Tea Galaviz Investigation

7/30/2019 Tea Galaviz Investigation

1/10

Til1701 North Congress Ave Austin, Texas 78701-1494 512463-9734 512463-9838 FAX' www.tea.state.tx.us

May 2,2013

Ms. Victoria Cano, SuperintendentJuan B. Galaviz Charter School1507 Little York RoadHouston, TX 77093-5187Re: Special Accreditation Investigation, as Authorized by the Texas Education Code, 39.057and 39.058, File No. 2012-11-092Dear Ms. Cano:Texas Education Agency (TEA) Division of Financial Compliance auditors conducted an on-sitespecial accreditation investigation of the Juan B. Galaviz Charter School's financial recordsDecember 3-7,2012. The scope of the review was limited to those procedures necessary todetermine the financial condition of your charter school and to determine why the independentauditor disclaimed her opinion in the charter school's 2011 annual financial report. Auditorsperformed additional procedures to review the charter school's financial management practices.Enclosed you will find our final report on this investigation, including our auditors' findings andcorresponding recommendations and required actions and your response to the preliminaryreport.


2/10

Juan B. Galaviz Charter SchoolMay 2,2013RE: Special Accreditation Investigation

Special Accreditation InvestigationDecember 3-7,2012Juan B. Galaviz Charter SchoolExecutive Summary

Overall, Juan B. Galaviz Charter School appears to have attempted to address some of therequired actions and recommendations identified in the preliminary report. As a follow-up to theschool's response, the TEA requested additional information from the charter school to verifythat it is working towards becoming financially responsible. The only item the charter submittedwere documents reflecting that all revenues have been recorded. The charter school wasunable to submit documentation within the timeframe of this review that indicated it hadreconciled all bank accounts for the current fiscal year, had recorded fund 287 (Education JobsFund Grant) in the general ledger, or had posted the journal entries or activity log showing that ithad reclassified the questioned costs identified in the preliminary report. Additionally, the charterschool was unable to supply any documentation of a written agreement with the IRS outlining apayment plan for the payroll taxes that are past due. Based on our analysis, we have concludedthat the charter school is still struggling to maintain its accounting records in compliance withgenerally accepted accounting principles as required by the Texas Administrative Code and theFinancial Accountability System Resource Guide.


3/10

Juan B. Galaviz Charter SchoolMay 2,2013RE: Special Accreditation Investigation

Introduction

The charter school board and administration are responsible for maintaining a system of internalcontrols and processes in accordance with 1.5 Internal Controls, Module 10, FinancialAccountability System Resource Guide (FASRG). The board and administration are alsoresponsible for maintaining a proper financial accounting and reporting system and ensuringthat the system adheres to generally accepted accounting principles (1.1.2, Module 10,FASRG). The following findings are based on the FASRG's provisions and address issues wedetected in our investigation.

Annual Financial Report for the Year Ended August 31,2011Late audit report: The charter school submitted to the Texas Education Agency (TEA) a set ofaudited financial statements for the fiscal year ended August 31, 2011, that was determined tobe fraudulent. According to the charter school superintendent, the charter school's priorbusiness manager submitted to the TEA an annual financial report on April 26, 2012, for theyear ended August 31, 2011, that included an unsigned auditor's opinion letter on the letterheadof a firm that had not conducted the audit. In addition, this report was submitted 88 days afterthe date it was due.On April 27, 2012, the superintendent sent an email notification to the TEA that the originalannual financial report submitted for the fiscal year ended August 31, 2011, was not correct andrequested that the TEA remove it from the agency's records. On September 3, 2012, the charterschool submitted its official annual financial report for the year ended August 31, 2011,approximately 218 days past the due date. The report's official auditor's report contained adisclaimer of opinion.Disclaimed opinion: The charter school received a disclaimer of opinion for its annual financial


4/10

Juan B. Galaviz Charter SchoolMay 2,2013Re: Special Accreditation InvestigationIn an effort to submit its annual financial report for the fiscal year ended August 31, 2012, ontime, the charter school contracted a bookkeeper to rework the general ledger for that year toensure all financial activities of the school had been properly recorded. The charter schooladministration stated that, because of the fraudulent activity of its prior business manager andthe ineffectiveness of the previous financial consultant, the accounting records for that year maynot have been accurate. As of the final day of our on-site visit, the bookkeeper had notcompleted the general ledger work.The charter school started creating a policy and procedures manual for the school's financialduties and implementing new intemal controls and segregation of duties to better protect itsassets.Division of Financial Compliance comment: During our on-site visit, the charter schoolappeared to be making progress toward addressing the issues related to the delinquent annualfinancial report for the fiscal year ended August 31, 2011.We noted that the charter school appeared to be implementing processes to address theindependent auditor's disclaimer of opinion for the annual financial report for the year endedAugust 31, 2011. Some of the procedures the charter school was implementing included thefollowing: contracting with a bookkeeper to complete the reconciliation and reconstruction of the2011-2012 financial records (as of the final day of our on-site visit, the bookkeeper hadnot completed the task)

contracting with a financial consultant (business manager) to reconcile bank records forthe current fiscal year (as of the final day of our visit, the charter school had notreconciled any of its bank accounts for the current fiscal year)Additionally, we noted other attempts by the charter school to rectify issues that could affectfuture annual financial reports and the financial position of the school, such as: interviewing for an office manager to assist with daily administrative and accounting


