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2013-06-05 Internal Controls for Charter Schools
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2013-06-05 Internal Controls for Charter Schools

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Strong internal controls and clear and easy to understand policies and procedures help a charter school maintain compliance and mitigate risks. They also help a school use their funds in the most ...

Strong internal controls and clear and easy to understand policies and procedures help a charter school maintain compliance and mitigate risks. They also help a school use their funds in the most effective way to benefit learning and student outcomes. How do you develop, maintain, update and communicate proper internal controls while maintaining your organization’s culture? What are the key controls to have? How do you maintain compliance with limited staff? How do you ensure accurate and timely financial reports and audits?

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2013-06-05 Internal Controls for Charter Schools 2013-06-05 Internal Controls for Charter Schools Presentation Transcript

  • Thrive. Grow. Achieve.Internal Controlsfor Charter SchoolsKathy Raffa- PartnerDebra Santos - Manager
  • RAFFA HISTORYIN 1984, RAFFA SET OUT TO CREATE MEANINGFULACCOUNTING WORK THAT SUPPORTED GIVING BACKTO THE COMMUNITY.RAFFA’S VISION IS TO BE THE MOST CARING ANDEFFECTIVE PROFESSIONAL FINANCIAL SERVICESPARTNER IN THE INDUSTRY.200Employees, in3 separatecompanies:• Raffa PC• RaffaFinancialServices Inc.• Raffa WealthManagementLLC
  • RAFFA’S CHARTER SCHOOL CLIENTS• Over 90% of Raffa’s client are nonprofits• Charter school clients we serve include:–Center City Public Charter Schools–Cesar Chavez Public Charter Schools–Community College Preparatory Academy–D.C. Preparatory Academy–D.C. Public Charter School Board–Imagine Southeast Public Charter School–KIPP DC–Thurgood Marshall Academy• Services to our charter school clients include:–Managed (outsourced) accounting, technology and HR–Financial statement and OMB A-133 audits–Pension plan audits–Form 990 and related filings–Implementation of accounting software and cloud
  • WHY ARE INTERNALCONTROLS IMPORTANT?• Maintains compliance• Protects school• Gives funders comfort to contribute• Audit requirement• Mitigate risks• Allows school leaders to focus on student outcomes• Maintains the school as a going concern“CAUSES FOR NONRENEWAL OR TERMINATION”(1) “FAILURE TO MEET GENERALLY ACCEPTED STANDARDS OFFISCAL MANAGEMENT”“Developing andimplementing ITgovernancedesigneffectivenessand efficiencycan be amultidirectional,interactive,iterative, andadaptiveprocess.”― Robert E.Davis, ITAuditing: ITGovernance
  • WHO IS RESPONSIBLE FOR INTERNALCONTROL?It is everyone’sresponsibility toensure theschool ispracticing goodinternal controls.Board of DirectorsSchoolManagementSchoolEmployees
  • INTERNAL CONTROLS DEFINEDSystematic measures (such as reviews, checks and balances, methodsand procedures) instituted by an organization to(1) conduct its business in an orderly and efficient manner,(2) safeguard its assets and resources,(3) deter and detect errors, fraud, and theft,(4) ensure accuracy and completeness of its accounting data,(5) (produce reliable and timely financial and management information,and(6) (6) ensure adherence to its policies and plans.
  • CONTINUED DEFINITIONInternal control is a process - effected byan entity’s board of directors,management and other personnel -designed to provide reasonable assuranceregarding the achievement of objectives inthe following categories;(a) reliability of financial reporting(b) effectiveness and efficiency ofoperations, and(c) compliance with applicable laws andregulations.
  • Control EnvironmentRisk AssessmentControl ActivitiesInformation &CommunicationMonitoring ActivitiesUPDATE ARTICULATES PRINCIPLES OF EFFECTIVEINTERNAL CONTROL1. Demonstrates commitment to integrity and ethical values2. Exercises oversight responsibility3. Establishes structure, authority and responsibility4. Demonstrates commitment to competence5. Enforces accountability6. Specifies suitable objectives7. Identifies and analyzes risk8. Assesses fraud risk9. Identifies and analyzes significant change10. Selects and develops control activities11. Selects and develops general controls over technology12. Deploys through policies and procedures13. Uses relevant information14. Communicates internally15. Communicates externally16. Conducts ongoing and/or separate evaluations17. Evaluates and communicates deficiencies
  • COMPONENTSINTERNAL CONTROL CONSISTS OF FIVEINTERRELATED COMPONENTS: Control Environment Risk Assessment Control Procedures Information and Communication Monitoring
  • CONTROL ENVIRONMENT..sets the tone of an organization, influencing the “controlconsciousness” of its people. It is the foundation for all othercomponents of internal control, providing discipline andstructure.• Organizational Structure• Need an organizational chart to identify specific lines ofauthority and responsibility.• Job Descriptions• Need written job descriptions for every position tocommunicate expected performance and job functions.• Policy Manual• Need written policies regarding personnel, students,accounting, operation, bonding, insurance, etc.
