Griffin Technology Academies Report

Organizational Structure and Business Process Review April 22, 2022 Griffin Technology Academies Michael H. Fine Chief Executive Officer April 22, 2022 Nick Driver, Interim Superintendent/CEO Griffin Technology Academies 2 Positive Place Vallejo, CA 94589 Dear Interim Superintendent Driver: In September 2021, Griffin Technology Academies and the Fiscal Crisis and Management Assistance Team (FCMAT) entered into an agreement for FCMAT to conduct a review of the organizational and staffing struc- ture of the charter management organization (CMO), as well as review operational processes and procedures in the CMO’s Business Services Division. The agreement stated that FCMAT would perform the following: 1. Conduct an organizational and staffing review of the CMO’s Business Services Division, and make recommendations for improvement, if any. 2. Review operational processes and procedures in the CMO’s Business Services Division and make recommendations for improved efficiency, if any, in the following areas: • Budget development • Budget monitoring • Position control • Accounts payable • Accounts receivable • Payroll This report contains the study team’s findings and recommendations. FCMAT appreciates the opportunity to serve Griffin Technology Academies and extends thanks to all the staff for their assistance during fieldwork. Sincerely, Michael H. Fine Chief Executive Officer Michael H. Fine • Chief Executive Officer 1300 17th Street – City Centre, Bakersfield, CA 93301-4533 • Tel. 661-636-4611 • Fax 661-636-4647 www.fcmat.org Table of Contents Table of Contents About FCMAT ...................................................................................................II Introduction .......................................................................................................1 Background ...............................................................................................................1I Study and Report Guidelines .................................................................................1 Study Team ................................................................................................................2 Executive Summary .......................................................................................3 Findings and Recommendations................................................................4 Business Service Division ......................................................................................4 Organizational Structure and Staffing ..............................................................................4 Processes and Procedures ..........................................................................9 Polices and Procedural Manuals ..........................................................................9 Budget Development and Monitoroing ..............................................................9 Position Control .......................................................................................................12 Internal Controls ......................................................................................................14 Accounts Receivable ..............................................................................................19 Payroll ........................................................................................................................23 Appendix ........................................................................................................27 FFiissccaall CCrriissiiss aanndd MMaannaaggeemmeenntt AAssssiissttaannccee TTeeaamm SchoGorl iffiDins tTreicct honro CloOgEy NAacmadee Hmeieres ii About FCMAT FCMAT’s primary mission is to assist California’s local K-14 educational agencies to identify, prevent, and resolve financial, human resources and data management challenges. FCMAT provides fiscal and data management assistance, professional development training, product development and other related school business and data services. FCMAT’s fiscal and management assistance services are used not just to help avert fiscal crisis, but to promote sound financial practices, support the training and development of chief business officials and help to create efficient organizational operations. FCMAT’s data management ser- vices are used to help local educational agencies (LEAs) meet state reporting responsibilities, improve data quality, and inform instructional program decisions. FCMAT may be requested to provide fiscal crisis or management assistance by a school district, charter school, community college, county office of education, the state superintendent of public instruction, or the Legislature. When a request or assignment is received, FCMAT assembles a study team that works closely with the LEA to define the scope of work, conduct on-site fieldwork and provide a written report with findings and recommendations to help resolve issues, overcome challenges and plan for the future. Studies by Fiscal Year 90 80 70 60 50 40 30 20 10 0 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 FCMAT has continued to make adjustments in the types of support provided based on the changing dy- namics of K-14 LEAs and the implementation of major educational reforms. FCMAT also develops and provides numerous publications, software tools, workshops and professional learning opportunities to help LEAs operate more effectively and fulfill their fiscal oversight and data management responsibilities. The California School Information Services (CSIS) division of FCMAT assists the California Department of Edu- cation with the implementation of the California Longitudinal Pupil Achievement Data System (CALPADS). CSIS also hosts and maintains the Ed-Data website (www.ed-data.org) and provides technical expertise to the Ed-Data partnership: the California Department of Education, EdSource and FCMAT. FCMAT was created by Assembly Bill (AB) 1200 in 1992 to assist LEAs to meet and sustain their financial obligations. AB 107 in 1997 charged FCMAT with responsibility for CSIS and its statewide data management work. AB 1115 in 1999 codified CSIS’ mission. seidutS fo rebmuN About FCMAT Fiscal Crisis and Management Assistance Team Griffin Technology Academies ii About FCMAT AB 1200 is also a statewide plan for county offices of education and school districts to work together locally to improve fiscal procedures and accountability standards. AB 2756 (2004) provides specific responsibili- ties to FCMAT with regard to districts that have received emergency state loans. In January 2006, Senate Bill 430 (charter schools) and AB 1366 (community colleges) became law and ex- panded FCMAT’s services to those types of LEAs. On September 17, 2018 AB 1840 was signed into law. This legislation changed how fiscally insolvent dis- tricts are administered once an emergency appropriation has been made, shifting the former state-centric system to be more consistent with the principles of local control, and providing new responsibilities to FCMAT associated with the process. Since 1992, FCMAT has been engaged to perform more than 1,400 reviews for LEAs, including school districts, county offices of education, charter schools and community colleges. The Kern County Superin- tendent of Schools is the administrative agent for FCMAT. The team is led by Michael H. Fine, Chief Execu- tive Officer, with funding derived through appropriations in the state budget and a modest fee schedule for charges to requesting agencies. Fiscal Crisis and Management Assistance Team Griffin Technology Academies iii Introduction