Student Activities:

Bringing Together Auditing&

MASBO Guidelines1

Student Activity AccountingA View from an Auditor

Mark D. Abrahams, CPAPresident, The Abrahams Group

508 788 9172Bettergov@aol.com

www.theabrahamsgroup.com

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Auditing – SAA Audit Requirements

Chapter 66 of the Acts of 1996 and 71:47• Requires that an annual audit shall be conducted in accordance

with procedures as agreed upon between the School Committee and the auditor.

• It is DESE’s opinion that since the City/Town/District annual audit is very broad in scope, and is only exposed to the agency activity, which is a fiduciary relationship only, that such an audit does not satisfy the degree of procedures required under Chapter 71 Section 47.

• Under the law, may be performed internally by a responsible and qualified individual appointed by the School Committee who is independent of the student activities

• With the caveat that at least once every three years the procedures should be performed by an outside independent auditor if student activity balances exceed $25,000.

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SAA Problems• Non-student activities maintained

in a student activity account• Lack of segregation of duties• Lack of reconciliation of bank

statements and activity balances• Inadequate or incomplete

documentation• Lack of audits• Lack of agency savings account• Checking account balances in

excess of School Committee policy

• Lack of subsidiary ledgers• Existence of deficit balances• Use of funds to pay non-student

activity related expenses• Insufficient bank balance to cover

fund balance as reported by activity

• Inactive and graduated class accounts

• Lack of ongoing training• Misappropriation of funds

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Auditing – SAA Audit Requirements

It is within this framework that the SAA DESE Agreed Upon Procedures and Audit Guidelines have been prepared:

• Based in part on the 1996 MASBO Student Activity Guidelines

• Based in part on the EOYR Agreed Upon Procedures Compliance Supplement

• Developed by DESE in conjunction with the Massachusetts Society of CPA’s Government Audit and Accounting Committee

• Issued fall 2014• Effective for FY 2014 SAA audits

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Audits and Attestations

• Financial Statement Audits• Attestation Engagements• Performance Audits

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Audits and Attestations

• Financial statement audits: The primary purpose of a financial statement audit is to provide an opinion about whether an entity’s financial statements are presented fairly in all material respects in conformity with an applicable financial reporting framework.

• Attestations:– Examination– Review– Agreed Upon Procedures

Consists of auditors performing specific procedures on the subject matter and issuing a report of findings based on the agreed-upon procedures. In an agreed-upon procedures engagement, the auditor does not express an opinion or conclusion, but only reports on agreed-upon procedures in the form of procedures and findings related to the specific procedures applied.

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Annual SAA Audit• There shall be an annual audit of the student activity funds which shall be

conducted in accordance with procedures as agreed upon between the School Committee and the auditor based upon guidelines issued by ESE.

• DESE recommends the audit be performed by an outside independent audit firm once every three years for those with activities greater than $25,000.

• In the intervening years, the audit may be conducted by a responsible individual independent of the student activities, with the approval of the School Committee.

• Such an individual could be the Town Accountant, who already has audit powers under MGL Chapter 41 the Treasurer, or the School Business Manager if the School Business Manager is not involved in the administration or transactional processing of the student activities.

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Auditing SAA Guidelines

• Developed for school business officials and outside independent auditors with a vital resource that will assist them in the process of conducting agreed upon procedures of the internal control system in place used to administer student activity accounts as well as the annual transactions and activities of those accounts.

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SAA Guidelines

• Overview• Administration• Stewardship and Custodial Responsibility• General Operating Procedures• Revenue, Receipts and Deposits• Purchasing and Disbursements• Class, Inactive Accounts and Deficits• Student Travel

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SAA Guidelines

• ESE Policy Guideline or MGL Requirement• Agreed Upon Procedure/Audit Guideline• Results:• Was the result consistent with school committee policy?• ___ Yes ___ No• If No, report a finding• About 40 specific procedures for the auditor to perform many

with sub tasks, a total of about 70

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SAA Guidelines

• Are there policies?• Are policies consistent with the guidelines?• Is there documentation?• Are there procedures?• Do with procedures support the policies?• Are there forms that support the procedures?• Are there sign offs?• Are there reconciliations?• Is there oversight? • How involved is the principal?• Is cash controlled?

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Student Activities 71:47

SA Agency Account Are all SAA $ deposited into the SA Agency

Account by the Treasurer ?Are checking accounts set up to the maximum balance set by the SC? Are transfers from the SA Agency Account through the warrant process?

Principal’s Checking Account

Expenditures only?No receipts?No check written to “Cash”?

Principal’s Checking Account

Have Principals given bond?Are checking account periodically reimbursed through the warrant process?

Principal’s Checking Account

Are funds expended exclusively for SAA purposes?Re there individual SAA balances?

