operational audit - edocs

REPORT NO. 2009-040 NOVEMBER 2008

INDIAN RIVER COUNTY

DISTRICT SCHOOL BOARD

Operational Audit

For the Fiscal Year Ended June 30, 2008

BOARD MEMBERS AND SUPERINTENDENT

District School Board members and the Superintendent who served during the 2007-08 fiscal year are listed below:

District

No.

Karen Disney-Brombach, Chair from 11-20-07, Vice-Chair to 11-19-07 1Lenora Quimby 2Carol Johnson, Vice-Chair from 11-20-07, Chair to 11-19-07 3Ann Reuter 4Debbie MacKay 5

Dr. Harry LaCava, Superintendent from 8-15-07Dr. Duncan Pritchett, Jr., Interim Superintendent to 8-14-07

The audit team leader was Clare Waters, CPA, and the audit was supervised by Tim L. Tucker, CPA. Please address inquiries regarding this report to Gregory L. Centers, CPA, Audit Manager, by e-mail at [email protected] or by telephone at (850) 487-9039.

This report and other audit reports prepared by the Auditor General can be obtained on our Web site at www.myflorida.com/audgen; by telephone at (850) 487-9024; or by mail at G74 Claude Pepper Building, 111 West Madison Street, Tallahassee, Florida 32399-1450.

mailto:[email protected]

http://www.state.fl.us/audgen

NOVEMBER 2008 REPORT NO. 2009-040

INDIAN RIVER COUNTY

District School Board

SUMMARY

Our operational audit for the fiscal year ended June 30, 2008, disclosed the following:

Finding No. 1: Enhancements were needed in effectively monitoring the food service program with a view toward improving the financial condition of the program.

Finding No. 2: The District did not conduct a review and evaluation of the collection of social security numbers (SSN), provide a written statement to individuals stating the purpose for collection of the numbers, or certify compliance with the new SSN requirements to the Legislature, contrary to Section 119.071(5)(a), Florida Statutes.

Finding No. 3: Improvements were needed in controls over the reporting of instructional contact hours for adult general education to the Florida Department of Education.

Finding No. 4: Enhancements could be made in monitoring procedures to ensure the adequacy of insurance coverage for charter schools sponsored by the District, and for architects and construction managers.

Finding No. 5: Improvements are needed to enhance controls over high school diplomas.

Finding No. 6: Enhancements could be made to timely terminate the information technology access privileges of former employees.

BACKGROUND

The District is part of the State system of public education under the general direction of the Florida Department of Education. Geographic boundaries of the District correspond with those of Indian River County. The governing body of the Indian River County District School Board is composed of five elected members. The appointed Superintendent of Schools is the executive officer of the School Board.

During the audit period, the District operated 22 elementary, middle, high, and specialized schools; sponsored 4 charter schools; and reported 17,481 unweighted full-time equivalent students.

The results of our audit of the District’s financial statements and Federal awards for the fiscal year ended June 30, 2008, will be presented in a separate report.

FINDINGS AND RECOMMENDATIONS

Finding No. 1: Financial Condition - Food Service Program

The District operates a food service program by providing meals to participating students and staff. The food service program, accounted for in the Special Revenue – Food Service (SR-FS) Fund, generates revenue from the sale of food and from Federal reimbursements and State supplements. The financial condition of the food service program is significantly impacted by the prices charged for meals, salary and benefits costs, and purchased food costs. Our review disclosed that enhancements were needed in effectively monitoring the financial condition of the food service program.

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During the 2006-07 fiscal year, the SR-FS Fund expenditures exceeded its revenues, resulting in a deficit fund balance of $336,037 in the SR-FS Fund. This trend continued during the 2007-08 fiscal year with the SR-FS Fund ending the year with a deficit of $849,179. Our inquiry with personnel and review of District records indicated that while efforts were made during the 2007-08 fiscal year to increase meal participation by promotions which resulted in increased revenues, these efforts were not sufficient to offset the escalating meal production costs. At June 30, 2008, the SR-FS Fund borrowed over $1.3 million from the health insurance internal service fund. Consequently, the continued reduction of the SR-FS Fund fund balance may also require use of unrestricted General Fund resources to subsidize the food service program, result in less funds available for the other educational programs, and adversely impact the District’s efforts to maintain an adequate unreserved fund balance in its General Fund.