5/10

Juan B. Galaviz Charter SchoolMay 2,2013Re: Special Accreditation InvestigationAnalysis of the charter school's response:The charter school stated that is has completed its delinquent 990 tax returns and that ithas a verbal commitment from the IRS on a payment plan. It also stated that thecontracted accountant has completed her task of recreating the 2011-2012 generalledger. Even though the school stated that it has taken steps to correct it s issues relatedto the submission of the annual financial report and the quality of the school's financialrecords; the school was unable to provide most of the items listed in our follow-uprequest fo r documentation fo r the current school year, including bank reconciliations.

Fiscal Management ReviewDivision of Financial Compliance FindingsCash ManagementIn analyzing the charter school's monthly cash flow, we noted that the school appears to beoperating on a thin margin of cash reserves. If the school incurs any unexpected largeexpenditures, then it may be unable to meet all of its financial obligations. In addition, thecharter school has an approximately $27,000 IRS obligation that is still outstanding and has notbeen resolved because the charter school has not filed its 2010 and 2011 annual Forms 990with the IRS.Finding: The charter school does not reconcile its bank accounts in a timely manner. As of thedate of the on-site visit, the bank accounts were not reconciled for September, October, andNovember 2012.Required action: The charter school must reconcile its bank accounts monthly to helpdetermine its cash position and bank balances. The bank account reconciliation must bereviewed by someone other than the person reconciling the bank accounts.


6/10

Juan B. Galaviz Charter SchoolMay 2,2013Re: Special Accreditation InvestigationWe reviewed transfers recorded in the charter school's bank statements from August 2010through November 2012. The records we reviewed indicated that a loan of $4,200 to WINGSwas still outstanding.Required action: The charter school must refrain from loaning public funds. The charter schoolmust also seek reimbursement from Galaviz Counseling & Assessment (WINGS) in the amountof $4,200.Analysis of the charter school's response:The charter school stated that it has put procedures in place in which the prior month'sbank statement will be reconciled by the end of the following month. The charter schoolgave assurances that it has put procedures in place to record all transactions in thegeneral ledger in a timely manner. The school further indicated that it will not make loansof public funds and that it needs to evaluate the charter school's transactions withWINGS to determine if any money is owed. However, at this time the finding regardingWINGS still stands.Upon request the charter school was not able to provide to auditors bank reconciliationsfo r the current year.The required actions were partially implemented.Credit CardFinding: The charter school has a debit card that is assigned to one individual. That individualhas the ability to order and receive goods and services and approve payment.Required action: The charter school must separate duties to ensure that the individualresponsible for authorizing payment is not the same individual who orders goods and services.


7/10

Juan B. Galaviz Charter SchoolMay 2,2013Re: Special Accreditation Investigationwill result in questioned costs and may result in the charter school's being required toreimburse costs in the amount of $14,143 to the TEA.Additionally, the charter school must comply with the following requirements of 34 CFR, 74.21:

1. Financial Reporting. The charter school's accounting records must demonstrateaccurate, current, and complete disclosure of the financial results of financiallyassisted activities in accordance with the financial reporting requirements of the grantor subgrant.2. Accounting Records. The charter school must maintain accounting records that

adequately identify the source and application of funds provided for financiallyassisted activities. These records must contain information pertaining to grant orsubgrant awards and authorizations, obligations, unobligated balances, assets,liabilities, outlays or expenditures, and income. The records must comply withModule 11 of the FASRG and/or provide sufficient accounting data for thetransactions recorded.Finding: We judgmentally selected 33 transactions from the charter school's 2011-2012 and2012-2013 detailed general ledgers. We determined that two of the 33 transactions weremiscoded. Check #018331 and check #018342 were coded to fund 255 on the checks;however, the transactions were coded to fund 240 (Child Nutrition) in the detailed generalledger. Based on the associated invoices, it appears that the consultant receiving the checkswas providing school program and operation services rather than child nutrition services.Required action: The charter school must reclassify the expenditures that were incorrectlycoded either to another federal fund or to the general fund and must review all othertransactions to verify the account coding is correct.Analysis of the charter school's response:The charter school states that miscoding and the lack of recording the drawdowns wasan error and has since been corrected. The charter school was not able to provide


