Update: Daniel de Vise writes in the Washington Post, State Audit Finds Sloppy Credit-Card Logging:
The audit found lax oversight of the American Express cards issued to at least 1,400 employees of Maryland’s largest school system. The cards give employees a bit too much freedom to spend, according to the 68-page analysis from the state Office of Legislative Audits. Employees made $5.6 million in purchases with the cards in fiscal 2007.
School system rules require that all purchases be logged and approved by a supervisor. But in a sampling of 161 credit-card transactions from 2007, auditors found 50 that were not logged and 41 that were logged but apparently not approved. The audit also found 512 purchases with no “obvious relationship” to school business, including charges from department stores and party supply stores.
Maryland’s Office of Legislative Audits has released a new report on the financial management practices of the Montgomery County Public Schools. Following is the executive summary, transcribed from the PDF:
Executive Summary
The Office of Legislative Audits has conducted an audit to evaluate the effectiveness and efficiency of the financial management practices of the Montgomery County Public Schools (MCPS) in accordance with the State Government Article, Section 2-1220(e) of the Annotated Code of Maryland. State law requires the Office to conduct such an audit of each of the 24 public school systems in Maryland and provides that the related audit process be approved by the Joint Audit Committee. Since the Committee approved the audit process in September 2004, we have issued audit reports related to 13 school systems; MCPS represents the fourteenth to date. The approved process included 11 areas to be audited at each system. The following are summaries of the findings in these areas at MCPS.Revenue and Billing Cycle (see pages 9 through 13)
According to the audited MCPS financial statements, $2.17 billion in revenue was received from all sources during fiscal year 2007, the vast majority of which was received via electronic fund transfers from other governmental entities. Procedures and controls for these revenue sources and accounts receivable were found to be adequate. However, based on our audit, controls over certain other revenues received could be improved. These revenues totaled $8.8 million during fiscal year 2007. In addition, controls over accounts receivable, which had a balance of $9 million as of June 30, 2007, and related collections should be improved.
Federal Funds (see pages 15 through 17)
Annually, MCPS is subject to an audit of its federally-funded programs (often referred to as the Single Audit, and required by Circular A-133, which is issued by the U.S. Office of Management and Budget). Due to parallels between that work and the scope of our audit, we placed significant reliance on the results of the independent audit of the fiscal year 2007 grant activity, for which reported expenditures totaled $89 million. The related report stated that MCPS complied, in all material respects, with the requirements applicable to its major federal programs. In addition, with respect to internal controls over compliance with and the operation of major federal programs, the auditors noted no significant deficiencies and no matters considered to be material weaknesses.
Although MCPS has an adequate process for the identification of children eligible for Medicaid-subsidized services, additional measures could be taken to ensure that MCPS recovers all such costs and that payments to the third party administrator, which processes the claims, are accurate.
Procurement and Disbursement Cycle (see pages 19 through 23)
According to MCPS records, non-payroll disbursements totaled $938 million during fiscal year 2007. MCPS used a number of contract procurement best practices and had established adequate controls over its automated purchasing and invoice processing systems. However, MCPS needs to improve controls and policies governing the use of credit cards and travel. For example, new MCPS credit cards were sent directly to the employee who placed the card order with the bank rather than to an independent employee. Also, certain credit cards purchases were not logged nor subject to supervisory review.
Human Resources and Payroll (see pages 25 through 28)
MCPS employed about 20,350 employees as of October 2007 and payroll costs during fiscal year 2007 totaled $1.25 billion (not including benefits). MCPS had implemented a comprehensive workforce planning process to address its staffing needs. MCPS should address certain deficiencies within payroll processing. Specifically, certain MCPS personnel had unnecessary and excessive access capabilities on the MCPS human resources and payroll system, and certain transactions processed on the system were not subject to supervisory review.
Inventory Control and Accountability (see pages 29 through 31)
MCPS has formal policies governing the control and accountability of materials and supplies and property. However, MCPS did not utilize just-in-time ordering for materials and supplies. In addition, record keeping for equipment was not adequate. According to MCPS records, as of June 30, 2007, the book value of its capital totaled $64 million.
Information Technology Services (see pages 33 through 38)
MCPS maintains and administers a computer network, computer operations, and a number of significant financial and academic information system applications. MCPS developed and periodically updated written technology plans. However, we identified several areas in need of improvement, including the strengthening of policies over passwords and accounts. In addition, MCPS should ensure that it uses best practices when implementing new IT applications and determine if it would be more beneficial to use in-house resources for certain support services (such as ongoing maintenance) that it currently outsources.
Facilities Construction, Renovation, and Maintenance (see pages 39 through 44)
MCPS maintains 199 schools and a number of other administrative and support facilities with a staff of approximately 1,650 custodial and maintenance personnel. MCPS had implemented a number of best practices to help reduce construction and maintenance costs for its facilities, such as a comprehensive process to plan for construction and renovations and an energy management program.
While long-term planning included factors such as student population and age of facilities, it did not include periodic assessments of school facilities and major mechanical systems (such as HVAC). In addition, while MCPS used an automated work order system to track maintenance and repairs performed, it did not use the system to compare actual costs to predetermined estimates or to analyze employee productivity. Furthermore, preventive maintenance tasks performed were not adequately documented.
Transportation Services (see pages 45 through 49)
MCPS is responsible for the safe transportation of approximately 96,000 eligible students, of which five percent are disabled. MCPS used a number of recognized best practices to increase student transportation efficiency, such as staggering school arrival and dismissal times to enable certain buses to perform multiple runs. Nevertheless, MCPS should address all appropriate factors to properly plan and develop bus routes (for example, student ride times and bus capacities) and fully use its automated bus routing software. Furthermore, MCPS should implement adequate controls over billings and collections of fees charged for transportation services provided to non-MCPS entities, such as county recreational programs.
Food Services Operations (see pages 51 through 54)
MCPS had implemented a number of best practices to help reduce food service costs, such as preparing meals for all schools at a central location and using performance measures to gauge operational efficiency. MCPS also has adequate procedures in place to identify students eligible for free and reduced-price meals under the federal national school meals programs. However, MCPS needs to improve the controls over processing of cash receipts in the cafeterias.
School Board Operations and Oversight (see pages 55 through 59)
Oversight of MCPS operations included the seven-member Board receiving financial updates, such as monthly budget variances to assist it in monitoring the efficient use of funds. The Board is also extensively involved in a comprehensive budgeting process and has adopted a detailed ethics policy. Furthermore, MCPS has an active audit committee and an internal audit unit, engaged primarily in conducting audits of student activity funds. However, several opportunities exist for the Board to improve oversight and effectiveness of MCPS operations. For example, the Board should consider focusing the work performed by its internal auditor on auditing significant MCPS operations and establishing a confidential hotline and whistleblower policy.
Other Financial Controls (see pages 61 through 63)
While MCPS had procedures in place to govern its risk and certain cash management practices, it did not have written policies governing its use of long-term liabilities, such as capital lease agreements, or cash management policies for investing excess funds from routine operations. In addition, MCPS should take additional steps to ensure it controls health care costs, such as by verifying the eligibility of program participants and conducting audits of paid claims.