4/12/2016 1 Patti Schroeder, Finance Support Director at Iowa Association of School Boards (IASB) and Iowa ASBO member Information you can use to address Internal Control within your school district. Introduction to Iowa’s booklet: Segregation of Financial Duties in the Smaller Public School to Improve Financial Internal Controls. (Iowa’s story) SBO/CFO/Entity requests DOE/Federal Government Audit Reports Insurance Fraud cases
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4/12/2016
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Patti Schroeder, Finance Support Director at
Iowa Association of School Boards (IASB)
and Iowa ASBO member
Information you can use to address Internal Control within your school district.
Introduction to Iowa’s booklet: Segregation of Financial Duties in the Smaller Public School to Improve Financial Internal Controls. (Iowa’s story)
SBO/CFO/Entity requests
DOE/Federal Government
Audit Reports
Insurance
Fraud cases
4/12/2016
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Many, many audits have segregation of duties comments:
Cash Wire Transfers Receipts Disbursements Payroll School Lunch Program Financial Reporting
When segregation of duties cited, it is always labeled as a:
Material weakness
That is, internal control is weak, misstatements could occur and not be detected and corrected in a timely basis
Insurance companies have had a huge amount of bond losses, due in large part to lack of proper segregation of duties.
As a result, Iowa insurers will not increase any bond limits on any Iowa school until proper segregation of duties has occurred.
Proper segregation of duties will only be increased
once improper segregation of duties no longer appears as a material or significant finding on a school district’s audit.
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School District: Two losses from same occurrence, one an employee theft loss for $510,000 and the other a faithful performance loss for $500,000. Business office supervisor deposited checks received into an unapproved checking account and numerous unapproved CD’s that were opened by and controlled by the thief. District officials had no knowledge of the checking account or CD’s. Insured suffered total loss of more than $1,200,000.
Insurance Carrier said:
This loss largely caused by inadequate segregation of duties, little internal controls, poor documentation of checks received by the district, and inadequate supervision by supervisor (District Treasurer).
Setting An Employee Dishonesty Limit
The Surety Association of America, an organization which compiles
employee dishonesty premium and loss data, has published a guide to help
select minimum bond limits. It is worth using this as a guide when your
district is selecting an employee dishonesty limit.
“Exposure factor = 20% of current assets plus 10% of annual revenue.
The principal current asset of a school district is cash.
Example: $ 2,000,000 cash in the bank
$25,000,000 in annual revenues
Exposure factor = (.2 x 2,000,000) + (.10 x 25,000,000) = $2,900,000.
An exposure factor of $2,900,000 results in a minimum bond limit in the
$200,000 to $300,000 range.
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Undeposited collections
Unauthorized cash withdrawals
Set up separate bank account, diverted district funds: • From summer softball camps • From the football program
Made personal expenditures from bank account
Charged personal purchases to district issued procurement card
Paid out unauthorized (perhaps unincurred) overtime
“Her bosses made it easy.”
“Maybe we were naïve in counting on one person to look after the accounts.”
Without that documentation, you can’t tell specifically what was purchased.”
61% - undeposited collections
55% - improper purchases from vendors
37% - payroll / extra pay
31% - improper reimbursements
21% - improper credit card payments or
purchases
14% - cash withdrawals
Mary Mosiman, CPA, Iowa Auditor of State
4/12/2016
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Frequent cash collections
Limited administrative and other personnel
Lack of segregation of duties
Lack of oversight – blind trust / failure to be involved by governing body
Perception “money is unlimited” compared to employee’s finances
Mary Mosiman, CPA, Iowa Auditor of State
Year Number of Claims Dollars of Loss
1993 1 $34,899
1994 1 22,125
1995 0 0
1996 0 0
1997 1 1,462
1998 1 629
1999 3 3,544
2000 0 0
2001 3 3,401
2002 5 59,500
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Year Number of Claims Dollars of Loss
2003 2 $217,227
2004 4 $52,852
2005 12 69,875
2006 14 159,930
2007 14 263,190
2008 16 194,981
2009 11 154,623
2010 12 1,919,481
2011 12 209,569
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Year Number of Claims Dollars of Loss
2003 2 $217,227
2004 4 $52,852
2005 12 69,875
2006 14 159,930
2007 14 263,190
2008 16 194,981
2009 11 154,623
2010 12 1,919,481
2011 12 209,569
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Year Number of Claims Dollars of Loss
2012 9 $183,820
2013 16 $107,459
2014 15
$ 96,622
2015 7 $ 24,669
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No single person should have control over two or more phases of
a task, process or transaction
OR another way to say that is…
More than one person should be required to complete any task
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Greater accuracy
Find errors quickly
Deter mismanagement/fraud
Provide checks & balances
Protect DISTRICT and SBO/CFO!
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Access
(to Assets)
Custody, control or handling of asset : • Cash; checks; receipts; deposits; credit cards; safes;
lock boxes • Equipment; receipt of new purchases; inventories • Paychecks /vendor checks - printing or distribution
Authorization
Reviewing and approval of task or transaction or operation such as approval of:
• Bank account adjustments or transfers; • purchase orders or requisitions; • use or disposition of an assets; • changes in pay or benefits; • timesheets or leave requests; • change orders; • IT programming changes; • adjusting journal entries
Accounting • Creating or maintaining records, such as cash
receipts, requisitions • Maintaining inventory records