Office of Shared Accountability MONTGOMERY COUNTY PUBLIC SCHOOLS Rockville, Maryland January 13, 2010 MEMORANDUM To: Dr. Debra Mugge, Principal Springbrook High School - From: Roger W. Pisha, Supervisor, Internal Audit pee Subject: Report on Audit of Independent Activity Funds for the Period September 1, 2008, through September 30, 2009 This audit report presents the results of our examination of the financial records, reports, and internal accounting controls relating to the Independent Activity Funds (IAF) for Springbrook High School for the period September 1, 2008, through September 30, 2009. The examination was made to determine the adequacy of accountability over these funds, compliance with applicable Montgomery County Public Schools (MCPS) policies and procedures, and effectiveness of IAF management. It should be noted that most of the period covered by this audit was prior to your appointment as principal effective July 1, 2009, We appreciated the opportunity to meet with you, Mrs. Margaret C. Grasso, business manager, and Ms. Lana Campbell, financial specialist, on December 11, 2009, to discuss the results of our audit. Several conditions identified in our previous audit continue to need corrective action. It is evident from our meeting that you are committed to implementing changes to ensure effective control over, and appropriate use of student finds. Findings and Recommendations Cash and checks collected by sponsors and others for LAF activities should be remitted promptly to the financial specialist. These receipts must be deposited promptly, and all receipts must be deposited on the last working day of each month and before each weekend or holiday (see IAF manual, p. 6). As previously reported, sponsors of field trip and fund raiser activities continue to hold fees collected rather than remitting them to the financial specialist on a daily basis. To minimize.the risk of loss,-all.funds.collected should be remitted daily. .We recommend staff be encouraged to submit cash and checks collected for IAF activities to the financial specialist for prompt deposit in accordance with MCPS policy and procedures. Admission receipts for athletic and non-athletic events should be controlled according to MCPS Regulation DMB-RA, Control of Admission Receipts. Admissions must be controlled withDr. Debra Mugge - January 13, 2009 serially numbered tickets, separation of duties, use of the required MCPS Form 280-50, Tickets and Cash Report of Admissions Manager, for tracking and reconciling sales, and perpetual inventory of tickets. We continue to find that many times the financial specialist was selling tickets and performing the function of the ticket controller, a condition that weakens internal controls. In many instances, ticket forms were not signed by the ticket controller until the conclusion of the event indicating that ticket numbers may not have been verified prior being issued. We recommend that procedures for sale of tickets be reviewed with appropriate staff, and in order to provide effective controls over admission events, the duties of ticket controller and event manager should be separated. MCPS purchasing cardmembers must record purchases on transaction logs and submit logs monthly with invoices and receipts attached for review and approval by the principal. Our prior audit report noted that none of the business manager’s logs were signed by the former principal. In our current audit, we found that none of the logs for a purchasing card held by the business manager were signed by the former principal until June 4, 2009. We recommend purchasing cardmembers be required to comply with the requirements of the MCPS Purchasing Card Users Guide, pp. 3-5 (see also the Principals Handbook). Sales of PE uniforms should comply with the requirements outlined in the Handbook for the Operation of School Stores. We again noted some weaknesses over the accounting process for the sale of uniforms, and records of sums collected from students revealed that recorded receipts were approximately $650 short of expected receipts. In addition, MCPS Form 281-25, Statement of Profit or Loss on Sale of Merchandise, did not include information on giveaways. To improve controls, we recommend that inventory records be adjusted for sales, purchases, giveaways, and for garments that are damaged or obsolete. The inventory record should be compared to a physical count which should be performed at least annually, and the inventory should be secured at all times to lessen the likelihood of a loss. Review of field trip activities again revealed that not all field trip sponsors are providing completed financial information to the financial specialist at the conclusion of a trip. Sponsors should record cost and fee information for each field trip on MCPS Form 280-41, Field Trip