Control Cycle Audits of. Buildings & Grounds. and Record Retention

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1 EFP ROTENBERG, LLP 280 Kenneth Drive, Suite 100 Rochester, NY Ph: (585) Fax: (585) Visit us at Control Cycle Audits of Buildings & Grounds and Record Retention ELMIRA CITY SCHOOL DISTRICT Elmira City School District 951 Hoffman Street Elmira, NY March 17, 2014

2 March 17, 2014 To the Audit Committee Elmira City School District Elmira, New York We have performed a review of the internal controls of the District s Buildings & Grounds Department and Record Retention practices. We obtained an understanding of these internal controls by inquiry, observation and the inspection of documents and records. Our review of Buildings & Grounds included examining its budget and year to date expenditures, fuel consumption, parts and supplies inventory, work orders and preventive maintenance, and the time reporting processes for employees. We also performed analytical procedures and/or testing on fuel logs, facilities work orders, and time reporting records. Our review of the District s Record Retention practices included discussions with staff and management on a variety of topics including access to records, oversight, retention guidelines, and the records management database. We also examined the records store room and reviewed reporting from the records management database. We conducted our review in accordance with attestation standards established by the American Institute of Certified Public Accountants. Such standards require that we understand the School District s management controls and compliance with those laws, rules and regulations that are relevant to the District s operations that are included in our scope. A review includes examining, on a test basis, evidence that supports the transactions performed within the Buildings & Grounds and Record Retention functions. We believe our review provides a reasonable basis for our findings, conclusions and recommendations included in this report. It should be noted that the comments herein may be critical by nature and do not include the many strengths inherent in the District. EFP Rotenberg, LLP Rochester, New York 2

3 BACKGROUND: The Elmira City School District (District) is located in Chemung County and has a total enrollment of approximately 7,100 students combined for the high schools, middle schools and elementary schools. The District utilizes fourteen educational buildings and two administration buildings for all students, faculty and transportation. The Buildings & Grounds non-salary departmental budget was approximately $2.2 million, representing utilities, parts and supplies, fuel, and other operating expenses. OBJECTIVE: The objective of our audit was to evaluate the internal controls over Buildings & Grounds and Record Retention practices and determine whether assets are adequately safeguarded by the Elmira City School District. AUDIT SCOPE, PROCEDURES AND FINDINGS: Our overall goal was to assess the adequacy of the internal controls put in place by officials to safeguard the assets of the Elmira City School District. To accomplish this, we performed a risk assessment of the District s internal controls so we could evaluate the risk within each control cycle. Our risk assessment evaluated the following areas: Budgeting; Cash Receipts and Revenue; Transportation; Food Service; Extra-Classroom Activity Fund; Capital Assets/Projects and Indebtedness; Purchasing, Claims, Accounts Payable and Cash Disbursements; Payroll and Personnel; and Accounting, Reporting and Information Technology. Using our updated risk assessment report dated January 7, 2013, and other criteria, the Audit Committee of the District selected to review the Buildings & Grounds Department and Record Retention practices. As a result, our testing was limited to these areas. 3

4 BUILDINGS & GROUNDS In performing our review of this area, we started by meeting with the Building & Grounds Supervisor, Mike Dunn. He provided us with information on departmental policies and procedures and outlined the responsibilities of various departmental positions. We also obtained a variety of financial reports related to the department s operations for the current fiscal year. Using the information gathered, our examination included the following procedures: District Policies & Procedures Reviewed District policies and procedures related to Facilities and Grounds Operations. Evaluated departmental policies regarding the physical security of the Buildings & Grounds facility, including the work and storage areas, departmental offices, and fuel pump. Verified the District contracts with vendors that have been awarded a state contract and offer discounted pricing (i.e. fuel purchases and supplies). FINDINGS: The controls over District policies are operating effectively with the following exceptions noted. 1. We noted that Buildings & Grounds is not equipped with surveillance cameras that could be used to monitor the fuel pump and access to the department s work space and storage garages. 2. We noted that the Buildings & Grounds department maintains a variety of assorted snacks in its common area that are available for purchase by employees. Containers are used to collect revenue and employees are on the honor system for purposes of paying for their purchases. The revenue collected is used to restock the supply of snacks. Excess revenue is used to fund the department s social events, such as a picnic. A Buildings & Grounds employee makes trips to a shopping center as necessary in order to restock the products. Although it does not appear that District funds are used to purchase these items, this practice creates situations of potential liability for the District. For example, someone could be injured while carrying cases of soda or they could be involved in a car accident while traveling to/from the shopping center. In these circumstances a case could be made the District would be liable in a worker s compensation claim. 4

