be processed does not warrant the number of staff currently dedicated to the task.
The fixed asset clerk does not have sufficient time to adequately address the backlog of fixed asset reconciliation items because a significant amount of the day is spent performing receptionist duties.
The district will be required to implement provisions of a new accounting standard, GASB 34, for the 2001-02 reporting year. Additional requirements will be placed on the department's fixed asset accounting and reconciling responsibilities. For an organization to operate efficiently and accomplish assigned responsibilities, duties must be assigned to staff in an equitable manner. To ensure staff assignments are maintained equitably, they must be reviewed periodically and also when overall responsibilities either increase or decrease for the organization.
Recommendation 72:
Redistribute duties between the accounts payable clerks including receptionist duties.
Accounts payable staff duties should be redistributed so that one full-time clerk deals with vendors A-L and one clerk deals with vendors M-P and takes on the receptionist duties now being carried out by the fixed asset clerk. The Accounts Payable supervisor should continue the responsibility for Q-Z vendors. Relieving the fixed asset clerk of receptionist duties will provide time to reconcile the fixed asset database. If the district is to comply with GASB 34, it must reconcile and keep the fixed asset database reconciled.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The comptroller and the Accounts Payable supervisor develop new assignments for the accounts payable and fixed asset clerks for the assistant superintendent of Business and Finance's approval. September 2001 2. The comptroller revises the job description for the fixed asset clerk. September 2001 3. The assistant superintendent of Business and Finance meets with the effected staff and discusses the new duty assignments. October 2001 4. The accounting clerks and fixed asset clerk begin to perform their revised job assignments. October 2001 5. The comptroller and Accounts Payable supervisor monitor workloads to ensure assignments are equitable and work assignments are being performed. November 2001 and Ongoing FISCAL IMPACT
This recommendation can be implemented using existing resources.
FINDING
The accounting staff is not always informed in a timely manner when accounting codes have been changed. The FASRG defines mandatory accounting codes for use in school accounting. SAISD's account codes have historically been noncompliant with FASRG and Bulletin 679, the predecessor Chart of Accounts.This has required the Technology and Information Services Department to run a specialized program called a cross walk prior to the district's annual PEIMS submission. A cross walk converts the district's financial accounting system accounting data into the proper format for the PEIMS submission.
The district's external auditors recommended that the district begin using account codes that comply with FASRG before starting the 2001-02 budget process. The district is making the conversion. The accounting staff was not aware that the changes had been initiated. This caused problems when campus staff called central accounting with questions about accounts that had different accounting codes. The review team requested a copy of the account codes from the Accounting Department; the department's listing was more than three years old and outdated.
The department's overall productivity is decreased when time must be spent resolving problems resulting from outdated information. It also reduces the confidence other district departments have in the Accounting Department when they are not aware of a change that has a direct impact on how they perform their job duties.
Recommendation 73:
Distribute updated account code listings to all staff that use account codes.
Converting the account codes will benefit the district by eliminating the requirement to run a cross walk each year. The accounting staff must be kept informed when any changes are made to account codes.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The assistant superintendent of Business and Finance assigns the responsibility for distributing account code updates to the department's secretary. September 2001 2. The secretary provides an updated account code listing to all accounting staff members. September 2001 3. The assistant superintendent of Business and Finance ensures that the secretary receives all account code changes. Ongoing 4. The secretary e-mails each staff member explaining changes to account codes. Day after receiving notice of a change 5. The secretary provides an updated account listing to all accounting staff members each month when changes in account codes have been made. By the 5th of the next month. FISCAL IMPACT
This recommendation can be implemented using existing resources.