District personnel indicated that steps are being implemented during the 2008-09 fiscal year to reduce the deficit, such as increased meal prices, not replacing nine food service personnel vacancies, consolidating purchases to reduce food costs, and other cost effective measures. A similar finding was noted in our report No. 2008-075.

Recommendation: The District should continue its efforts to effectively monitor the food service program with a view toward improving the financial condition of the program.

Finding No. 2: Collection of Social Security Numbers

The Legislature has acknowledged in Section 119.071(5)(a), Florida Statutes, the necessity of collecting social security numbers (SSNs) for certain purposes because of their acceptance over time as a unique numeric identifier for identity verification and other legitimate purposes. The Legislature has also recognized that SSNs can be used to acquire sensitive personal information, the release of which could result in fraud against individuals or cause other financial or personal harm. Therefore, public entities are required to provide extra care in maintaining such information to ensure its confidential status.

Effective October 1, 2007, Section 119.071(5)(a), Florida Statutes, as amended by Chapter 2007-251, Laws of Florida, provides that the District may not collect an individual's SSN unless the agency has stated in writing the purpose for its collection and unless it is specifically authorized by law to do so, or it is imperative for the performance of the District's duties and responsibilities as prescribed by law. Additionally, this section requires that, as the District collects an individual's SSN, it must provide the individual with a copy of the written statement indicating the purpose for collecting the number. Further, this section provides that SSNs collected by the District may not be used by the District for any purpose other than the purpose provided in the written statement. This section also requires that the District review whether its collection of SSNs is in compliance with the above requirements; immediately discontinue the collection of SSNs for purposes that are not in compliance; and certify to the President of the Senate and the Speaker of the House of Representatives its compliance with these requirements no later than January 31, 2008. Further, by that date, the District was also required to file a report with the Executive Office of the Governor, the President of the Senate, and the Speaker of the House of Representatives listing the identity of all commercial entities that have requested SSNs during the preceding calendar year and the specific purposes stated by each commercial entity regarding its need for SSNs. If no disclosure requests were made, the District was required to indicate so.

As of June 30, 2008, the District requires applicants for employment to provide their SSN on employment applications; however, a statement, in writing, regarding why the applicant’s SSN was requested was not provided to the applicant. SSNs were also requested for students from their parents or legal guardian when completing certain forms such as enrollment applications; however, a statement, in writing, regarding why the student’s SSN was requested was not provided to the parent or legal guardian. Further, contrary to the above law, the District did not

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certify to the Legislature that it complied with Section 119.071(5)(a), Florida Statutes, or report to the Governor and Legislature the identity of all commercial entities that requested SSNs during the preceding calendar year. Effective controls to properly monitor the need for and use of SSNs and ensure compliance with statutory requirements reduce the risk that SSNs may be used for unauthorized purposes.

Recommendation: The District should take appropriate action to ensure compliance with Section 119.071(5)(a), Florida Statutes. Such action should include an evaluation of the reasons the District collects social security numbers from individuals. In those instances in which the District determines that collection of the social security numbers is not imperative for performance of its duties and responsibilities, the District should discontinue obtaining such numbers.

Finding No. 3: Adult General Education Courses

Section 1004.02(3), Florida Statutes, defines adult general education, in part, as comprehensive instructional programs designed to improve the employability of the State’s workforce. Chapter 2007-72, Laws of Florida, Paragraph 125, states that from the funds provided in Specific Appropriation 125, each school district shall report enrollment for adult general education programs identified in Section 1004.02, Florida Statutes, in accordance with the Florida Department of Education (FDOE) instructional hours reporting procedures. Procedures provided by FDOE to the school districts state that fundable instructional contact hours are those scheduled hours that occur between the date of enrollment in a class and the withdrawal date or end-of-class date, whichever is sooner. During the 2007-08 school year, the District reported 880,775 contact hours to FDOE.

Our review of the District’s reporting of adult general education courses disclosed the following control deficiencies:

We noted the District double-reported adult basic education and secondary course hours for the Fall 2007 and Spring 2008 terms. According to District records, the District overreported student hours for adult basic education and secondary courses of 377,280 and 13,650 hours, respectively. District personnel agreed that the hours were overreported, and the error occurred because the District incorrectly established the wrong semester hours in the computer system.