5 District Policies & Procedures (Continued) RECOMMENDATIONS: 1. We recommend the District consider installing surveillance cameras outside of the Buildings & Grounds facility which could provide additional security and serve as a deterrent to inappropriate conduct. 2. We recommend the District evaluate the appropriateness of the current practice of having District employees operating a snack service off the books. In an effort to eliminate any potential liability to the District, it should consider outsourcing the vending operation to a commercial business who would be responsible for stocking products and collecting revenue. The Buildings & Grounds department would then receive regular commission checks on the sale of all vending items. The District should determine the appropriate use of proceeds collected from a vending operation on District property. Financial Reporting and Accounting Reviewed the Buildings & Grounds department s current fiscal year budget and year-to-date expenses to identify significant variances and existing or potential deficits. Verified the department s controls over the approval and oversight of expenditures is adequate. Verified that payroll expenses are properly approved by Buildings & Grounds management and are supported by adequate time records. FINDINGS: The controls over the Financial Reporting and Accounting aspects of the Buildings & Grounds department are operating effectively with no exceptions noted. 5

6 Fuel Usage Evaluated the adequacy of existing internal controls related to the physical security over the fuel inventory. Evaluated the adequacy of existing internal controls used by the Buildings & Grounds department in accounting for fuel transactions. Verified the accuracy/reasonableness of the current fuel inventory by reconciling the current year s net fuel usage (deliveries less fuel pumped) with fuel inventory at the beginning of the fiscal year. Reviewed the log of fuel transactions to identify unusual transactions and/or patterns of transactions that may require further investigation and explanation. FINDINGS: The controls over fuel usage do not appear adequate based on current procedures. Our review identified the following deficiencies: 1. The Buildings & Grounds department uses a manual log to record fuel pumped from the tank maintained at its location. However, the records provided during our review appeared to be incomplete. 2. The manual fuel system in place makes it necessary that Buildings & Grounds must stick the tank in order to determine an accurate estimate of the fuel inventory. However, this practice is not currently being performed as part of the oversight process. 3. Periodic reconciliations of fuel inventory are not performed in order to assess whether the current fuel inventory is accurate based on recent fuel usage and fuel deliveries. We attempted to perform a reconciliation of the fuel activity to the fuel inventory. However, due to the deficiencies noted above, an accurate reconciliation can not be completed until these items are addressed. 6

7 Fuel Usage (Continued) RECOMMENDATIONS: 1. We recommend that the department ensure that the log is maintained accurately and completely on a daily basis. The log should note the date (including the year), deliveries of fuel, daily tank reading of fuel dispensed, and daily total of manual fuel tickets that summarizes fuel pumped. It should also include the actual amount of fuel in the tank which should be measured periodically. 2. We recommend that the department stick the tank periodically (i.e. weekly) to determine the actual amount of fuel on hand. This should be recorded in the daily log of fuel activity. This reading will be necessary to perform accurate reconciliations of the fuel inventory. 3. We recommend that the department periodically reconcile the fuel inventory on hand to the fuel activity (fuel deliveries and fuel pumped). The reconciliation process should be performed by someone who is independent from maintaining the daily log. The reconciliation should compare fuel inventory in the tank to expected levels based on previous inventory readings, taking into account the fuel pumped and fuel delivered since the last reconciliation. Supplies / Parts Inventory Obtained the supplies inventory listing and inquired whether a perpetual system of the physical inventory is maintained. Reviewed the inventory listing to evaluate high cost items and assess the reasonableness of inventory levels. Reviewed the supply inventory stockroom to evaluate controls over access to supplies and physical security. Reviewed the Buildings & Grounds work areas and storage garages to evaluate the parts inventory maintained and the associated controls. 7

8 Supplies / Parts Inventory (Continued) FINDINGS: The controls over the Supplies / Parts Inventory are operating effectively with the following exceptions noted: 1. A perpetual inventory system to monitor the stock of custodial supplies is not currently being maintained. However, the department is in the process of implementing a perpetual inventory system through a module in the WinCap system. 2. The department maintains a variety of parts and incidental maintenance supplies in its work/storage areas. There is currently no system in place to record or monitor this inventory. The majority of these items are small and immaterial such as bolts, nuts, fittings, and various piping. RECOMMENDATIONS: 1. We encourage the department to continue its efforts to implement a perpetual inventory system for custodial supplies. Based on reporting from this system that was provided during our review, it appears that this system will be adequate to accurately account for the supplies inventory maintained by the department. 2. The benefits provided by internal controls and oversight practices should always outweigh the costs to implement and maintain them. Given the volume of these incidental parts and maintenance supplies and the relatively low value of any individual item, it may not be practical to implement a formal inventory process for these items. Having said that, the department should identify any items whose value may warrant special scrutiny, such as certain high cost parts or valuable piping. The department should consider securing these items or implementing a process to monitor these items more closely. 8

