Like all other organizations, school districts require a strong system of internal controls to protect their financial operations. Internal financial controls help to safeguard a district’s assets, preventing abuse, waste, and corruption. This article highlights the financial areas for which school districts should establish internal controls and provides examples of controls for each. Please note that these examples are not exhaustive.

According to the Office of the New York State Comptroller, school districts should implement internal controls for each of the following key financial areas.

1. Cash Receipts: Cash—which encompasses money, checks, and money orders—is the most vulnerable to theft.

Control Examples:

• • Centralize cash collections in the office of the CFO or treasurer to reduce the number of locations and people handling cash.
  • Assign separate cash drawers for each employee handling cash.
  • Segregate duties between employees with custody of cash, employees authorizing transactions, and those reporting transactions.

2. Cash Disbursements: Fraud is even more common in the area of cash disbursements than in the area of cash receipts.

Control Examples:

• • Keep blank checks in a secure location.
  • Segregate duties between the employee who prepares and signs checks and the person who audits and approves claims.
  • Limit the authority to sign checks to a minimal number of employees.

3. Bank Accounts: Steps must be taken to ensure that your district’s bank account information is protected, especially in today’s digital environment.

Control Examples:

• • Reconcile bank accounts monthly.
  • Limit access to account information.
  • Segregate duties between the employee performing bank reconciliations, employees with custody of cash, and those recording or authorizing transactions.

4. Billed Receivables: When school districts collect funds for services they provide, those charges and accounts must be accurately recorded and tracked.

Control Examples:

• • Create a written policy stating the frequency of billings, billing rates, collection periods, and other guidelines for collections.
  • Post payments received to individual accounts as soon as possible.
  • Reconcile the receivable control account balance to the sum of individual accounts.

5. Procurement: Internal controls over procurement procedures help to prevent unauthorized and nonessential purchases, evaluate cost-effectiveness, and ensure requirements for fair and open competition are followed.

Control Examples:

• • Establish clear approval processes for purchases.
  • Verify the availability of budget appropriation prior to approval.
  • Segregate duties within the approval process.
  • Establish policies governing credit card usage.

6. Payroll: Controls over payroll and benefits ensure that employees are paid the correct amount and help to prevent payroll fraud.

Control Examples:

• • Establish salary authorization procedures.
  • Reconcile the payroll bank account monthly.
  • Segregate payroll authorizations from payroll preparation and processing.
  • Limit access to digital payroll files and applications.

7. Classifying Employees vs. Independent Contractors: School districts should have procedures in place for determining whether someone is an employee or an independent contractor.

Control Examples:

• • Formally create all new employee positions, with approval from the appropriate civil service agency if required.
  • Only add individuals to payroll when a vacant civil service position exists or has been requested through the proper channels.

8. Equipment and Consumables: This category includes large equipment such as snow plows and certain office equipment, as well as portable items like laptops and cameras. Consumables include items such as gasoline, cafeteria food items, and printer paper.

Control Examples:

• • Maintain inventory records and conduct yearly physical inventory counts.
  • Label equipment as property of the school district or with serial numbers.
  • Store consumables in locked areas.
  • Periodically reconcile fuel purchases vs. usage.

9. Information Technology: Financial processes today are inextricably linked with information technology. A secure IT system is necessary to protect your district’s financial information and resources.

Control Examples:

• • Establish a centralized IT administration for overseeing computer and network operations.
  • Require approval for all new hardware and software from IT administration.
  • Adopt a comprehensive IT security plan.
  • Establish a two-factor authentication system for users to sign into the network and certain applications.

10. Outsourced Services

Control Examples:

• • Create written agreements stating the contractual responsibilities of both the service provider and the school district.
  • Review the service provider’s audit reports and internal control procedures.

Protect Your School District with RBT on Your Team

RBT CPAs’ experts are here to assist in making sure your district’s assets are protected from risk. Among our other services, RBT’s Education team can evaluate your school district’s system of internal financial controls for quality and effectiveness. Call us with your questions or for more information, and find out how we can be Remarkably Better Together.