DOE internal controls, structures provide financial accountability, audit shows
The independent audit concludes that appropriate controls and structures are in place to manage the financial statements of the state's public school system.
News Release from Hawaii DoE April 21, 2015
HONOLULU - The Hawaii State Department of Education (DOE) today released its Annual Financial Audit for the 2014 fiscal year (FY 2014) which shows the Department is doing a better job at keeping its finances in order. The independent report analyzed financial statements of the public school system, including operating, capital improvement and federal funds. The DOE’s FY 2014 audit was submitted last month to the Federal Audit Clearinghouse, which operates on behalf of the Office of Management and Budget.
The DOE’s financial audit provides an objective third-party examination of the presentation of the Department's financial statements for the most recent fiscal year, coordinated by the State of Hawaii's Office of the Auditor.The DOE elects to maintain a separate, independent audit, rather than being incorporated with a single State of Hawaii audit.
"Annual independent audits are crucial to ensure taxpayers’ funds are being monitored and maximized to support teaching and learning in the most efficient way," said DOE Senior Assistant Superintendent and Chief Financial Officer Amy Kunz. "The findings validate our financial controls and provide guidance for improvement in some areas."
The 65-page audit report published by Honolulu-based N&K CPA Inc. reviewed the DOE’s $1.494 billion general fund appropriation for the fiscal year ending June 30, 2014. It concluded internal controls examined are appropriately structured to prevent or detect financial misstatements, and found the DOE to be in compliance with requirements of major federal programs.
Auditors noted "opportunities for strengthening internal controls and operating efficiency." Kunz says the Office of Fiscal Service has already moved to address the recommendations as outlined in the findings, including:
- Adjusted the calculation of vacation and sick leave accrual for a small portion of teachers to align with the correct fiscal year.
- Strengthened accounting procedures for new federal grant payments to ensure accurate reporting.
During the last four years, the DOE has also increased its internal audits to identify areas in need of improved controls. This move aligns with the DOE/Board of Education joint Strategic Plan, which calls for effective organizational, financial, human, and community resources in support of student success.
http://www.hawaiipublicschools.org/Reports/AFSA2014.pdf
http://files.hawaii.gov/auditor/Reports/2014_Audit/DOE2014.pdf
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Key Quotes from Audit Report:
As described in the accompanying schedule of findings and questioned costs, the DOE did not comply with requirements regarding CFDA No. 12.600 Community Investment as described in finding number 2014-002 for Reporting. Compliance with such requirements is necessary, in our opinion, for the DOE to comply with the requirements applicable to that program. (p52)
Financial Statements--"Significant deficiency(ies) identified?" -- Yes (p55)
Federal Awards--"Material weakness(es) identified?"--Yes (p55)
Auditee qualified as a low-risk auditee? -- No (p56)
Review Accounting of Compensated Absences Balances
Ref. No. Internal Control Finding 2014-001
The DOE prepared a summary leave schedule to compile its accrued compensated absence liability balance and reported the liability to the State Comptroller. The liability was based on the balance of unused earned hours recorded in KRONOS, a computerized time and attendance system, multiplied by the employee’s hourly salary rate.
The vacation and sick leave balances calculated using KRONOS as of June 30, 2014 for financial reporting purposes erroneously included leave credits earned for the subsequent fiscal year recorded in KRONOS as of July 1, 2014 for 12-month teachers. The leave hours were added as of June 30, 2014 in conformity with all other employees whose hours earned for June are recorded the following day on July 1 in KRONOS. July 1 vacation hours earned should not have been added as of June 30 for the 12-month teachers. The DOE did not detect the calculation errors in the accrued vacation and sick leave balances for the 12-month teachers. As a result, the vacation and sick leave balance as of June 30, 2014 was overstated by approximately $2 million and $3 million, respectively. (p57)
Strengthen Accounting and Reporting For Community Investment
Grant Federal agency: U.S. Department of Defense
CFDA No.: 12.600
Program: Community Investment Federal award no.: HQ00051310092
Criteria: 32 CFR 33.20(a)(1) states in part, “A State must expend and account for grant funds in accordance with State laws and procedures for expending and accounting for its own funds. Fiscal control and accounting procedures of the State, as well as its subgrantees and costtype contractors, must be sufficient to permit preparation of reports required by this part .…”
Condition: The amount of federal cash receipts, federal disbursements, federal share of expenditures, and recipient share of expenditures reported on the Form SF-425, Federal Financial Report, as of June 30, 2014 did not agree to the accounting records.
The DOE incorrectly reported no federal cash receipts and disbursements although the DOE received over $2 million from the grantor in cost reimbursement.
The reported amount of federal share of expenditures of approximately $2 million was based on the sum of invoices on hand as of December 31, 2013 used for the only reimbursement claim made for the grant. The DOE’s computerized accounting system recorded federal grant expenditures totaling over $5 million incurred during fiscal year ended June 30, 2014.
The reported recipient share of expenditures of approximately $2.3 million was also calculated based on the sum of invoices on hand as of December 31, 2013 instead of at least $4.2 million that was recorded in the DOE’s computerized accounting system.
Furthermore, the amount of federal share claimed on the Form SF-271, Outlay Report and Request for Reimbursement for Construction Programs, although supported by invoices did not agree to the amounts totaling approximately $79,000 classified as federal share in the DOE’s computerized accounting system. The amounts recorded in the computerized accounting system and the amounts reported on Form SF-425 or Form SF-271 were not reconciled. The DOE reached an agreement with the grantor in February 2015 on how to reconcile the amounts recorded in the computerized accounting system and the amounts reported on Form SF-425 and Form-271. (p58)