Nearly every school district has select areas that are constant stress points for executive management. Scenarios that affect all enrollment size school districts include:
- Large enrollment school districts have offices or work units with a small number of employees in various areas
- Decentralization transfers roles and responsibilities to employees that lack comparable specific subject matter expertise compared to employees in the central office
- Small enrollment school districts only have two or three employees working across all areas of financial management
- Most campus principal offices have a single nonexempt payroll clerk
- Most student and campus activity funds have a single employee serving as sponsor and person collecting fund raising receipts
- After each athletic or other UIL event a single employee is responsible for holding the cash collection until it is deposited
- Single points of failure because only one employee is capable of running certain processes
We may take for granted that large enrollment school districts will always have plenty of staff for adequate segregation of duties and that the superintendent in small-enrollment school districts is capable of keeping an eye on everything. Regardless of the scenario, however, significant issues do occur every year in a few districts from the largest to smallest of student enrollment-sizes. Accordingly, management in all enrollment-size districts need to identify the higher risk areas and implement compensating controls to offset select risk factors that may be outside of management’s control.
It is recommended that compensating roles and responsibilities be assigned to select staff, managers or the superintendent that work outside of select offices or work units in question to offset an inherently weaker level of internal controls. School district executive management should consider one or more of the following compensating controls to implement:
- Review key data analytics
- Assignment of supplemental review and approval responsibilities
- Increase monitoring
- Increase cross training
- Identify single points of failure
- Make surprise visits to observe procedures, processes and workflows
- Identify key controls to monitor more closely
- Review monthly or periodic activity reports of cash receipts and cash disbursements
- Review all p-card transactions
- Install exception reports
- Promptly act on exception reports in higher risk areas
- Install governance processes to approve changes, additions and deletions to key records
- Provide internal training and provide access to etraining
- Encourage participation in external training to increase employees’ awareness of how it’s done in other school districts
- Increase emphasis on review of all employees’ performance of key internal controls in annual performance reviews
- Review employees’ performance of compensating controls in annual performance reviews
- Consider moving certain functions back to central administration following decentralization, if internal control risks or issues cannot be reduced to reasonable levels
- Consider functional reorganization of select roles and responsibilities, if select internal control risks or issues cannot be reduced to reasonable levels
- Find ways to reward employees for job well-done in connection with internal controls
- Consider a management review of procedures, processes and workflows of select areas
- Increase emphasis on up-to-date procedure manuals that are specific to the manual and technology supported systems installed in the school district
- Implement a suggestion box
- Implement a fraud reporting hotline
School officials must make practical business decisions concerning the design and implementation of internal controls. No organization has enough resources to afford an absolute perfect level of internal control. So management must make smart and prudent investments to achieve a desired level of diminished risk. In other words, there is a balance of costs and benefits that must be weighed by management. Sometimes, it better to overcompensate in installing supplemental controls out of an abundance of caution according to the local discretion of management and the board of trustees.