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Auditors outline improvements to school board bookkeeping / May 26, 2010
An auditor who has delved into the inner workings of the Mecklenburg County School Division textbook fund on Friday guided the School Board finance committee along a paper trail, pointing out many places where pieces of paper are missing.

James A. Allen Jr., a CPA for Creedle Jones & Alga assured board members that although the trail is difficult to follow and needs some reconstruction, he found no reason to suspect malfeasance on the part of school officials.

The firm also conducted a 6-month audit, from June-December 2009, of the division’s general fund to get a snapshot of changes in accounting systems and practices that former finance director Linette Jones was in the process of implementing prior to her December 2009 resignation.

The school division will be recruiting a new finance director when superintendent Dr. James Thornton comes on board July 1.

Allen’s advice for cleaning up accounting in both the textbook and general funds: Keep it simple.

The audit report recommended that the school division jettison an effort begun last year to implement encumbrance accounting. Administrators adopted the practice at the same time a new accounting software for budgeting was adopted.

By using encumbrance accounting, the finance director had hoped to keep the board informed not only of the money that had been spent, but also of the money that had been committed to be spent later in the fiscal year. With encumbrance accounting, board members hoped to have a better idea of whether they would end a given year in the red or the black, and how large the surplus of shortage likely would be.

“Getting back to the basic of mastering the budget and getting that right and reporting the actual money posted correctly in the proper categories is first and foremost,” the report stated. “Useful budget to actual data is extremely helpful. Management needs to master this concept first, then worry about an ambiguous process such as encumbrance accounting.”

The report noted that when the auditors compared the budget that appeared in the school division’s accounting system with the one approved by the School Board, the one in the county treasurer’s monthly report, the one approved in the county minutes, and the one advertised in the newspaper, no two were identical.

“The objective in future years is to report the School Board’s budget and all its funds the same, no matter where it appears,” the report read.

It further noted that in the School Board-approved budget report and the school division accounting systems, revenues and expenditures did not match.

The auditors concluded, however, that both revenues and expenditures were accurately reported.

Repeating a recommendation made in previous reports, the auditors urged the adoption of system-wide Fixed Asset Accounting System.

Turning the finance committee’s attention to the textbook audit for July 2005-December 2009, Allen recommended that board policies clearly spell out the details of managing the textbook fund, specifying who must sign off when books are received and when surplus books are sold.

The auditors recommended clarifying policies and procedures with regard to operating the textbook fund and procuring textbooks. Policies should be updated to ensure compliance with both state and local guidelines for managing the fund and procuring materials, the report stated.

Board attorney Brad King currently is drafting revisions of School Board policies. Finance committee members agreed that he should incorporate audit recommendations in his revision of textbook fund policies.

Allen pointed out that textbook procurement policies should be consistent with the board’s other procurement policies as well as complying with state and local requirements.

The auditors found that fund balances maintained in the school board clerk’s office and the county treasurer’s office were properly reconciled. They noted however, that documentation to support the issuance of checks was faulty.

They recommended that the board consider including textbook fund activity in the school accounting system and school accounting reports.

“Try to get to the point where you can know where the dollars are being spent,” Allen told the committee.

Textbook fund records are kept by the school board clerk and the school division’s accounting system is run by the finance director.

The auditors found deficiencies in the use and documentation of purchase orders from suppliers other than textbook publishers without approval by the board, documentation for receipt and distribution of textbooks purchased, inventory control, and identification of who is responsible for receipt or transfer of the materials.

In addition, the school division needs documented procedures for purchasing materials from vendors who are not state approved or purchasing materials not on state approved lists, the report stated.

Following the meeting, finance committee chairwoman Carol Bowman commented, “The takeaway is that there was no mismanagement of funds, but we do need to work on our accounting policies and procedures.”

Trustee Glenn Edwards said his concerns have not been resolved. He said those concerns include the fact that the general fund audit and textbook fund audit were presented Friday to the finance committee and board members who were able to attend, rather than at a full board meeting.

“The public paid $17,000 for that audit,” he said.

Edwards said he also is concerned that the incoming superintendent, Dr. Thornton, did not attend the meeting with the auditors, and that the board members did not receive copies of the audit reports prior to the meeting.

“It is impossible to decipher that much information in 1-1/2 hours,” he said.

He plans to continue reviewing the documents.

Among his unanswered questions about the general fund audit are: “If the School Board-approved budget report and the school division accounting systems’ revenues and expenditures did not match, how could the auditors conclude that both revenues and expenditures were accurately reported?”

He also wants to gain a deeper understanding of the textbook audit, which he had requested.

“I wanted to go back to Dr. P’s term because there were questions from the old board about money moving in and out of the textbook fund,” he said.

Although the superintendent may have the authority to authorize spending up to $30,000 from the fund, the superintendent would not have the authority to move federal money from that account to another, Edwards said.

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