FDOE guidance requires the District to count as enrolled only those students who participate in instructional activity for a minimum of 12 contact hours. Further, this guidance requires that students who miss six consecutive classes be withdrawn from the course and that the District limit course hours reported through the date of withdrawal. District Adult Education personnel indicated that students who miss six consecutive classes are withdrawn from class. However, the number of course hours do not change in the District’s student data base once a course is created, regardless of student enrollment or withdrawal dates, thereby increasing the risk of overreporting these course hours. Additionally, the District does not manually adjust the course hours reported based on student enrollment or withdrawal dates. Subsequent to our review, District personnel indicated that they developed a system to report hours based on enrollment data and withdrawal dates as required by FDOE.

Given the control deficiencies above, we were unable to determine the full extent of the course hours overreported. Since future funding may be based, in part, on enrollment data submitted to FDOE, it is important that such data be submitted correctly.

Recommendation: The District should enhance its controls over the reporting of adult general education course hours to FDOE. Further, the District should determine the extent of adult basic education and secondary course hours overreported and contact the Florida Department of Education for proper resolution.

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Finding No. 4: Insurance

Enhancements could be made in monitoring procedures to ensure the adequacy of insurance coverage for charter schools sponsored by the District, and work performed by architects and construction managers, as discussed below.

Charter School Insurance. During the 2007-08 fiscal year, the District sponsored four charter schools which were required to provide evidence to the District of certain insurance, such as general and workers’ compensation coverages. However, as disclosed below, enhancements could be made in monitoring such insurance:

For Sebastian Charter Junior High School, the general liability insurance certificate indicated a $1 million annual aggregate policy limit, contrary to the charter school contract which required an annual aggregate policy limit of $3 million.

Sebastian Charter Junior High School and St. Peter’s Academy charter school contracts each required workers’ compensation/employers’ liability insurance with minimum limits of $1 million per occurrence and $3 million annual aggregate; however, the insurance certificates for these schools only indicate policy limits of $500,000 per occurrence and aggregate.

Sebastian Charter Junior High, St. Peter’s Academy, and North County Charter School contracts required school leader’s errors and omissions liability insurance of $5 million per occurrence and annual aggregate limit; however, the insurance certificates indicate a $1 million per occurrence and an annual aggregate limit, ranging from $1 million to $3 million.

The insurance certificates for Sebastian Charter Junior High, St. Peter’s Academy, and Indian River Charter High School did not name the School Board as additionally insured, contrary to the charter school contracts.

The insurance certificates indicated that the policies could be canceled with prior written notification to the District ranging from 10 to 30 days before the cancellation date, contrary to the charter school contracts which required a 60 day prior cancellation notice.

According to the District Risk Manager, certificates of insurance for charter schools sponsored by the District were not reviewed for compliance with the charter school contracts during the 2007-08 fiscal year, but would be reviewed for compliance in the future.

Architect Insurance. District procedures require architectural firms to provide professional liability insurance ranging from $500,000 to $3 million, depending on the estimated cost of the project. The District entered into a contract with an architectural firm to provide architectural services for the Vero Beach High School (VBHS) Renovation Project with construction costs of $45 million. The architect contract for the project requires the architect to provide professional liability insurance of $3 million; however, our review of the certificate of professional liability coverage provided by the District disclosed that the architectural firm only carried $2 million in professional liability, or $1 million less than the contract requirement. Similar findings were noted in our prior audit reports, most recently in audit report No. 2008-075.

Construction Contract Insurance. In addition to the VBHS Renovation project, the Board approved a construction contract for a new Middle School, totaling $46 million, and both projects were funded by certificates of participation (COP) debt issues. Our review disclosed that District procedures could be enhanced to properly monitor insurance relating to these projects, as follows:

These COP agreements and construction contracts required construction managers to carry builders’ risk insurance to cover the entire cost of the projects; however, District records did not evidence such insurance.

The VBHS Renovation insurance certificate provided for only 10 day cancellation notice, contrary to the construction contract which provided for at least 15 days prior notice.

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Without adequate procedures to monitor the insurance coverage of charter schools, architects, and construction managers, there is an increased risk that such coverage may not be adequate, subjecting the District to potential losses.

Recommendation: The District should enhance procedures to ensure that its charter schools maintain insurance as required in the charter school agreements, and that adequate insurance protection is obtained for the design and construction of District building projects.

