Cata Audit

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CAREER ACADEMY AND TECHNICAL ACADEMY CHARTER SCHOOL (CATA)

ALBUQUERQUE PUBLIC SCHOOLS

REPORT # 10/1146

June 22, 2011

AUDIT STAFF

Pe g Koshmider, Audit Director

Son ia Montoya , Senior Auditor

Joyce Ramirez, Staff Auditor

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BACKGROUND

At th e request of the Legisl ative Finance Committee (LF C), the Superin tendent of Albuquerque Pu blicSchools directed an audit of the financial processes and internal controls of Career Academy an dTechnical Academy (CATA) Charter School be conducted The LFC request was a resu lt of a complaintregistered with them regarding financial matters at the schoo l.

Albuquerque Public Schools is the current authorizer of twenty-one charter schools in th e Albuquerque

area. CATA is a high sch ool (grades 9-12) located in one of the indus tri al parks in NorthwestAlbuq uerque. The school curricu u m provides both educationa l and career based programs for the

students. During the 2010-11 school year, the school had a student enrollment of on e hundred thirty-ninestudents as reported in the February 20 11 STARS repo rt , eight cert ified staff and six support staff. Theschool's 2010-11 total bud get was $ 1, 542 ,716.

The school's finances are incorporated into APS ' yearly fi nancial au dit conducted by an external auditfirm. In addition, a site v is it re viewing curri cu lum and financial processes is conducted by APS staff on anannual basis.

OBJECTIVES

1. Review the financi al records of CATA Charter School to determine if there is waste, fraud orabuse.

2. Evaluate the adequacy an d effectivenessof

the internal controls re lated to the various CATACharter School processes .

SCOPEProcesses and financial transactions related to CATA from 2007 through July 201 1, with a concentrationon the financial transactions during the 2010-201 1 school year.

METHODOLOGY1. Review the school charter, policies, directives, procedural manual s, state and federal laws,

budgets, governing board minutes, personnel files and organizational ch arts related to CAT ACharter Sch ool processes

2. Conduct interviews with the CATA principal , staff members and related personnel at AlbuquerquePublic Schools and PED as deemed necessary .

FINDINGSFinding #1

Condition: Overs ight by Albuquerque Pu blic Sch ools du ring the approval process and start-up ph aseshould be more th orough to avoid law violations, infractions involving the school's charter an d policiesand procedu res which result in audit findin gs. CATA's compliance with State Laws, its charter, policiesand procedures an d internal controls was fou nd to be lacking.

Criteria: Th e New Mexico Open Meetings Act outlines how school govern ing boards must handle theirmeetings . State law, (13-1-169 N.M.SA , 1978 Compilation, as amended) , mandates the proper stateprocurement processes. State law, 22 -88-10 NMSA 1978, mandates how nepotism issues are handled .In addition , the school's Charter outlines th e expected internal contro l structure, po licies and procedures.

Cause: The scope of the audit included a review of compliance issues dating to the opening of the

school and it was found that compliance was an issue from the start bu t not identified in the external au ditand a site visit was not conducted until the secon d year the school was in existence.

Effect: A lack of early and close supe rv ision a llows inexperienced school administrators and governingcounc il membe rs to start processes tha t are not in compliance wi th the charter, laws and policies an d todevelop poor administrative habits that can be difficult to change.

Recommendation: Close supervis ion with a start-up charter school is necessary to insure that th e stateand federal laws, school charter, policies and procedu res are adhered to from the beg in ning. A thorough

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review of the charter prior to the authorizer's app roval is necessary. A review of the governing boardprocesses during the start-up phase and prior to the start of the actual school year is recommended toin su re full compl iance with all governance issues. Multiple site visits the first year, with the first on eduring the first semester are recom mended . Th e authorizing district's personnel charged with fin ancialreview should include sampling of all fin ancial transactions on a regular basis.

As the administration gains experience and proves their level of expertise, the authorizer should be ab le

to reduce the frequen cy of their oversight. After each external audit it is recommended that follow-up beconducted to insure an action plan has been developed and the plan is tested for successfulimplementation.