  • RISK ASSESSMENT…IS THE ENTITY’S PROCESS OF IDENTIFICATION AND ANALYSISOF RELEVANT RISKS TO THE ACCURATE PREPARATION OFFINANCIAL STATEMENTS.THE FOLLOWING CONDITIONS COULD INDICATE POTENTIAL RISK:• Changes in the unit’s operating environment• New personnel• New or revised information systems• Rapid growth• New departments or activities• Restructuring or reorganization resulting in staff reductions,changes in supervisor, or segregation of duties.• Lack of timely monthly financial reports or delayed annual audits
  • CONTROL PROCEDURES - BUDGETING• The governing board should adopt abudget for all funds.• Budget should be in enough detail toprovide meaningful comparisons withactual transactions.• Budget should follow the DCPCSBfinancial reporting requirements.
  • CONTROL PROCEDURES – CASH Proper control over cash receipts is essential because cashis the easiest of all assets to misuse. Access to cash should be limited and should be controlled assoon as possible when received. A non-accounting staff person should receive the mail, openit and list all checks on a Daily Collection Report or in a pre-numbered receipt book. This report or receipt should identify the date, name oforganization or person submitting payment, amount ofpayment and description of what the payment is for. A staff member should receive the checks and DailyCollection Report of receipt book from the person openingthe mail. Deposits should be made daily by someone other than theperson who prepared the deposit. All deposits should bemade in official depositories.
  • CONTROL PROCEDURES CASH-CONTINUED• All deposits should be in institutions authorized by thegoverning board of the school.• All funds held by the financial institution should beinsured by the FDIC or otherwise fully collateralized– January 1, 2013 change in coverage due to expiration of The Dodd-Frank Act for unlimited coverage on noninterest-bearing accounts• All bank statements should be reconciled promptlyupon receipt by a staff member independent of thecash receipts and disbursement functions.• Statements should be delivered unopened to this staffmember. In performing the reconciliations, the staffmember should check for the following:.
  • CONTROL PROCEDURES CASH-CONTINUEDDEPOSITS• Compare dates and amounts of daily deposits as shown onthe bank statements with the cash receipt journal.• Investigate bank transfers to see that both sides if thetransaction have been recorded in the schools financialrecords.DISBURSEMENTS• Account for all check numbers, including voided checks.• Examine canceled checks for authorized signatures, irregularendorsements and alterations• Look for checks payable to cash. Investigate these items.• Bank reconciliation procedures should always includecomparing the reconciled balance to the balance per thegeneral ledger for accuracy.
  • MONITORING…..is a process that assesses the quality of internal controlperformance over time.The following are several monitoring procedures that should beperformed:• Management should approve all accounting systemprocedures.• A responsible official should approve public distribution offinancial reports and information.• Budget should be compared to actual revenues andexpenditures on a monthly basis to identify variances.• Set procedures should be established for authorizing budgetamendments.
  • FINANCIAL NON-COMPLIANCE• Failure to respond to requests for data(DCPCSB or others).• Signs of financial insolvency or weakness.• Material audit findings which remainunresolved.• Failure to comply with DCPCSB procurementrequirements.• Lack of timely financial reporting to a FinanceCommittee
  • GOVERNANCE NON-COMPLIANCE• Failure to have a functioning board, andmeeting residency requirements• Inability to show progress towardseducational and organizational goals.• Failure to maintain student enrollment.• Bylaws violations.• Charter Agreement violations.
  • INFORMATION AND COMMUNICATION• Implementation requires buy in by allstaff• Implementation should be transparent• Staff should be trained on proceduresand purpose for a strong internal controlsystem• Communication should be organization-wide
  • STRATEGIES FORIMPLEMENTINGINNOVATIVE USE OF TECHNOLOGY• Systems can be used to improve controls(Examples; timekeeping, accounting, web-based billpaying)INTERNAL RESTRUCTURING• Assess current staff and roles and review re-assigning tasks (create segregation of duties)• Consider evaluating outsourcing vs internal roleCOMMUNICATION• Best Practices encourage full transparency duringand after the formal process• Involve all levels of employees
  • OTHER CONSIDERATIONS• Yellow book/A-133 audit– Cash management, procurement, reporting• Reporting to donors on restricted grants• Bond issuances• GAAP basis financial statements– Deferred summer revenue, allowance foruncollectible pledges, discounting, swaps at fairvalue, depreciation, in-kind donations, M&G andFundraising expenses
  • REFERENCESWWW.COSO.ORG2013 INTERNAL CONTROL – INTEGRATED FRAMEWORKWWW.NCPUBLICSCHOOLS.ORG/.../GUIDES/CHARTERSCHOOLSCONTROLS.PPTFINANCIAL AND GOVERNANCE NONCOMPLIANCE POLICY FORCHARTER SCHOOLWWW.IN.GOV/SBOA/FILES/CHSCH2012_008.PDFPART 8 INTERNAL CONTROLSHTTP://WWW.DCPCSB.ORG/SCHOOL-FINANCE-AND-FACILITIES/PCSB-FISCAL-POLICY-HANDBOOK.ASPXDCPCSB FISCAL POLICY HANDBOOK
  • UPCOMING CHARTER SERIESWORKSHOPSTHURSDAY, AUGUST 8THFINANCING & FACILITIES(INVITATION CODE CHRT3)THURSDAY, SEPTEMBER 12THTECHNOLOGY SOLUTIONS(INVITATION CODE CHRT4)
  • Kathy Raffa, Vice President & PartnerDirect 202-955-Email: kathy@raffa.comDebra Santos, ManagerDirect: 202-955-6746E-mail: dsantos@raffa.comwww.raffa.comTHANK YOU! ANY QUESTIONS?