Finding No. 5: Student Diplomas

For the 2007-08 school year, VBHS and Sebastian River High School (SRHS) had approximately 950 graduates who received diplomas. However, we noted that enhancements in controls could be made over the issuance of diplomas at these schools, as follows:

The VBHS senior advisor teacher and SRHS registrar e-mailed vendors to obtain diplomas for all of the VBHS and SRHS students in the senior classes and for additional blank diplomas in case of spelling errors or other last minute corrections; however, there were no written agreements with the printing companies to specify the procedures to be followed for the orders and the District employees authorized to submit them. Additionally, no one independently approved the orders. Written agreements may establish District expectations and staff responsible for diploma orders, and reduce potential misunderstanding related to such orders.

Guidance counselors were responsible for reviewing student records for high school seniors to determine which students did not meet the eligibility requirements to graduate, and notifying the registrar of those students. Those that the counselors deemed ineligible for graduation did not receive diplomas; however, no one independently reviewed student records and verified that guidance counselors’ conclusions were correct. Absent this procedure, on at least a test basis, by someone other than the guidance counselors, there is an increased risk for unauthorized diplomas to be issued.

There was an inadequate separation of duties over the ordering and receipt of diplomas at SRHS. The registrar submitted orders, received the completed diplomas, and distributed the diplomas directly to the students or to other District personnel for distribution. No one independently verified that the diplomas were properly received and distributed to the students. In this circumstance, one employee had control over the ordering and receipt of high school diplomas such that errors or irregularities, should they occur, might not be detected in a timely manner.

Unused diplomas containing student names are secured in locked offices for six months after graduation at VBHS, and until the end of summer after graduation at SRHS. After these periods, the student diplomas, along with blank diplomas at SRHS, are shredded by the registrars. However, no one independently witnesses that the diplomas are appropriately shredded. Without this verification, the diplomas may be misused.

Blank diplomas were kept in locked cabinets in the registrars’ offices; however, there was no procedure to account for the number of blank diplomas received or used. Someone independent of the registrar, properly accounting for and controlling the forms, would provide further assurance that the documents were limited to authorized purposes.

Our tests of 20 students awarded high school diplomas or certificates of completion disclosed one student who was provided a certificate of completion, instead of a diploma, because the District did not initially consider that the student had passed a standardized test required for graduation. However, upon our inquiry and review of the student’s records, District personnel determined that the student had passed the test and subsequently provided the student a high school diploma.

Recommendation: The District should strengthen internal controls over diploma processing to ensure that diplomas are only prepared for and distributed to those who meet the eligibility requirements for graduation.

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Finding No. 6: Information Technology – User Account Management

Proper access controls include provisions to timely remove employee access privileges when employment terminations occur. Prompt action is necessary to ensure that a former employee does not retain information technology (IT) access privileges that would allow misappropriation or abuse of District assets. The District provides access privileges to IT resources, such as the School District of Indian River County (SDIRC) network for system log-on, e-mail and shared drive access, to employees who require such access in the performance of their duties. To identify personnel who terminate employment, the District developed a program which scans the human resource system date of termination and produces a report which is used by the IT department to remove access privileges to the SDIRC network.

Our test of 27 employee terminations, obtained from the Board minutes and agendas of four meetings, disclosed 10 former employees who continued to maintain their SDIRC network access privileges from 55 to 402 days after their employment termination dates. According to District personnel, the TERMS human resource system only listed those who were identified on their termination date. Since the termination dates for these individuals were backdated, the program did not identify the user account for removal. The District is exposed to a greater risk of loss when it does not timely terminate the IT access privileges of former employees.

Recommendation: The District should continue its efforts to ensure the timely removal of access privileges for terminated employees in order to minimize the risk of compromising the District information resources.

PRIOR AUDIT FOLLOW-UP

Except as discussed in the preceding paragraphs, the District had taken corrective actions for findings included in our report No. 2008-075.

OBJECTIVES, SCOPE, AND METHODOLOGY

The Auditor General conducts operational audits of governmental entities to provide the Legislature, Florida’s citizens, public entity management, and other stakeholders unbiased, timely, and relevant information for use in promoting government accountability and stewardship and improving government operations.

We conducted this operational audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

The objectives of this operational audit were to: (1) obtain an understanding and make overall judgments as to whether District internal controls promoted and encouraged compliance with applicable laws, rules, regulations, contracts, and grant agreements; the economic and efficient operation of the District; the reliability of records and reports; and the safeguarding of assets; (2) evaluate management’s performance in these areas; and (3) determine whether the District had taken corrective actions for findings included in our report No. 2008-075. Also, pursuant to Section 11.45(7)(h), Florida Statutes, our audit may identify statutory and fiscal changes to be recommended to the Legislature.