Management Response: (From APS Charter Schools)

Two years after CATA was initially cl1artered by the Albuquerque Public Schools a department(CharterlMagnet Schools) was specifically created for applicatlonlrenewal review and over site of charterschools. The department has policy and procedure that governs the interaction between the distnct andcharter schools Part of these procedures is a provision for an annual site VISIt. The site visit protocol hasbeen updated each year as the need for greater over site In certam areas becomes apparent Inresponse to this audit the department has added a more detailed review of charter school board mmutesto the review process. Dunng this last year (10-11) the financial component of the site visrt has become a

separate viSIt. at the direction of the Executive Director ofAccountmg. The mitlal year (plannmg) VISitSare now reqUired by law and in policy

22-8B-/2. Charter sc!lOols; term,' oversight and corrective actions,' site visits,' renewal of

charter; grOllllds for 1l0tlTellewa/ or revocation. (Effective July 1,2012.)

A. A charIer school may he approved/hI' an initial lerm ofsi x year ',' provided Ihat the/irs! year

..hall he used exclllsively fo r planning ami nol for completing the application. A charIer may he

renewed/or sLlccessive periods offive years each Approvals oIIess f/wn/ive years may be

agreed 10 belween Ille charter school and Ihe charlerinR a u t h ( ) r i ~ vB. During Ihe planning year, Ihe charIer w.:hool shall tile ( I minimum olthree .\'Ialu\ reporls lI'ilh

tlze chartering authority and the depw'!Tl1enlfor the purpose (4demonslraring fhallhe charTer

school' implementation p"ORre 's is con iSlent with the condilions, standard., (md procedures ofi l .I approved charter. The report con/e11l , formal lind schedule/or submission shall he agreecilo

by the chartering authority an d Ihe charter schoo/and become parI l ~ l l h e charier contrael.

This should ensure Ihal the authorizer doe.\ work with a . chool inlhe fhrmation olliS procedures

and (ollows slatule closely

Management Response: (by APS Finance Department)

I was not working with Charter Schools during CATA's approval and start-up phase and don 't have any

records pertaining to this period As the Charter School Busmess Manager, I work closely with the

independent auditors during tl1e annual audit through the eXit conference. Each charter school submits aCorrective Action Plan annually in response to their audit findings and how they plan to resolve them to

aVOId repeat findings. Dunng the annual site viSIts. whicl? started In the 2008-09 school year, one of the

items addressed in the fiscal portion are the audit findings and their Corrective Action Plan is reviewed

with each BUSiness Manager I continue to update the fiscal section of the site viSit as needed and

welcome Qny suggestions fo r improvement.

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Finding #2

Condition: A Procedures Manual outli ning daily operations does not exist for the APS CharterSchool/Magnet School Department

Criteria: Department procedures ensu re processes are pe rformed accurately, effectively and efficiently,

ensure internal controls are in place and assist in the development of new departmenta l employees.

Cause: A Procedures Manual has not been created . It appears the department was consider ing thenewly adopted APS Charter Schools Procedu ral Directive as its manua l. However , the directive does notinclude day-to-day operations which are essential to ensure efficiency an d effectiveness of itsoperations/processes.

Effect: Processes and procedu res may not be performed in the most effective or efficient manner. In

addition, new employee trai ning may be hindered .

Recommendation: A Procedures Manual needs to be created outlining the various day-to-dayoperations/processes handled by the department

Management Respons e:

The CharterlMagnet School Department will start a review and documentation of daily procedures with

the goal of creating a procedures manual for the department.

Finding #3Condi tion: The governing board conducted closed sessions during the regular meetings that did notadhere to the state laws related to the Open Meetings Act

Criteria: Section 10-15-1( /) of the NM Open Meetings Act states, "If any meeting is closed pursuant to theexclusions contained in Subsection H of this section, the closure. (1) If made in an open meeting, shallbe approved by a majority vote of a quorum of the policymaking body, the authority fo r the closure andthe subject to be discussed shall be stated with reasonable specificity in the motion calling fo r the vo te on

a closed meeting; the vote shall be taken in an open meeting, and the vote of each individual membershall be recorded in the minutes. Only those subjects announced or vo ted upon prior to closure by thepolicymaking body may be discussed in a closed meeting."

