Independent auditors revealed several findings on the Española School District audit, which, if not promptly corrected, could make it harder to detect material misstatements.
Accountants from Albuquerque’s Harshwal & Company LLP, uncovered 16 findings on the District’s 2016 Annual (audit) Report, published by the New Mexico Office of the State Auditor, Dec. 13.
Harshwal accountants issued an unmodified opinion for the audit, which was submitted to the Office, Sept. 8, nearly 10 months past its Nov. 15, 2016 due date.
The unmodified opinion is the best an entity can receive and signifies that auditors were able to review the financial records without a problem and were fairly certain the information was an accurate portrayal of the District’s finances.
Of the 16 findings, six were related to Cariños Charter School, which was a District charter school, up until the end of the 2016 Fiscal Year. The school currently operates as a New Mexico Public Education charter school.
Seven of the District’s findings were labeled material weaknesses. This means there were six different areas where school personnel failed to have adequate systems in place to catch and prevent errors or theft.
The District earned the material weakness designation by failing to have proper internal controls for cash disbursements.
The examiners, for example, reviewed 50 transactions and flagged three, totaling $35,574, where District personnel failed to get three quotes to ensure they were getting the best price possible for goods or services.
“Policies and procedures that the District has adopted for cash disbursement transactions are not being enforced,” the report states. “The District staff failed to ensure that all of the required documentation to support expenditures were in place prior to final disbursement of funds. Completing the purchase order after the purchase has been made defeats the purpose of the purchase order and purchase requisition. Such documents should be completed prior to purchase.”
Auditors note that District officials’ failure to follow the prescribed cash disbursement and procurement procedures exposes the District to an increased “risk of misappropriation.”
District employees failed to accurately record the depreciation expenses or the cost of tangible assets, such as land or heavy equipment. This could lead to the inaccurate representation of the District’s net position or financial outlook.
It could also make it difficult for District leaders to determine what type of resources are at their disposal.
District officials also received a material weakness designation for failing to timely submit payroll taxes. Auditors discovered a $46,215 penalty payment for failing to deposit Social Security, Medicare and withheld income taxes, but were unable to determine exactly when District officials failed to make the deposits.
“The District did not properly review payroll to verify that the payroll process is being followed and completed and the IRS obligations were paid timely,” the auditors wrote. “The District staff also failed to ensure all required documentation to support payroll expenditures was maintained. Failure to pay the IRS obligations on time makes the District susceptible to more penalties and creates opportunities for waste, fraud and abuse.”
Cariños Charter School was responsible for two of the material weaknesses. Charter School officials failed to ensure the proper paperwork, including purchase orders, was completed before personnel authorized 42 purchases, totaling $76,251.
The lack of supporting documentation finding is a repeat from the 2015 audit.
“The School did not make any progress in resolving this finding,” the report states. “Management did not follow proper internal control procedures over receipts and disbursements. The Charter School staff failed to ensure that all of the required documentation that supports the expenditure and receipt was in place.”
Cariños Administrators recently authorized an assistant for Business Manager Corrine Teller. The idea is to help Teller, so she can train the school’s office manager, Jennifer Lucero, to handle some of the day-to-day business needs.
Cariños Board member Leo Marquez said he is confident, with Teller’s help, the school will make progress in correcting the findings that surfaced in the 2016 audit. He believes the findings were the result of staffing shortages and employees handling multiple tasks.
“We are understaffed and Jenny has to wear five different hats,” he said. “It was the lack of documentation and internal controls and now Corrine and her assistant will do all of that (implement better internal controls).”
Like Española, examiners also flagged Cariños personnel for failing to reconcile its capital listings to the general ledger. State law requires public and charter school officials to maintain an accurate inventory list of all of the institution’s assets.
Keeping an accurate list of the inventory will help prevent the school from inaccurately listing its value and give all concerned parties a more accurate view of the Charter School’s financial outlook.
“There are no procedures in place to ensure all capital assets are accounted for in a capital inventory listing,” the report states. “Further, the School did not have a system in place to track capital assets additions and deletions.”
Española Superintendent Bobbie Gutierrez said since Cariños is no longer a District charter school, this is the last year the school’s findings will be grouped with the Española School District’s audit.
Rounding out the material weaknesses is the unallowable costs finding associated with the Title I Improving America’s Schools Act and Title II Teacher /Principal Training and Recruiting grant.
While auditors would not provide details regarding the dollar amount of the questioned cost, they noted the finding could result in the loss or delay of future grant funds.
Gutierrez declined to comment on the audit or its findings until she has had an opportunity to review its contents, however, she did say her office recently received a 45-page Corrective Action Plan that she believes will go a long way in correcting many of the issues the auditors addressed.
In addition to the seven material weaknesses, auditors uncovered significant deficiencies that included procurement violations, such as unapproved purchase orders, late audits, failure to reconcile bank accounts and not adhering to the budget.