The scope of this operational audit is described in Exhibit A. Our audit included examinations of various records and transactions (as well as events and conditions) occurring during the 2007-08 fiscal year.

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Our audit methodology included obtaining an understanding of the internal controls by interviewing District personnel and, as appropriate, performing a walk-through of relevant internal controls through observation and examination of supporting documentation and records. Additional audit procedures applied to determine that internal controls were working as designed, and to determine the District’s compliance with the above-noted audit objectives, are described in Exhibit A. Specific information describing the work conducted to address the audit objectives is also included in the individual findings.

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AUTHORITY MANAGEMENT’S RESPONSE

Pursuant to the provisions of Section 11.45, Florida Statutes, I have directed that this report be prepared to present the results of our operational audit.

Management’s response is included as Exhibit B.

David W. Martin, CPA Auditor General


THIS PAGE INTENTIONALLY LEFT BLANK.

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EXHIBIT A AUDIT SCOPE AND METHODOLOGY

Scope (Topic) Methodology

Security awareness and training program regarding the confidentiality of information.

Examined supporting documentation relating to the District’s information technology security awareness training program.

Procedures to timely prohibit terminated employees’ access to electronic data files.

Sampled employees who terminated during the audit period and examined supporting documentation to determine whether the District timely terminated access privileges.

Procedures for monitoring charter schools pursuant to Section 1002.33(5)(b), Florida Statutes.

Interviewed District personnel and examined supporting documentation to determine if the District effectively monitored selected operations and performance measures of its charter schools, including evidence of required insurance.

Fraud policy and related procedures. Examined written policies and procedures, and examined supporting documentation relating to the District’s fraud policy and related procedures.

Sunshine Law requirements for Board meetings (i.e., proper notice of meetings, ready access to public, maintain minutes).

Read Board minutes and, for selected Board meetings, examined supporting documentation to determine compliance with Sunshine Law requirements.

Financial condition. Applied analytical procedures to determine whether General Fund unreserved fund balance at June 30, 2008, was less than 2.5 percent of General Fund revenues.

Restrictions on use of nonvoted capital outlay tax proceeds. Applied analytical procedures, selected a sample of payments made from nonvoted capital outlay proceeds and examined supporting documentation to determine whether the District complied with requirements related to the use of nonvoted capital outlay proceeds.

Restrictions on use of Workforce Development funds. Applied analytical procedures to determine whether the District used funds for authorized purposes (i.e., not used to support K-12 programs or District K-12 administrative costs).

Adult general education program enrollment reporting. Selected a sample of adult education students and examined supporting documentation to determine whether the District reported instructional and contact hours in accordance with FDOE requirements.

Social security number requirements of Section 119.071(5)(a), Florida Statutes.

Examined supporting documentation to determine whether the District had provided individuals with a written statement as to the purpose of collecting social security numbers, certified compliance pursuant to Section 119.071(5)(a)4.b., Florida Statutes, and filed the required report specified by Section 119.071(5)(a)9.a., Florida Statutes, no later than January 31, 2008.

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EXHIBIT A (Continued) AUDIT SCOPE AND METHODOLOGY

Scope (Topic) Methodology

Procedures for issuing diplomas. Selected a sample of diploma recipients and examined supporting documentation to determine whether the recipients were eligible to graduate. Reviewed procedures over diploma ordering and safeguarding to determine if diplomas, used and unused, are properly accounted for.

Procedures for insuring architects and engineers. Selected a sample of significant or representative major construction projects in progress during the audit period to determine whether architects and engineers engaged during the audit period were properly selected and, where applicable, had evidence of required insurance.

Procedures for insuring construction contractors. Selected a sample of major construction projects in progress during the audit period to determine whether the contractors had evidence of required insurance.

Procedures for deleting tangible personal property from the property records.

Reviewed property deletions to determine whether the deletions were supported by appropriate documentation and Board approved.

Monitoring the financial condition of the food service program

Applied analytical procedures and reviewed policies and procedures to track the cost of meal production and meal pricing to determine if measures were taken to improve the financial condition of the food service program.

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EXHIBIT B MANAGEMENT’S RESPONSE

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EXHIBIT B (CONTINUED) MANAGEMENT’S RESPONSE

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EXHIBIT B (CONTINUED) MANAGEMENT’S RESPONSE

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