INTERNAL CONTROLS Matthew Pakos School Improvement Grant Programs May 23, 2011

1. INTERNAL CONTROLSMatthew PakosSchool Improvement Grant ProgramsMay 23, 2011

2. Agenda • What are internal controls? • Why do we need them? • Types of controls • Discussion

3. What are Internal Controls? • Processes & procedures designed by management & other personnel to provide reasonable assurance regarding: • Effectiveness and efficiency of operations • Reliability of financial reporting • Compliance with applicable laws and regulations

4. Why Do We Need Internal Controls?

5. Why Do We Need Internal Controls? • Achieve goals and objectives • Safeguard assets • Ensure accuracy and reliability of data • Promote operational efficiency • Comply with laws and regulations

6. Why Do We Need Internal Controls? Recipients of federal funds must have controls that: • Ensure federal money is spent correctly • Transactions properly recorded and accounted for • Prove federal money is spent correctly • Transactions executed in compliance with laws, regulations, and provisions of contracts or grants • Safeguard property purchased with federal money • Funds, property, and other assets safeguarded against loss from unauthorized use or disposition

7. Why Do We Need Internal Controls? ED Office of Inspector General November 2010 Report to Congress (for April –Sept 2010) • One school district designated ‘High-Risk Grantee’ • Unallowable costs > $17M; • Inadequately documented costs >$121M • Six investigations involving federal funds in public school districts • Sentencing of district officials in 3 cases

8. Why Do We Need Internal Controls? • FY09 Nationwide Single Audit Findings – 1167 Total • 29% (341) Unallowable Costs • 16% (189) Reporting • 10% (113) Property and Procurement • 9% (105) Cash Management • 9% (104) Sub-recipient Monitoring

9. Types of Internal Controls

10. Time and Effort Reporting • Districts must maintain auditable "time and effort" records that show how each Title I employee spent his or her compensated time • These records are written, after-the fact (not estimated or budgeted) documentation of how the time was spent • Time and effort records must be prepared by any Title I staff with salary charged:(1) directly to a federal award, (2) directly to multiple federal awards, or (3) directly to any combination of a federal award and other federal, state or local fund sources

11. Time and Effort Reporting • Records • Semi-Annual • Monthly • Stipends and Other Payments • Sample Forms • Title I Semi-Annual Certification • Title I Monthly Time and Effort Records for Split-Funded Staff

12. Time and Effort Reporting – Semi-Annual Reports • For staff fully-funded by Title I • District must maintain copies of signed semi-annual certifications documenting that staff work solely in activities supported by the Title I grant

14. Time and Effort Reporting – Monthly Reports • Split-time staff – Work on Title I and other activities • District must maintain documents that describe time spent on Title I and other activities

16. Time and Effort Reporting – Stipends and Other Payments • Stipends (and other supplemental contracts) must also be reported • Record stipends on semi-annual certifications or monthly reports, whichever is utilized for the particular employee • Alternatively, permitted documentation includes: • A signed supplemental contract that stipulates Title I work activity, • Sign-in attendance logs approved by the supervisor (e.g., pay for professional development activities, after school activities, etc), and • Employee time/pay slips that specify "Title I" and are approved by the supervisor

17. Allowable Costs • Recipients of federal funds must be able to spend federal money correctly and prove that they did so • OMB Circular A-87 -- 43 specific costs detailed • All costs must be necessary and reasonable • Must be necessary for the performance or administration of the grant • Must follow sound business practice • Fair market prices • Act with prudence under the circumstances • Do I really need this? • Do I have the capacity to use what I am purchasing? • Did I pay a fair rate? Can I prove it? • Maintain written policies & procedures

18. Procurement Controls • Maintain written policies and procedures • Common problems • No documentation • Invoice predates purchase order • Lack of description in contracts/invoices • Lack of approval over payment process • Inadequate segregation of duties • Conflicts of interest

19. Inventory Controls • Supplies • Do not cost much money • Used fairly quickly • Must assure they are used solely for authorized purposes • Determining level of control over item • Pens, paper, toner, laptops • Not enough description on property records • Tracking non-equipment items • Small and attractive • Little control needed; group control; individual control.

20. Equipment Controls • Tangible personal property; useful life more than one year; acquisition cost of $5,000 or more • Must have adequate controls to account for: • Location of equipment • Custody of equipment • Security of equipment • Property records • Description, serial number, acquisition date, cost • Physical inventory • Must be performed at least every two years • Control systems to prevent loss, damage, and theft

21. Travel Expenses • Reasonable and necessary? • Maintain and confirm: • Purpose • Documentation • Receipts

22. How you document time & effort for staff Equipment controls your district uses Inventory controls your district uses How you determine allowable costs How we at ESE can help you in these areas Discussion

23. Resources • OMB Circulars • A-87 Revised: Cost Principles for State, Local, & Indian Tribe Governments • A-133: Audits of States, Local Governments, & Non-Profit Organizations • A-133 Compliance Supplement 2010 • U.S. Department of Education Office of Inspector General Reports

24. Contact Information Website: www.doe.mass.edu/titlei/ Email: titlei@doe.mass.edu Phone: 781-338-6230