8/10

Juan B. Galaviz Charter SchoolMay 2,2013Re: Special Accreditation InvestigationAccounting Procedures and ControlsFinding: There is a lack of segregation of duties in the charter school's responsibilities relatedto the payroll and purchasing functions in that one individual enters invoices, purchase orders,and checks into the accounting system.Required action: To increase protection and reduce the risk of fraud and misuse of publicfunds, the charter school must implement procedures for separation of duties to ensure thatresponsibilities such as authorizing transactions, record keeping, and custody of assets are notall assigned to one individual.Finding: Interviews with charter school administration revealed that blank checks are takenfrom the charter school to another location for processing and printing and then brought back tothe school for approval of payment, which is a weakness in intemal controls.Required action: The charter school must implement procedures to ensure that its checksremain in a secure location and are accounted for at all times.Finding: The charter school lacked sufficient policies and procedures for decreasing the risk ofloss of funds and disruption of daily operations should an individual who is performing a taskleave the school.Required action: The charter school must develop a policies and procedures handbook todocument the responsibilities and procedures related to business operations. The handbookmust also address segregation of duties.Finding: The charter school does not maintain contract agreements between the school and itscontracted service providers. Failure to document responsibilities of the contract parties leavesroom for misunderstandings about the types of services being provided, length of service, dutiesof each party, and expectations of payment.


9/10

Special Accreditation InvestigationCorrective Action Plan

Th" charter school do . not reconcje its bank accounts In atJme/y manner As of the date ofon-.s!te visit, the bank accounts were Mt reconcjed for September. October, and November 2012

.choot S not ,ecording fnanCial transactions In its gene'alledgerproper"the 2011-2012 gen.ralledger, we noted that Ih. June Foundation Schoot PIOgram (FSP)p.ymentw ... not reco!dad to .ddrtJon. the June and July T ' ~ e l p.yments wele not ,@cordedlnthe ~ " " e r a l tedger tn the bank statements for the appfjcable months, allll1ree payment. wereshown a. d e ~ l t e d and suboequently_nded Forure to !ecoid revenue In t h e ~ n a n c l a lr"",,ord. is a Violaton Of\!1e FASRG and genero y accepted accounting pnncrpes

The charter schOOl rece"ed loans from and loaned money to Gaav z Counseling 8. Assessmenl

schoOl mUGt '"",on clo its bank accounts monthly to help dete,mlne""StrOn and bank balances The bank account ,econC Iaton must berelllewed bysomeone other than the pe[Son reconciling the bank accounl6

charter schoot must record al transactJon. In compilanceMth generattyaccounnng pnnclple. andlhe FASRG

beiwa.", the c h a ~ " , school and GalavIZ Counselrng 8. Ass.ssmenl be/Oe August2012 We The oharter SChool must ,elram from loaning PUblIC/Undo :h. charter S ~ ~ , ~ ~ ~uncler the program name WINGS Th. board did no! apPlo any executed loan agr""menls Ir_d ransfer-. recorded m he charter sc1O t t \ ~ ' 8 I ' I d a ~ : M ~ ! l I000" '_ th . h 8 : " R l i q U R ~ \ ' I o C h e j ) k J M P O l l : ' f ~ i o f l 1 t

The chart . SChool I",tod to comply WIth the r e q u ~ e m M t s 01 :J.4 Code of Federal Regulation.(CFR) 74 21, .nd requ"amenls of the EducaMn Jobs (Ed Jot>&) Fund grant(fund 287)Specdca ), th. TEA payment report and th. e . p e n d ~ u r e S)li em mdocated that In June 2012 the I ~ ~ ' ' ' U ' . ' O ' ' O ' " . ~ ~ ~ . ~ . o ~ " . ' ~ ' " o " u ~ ,charter school drew OOwr1 ""d receved payment from the Ed Jobs Fund g,ant In tho amount of ftnancially assisted actMijeSln accord


10/10

I of dtJnes In the charte, school'. rosponSlblotes lelated to the payrol To Increase protection and reduce the 'isk ofllaud and m l ~ u s e 01 publ1c funds. I " ! ~ ~ i " ' i ~ . ~ ~ , - ~ . ~ . ~ rwWhat one ,ndlllldual enters Invmces,pUleh a olden;, and check nto the chafle, school mu", Impeme.ot procedu,es!o, sepa'ation 01 cun .. o ensu'e ~ O n q . l . " . ~ " . ' " Man... iW... ... l1,orI

__ ' ~ " ' ~ " " , . " , " , " ' _ . ' . " " " ' " " , the accounting system that respon . i tJes such as autho,,z.ngtran.adlons.r."",d keepng, and ~ , w , J O I C I I i d ! n g o f ~ ~ , P f ~ r l \ I p!"0I.- " . , - ~ . A'0_ are not a asSIgned to one individual e!c;),.Qft!coI ~ . j ~ o f . ~ j i d p ( l r c : h "

[lmenoawsWlth chart . school admmistraMn r e v e a l e ~ that blank checl

Tea Galaviz Investigation

Documents