This is the fourth in a series of articles related to internal controls in the approximately 650 smaller enrollment school districts (less than 1,000 students). This article follows articles that covered supplemental payroll-; expenditure cycle-; and revenue/receipt cycle-related internal controls. No school district or charter school is exempt from the need for appropriate internal controls however limited the number of staff for segregation of duties. In many smaller enrollment districts, central administration is comprised of the superintendent, and a two- or three-person business office that includes the business manager, plus a payroll clerk and/or an accounts payable clerk. The trusted staff in the business office are sometimes provided access to all or nearly all of the accounting processes related to revenue-related functions; however, the limited distribution of roles and responsibilities to only the staff in various offices introduces a higher degree of avoidable risk than may be reasonable.
Select cash-on-hand- and cash-in-bank- related functions will benefit from supplemental segregation of duties in smaller enrollment school districts. Functions that may be assigned to select staff that are independent of cash-management activities across campuses and the business office include:
- Approval in writing from the principal and business office before a new campus or student activity fund is started;
- Approval in writing from the principal and business office before a new campus or student fundraiser is started;
- Approval from the business office to open or close bank accounts for campuses or student activity funds;
- Approval from superintendent or other non-business office staff to open or close bank accounts to be used by the business office;
- Require the business office to act as custodian for undeposited cash-on-hand in the campus office(s), in departmental office(s) or held by student activity group(s). Undeposited cash-on-hand should be deposited the next day or as soon as possible (if not needed for cash drawer purposes in the near future);
- Provide a copy of the pre-numbered receipts for cash and checks received in person from payors, and when cash and checks are transferred between district personnel and/or offices
- Require staff independent of a petty cash function to periodically reconcile the cash with the petty cash records and review for appropriate accounting entries;
- Assign someone to receive unopened monthly bank statements and scan the statements that is independent of the business office, campus office(s), or student activity group(s) associated with respective bank statements. The superintendent may receive unopened bank statements for accounts used by the business office. The business office may receive unopened bank statements prior to distribution to the campus office(s) or to student activity group(s);
- Assign someone to maintain control over the supply of unused checks and voided checks that is independent of the business office, campus office(s), or student activity group(s);
- Prohibit cash-on-hand being used as a “local bank” to cover purchases, check cashing, loans, advances or reimbursements;
- Require consistent cash handling practices by ALL individuals and sponsors that handle cash on all ALL campuses, as specified in the campus activity manual; and
- Assign staff to review bank reconciliations that are not involved in cash receipt, payroll or disbursement functions in the respective business office, campus office(s) or student activity group(s).
School districts should look for opportunities to improve segregation of duties involving cash management functions in the business office in addition to these activities in the campus office(s), departmental office(s) or by student activity group(s). The internal control examples listed above are a start and may be supplemented with additional control processes in larger small enrollment districts.