''The board, commission or other policymaking body shall keep written minutes of all its meetings. Theminutes shall include, at a minimum, the date, time and place of the meeting, the names of members inattendance and those absent, the substance of the proposals considered and a re cord of any decisionsand votes taken that show how each member voted. "

Cause: Th e purpose for the closed sess ion was not consistently iden tified, the business conducted in theclosed session was not consis tent ly appropriate, properly stated motions to adjourn to closed sessionsand back to open sess ion s were no t documen ted , improper personnel were included in the roll call vote,and action taken on items discussed in a closed session must be taken in an open mee ting. In addition,minutes were recorded with errors or incorrect information. The documented minutes did not consistentlyconta in a date, time an d place of the meeting. Changes to the minutes were not consistently or properlydocumented, and minutes were not consistently recorded in an accu ra te manner.

Effect: Adherence with the Open Meetings Act is important to insure correct documentation of thegoverning board's activities and proper governance of the school. Whe n closed sessions are held,adherence to the state law is important to assure the pu blic that those sessions are appropriate and in

compliance wi th the state laws.

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Recommendation: A thorough review of the State Law, the proced ures used by the Governing Counc iland retraining of staff and board members is recommend ed , The authorizer must also review themeeting minutes to ensure compliance with the Law

Management Response:

The CA TA Governing Council will receive further training on the reqUIrements/procedures of the Open

Meetings Act by CA TA s attorney at tile September regular Governing Council meeting, Governingcouncil meeting minutes remam avaifable to the authorizer for reView, although there is no law requiringauthorizer review of the minutes

FINDING #4Condition: The Governing Coun cil did not app rove the hiri ng of employees that are related to th

CE O/COO/Principal in a timely manner,

Criteria: 22-88-10 NMSA 1978 states, "The head administ rator of a charter school shall not initially emplo

or approve the initial employment in any capacity of a person who is the spouse, father, father-in-law, mothe

mother-in-law, son, son-in-law, daughter. da ugh te r-in-law, brother brother-in-law, sister or sister-in -law of

member of the governing body or the head adm in istrator The governing body may waive the nepotism rul

for family members of a head administrator"

Cause: A brother of the CEO/COO/Principal was hi red in 2007 as evidenced by the 1099 forms issued to

him in 2007 and 2008, His hiring was not approved for waiver by the Counc il, as required by the lawrelative to nepotism, un til the Govern ing Council meeting of November 19, 2009 and almost a year afterthe initial nepotism approval for the son, which demonstrates knowledge of the law,

The hiring of one of the sons of the CEO/COO/Pri ncipal , did not receive a wa iver from the Law by the Counci

until December 11, 2008, nearly two years after his employment

These nepotism issues should have been dealt with prior to the employment of th e family members, The

Governing Board should have had timely notification and approval to remain within the limitations of the state

nepotism laws,

It appears that employment of the Principal's son an d brothers was paramount to following the sta te laws or

the school administration is not sufficiently fam il iar with state laws, Both ne ed to be closely monitored in the

future by the charter's governing council

Effect: This exposes the school to poten tial il legal acts, fraud and reputational risk_

Recommendation: The CEO/COO/Principal must request and receive a waiver from the law, asprovided in the law, from the school's Govern ing Counc il prior to employing individuals who are fa milyrelations, The Govern ing Counci l should also consider the concentration of family members involve d inthe management of this sch ool


The Principal's brother was hired as an employee and HD Systems was hired by the Governing CounCil as

an independent contractor, in 2007 - prior to the 2008 effective date of NMSA 1978 SectIOn 22-B8-10 See

NMSA 1978 Section 22-B8-10(C) Moreover, neither of these personnel are related to any Governing Counci

members and thus the contract does not violate NMSA 1978 Section 22-88-10, to the extent that 22-88-10

applies to these contracts, the nepotism provisions of that Section were expressly waived by the Governing

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Council in 2009, as allowed under the statute, out of an abundance of caution The School will continue to

follow NMSA 1978 Section 22-8B-10, as applicable

FINDING #5

Condition: The salary administration does not appear to be consistent relative to the contracts andsalary schedules

• Teachers' salaries do not appear to be consistent with the approved salary schedu le

• Teachers' contracts were signed after the start of the school year (Brillion, Clark, King, Brookley& Ganz dated 9-27-1 0 Dvo rak dated 9-28-10 ).

• Contracts are not written consistently relative to number of days for adm inistrati ve staff making itdifficult to analyze .

