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Internal Audit Department
Steven Martin, CPA/CFF, CFE, CGMA, CIGI October 18, 2016 Director of Internal Audit
Independent Auditor’s Report
Performance Audit of Expenditures Ending with Zeros and Vendors with High Frequency
Payments
From September 1, 2014 to November 30, 2015
To: Board of Trustees
Synopsis The 2016 audit plan included audits of Oracle and other District software. This performance
audit included selected transactions ending in three zeros, including cents, and high volume same
vendor expenditures, from September 1, 2014 to November 20, 2015. Experience has shown that
such expenditures are more likely to be questionable compared to other transactions. Testing
included 102 expenditures from different campuses, departments, funds, and accounts. During
our test work we noted the following findings:
Seven instances where there were no Taxpayer Identification Numbers (TINs) and/or
Internal Revenue Service (IRS) Form W-9s on file for suppliers
Five instances where the invoice dates were prior to the purchase order (PO) issuance
date
One instance where a software site license for $312,000 was paid with a check request
instead of a purchase order, was approved by the board after the payment, and paid four
months after the invoice date
An observation was made that outstanding checks do not have expiration dates
Criteria The Garland ISD Board Policies & Procedures CH (Local) and Campus Department
Accounting Procedures (CDAP) Manual
Methodology Internal Audit (IA) selected a sample of 102 expenditures. Transactions were analyzed and those
in violation with policy were noted. We performed the following audit tests:
1. Validated the vendors:
a. Verified the vendor was an approved District vendor in Oracle
b. Checked Texas Secretary of State or Dallas County records
2. We conducted audit tests of the expenditures:
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a. To determine the purpose of the expense
b. To determine the process used to purchase the expense
c. Validated the endorsement of the checks issued by reviewing signatures and/or
the date of deposit, bank and account numbers and bank statements
3. If the single expense (or multiple of like expenses) exceeded $75,000, additional testing
was conducted:
a. To determine whether there was board approval
b. To determine the bid/proposal process was conducted per policy
c. Reviewed the contract provisions
Scope/Objective Determine whether large payments with zero ending amounts and other subjectively selected
transactions were authentic and in accordance with Garland ISD policies and procedures.
Findings, Recommendations and Observation FINDING I Condition:
We noted the following vendors did not have on file Taxpayer Identification Numbers (TINs)
and/or Internal Revenue Service (IRS) Form W-9s in Oracle:
Vendor Name Amount Of Individual Checks
U.S. Department of Homeland Security $ 1,225.00
HOSA $ 440.00
Kiwanis International $25,581.00
JEM Wilmintgton Trust $25,000.00
Equity Center $ 9,500.00
Goddard Youth Camp $14,390.00
Fulcrum Consulting Inc. $ 9,250.00
TOTAL $85,386.00
Criteria:
The District’s Purchasing Policies and Procedures states three documents are required to register
for iSupplier: the W-9 Form, Conflict Disclosure form, and identification. Additionally, the
policy emphasizes, “Once all of the documents required for registration have been received and
approved by the Purchasing Department, the vendor will receive an email with login information
for the iSupplier network and be registered as a supplier for Garland ISD.” Although not all
payments made by the District require the issuance of a 1099, and hence a Taxpayer
Identification Number, the CDAP does not provide for data entry clerks to make the
determination as to which entities should or should not require a TIN.
Cause: (as included in the management response, Appendix Two, page 9)
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“An investigation of the supplier records indicates one supplier, Fulcrum Consulting Inc. was
created by and approved by the Purchasing Department. A TIN was requested and received on
November 14, 2016. However, as of November 30, 2016, the TIN has not been entered into
Oracle as Fulcrum still needs to perform a few steps to complete their vendor registration. The
remaining six suppliers were not created through Oracle iSupplier and do not have an email or
logins associated with the account. Three of the suppliers, Equity Center, Kiwanis International,
and HOSA, were converted from our previous system in 2005, and as stated do not have logins
into the system. Three suppliers- JEM Wilmintgton Trust, US Department of Homeland Security
and Goddard Youth Camp were created by the Finance Department. Finance Department
personnel will be reminded of the importance of obtaining TINs.” Effect:
Payments were made to vendors for whom the District had no Taxpayer Identification Numbers.
Recommendation:
The Business Department should confirm vendor TINs are in Oracle before making payment to
vendors for whom 1099s are required.
FINDING II Condition:
We noted five instances where the invoice date is prior to the purchase order issue date.
Vendor Name
Department Amount
Purchase Order Date
Invoice Date
Board Approval Date
Check Date Payment Type
Proximity Learning Incorporated
Division of Education
239,400.00 10/16/14 9/15/14 9/9/2014 10/29/14 Purchase Order
Susan Crummel Curriculum and Instruction - Library Services Coordinator IRC
9,850.00 12/2/14 11/11/14 Not applicable – Amount of purchase is
under required Board approval
12/3/14 Purchase Order
MIS Sciences Corporation
District Web Master
13,500.00 3/3/15 1/29/15 Not applicable – Amount of purchase is
under required Board approval
6/3/15 Purchase Order
Center For Educational Leadership And Technology (CELT)
Technology 37,600.00 6/24/15 6/18/15 Not applicable – Amount of purchase is
under required Board approval
7/1/15 Purchase Order
Finalsite District Web Master
10,075.03 6/11/15 6/7/15 Not applicable – Amount of purchase is
under required Board approval
7/1/15 Purchase Order
Totals
$310,425.03
Criteria:
CDAP Manual Section 9.1 states, "Issuance of the Purchase Order must precede the ordering of
such goods and services. Ordering using any other method is considered a violation of policy and
may result in personal liability for the purchases or non-reimbursement."
