With the October 15th deadline for external audits behind us, it’s time for school districts to start thinking about internal audits. This article provides a broad overview of internal audits and their role within school districts.
As of 2006, all school districts and BOCES in New York State are required to establish and maintain an internal audit function and to conduct internal audits at least annually. The only districts exempt from this requirement are districts that employ fewer than eight teachers, those with general fund expenditures totaling less than $5 million in the previous school year, and districts with enrollment of less than 1,500 students in the previous school year. Exempt districts must certify their exemption annually. A school district may hire an independent contractor or utilize a district employee to conduct an internal audit. In either case, the internal auditor must be independent of district business operations and also meet certain professional auditing standards.
The purpose of an internal audit is to review the district’s financial operations, identify risks, and assess the district’s system of internal controls. In conjunction with external audits, internal audits help to safeguard your district’s assets, prevent waste and abuse, and maintain your district’s compliance with applicable policies and laws. It is the responsibility of the board to take corrective actions based on the findings of the internal audit. The audit committee is required to assist in the oversight of the internal audit function, review the findings of the internal auditor, and monitor the implementation of the internal auditor’s recommendations by management.
The internal auditor is responsible for the following:
- Developing a risk assessment of district operations that reviews the district’s financial policies, procedures, and internal controls (i.e., segregation of duties, authorization processes, recordkeeping, reconciliations).
- Annually reviewing and updating this risk assessment.
- Periodically testing one or more areas of the district’s operations.
- Preparing reports (at least annually) stating risk assessment findings and recommended changes, with timeframes for implementation.
The New York State Office of the State Comptroller highlights some of the questions that internal audits aim to answer. These include:
- Efficiency of operations: Are the district’s resources being used in the most efficient manner possible?
- Effectiveness of operations: Is a particular program or operation successfully achieving its intended results?
- Compliance: Is a particular area of operations being conducted in compliance with the relevant laws, regulations, agreements, policies, and procedures?
Financial operations that may be evaluated include, but are not limited to:
- Payroll and personnel
- Cash receipts and revenue
- Accounts payable
- Cash disbursements
- Travel and conference expenses
- Extra-classroom activity funds
Internal audits can extend beyond risk assessments of financial operations. Some other operational areas that internal auditors can assess include, but are not limited to:
- School security
- Bus routes
- Insurance coverage
- Performance evaluations
- Energy conservation programs
- Portable inventory items
- Fuel facilities
Conclusion
Internal audits represent a critical function that, in conjunction with annual external audits, help school districts monitor and maintain their financial health. For additional guidance regarding the internal audit process, please do not hesitate to reach out to our experts at RBT CPAs. RBT is here to support your district’s accounting, tax, audit, and advisory needs. Give us a call today to learn more.