• Teachers with the same degree, certification leve l, credit hours earned and years of recognizedteaching experience are paid different amounts (King level 2, BA, 10+ years, 45 extra hrs$43,333; Garcia level 2, BA 10+ years, 0 extra hrs, $45,480 ; Tyler level 2, BS 10+ years, 0 extrahrs, $46,241 ; Clark leve! 2, BA 10+ years, 0 extra hrs, $51, 545)

• Change in number of days/hours per year worked provided a 35.5% increase in salary for a family member and the salary is not appropriate for responsibility levels.

Criteria: The salary schedule was approved by the Goveming Council and should be followed asapproved.

Cause: It appears that school adm in istration makes decisions outside the direction approved by theGoverning Council which can have an impact on the budget.

Effect: Teachers will not stay if they are not paid according to the approved sala ry schedule. Turnover isharmful to the continuity of th e school.

Recommendation: Testing of approved sa la ry schedules shou ld be part of the site visit or quarterlyfinancial follow-up.


Employee contracts were signed in August. prior to the School's September start date Staff will be pai

according to the approved salary schedules. Discrepancies in the number of days on certam employe

contracts was typographical error corrected when discovered. The School is staffed, and contract days ar

set and scheduled, according to the School 's needs. The Governing Council has discretion in setting salaries

as allowed by the charter and the Charter Schools Act. Salary consistency between similarly-situated staff w

be maintained. It should be noted that the current Business Clerk 's salary is consistent with the salary o

prevIous business clerks

FINDING #6

Con dition: Benefi ts paid to employees are not being properly reported.

Criteria: Federal tax code states, "Any fringe benefit you provide is taxable and must be included in th

recipient's pay unless the law specifically excludes it."

Cause: The cellular telephone bill of an employee , the CEO/COO/Principal's son, is being reimbursed usin

school funds. A review of payroll transactions and 1099 forms did not reveal the benef it was ever included i

the in dividual's pay It should be noted that the cellular telephone bills are in the employee's name and hom

address. The school reimbursed the CEO/COO/Principal for these expenses.

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Effect: The individual's income was improperly reported as the benefit should have been charge

appropriately. The school is in violation of federal tax code.

Recommendation: Expenses paid by the school sh ould be in the school's name. The school sh ou ld work

with all vendors to ensure billings are sent in the schoo l's name and to the school 's address. The payment o

cell phone bi lls should be properly reported on an ind ividual's tax documents


The celf phones at issue are now in the School's name and the School's address; the recommendation

fo r proper tax treatment/reporting on individual tax returns has been duly noted by those indiVIduals.

FINDING #7

Condition: Operational funds/public fund s were used to make permanent improvements to a leasedbuilding without prior approval of the Governing Counc il and without full an d accura te information to theGovern ing Council prior to obtaining their approva l. Conditions in the lease approved by the GoverningCouncil were not followed

• The lease was signed Jun e 29, 2007 an d approval was sought at the July 2007 GoverningCouncil meeting . "Lessor to advance $80,000 to bring building up to ADA stan dards (needs to

be up to fire code, needs boys' bathroom; needs revolving door from art to photo room , needsramp/elevator) . Lease payments will be $14 ,000 per mon th unt il we pay back the $80,000; thenlease payments reduced to approximately $12,000 per month. It is a year by year lease. We arelocked in for five (5) years, Lease gives school option to pLlrchase . Mot ion by Tom to approvethe lease. 2

ndby Tranci. Vote: Approved 4:0 (yea: Tranci, Ka y, Tom, Debra)." Description

provides for $800,000 expendi ture. Actual expenditure based on lease totals $8 60,993.21,There is no reference to interest expense that will be incurred, Based on lease figures interestexpense totals $60,993,21 on $80 ,000 in borrowed funds (76 .2 % interest on the principal) ,

• Not all improvements approved by the board in the $80 ,000 designated for ADA improvementswere completed (ramps/elevators)

• Landscaping was added to the school

• Walls were removed and added to th e school

• Obligation to obtain APS approval was not completed,

• Terms of th e lease were not correctly reported to the board.

Criteria: The Lease document between th e Lessor an d Lessee (CATA) section 7.4 (b) states , "Before

Lessor commences construction of the Leasehold Improvements, Lessee shalf obtain the approval APSand of any governmental authority have jurisdict ion under the Charter Schoo l Act and shall deliver

evidence of such approval to Lessor'

Cause: It appears that the amounts are not clear ly disclosed in th e lease as renovations of leasedbuildings cannot be made with operational funds and the payment statement obscures the detail of therepayment plan .

