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DISCUSSION ITEMS

Business Practices Review: Fraud Prevention and Separation of Duties

INTERNAL CONTROLS AND FRAUD PREVENTION

听听听听听听听听听听听 In consideration of the issues raised at the Ridgefield School District, Michael asked me to put together some information for the board on the internal controls in place at Woodland School District to prevent fraud.聽 Regardless of the accounting area, there are two main areas of importance in preventing fraud:聽 segregation of duties and oversight/review.聽 In a district the size of Woodland with limited accounting staff, segregation of duties is not always possible, so the need for review is even more important.聽 I will review some of the main accounting areas and identify the various internal controls in place to prevent fraud.

CASH RECEIPTING - BUILDINGS

听听听听听听听听听听听 All buildings within the district perform some form of cash receipting (with the exception of TEAM High).聽 All buildings have at least two staff members who work together to collect and deposit cash receipts.聽 Controls in place:

• Segregation of duties between receipting and depositing
• Segregation of duties between depositing and recording in ledger (AP Clerk records in ledger)
• Segregation of duties between depositing and recording to the accounting system (Business Manager records in system)
• Receipt books are prenumbered and preprinted with Woodland School District or the building name
• Oversight and review by separate person - Business Manager reconciles bank statements to ledger and accounting system
• Additional oversight and review for Food Service Deposits - Business Manager reconciles daily deposits to Mealtime
• Additional control at WHS for ASB receipting - student ASB Treasurer prepares deposits
• Periodic reviews - State Auditor's Office and Business Manager periodically visit the buildings and review receipts and deposits

CASH RECEIPTING - BUSINESS OFFICE/DISTRICT OFFICE

听听听听听听听听听听听 All cash/checks are received by Margaret (with the exception of the facility use fees).聽 Controls in place:

• Business Office - Segregation of duties between receipting, depositing recording and reconciling (three people involved - Payroll Manager, AP Clerk, Business Manager).
• District Office Facility Use Fees - Segregation of duties between receipting (Superintendent's Secretary) and depositing/reconciling (Business Manager)
• Reconciliation of receipts to facility use forms by person other than the person receipting and scheduling (Business Manager)
• Reconciliation of turnkey timesheet to facility use forms and receipts each month (Business Manager)

PURCHASING/ACCOUNTS PAYABLE聽 - ALL DISTRICT BUILDINGS/DEPARTMENT

听听听听听听听听听听听 Conversion to the Wespac system has streamlined and strengthened the controls surrounding purchasing throughout the district.聽 Controls in place:

• Requisitions originate in building/department and require approval by building principal or department manager
• All requisitions are also approved by the Business Manager
• Purchase Order and purchase order number is not available until requisition has been approved at both levels.
• Additional approval required for all technology purchases
• Proof of receipt of goods and services required before payment is made
• Business Manager reviews preliminary accounts payable report for proper vendors, support and account coding
• AP Clerk performs second review after Business Manager before warrants are printed
• Warrant (Check) stock is kept in a secure location
• All warrants are accounted for by warrant number and MICR number - all are registered with Cowlitz County Treasurer's Office
• Upon redemption, all warrants are matched to system information submitted to the County Treasurer
• Final accounts payable report total is agreed to final warrant registers submitted to the County Treasurer
• Additional review of accounts payable vouchers by Superintendent, Board of Directors and Business Manager

PERSONNEL - BUSINESS OFFICE

听听听听听听听听听听听 The addition of a second staff member to the payroll/personnel functions have improved the controls in this area.聽 Specific personnel controls in place:

• Vicky takes in paperwork and reviews for completion for all new employees
• Vicky enters substitute information into Aesop Substitute System
• Margaret enters new employee information into the personnel/payroll system (regular and all substitute employees) - Margaret performs this function since most of the regular employees are paid through a contract. Most frauds concerning fake employees are set up as substitute or temporary employees. Since Vicky performs most of the work in Aesop on the sub pay and she enters the timesheets, these types of employees are more risky than a regular employee. Thorough review of payroll reports would deter Margaret from entering an employee and then paying them through a fake contract. Also, if there were false employees set up in Aesop and Vicky also had the ability to set up in WesPac, even review might not catch something like this
• Margaret reviews and processes all benefit documentation (medical/dental, retirement, union, L & I, unemployment)
• Margaret keeps the benefit pool information on a monthly basis
• Leave is updated through automatic import from Aesop - Vicky does not have access to change leave records in the system. Manual changes must be made by Margaret

PAYROLL - BUSINESS OFFICE

听听听听听听听听听听听 As noted above, the addition of another person to the payroll processing has strengthened the segregation of duties surrounding the payroll function.聽 Specific payroll controls in place:

• Margaret sets up all contracts in the system and makes any contract changes throughout the year, while Vicky processes all hourly/timesheet employees
• Vicky imports information from Aesop after reconciliation by the building secretaries and review by Vicky
• Margaret runs and reviews preliminary payroll reports and makes corrections as necessary
• Preliminary payroll reports are reviewed by Business Manager including the payroll register, which includes all net pay and benefit amounts, by employee, by account code. The benefit summary report which includes all benefits by code, including any negative adjustments. The deduction summary report which includes all deductions, by code, including any negative adjustments. The check summary report which includes net pay for all employees. The pay summary report which includes monthly gross pay by pay code (i.e. superintendent, principals, cooks, individual coaches, certificated subs, classified subs, etc...). The check summary report which includes contract pay, other pay, individual deductions and net pay for all employees. Direct Deposit report listing all direct deposits by employee. The warrant register for any warrants issued, including employee and vendor warrants
• Payroll vendor warrants are processed by AP Clerk as part of the payroll processing each month
• All warrants are accounted for by warrant number and MICR number - all are registered with Cowlitz County Treasurer's Office
• Upon redemption, all warrants are matched to system information submitted to the County Treasurer
• All monthly payroll reports are saved in the system for future reference.
• Business Manager reviews final payroll totals and compares to preliminary reports reviewed above. Differences between the two are reconciled
• Hires, resignations, additional contracts all approved by the board through the consent agenda
• Total payroll approved by the board each month
• Business Manager estimates monthly payroll for cash flow purposes. This is compared to actual total payroll and differences are reviewed and explained
• Business Manager budgets for all payroll and benefits and reviews differences between budget and actual expenditures throughout the year