StATE OF DELAWARE OFFICE OF AUDITOR OF ACCOUNTS THOMAS WAGNER, JR, CFE,CGFM, CICA "Aubrron or AccouNTS ‘302-739-5055 IR-THOMAS. WAGNER@STATE.DE.US June 30, 2016 Dr. Samuel Pa President ‘The Charter Schoo! of Wilmington 100 N. DuPont Road Wilmington, DE 19807 Dear Dr. Paoli, As you know, my office began reviewing the use of petty cash accounts at various charter schools earlier this year. Overall, we found that these charter schools were not following the State’s petty cash policy as set forth in the State of Delaware’s Budget and Accounting Manual (BAM). Petty Cash Account Approvals ‘The Division of Accounting must approve the establishment of a petty cash fund and the Office of the State Treasurer must approve the opening ofthe bank account used,' ‘The names and signatures of the authorized petty cash check signers must be on record with the Secretary of Finance. ‘We found no evidence that the Charter School of Wilmington’s petty cash account was properly approved by any of these entities. Petty Cash Account Management Compliance Petty cash, by definition, is a small amount of money kept in an office to pay for small value items,? It can be maintained in the form of cash or a checking account. Petty cash allows the processing and payment of expenditures to occur outside the normal accounting environment. However, while the use of such an account is convenient, itis important to recognize that the overuse of petty cash minimizes public transparency and increases the risk of control overrides, inaccurate accounting, and misappropriation of funds. Per the BAM, organizations‘ may use petty cash when acquiring and paying for small value purchases. Generally, the maximum authorization is not greater than $2,000; however, amounts not "BAM, Section 7.12.1, v4.26 2 BAM, Section 7.12.2, v.4.26 (5) ® Per hitp:/swww.merriam-webster.com/ditionary/Petty%420cash, on March 2, 2016. “The BAM defines “organization” as State of Delaware agencies (both merit and non-merit), school districts, charter schools, and higher education, BAM, Section 1.7, v.29 401 FEDERAL STREET * TOWNSEND BUILDING « SUITE ONE * DOVER, DE 19901 MAIN OFFICE: 302-739-4241 FRAUD HOTLINE: 1-800-55FRAUD Visit OUR WEBSITE TO VIEW, DOWNLOAD, OR PRINT AUDIT REPORTS AND OTHER INFORMATION ITTPI/ / AUDITOR DELAWARE.GOVDr. Paoli Page 2 June 30, 2016 exceeding $5,000 may be requested where exceptional circumstances exist.© Section 7.12 of the BAM also sets forth additional guidelines for the operation of petty cash accounts within the State, including that all petty cash receipts and supporting documentation must be kept by the organization for audit purposes.® ‘The following table summarizes the Charter School of Wilmington’s compliance with these requirements during the Fiscal Year ended June 30, 2015 (Fiscal Year 2015), ‘The Charter School of Wilmington Petty Cash Account Management Compliance Written Policies and Procedures for Petty Cash Checks were drawn in consecutive numerical order (BAM, Section 7.12.2.1, v4.26) | ‘Account reconciliations were performed by the Account Custodian (BAM, Section 7.12.24, 4.26) The school performed reconciliations; however, these were done by the Chief Financial Officer, who was not the account custodian. Checks were signed by two employees (the Account Custodian may not be a check signer) (BAM, Section 7.12.2. Only the v4.20) ief Financial Officer signed each check. No petty cash checks were drawn in excess of $500.00. (BAM, Section 7.12258, v4.26) The school processed 13 checks, totaling $11,228.90, that were in excess of the $500.00 threshold. There was also an additional debit transaction over x this threshold, for $4,000, 10 transfer funds to another Charter School of Wilmingion account. Maintained a Petty Cash account within the $5,000 limit throughout the period (GAM, Section 7.12, ¥4.26) The average monthly balance was $6,174.10, with an ending balance of x $6,551.72 on June 30, 2015. 5 BAM, Section 7.12, v.4.26 © BAM, Section 7.12.3, v.4.26Dr. Paoli Page 3 June 30, 2016 In previous communications with my office, you stated the account was indeed a petty cash account, We agreed since it was used for ongoing operational items, such as academic bowl expenses and athletic fees, for the school during Fiscal Year 2015, As stated above, we caution the school’s overuse of a petty cash account since these accounts may be viewed as a way of transferring funds from the State into external bank accounts that lack continual State oversight. ‘The petty cash restrictions in the BAM are meant to reduce the various risks associated with the use of petty cash, and users of the State’s accounting system must abide by these restrictions, in addition to developing and implementing entity-specific petty cash controls. While AOA recognizes that some charter school accounts may have been operating prior to the implementation of these BAM guidelines, we encourage all charter schools to periodically review the BAM to ensure compliance with all of its financial processes. We also recommend using a State-issued procurement card (PCard) or direct claim through First State Financials when possible. Regardless of the method of payment, supporting documentation must be maintained for all transactions. Please feel fiee to contact me at (302) 739-3055 with any further questions you may have Sincerely, On R. Thomas Wagner, Jr, CGFM, CICA, CFE State Auditor ce: Dr. Steven H. Godowsky, Secretary, Department of Education Mr. Kenneth J. Rivera, President of the Red Clay Consolidated School District Mr. John T. Stacy, Chair of the Board of Directors