9 Work Orders / Preventive Maintenance Department management demonstrated the system utilized by the District to create and manage work orders for requests received throughout the District. Evaluated the system s capabilities and effectiveness in managing the work order process. Reviewed reporting from the work order system to evaluate the status of work orders generated in Reviewed the work order system s capabilities in defining, scheduling, and creating work orders for the preventive maintenance necessary to maintain the District s capital equipment. Determine whether there is evidence that preventive maintenance is effectively managed through the work order system. FINDING: The controls over the work order and preventive maintenance process are operating effectively with the following exception noted: 1. Based on our review of reporting from the work order system, we identified that over 200 work orders generated during the past year remained open in the system. Many of these open work orders were old, having been initiated up to a year ago. It does not appear that the department regularly monitors open work orders to determine their status and resolve open items. While the majority of these open work orders appear to be minor one-time requests from various buildings, we did note that some of the open work orders were related to preventive maintenance. RECOMMENDATION: 1. We recommend that management implement a process to monitor the status of open work orders. Outstanding items should be researched to determine if the work was performed. Work orders should be closed in the system once resolved. Particular attention should be provided to work orders related to preventive maintenance. An effective preventive maintenance program helps to ensure that capital equipment is properly maintained and can be helpful in minimizing repair costs as well as extending the life of expensive equipment. 9

10 RECORD RETENTION PROCEDURES APPLIED: In performing our review of this area, we started by meeting with Paul Gilbert, Records Management Officer. This position is responsible for coordinating the development of and oversee a program for the orderly and efficient management of records, including the legal disposition or destruction of obsolete records. He provided us with information on the District s record retention policies and procedures and on the records management database. Using the information gathered, our examination included the following procedures: Examined the records storeroom to evaluate physical access, security, and environmental factors of the facility. Reviewed District policies related to record retention requirements at the District. Inquiry as to District s procedures for periodic review and destruction of documents. District staff demonstrated the functionality of the records management database. Reviewed New York State Education Department guidance on record retention Schedule ED- 1. Reviewed reporting from the records management database to determine whether records are being maintained in accordance with state guidelines and/or best practices. FINDINGS: The controls over the record retention practices are operating effectively with the following exceptions noted: Records Storeroom: 1. The records storeroom is located in the basement of the Booth Building in a room adjacent to the building s boiler. The storeroom is not equipped with a sprinkler system. Many of the District s records are required to be maintained permanently. The current location of the where these records are maintained exposes them to loss due to fire. 10

11 Record Retention (Continued) Records Management Database: 2. We noted that the title of many entries in the records management database is not very descriptive (i.e. personnel files). The State Education Department s (SED) guidance is very specific in identifying and categorizing different types of records, each having a different required retention period. The way that records are currently classified in the records management database makes it very difficult to determine the appropriate guidance that should be applied from the SED retention schedule. 3. The records management database includes a field to capture the date range of the records being stored. However, we noted that this field is blank for many entries, making it more difficult for the database to provide the necessary information for effective oversight of these records. SED Guidance / Record Retention Schedule ED-1: 4. Due to the complexity/specificity of retention schedule ED-1 and the lack of specificity in the description of entries in the records management database, we were unable to form an opinion on compliance with the guidance using the records provided to us. SED provides guidance for school districts on the length of time various records should be retained and when it is appropriate to destroy/dispose of them. The guidance is very specific and each different classification of records has been provided with an Item Number in the guidance for easy reference in its index. But this guidance is not easily cross referenced with the records management database and the description of records. RECOMMENDATIONS: 1. We suggest the District evaluate the current location of the records storeroom and consider whether there are practical, cost effective steps that could be taken to better protect these records from loss due to fire. Possible approaches may include installing/restoring a sprinkler system in the storeroom, moving the location of the storeroom, or to transition permanent records to an electronic storage medium by scanning records and maintaining them on a server. 2. We recommend that, where necessary, entries in the records management database be modified to include a more specific description of the records that better corresponds to how the SED guidance categorizes different types of records. 3. We recommend that, where necessary, entries in the records management database be modified to include the date range of the records being referenced. 11

12 Record Retention (Continued) 4. We recommend the District consider adding a field to the records management database that would provide a reference for each entry to the relevant guidance from the SED retention schedule ED-1. Each entry in the database would include the appropriate Item Number from the SED retention schedule so that the relevant guidance could easily be referenced. While this practice could be implemented over time by gradually updating existing entries, the effect could be more immediate for all new entries added to the database. 12