Effect: Public fu nds were spent on a bu ilding that is not owned by the taxpayers and it appea rs th at anexcessive amou nt of in terest was paid .

Recommendation: The lease sh ould be presented to the board prior to signing. Calculations should berun to determine actual costs that will be incurred. Taxpayer dollars should be expended on buildi ngsowned by th e school or the au thorizer.

The lease should be clear in th e amount to be re pa id an d describe any additional charges such as tota lfor lease of the building , charges advanced for use in renovation s, and interest charges with a total to berepa id that matches the payments.

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Manageme nt Response:

The Lease between AEG Investors LLC and CATA IS in accordance with New Mexico law and wasreviewed/discussed/approved by the Governing CouncH and was effecUve as of the date of the GoverningCouncil's approval/ratification of this lease agreement. The terms of the Lease call for payments of$14687.58 permonth in SY 2007-08: $14.931.19 permonth In SY 2008-09 and $15, 179.68 in SY 200910; decreasing to $12,926.13/month in 2010-11 and $13.184.65/month In SY 2011 -12 - this comports

with what the Governing Council minutes reflect and is In accordance with New Mexico law. which doesnot allow public entities to permanent Improvements to private property. There was no supplemental oradditional payment for improvements. Here, as reflected in Section 7.4 of the Lease, the landlord madethe Improvements at the landlord 's cost and, as permitted under the law. charged back its Increased costsas monthly rent to the School. There were no funds "borrowed" by the School. With respect to the al/egedobligation to obtain APS approval of the improvements, the Lease obligates the School to APS approval,if applicable and i fAPS had jurisdiction over the Improvements pursuant to the Charter SchoolsAct. (Lease, Section 7.4 b)) Pn'or to the improvements, the School's Principal contacted APS (KizitoWijenje) . who told the Principal that because the improvements were being made on privately-ownedproperty, APS approval was not necessary. CA TA worked with POMS & Associates the City ofAlbuquerque, and the Fire Marshal's office with respect to improvements made to the facilities. Pursuantto the Charter Schools Act. Section 22-88-4.2, taxpayer dollars may be expended on privately-ownedfacilities leased by the School, there has been no violation of aw. Nevertheless, inasmuch as the Lease

expires on July 20, 2012, the School will be exploring its alternative with the Landlord , including a LeasePurchase Agreement, for any future lease or utilization of the properly by the School.

FINDING #8

Condition: The Capital Inventory was not properly maintained according to CATA policies, nor was thefurniture and equipment properly tagged.

The Capital Inventory was not available with all information that is required. An inventory was providedth at included an inconsistent list of furniture and equipment depending upon the area that wasinventoried. Values were not included; some items were dup licated,

Criteria: The CATA Financial Procedures Manual states, "Detailed property records must be maintained

to include the following in formation fo r each item of property:

• Tag number• Description of property

• Date of acquisition

• New or used at acquisition• Physica//ocation

• CostAn inventory of all non-expendable property must be taken annually at each school site "

Cause: The format requ ired in the policies of the school should be strictly followed . This includes values,locations, tagging and descriptions of the equipment. An annua l inventory is necessary to protect thetaxpayer property.

Effect: At the time of pu rchase the Cap ital Inventory should be started and include the tagging process.

Anytime equipment is salvaged or pu rchased the list should be updated and the inventory sh ould bechecked annually .

Recommendation: It is recommended that the school review all furniture and equipment by location fo rta gg ing and all required information including the values. The invento ry should be run each year with theindividual present who is responsible for the particular work area One individual sh ould administer theentire inventory to insure completeness and accuracy.


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The new business manager will assure CA TA 's compliance with the State Law for Capital AssetsInventory CATA will have a designee (s) to assure accuracy of nventory.