Accounting, or equivalent, and submit the data to the financial specialist when a trip is completed (see IAF manual, p. 13). The record of the names of participants and sums collected strengthens internal controls by enabling the reconciliation of receipts to sums recorded in the field trip account. We recommend all sponsors be required to use Form 280-41, or equivalent, and follow the procedures outlined above, ---.Other-conditions that need improvement are described below. Retail sales tax must be collected by the school and remitted to the State of Maryland on the sales of all taxable merchandise (see IAF manual, p. 18). Taxable merchandise includes yearbooks, fund raiser merchandise, athletic resale items, physical education clothing, and other items that become the personal property of the individual making the purchase. We found that sales tax was collected on some items but that the process was not consistently applied to allDr. Debra Mugge 3. January 13, 2009 items noted above, We recommend that the school work toward full compliance by working with sponsors to determine activities for which sales tax must be collected and ensure that prices are set appropriately to include the tax. MCPS Form 280-54, Request for a Purchase, is used to obtain principal approval to proceed with an intended purchase (see IAF manual, p, 8). The purpose of each disbursement must be fully explained on this form in order to properly record expenditures in appropriate accounts and to ensure that expenditures comply with IAF requirements. In our random sample of disbursements, prior approval was not obtained for 40 percent of purchases made. By requiring Prior approval, the principal retains control over the expenditure of IAF funds. We recommend that Form 280-54 be prepared by staff and signed by the principal at the time verbal approval is sought so that purchase orders and invoices bear a date subsequent to the approval date. Disbursements in excess of $6,500 from the IAF, unless required as part of the MCPS educational program, must be approved by the chief operating officer (COO) (see IAF manual, Pp. 2-3). Disbursements in excess of $25,000 must follow appropriate procurement procedures Gescribed in the MCPS Procurement Manual and must be approved by the MCPS Board of Education. We found that the school purchased a basketball scoreboard for $35,778 without obtaining the above approvals and the contract on file in the business office was unsigned. We recommend that you review the requirements described in the above references as to when higher level approval is needed prior to the commitment of funds for large expenditures that will exceed certain thresholds in order to ensure that the appropriate procurement procedures are followed. In our examination of disbursements we also found that $630 was loaned to an employee whose pay was delayed. This practice is prohibited (see IAF Manual, p.3), We recommend that staff follow the established procedures for requesting replacement paychecks, Control over the yearbook activity needs improvement, Sponsors must maintain a record of the number of books sold at specific prices, along with a record of advertising revenue and a detailed list of any yearbook giveaways, and they must prepare MCPS Form 281-25, Statement of Profit or Loss on Sale of Merchandise, which reconciles books purchased with books distributed (see IAF manual, p. 16). We found that the statement of profit or loss for FY 2009 did not reflect online sales collected by the yearbook vendor thereby understating both receipts and expenses by approximately $11,000. The statement also understated the loss by approximately $2,000 for unpaid sales taxes. Although the contract price for the yearbook was approximately $90, the Presale price was set at $75 and the final selling price was $85. Advertising revenues for the ~prior year were. insufficient.to.cover the loss....The contract price for the. FY.2010_ yearbook is _ $92, but selling prices remain the same as the previous year indicating that the activity will again operate at a loss unless advertising revenues increase. We recommend that the sponsor meet with financial staff to review contract prices and options for future yearbooks prior to setting selling prices.Dr. Debra Mugge + January 13, 2009 Other matters were discussed and satisfactorily resolved. We appreciated the cooperation and assistance of your staff, especially Mrs. Grasso and Ms. Campbell. In accordance with MCPS Regulation DIA-RA, Accounting for Financial Operations/Independent Activity Funds, please provide a response to the Intemal Audit office within 30 days of this report, with a copy to Dr. Ursula Hermann, community superintendent. RWP:DKH:VAD:sd Copy to: Mr. Bowers Dr. Lacey Dr. Stetson Dr. Scott Dr. Hermann Ms. DeGraba Ms. Diamond Mr. Doody