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Section 10.2: Authority to Obligate the District states: “All purchase commitments shall be made
on a properly drawn and issued purchase order, procurement card, properly signed contract, or a
check request” and “Personnel are not authorized to place orders verbally or utilize any other
method to obligate the district.”
Cause:
Written procedures regarding issuance of purchase orders are clear in the CDAP Manual. District
personnel did not follow written guidelines.
Effect:
District personnel made unauthorized purchases, could be held personally liable, and the District
was unable to set money aside for these expenditures via POs and encumbrance accounting. Recommendation:
Management should consider developing written disciplinary actions for those who violate
purchasing policy and include them in the CDAP and employee contracts.
Finding III Condition:
We noted one instance where a purchase was made to Edgenuity (Formerly Education 2020) for
$312,000 for District Site Licenses for high schools and middle schools. It was paid with a check
request dated October 29, 2014, but should have been paid with a purchase order. The Board did
not approve the purchase until November 11, 2014.
Vendor Name
Department Amount Purchase
Order Date Invoice Date
Board Approval
Date Check Date Payment
Type
Edgenuity Special Programs $312,000.00 Not applicable – PO was not
issued.
06/24/14 11/11/14 10/29/14 Check Request
Criteria:
The CDAP Manual Section 9.1 states, “All tangible items and services, except those excluded in
Section 9.4, must be ordered using a Purchase Order (PO) or a Purchasing Card (P-Card).
Issuance of the Purchase Order must precede the ordering of such goods and services. Ordering
using any other method is considered a violation of policy and may result in personal liability for
the purchase or non-reimbursement.” CH (Local) states a purchase over $75,000 requires Board
approval before such transaction occurs.
Cause:
This expense was the second year of a two year contract between Garland ISD and Edgenuity for
software licenses. No PO was created for the second year because there is no system in place to
monitor the renewal of contracts and subsequent creation of timely POs.
Effect:
By circumventing the purchase order process, the Purchasing Department’s aggregate calculation
for commodities and contracts could be understated when user departments/campuses use check
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requests. It is then possible that the Purchasing Department does not know that some purchases
should be aggregated, placed out for bid, or presented to the Board of Trustees for authorization.
Additionally by not using POs funds are not encumbered.
Recommendation:
A calendar or calendars should be maintained by District personnel, either in the Purchasing
Department or user departments, to track multi-year contracts in order to create timely POs.
Finding IV
Condition:
We noted one instance where a purchase was made by the Curriculum, Instruction and
Assessment Department from Learning List Incorporated for $14,995 for a subscription. A Spot
Purchase Request Form was not completed and therefore a PO was not issued.
Vendor Name
Department Amount
Purchase Order Date
Invoice Date
Board Approval
Date Check Date
Payment Type
Learning List Incorporated Curriculum, Instruction and Assessment
$14,995.00 Not applicable – PO was
not issued.
10/12/15 Not applicable – Amount of purchase is
under required
Board approval
10/20/15 Check Request
Criteria:
CDAP, Section 10.3.2 Selecting Non-Approved for Purchases over $4,999 states, “Complete the
Spot Purchase Request Form available at http://home.garlandisd.net/Purchasing-
Documents_and_Links for purchases exceeding $4,999. Purchases of this value may require four
to six months to complete if competitive bidding is required. Contact the Purchasing Department
as soon as the need for the good and or service is identified. Prior planning is paramount.” Cause:
The Spot Purchase Request Form was not submitted to the Purchasing Department, instead the
user department used a check request to pay for the subscription. Written procedures for
selecting non-approved suppliers for purchases over $4,999 were not followed by the user
department.
Effect:
The Purchasing Department is responsible for calculating the amount of money spent by
category. When user departments/campuses circumvent the Purchasing Department by using
check requests for payments, the Purchasing Department cannot track such purchases by vendor
or category. Purchases that should be bid ($50,000 or more) or approved by the Board ($75,000
or more) may be missed. Additionally by not using POs, encumbrance accounting is not used.
Recommendation:
When making purchases using a non-approved supplier for purchases over $4,999, user
departments/campuses should follow Board policy and the CDAP.
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cc:
Dr. Bob Morrison, Superintendent
Dr. Linda Chance, Chief of Staff
Dr. Rene Barajas, Chief Financial Officer
David Pate, Director of Finance
Mark Booker, Director of Purchasing
Acknowledgements:
Phyllis Williams, CTSBO, Auditor in Charge
Gil Chiquito. CFE, Senior Staff Auditor
Donna Paltjon, CGAP, CFE, CTSBO, Staff Auditor
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Appendix One – Response from the Chief of Staff
Wed 11/30/2016 9:59 AM Linda Chance [email protected] Re: Extension of reply date - Audit of Expenditures Ending with Zeros and Vendors with High Frequency Payments To Steve Martin <[email protected]> Steve, Rene and his reports will respond to the Expenditures Ending with Zeros and Vendors with High Frequency Payments September 1, 2014 to November 30, 2015 audit. I will not have anything further to add. As recommended in the audit, Mark Booker is scheduled to meet with key department leads on December 5 to provide additional training in areas of concern. Let me know if you have any questions. Linda Chance, Ed.D. Chief of Staff Garland Independent School District 501 S. Jupiter Rd. Garland, TX 75042-7108
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Appendix Two – Response from Chief Financial Officer
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