FINDING #9

Cond ition: HD Systems con trac t was in itiated w ith a fam ly me mber in violation of State l aw , HD

Solutions is owned by the oldest son of the CEO/COO/Princi pal of CATA

Criteria: Procurement Law 13-1-190 Ex cept as permitted by the University Research Park Act {21-28-1

NMSA 1978], it is unlawful for any state agency or o cal public body employee, as defined in th eProcurement Co de (13-1-28NMSA 1978j, to participate directly or indirectly in a procurement when th eemployee knows that the employee or any member of the employee 's immediate family has a fin ancialinterest in the business seeking or obtaining a co ntract

Cause: It appears that there was an attem pt to circu mvent the procurement law by having the

Gove rning Board approve the waiver of the Nepotism Act as it relates to HD Systems during the

Govern ing Board Meeting dated December 11 , 2008. This is not a nepotism issue per se, but a violation

of procurement law, as well as a con flict of interest issue, Again approval was untimely since the

com pany was used since the inception of the school in 2007,

Effect: T his gives unfair advantage to a fami ly member in obtaining business from an org anizationsupported by taxpayer dollars and may not prove to be the most econom ical use of those dollars,

Recommendation: In addi tion to violat ing state procurement laws , a business ow ned by a family

member should not be used as it allows for an unfa ir adva ntage wi thout a competitive bid process , This

can reduce dollars that would have been available for use in the classroom for the students

Ma nagement Response:

CA TA disagrees and dIsputes that the New MexIco Procurement Code has been violated as al/eged bythe auditor HD Systems was hired by the Governmg Council in 2007 poor to the 2008 effective date of

NMSA 1978 Section 22-88-10. See NMSA 1978 Section 22-88-10(C). Moreover, HD Systems personnelare not related to any Governing Council members and thus the contract does not violate NMSA 1978Section 22-88-10, to the extent that 22-88-10 applies to this contract, the nepotism provisions of thatSection were waived by the Governing Council m 2009 (see Response to Finding #4) . The admmistratrvefamily member referenced m this finding did not sit on the Governing Council and did not ·particlpatedirectly or indirectly" in the aware of the contract to HD Systems m 2007 or thereafter, and thus there was

not violation of Section 13-1-190 The Governing Council's 2008 action with regard to HD Systems wastaken in compliance with NMSA 1978 Section 13-1-194. Finally, the hourly contract with a not-to-exceedamount of $20,000 complies with the Small Purchases exception of the Procurement Code (NMSA 1978

Section 13-1-125) for services: the $65/hour rate in the contract IS well within market rates for suchservices The Governing Council and the School do reaffirm thelf commitment to continumg to follow theNew Mexico Procurement Code

FINDING #10

Condition: Inadequate segregation of dut ies ,

Criteria: NMAC 6,20.2.11 letter B states, "Each school district shall develop, establish and maintain a

structure of nternal accounting controls and written procedures to provide for segregation of duties,. "

Cause: Funds subm itted by the staff for depos it were presented to the Bus iness Clerk who would

physically take the funds to the Adm inistrative Assistant w ho would issue a rece ipt. The receipted fu nds

were then given back to the Business Clerk who would the n prepare the deposit

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Effect: The Business Clerk could alter the amount of funds prior to submitting th em to the Ad ministrative

Assistant for receipt.

Recommendation: Funds shou d be submitted to the Ad ministrative Assistan t who must verify the funds

with the individual submitting them and issue a multi-part factory pre-n um bered receipt. Fun ds may then

be submitted to the Business Clerk who will verify the funds and receipt balance and then prepare the

fu nds for deposit.The Business Manager al so has a contract as the Drill Team Coach/Instructor. This will also be

inadequate segregation of duties if the Business Manager is involved in raising or handling the finances of

the drill team.


The School and the new business manager will successfully manage internal accounting controls to Insur

adequate segregation of duties that have been Implements and encouraged by Judy Berg during the APS sit

visit At this time, the School policy is to use 3-ply factory pre-numbered receipts in conjunction of segregatio

of duties to hinder the possibility anyone altering the amounts of the funds Staff that submit funds for depos

have the opportunity to review funds deposIted in their actiVIty account to assure quality assurance

FINDING #11

Condition: State Procurement Code was not always fOllowed.

Criteria: State law, (13-1-169 N.M.SA , 1978 Compilatio n, as amended), mandates the use of purchas

order procedures. In addition , per CATA's Financial Procedures Manual dated October 16 , 2006 , Purchasin

Procedures #1: "All employees shall utilize the Requisition/Purchase Order process before obligation o

school funds. "

Cause: Purchases were made prior to the purchase order being issued.

Effect:

These purchases are an obligation to the school.

The school may not have the money allocated tpay for these purchases since the sch ool was not aware of the purchase.

