TRUST BUT VERIFY. Three simple words that when acted upon can prevent major problems.

Ask the superintendent of a 1,700-student school district in south Texas who trusted his business manager of several years. 

Every quarter, the business manager submitted the investment report for the superintendent’s approval. If only the superintendent also had asked to see the statements from the investment companies, he would have noticed the reports did not agree, would have avoided some ill-informed spending decisions and would still have his job.

In many school districts, there is no internal auditor. While an annual financial audit is required and provides assurances of sound school district finances, small discrepancies in daily or monthly transactions can add up and sometimes take years to uncover. Having an adequate set of internal controls in place will help superintendents sleep better.

Rules for Reliability

What exactly are internal controls? According to the Committee of Sponsoring Organizations of the Treadway Commission, internal controls include processes that provide reasonable assurances that financial reports are reliable, fiscal operations are effective and efficient, and compliance exists with laws and regulations. It is an ongoing process involving personnel, procedures and actions. Internal controls need to be flexible to meet the organization’s needs, and the costs of the controls should not exceed the benefit derived from them.

For superintendents who don’t have an internal auditor on staff, I have several suggestions.

»Establish the tone at the top.

A teacher takes off her ring while washing her hands and forgetfully leaves it at the sink. Three days later, she sees a classroom aide wearing the ring. The aide admits to taking the jewelry. What actions do you take with the aide and what message will be sent?

Do your employees know you value ethics and integrity? Does your district provide annual training on ethics? Are employees aware of their responsibilities via written and signed job descriptions and held accountable for their actions?

»Use calendars and checklists to review reports.

Time is a precious commodity. Scheduling routine tasks on your calendar, such as reviewing bank reconciliations (along with the bank statements) on a monthly basis, will ensure you do so. Examine the monthly financial report to compare the numbers from the same period one year earlier. Accurate information cultivates appropriate decisions.

»Check user access privileges and change passwords.

Employees leave and are replaced. Duties are re-assigned to other employees. Does someone periodically ensure employees have the right access — and no more than necessary — to your accounting, payroll and requisition systems? A review in one school district uncovered a principal’s secretary inadvertently had full access to the payroll system.

When a vendor asks to have the bank account changed for their electronic payments from your district, are multiple employees involved to ensure the request is legitimate?

And remember the importance of changing passwords to e-mail and network access on a regular basis to help avoid cyberattacks.

»Minimize the temptation of cash as an easy target.

Even though school-based activity funds account for a small portion of a district’s overall finances, the presence of cash from various school fundraisers can be tempting and easily make the headlines when thefts occur.

Are district employees required to issue receipts or keep a log of all cash received? Do they know the importance of turning in money for deposit on a daily basis? Is a financial report required and reviewed by an administrator when each fundraiser is concluded? Do you have a form that club sponsors sign to acknowledge they understand their responsibilities?

»Never underestimate the power of written procedures.

Regardless of the size of your district, written financial procedures are important for ensuring employees understand expectations and responsibilities. Provide and document training for staff on the procedures. Retrain when needed. And trust but verify!

JULIE NOVAK is chief financial officer in Fort Sam Houston Independent School District in San Antonio, Texas. Twitter: @jnovak_julie