Office of Shared Accountability MONTGOMERY COUNTY PUBLIC SCHOOLS Rockville, Maryland June 11, 2010 MEMORANDUM To: Mrs, Carole C. Goodman, Principal James Hubert Blake High School From: Roger W. Pisha, Supervisor, Internal Audit WAL Subject: Report on Audit of Independent Activity Funds for the Period February 1, 2009, through February 28, 2010 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 James Hubert Blake High School for the period February 1, 2009, through February 28, 2010. 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. Findings and Recommendations ‘We appreciated the opportunity to meet with you, Mrs. Kathryn Vargo, business manager, and Mrs. Mary O'Donnell, financial specialist, on May 17, 2010, to discuss the results of our audit. At our meeting we noted the progress made to improve conditions described in our previous report dated April 22, 2009. The financial records are generally in excellent condition. Mrs. ‘Vargo and Mrs. O’Donnell expend great effort to ensure strong internal controls. While we complimented the business office staff for their vigilance in monitoring drama department activities and resolving conditions we previously found, there are control weaknesses of a different nature that need to be addressed. A flyer advertising the 2010 spring production asked advertisers in the play program to make checks payable to the Blake Stage Company Boosters (Boosters), rather than to the school. We were not able to determine that the boosters were an entity independent of the school drama department. This practice did not enable the business staff to reconcile advertising receipts with advertising published, and violates the requirement that all funds received be deposited only in the school checking account (see IAF manual, p. 6). Controls were further weakened by permitting the Boosters to offer complimentary tickets for the performance to advertisers and other donors. Admission receipts must be strictly controlled in accordance with MCPS Regulation DMB-RA, Control of Admission Receipts. We recommend the duties associated with the staging of drama productions be analyzed and if found to be beyond the capabilities of one drama sponsor, the duties, and theMrs. Carole C. Goodman -2- Jane 11,2010 stipend, be divided between an artistic director and a production financial manager to ensure compliance with MCPS regulations and sound internal control procedures. MCPS employees may not participate in a recommendation or decision on behalf of the school system in any matter which would have a direct financial impact on them, including matters where the MCPS employee holds or acquires a financial interest in a business entity that has or is negotiating a contract of $1,000 or more with the school system (see MCPS Policy BBB, Ethics), ‘We again found that one of your staff has an affiliation with organizations that conducted business with your school with no evidence that advice had been requested in accordance MCPS Policy BBB. The drama resource teacher served as contact person for the National Association of Secondary Theatres (NAST), the Maryland High School Theatre (MHST), and the 2010 MHST Festival. By virtue of his position with MCPS, he was able to direct payments to MHST and to businesses owned by others involved with MHST, and to recommend MHST to other MCPS schools. In addition, the school media services technician collaborates with MHST and has collected rents for use of scenic backdrops for drama productions from MCPS schools. ‘These rents were not deposited into the school checking account. We did not determine whether the backdrops were MCPS property. We recommend that you review the above policy with staff and seek advice in accordance with the guidance provided. 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 fally 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, we again found that prior approval was not obtained for 42 percent of purchases requiring pre-approval. 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. In addition to the above weaknesses previously identified, other internal controls need to be strengthened. School staff using the MCPS purchasing card must record purchases on transaction logs and submit logs monthly with invoices and receipts attached for review and approval by the principal. While most cardmembers adhered to these requirements, we found that one cardmember did not prepare purchasing card logs or provide documentation supporting purchases for five consecutive months beginning in June 2009. While the card issued to this individual has been cancelled, we do not have assurance that charges amounting to $2,109.86 benefited the school, rather than the individual cardmember. Supporting documentation for these charges must be provided, or reimbursement to the Division of Controller is required. We recommend all purchasing cardmembers be required to comply with the requirements of the MCPS Purchasing Card Users Guide. Sponsors of school activities which involve the collection or disbursement of IAF should be provided an account statement for each month in which transactions have been recorded in their‘Mrs. Carole C. Goodman -3- Jane 11, 2010 account. We found some sponsors did not retum these statements. We recommend sponsors be required to verify that all transactions affecting their accounts have been correctly recorded. ‘After any discrepancies are resolved, the statements should be signed and dated by the sponsor to attest to their accuracy. A procedure should be established to ensure that all statements are reviewed and retumed (see IAF manual, p. 12). In order to properly control receipts, cash and checks collected by sponsors for IAF activities should be remitted promptly to the financial specialist, accompanied by a remittance advice. Cash should be counted in the presence of the remitter, and a receipt that is supported by the remittance advice should be issued promptly. Any misprinted receipts should be entered into the accounting system, and all parts of any voided receipt forms should be defaced and retained. We found instances in which funds were held rather than remitted and deposited on a daily basis. In some instances receipts were not given to sponsors. We also found that some receipts were changed rather than voided and corrected. To improve controls, we recommend adoption of the procedures in the IAF manual (see IAF manual, p. 6). Other matters were discussed and satisfactorily resolved. We appreciated the cooperation and assistance of your staff, especially Mrs. Vargo and Mrs. O’Donnell. 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:VAD:HLK:sd_ Copy to: Mr. Bowers Dr. Lacey Dr. Stetson Dr. Scott Dr. Hermann Ms. DeGraba Ms. Diamond Mr. Doody