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Summary

• There is an order to the SAA accounting and auditing• DESE providing more oversight through agreed upon

procedures– EOYR– SAA

• Statutes, policy, and manuals provide proper accounting procedures; more accurate records

• Less headaches, audit costs and comments• A happier DESE, DOR, and SAA staff

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Student Activity AccountingA View from an Auditee

Sheri MatthewsBusiness Director, Tewksbury Public Schools

(978) 640-7800smatthews@tewksbury.k12.ma.us

www.tewksbury.k12.ma.us

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Tewksbury Public SchoolsFINDING #1 – ADOPT SCHOOL COMMITTEE POLICIES AND PROCEDURES FOR STUDENT ACTIVITY FUND OPERATIONS, CONTROL, AND PUBLIC REPORTING

• The Tewksbury Public Schools is in the process of constructing a new School Committee Policies and Procedures for Student Activity Fund Operations, Control and Public Reporting. This policy will be in line with the DESE (Department of Early and Secondary Education) guidelines. This policy will be brought forward to the School Committee within the upcoming months for their approval and adoption. We are making sure that the new Policies and Procedures will include:

• Appropriate internal controls and segregation of duties in order to ensure protection of student money.

• Approval of the Principal’s designee(s) to operate and control student activity accounts.

• Maximum balance amount allowed to be maintained in the School’s checking account.

• Establishment of periodic reporting and reconciliation processes.16

Tewksbury Public SchoolsFINDING #1 – ADOPT SCHOOL COMMITTEE POLICIES AND PROCEDURES FOR STUDENT ACTIVITY FUND OPERATIONS, CONTROL, AND PUBLIC REPORTING (CONT.)

• All receipts and disbursements of the student activity funds belong to students and will be expended for the benefit of the students.

• Policies regarding reimbursements, including reimbursements when personal credit cards are used that accrue ‘reward’ benefits.

• Policy that specifies how undesignated receipts will be distributed.• Approval of new and existing student activity funds.• Policies addressing the disposition of graduated class accounts, inactive

accounts, and remediation of deficit accounts.• Policies addressing student travel in relation to the student activity fund.

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Tewksbury Public SchoolsFINDING #2 – MAINTAIN ALLOWABLE STUDENT ACTIVITY ACCOUNTS• The Tewksbury Memorial High School Student Activity Fund will take out the

funds from the Guidance Department line as well as the Class Gift line and put them in their own revolving account.

FINDING #3 – SEGREGATE DUTIES AND PROVIDE ADEQUATE TRAINING• The Tewksbury Memorial High School has put a new delegation system in place

where four different employees will be in charge of different responsibilities. The responsibilities will be broken up between custody, record keeping, deposits and distribution of student activity funds. We are making sure that internally each employee involved will have the proper training and their duties and responsibilities.

FINDING #4 – CONDUCT ANNUAL AUDITS OF STUDENT ACTIVITY FUNDS• The Business Manager will now be conducting an annual audit of student

activity funds. The Business Manager is not one of the designees that will be handling the student activities funds during the fiscal year. The Tewksbury Public Schools will also seek an outside auditor, every three years, for all Student Activity Funds greater than $25,000.00

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Tewksbury Public SchoolsFINDING #5 – IMPROVE STUDENT ACTIVITY FUND RECONCILIATION PROCEDURES• Each Student Activity Advisor will send in their activity quarterly to the Assistant

Principal for reconciliation purposes. Both Advisor and Assistant Principal will then meet to sign off on said reconciliation.

• Additionally, the Town Treasurer sends the bank statement to the Assistant Principal on a monthly basis. A new form has been created where both parties will sign off on the reconciliation each month.

FINDING #6 – IMPROVE INTERNAL CONTROLS OVER RECEIPTS• We are creating a new turnover form with a numeric sequential system. These

will be three part forms which will have a signature line on top for the preparer and a signature line on the bottom for the receiver of the form.

• We have spoken to all Advisors, Principal’s and/or Principals’ Designees to ensure that all deposits be turned in within one day or the next business day after collection of funds. If we are not able to make the deposit to the bank on that day, we will lock up the deposit in the safe until it can be deposited the following business day.

• As we are creating new pre-numbered turnover forms, each number will be assigned to an advisor with the ability to trace back the deposit to a specific student activity. Only one activity will be submitted per form. 19

Tewksbury Public SchoolsFINDING #7 – IMPROVE INTERNAL CONTROLS OVER DISBURSEMENTS• Any vendor that we will be paying from the Student Activities account will now be

filling out a W-9 form. Annually, in January, the Assistant Principal will print out the list of vendors that have been paid out more than $600.00 in the previous calendar year. That list will be used to determine which entity or individual will be issued a Form 1099-MISC and we will coordinate with the Town Treasurer to make sure that all 1099-MISC Forms be post marked no later than January 31st of any given year.

• Additionally, any reimbursements issued from the Student Activities Agency Account will not be reimbursed until all proper documentation or purchase is submitted and approved by the Student Activity Advisor or the Student Treasurer. Lastly, we will make sure that no reimbursement payment ever includes any sales tax is that the disbursement was solely for the direct benefit of the students.

FINDING #8 – CLOSE INACTIVE ACCOUNTS• During our most recent School Committee Meeting, the Assistant Principal submitted

a memo to the School Committee members asking for approval to close out all inactive account. These are the accounts that no longer have active advisors and need the approval of the school committee for the funds to be transferred into the Misc. Account.

• The Assistant Principal and Business Manager will go over all accounts, annually in June, to determine the need for them in the upcoming school year. 20