Recommendation: Ensure that a purchase order is in place prior to expenditures be ing made.


The new business manager will ensure that CATA's Financial Procedures Manual shall be updated; purchas

orders will be In place before expenditures are made.

FINDING #1 2

Condition: Disbursements were not always hand led properly. The following findings were identified:

• Invoice amount exceeds purchase order amount• Ch ecks over $1 ,000 were processed with one Signature

• Re ceiver not signed

• Invoices not marked paid

• Insufficient supporting documentation (non-itemized invoices)

• Gro ss receipts tax paid

• Purchase does not match PO description

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• Overpayment of rei mbursement

• Voided check not hand led appropriately (document destroyed)

Criteria: State Law, the school's Charter and Financia l Procedures Manual outli ne requirements for th

disbursement processes. In addition, good business practices require adequate internal controls .

Cause: Disbursement procedures were not handl ed consistently. Varia tion may be a result of havingseveral business managers handl ing the financial tra nsactions duri ng the year. In addition, the extensive

number of reimbursements, which totaled over $38,000 th is school year to th e CEO/COO/Principa l, did

not allow procedures to be handled conSis tent ly. Detailed invoices were not provided on a ll tran sactions.

Effect: The school is not in compliance with State Law or its own Ch arter and Financial Procedures Manual

Recommendation: The school must foll ow State, Law and its own Charter and Procedures Manual. In

addition, the Procedures Manual needs to be revi sed to Include ch anges made to th e procedures approved

by the Governing Council.


On a few occasIons over the past four years, due to the turnover in bUsmess managers, the school may hav

mconsistently followed state law/charger internal control procedures, however, overall the Instances noted d

not result in material violations of law or the charter. The School and the new business manager wIll ensur

CA TA 's Financial Procedures Manual will be updated.

FINDING #13

Condition: Deposits were not made in a timely manner.

Criteria: Per NMAC 6.20.2.14. letter C: "Money received and receipted shall be deposited in the bank with

24 hours ...." and CATA Financial Procedures Manual dated October 16, 2006, Receipt of Funds, #1 state

"CA TA shall safeguard.... .. ..and shall deposit funds in the bank within 24 hours of re ceipt

Cause: Deposits were not made wi thin 24 hours .

Effect: The risk of theft increases when money is held at a location and not deposited. Also, balances are n

current when funds are kept in a safe.

Recommendation: A better effort must be made to get the funds to the proper banking authority in a timely

manner


The new business manager will ensure that deposits are made in a timely manner w;thin 24 hours.

FINDING #14

Cond ition: Receipts were not always issued for revenue rece ived

Criteria: Per NMAC 620 .2 .14 letter 8 , "'The school district shall issue a factory pre-numbered receipt fo r al

money received." an d CATA's Financial Procedures Manual dated October 16,2 006, Rece ipt of Funds, #2

http://slidepdf.com/reader/full/6.20.2.14












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"The Registrar shall prepare a receipt in triplica te fo r money received from all sources. ..... Rece ip ts will be

pre-numbered ._

Cause: Not all original sources of funds were receipted.

Effect: The school is in violat ion of State Law and its own Procedures Manua l. In addition, th ere is not

clear trail of all the funds received at the schoo l. Without this trail , there is no way to ensure th at all fundreceived at the school are making it to th e bank.

Re commendation: All sources of funding must be issued a pre-numbered receipt. A copy of this receipt

should be kept with the supporting documentation and with the school 's daily deposit slip. This will provide a

clear trail of all funds received.


The issues noted by the audItors in this Finding related to the School's OECA program. The new business

manager will ensure that the Schoof's DECA program will use pre-numbered receipt books, CA TA has utilize

and will continue to use pre-numbered receipt books for all other monies received by the School

FINDIN G #15

Condition: Ban k statements were not reconciled in a time ly manner.

Criteria: Per NMAC 6. 20.214 letter K: "All bank accounts shall be reconciled on a monthly basis" an

2nd

CATA's Financial Procedures Manual dated October 16, 2006, Fi nancial Reporting, sentence states

"Financial records shall be kept up to date and available for inspection .. .. .. "

Cause: The Business Office did not complete the bank reconciliations in a timely manner.

Effect: A true accounting is not availab le when accounts are not balanced in a timel y manner.

Recommendation: Monthly statements must be ba lanced on a monthly basis.


The new business manager will ensure that bank statements are reconciled in a tImely manner, on a monthly

basis.

FINDING #16

Condition: Petty cash funds were not in balance. At the time of the audit $154.67 was being maintained

as th e petty cash fund .

Criteria: Per CATA's Financial Procedures Manual dated October 16 , 2006, page 8, Issuance of Petty Cash"the petty cash fund shall not exceed $1 00.00"

Cause: The petty cash fund was not in balance.

Effect: Th e books are out of bal an ce when the ap propriate amount is not maintained .

Recommendation: A deposit should be made for $54 67 in excess funds so th at the petty cash will be in

balance to the schoo l's books and in compliance with the Financial Procedures Manua l.

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The new business manager ensured that the entire petty cash fund was deposited before the SY 2011-12.

FINDING #17Cond it ion: An unauthorized change fund for the DECA store operations was being maintai ned.

Crite ria: State Law 60.20.2. 14 letter M number 4 states, "Change funds shall be established pursuant t

school district procedures." Change funds are req ui red to be listed on the schoo l's bala nce sheet as cash o

ha nd.

Cause: It appears that revenue was held out from a deposit to create the chan ge fun d

Effect: The school's balance sheet is incorrect. In addition, since the fu nds are not accounted for on th

balance sheet, fraudulent use of the change fund cou ld occur.

Recommendation : The funds must be incorporated into the school's books or deposi ted if use of the fu nd is

no longer required.


The new business manager will ensure that change funds for the Schoof's DECA store will be listed onthe School's balance sheet as cash on hand.

CONCLUS IONThe review of fi na nci al records and processes identified weak inte rn al contro ls, an d generalmismanagement of th e school's finances. In genera l, the use of mternal contro ls is weak due to th efailure to fo llow state laws, procurement laws, IRS regula tions, CATA's own charter and policies andprocedures. The number of family members involved in the administration of th e sch ool makessegreg ation of duties issues more co mplicated and fu rther weakens the intern al controls. An organizationth at is supported by taxpayer dollars has an obligation to follow the established laws and policies toinsure the management of said organ ization makes the best use of the taxpayer funds. There appears to

be a disregard of th e rul es and regulations established to protect taxpayer fu nding, there ismismanagement as a result of the lack of atten tion to the establ ished laws, and a tack of awaren ess orco ncern th at the financial support of the school is publ ic as opposed to private in nature.

Close supervision of th e school administration by the authorizer is necessary to insure that the state andfe deral laws and regulations, procu re ment la ws, and agreed upon charter are foll owed. Additionaltraining for the Governing Board is recommended, al ong with regU lar testing of the action pla n developedto correct current and future audit fi ndings. More frequent site visits and follow-up may be appropriate toinsure the corrective action is being ta ken by the school.

The school is approaching the renewal process and it is recommended that the authorizer review the

performance prior to a long-term exten sion.

RESPONSE TO APS AUDIT CONCLUSION: CATA disagrees that the fmdings described in the auditreport reflect an overall failure to follow state laws, IRS regulations the charter and School policies andprocedures, although occasionally a Violation has been identified In those instances. the matter has beenor shall be corrected None of the items Identified, either individually or cumulatively, rises to the level of amaterial violation of aw or the School's charter, and no ongoing pattem of mismanagement. financial orotherwIse, has been demonstrated As reflected in the School's responses, some of the findmgs reflectedIn the APS audit report are in error, and no violatIon of aw/polIcy occurred Contrary to the Internal Audit





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Dlfector's assertIon, the School is well aware of its legal and ethical obligations with respect to its use of

public funds. The School welcomes Increased cooperation on the part ofAPS to assist CA TA on an as

needed basis wIth regard to the matters identified in this audit report, as well as addItional training for theSchool's Governing Counct/

The Internal Audit Department staff appreciates the cooperation of the CATA Charter School Staff , theAPS Ch arter and Magnet Schools Departmen t, an d APS Charter School Business Manager (Accounting

Depa rtment)

Audit conducted by Peg Koshmider, Director; Sonia Montoya, Senior Aud itor; and Joyce Ramirez , Staff

Aud itor.

Date

f · 3 - ( I

M a r t : : ; Z : 4 -6 Date

Chairperso nAPS Audit Committee

Documents

Cata Audit