Introduction Background Located in Solano County, Griffin Technology Academies consists of four charter schools at two campuses in Vallejo, California. The charters include the Griffin Academy middle and high schools, as well as the Mare Island Technology (MIT) Academy middle and high schools. The MIT schools were established in 1999 and 2001, respectively, and the Griffin Academy schools opened in 2018 and 2020. The combined enrollment for all charters in 2020-21 was 1,337, and enrollment at the well-established MIT academies is relatively stable. The newer Griffin schools, which opened more recently, continue to increase their respective enrollment. The 2020-21 unduplicated pupil count among the four charter schools, which includes students who qualify for free and reduced-price meals, ranges from 51% to 66% of enrollment. The charter management organization (CMO) is Griffin Technology Academies and is also located in Vallejo. A six-member governing board oversees the four charter schools, and the authorizer for all charters is the Vallejo City Unified School District. The CMO leadership and key staff members in the Business Services Division are relatively new to the organization, with both the superintendent/chief executive officer (CEO)and assistant superintendent/chief business officer (CBO) joining the CMO in the 2021-22 fiscal year. The CMO uses multiple fiscal consultants to assist during key reporting periods, as the director of fiscal services position was vacant at the time of the FCMAT study. Because each charter is unique and independent, four financial reports must be pre- pared at each fiscal reporting period in accordance with statutory requirements. Study and Report Guidelines In September 2021, Griffin Technology Academies and FCMAT entered into an agreement to conduct an organizational and staffing review of the CMO’s Business Services Division, and make recommendations for improvement, if any. The scope also included a review of the operational processes and procedures in that division, with recommendations, if any, for improved efficiencies in budget development and monitoring, position control, accounts payable and receivable, and payroll. Due to both the ongoing COVID-19 pandemic, and an unplanned and extensive mold remediation project at the charter schools, which required the use of temporary office accommodations, FCMAT did not visit the charter schools or CMO. Staff interviews were instead conducted via video teleconference on Decem- ber 1-3, 2021. FCMAT also requested and reviewed available documentation related to the project scope. Following the virtual fieldwork, FCMAT continued to review and analyze the information collected during interviews as well as the documentation provided by the CMO. This report is the result of those activities. FCMAT’s reports generally focus on systems and processes that may need improvement. Those that may be functioning well are generally not commented on in FCMAT’s reports. In writing its reports, FCMAT uses the Associated Press Stylebook, a comprehensive guide to usage and accepted style that emphasizes con- ciseness and clarity. In addition, this guide emphasizes plain language, discourages the use of jargon and capitalizes relatively few terms. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 1 Introduction Study Team The study team was composed of the following members: Jeffrey B. Potter, CFE Erin Lillibridge, CFE FCMAT Intervention Specialist FCMAT Intervention Specialist Leonel Martínez FCMAT Technical Writer Each team member reviewed the draft report to confirm accuracy and achieve consensus on the final rec- ommendations. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 2 Executive Summary Executive Summary A charter CMO should be staffed according to the basic theories of organizational structure, which include span of control, chain of command, and line and staff authority. A review of the Griffin Technology Acade- mies CMO indicates that the Business Services Department is understaffed in budget development, budget monitoring and financial reporting, and lacks sufficient oversight and coverage of essential fiscal functions such as accounts payable, accounts receivable, position control and payroll. The assistant superintendent/CBO position has oversight responsibilities of Fiscal Services, Employee Management (human resources), Facilities, Nutrition Services and Information Technology. Although this is a small organization, the span of control limits the ability of the assistant superintendent/CBO position to dedicate sufficient resources to effectively manage each of these critical functions. At the time of FCMAT’s study, most departments were staffed with new and inexperienced employees, further contributing to the need for more focused oversight. The CMO should consider a modified organizational structure in which Fiscal Services is removed from the span of control of the assistant superintendent/CBO and established as a stand-alone department report- ing to the superintendent. The creation of a chief financial officer (CFO) position, along with the addition of a supporting senior accountant/analyst position, would provide more robust and dedicated financial reporting and budgeting capabilities, while also resulting in more reasonable workloads, improved internal control capabilities and better coverage of all functional areas. In addition, FCMAT recommends moving the Information Technology Department to the director of learning for improved alignment with classroom technology needs. Departmental processes and procedures remain under development at the time of FCMAT’s study. Accord- ingly, close supervision of all critical positions and functions is necessary to ensure effective operations and internal controls. The current staffing structure does not allow for the level of supervision and oversight needed in such an environment. Job descriptions for all positions should also be reviewed and updated to ensure they are current and in- clude all essential duties. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 3 Findings and Recommendations Business Services Division Findings and Recommendations Business Services Division Organizational Structure and Staffing An organization’s structure should establish the framework for leadership and the delegation of specific duties and responsibilities for all staff members. This structure should be managed to maximize resources and reach identified goals, and should adapt as student enrollment increases or declines. Charter schools and their respective CMO can differ in their structures as compared to a school district; however, all school organizations should be staffed according to generally accepted theories of organizational structure and the standards used in school organizations of similar size and type. The most common theories of organiza- tional structure are span of control, chain of command, and line and staff authority. Span of Control Span of control refers to the number of subordinates reporting directly to a supervisor. Although there is no agreed upon ideal number of subordinates for span of control, it is generally agreed that the span can be larger at lower levels of an organization than at higher levels because subordinates at lower levels typically perform more routine duties and therefore can be more effectively supervised, according to Principles of School Business Management by Craig R. Wood, David C. Thompson and Lawrence O. Picus. Chain of Command Chain of command refers to the flow of authority in an organization and is characterized by two significant principles: unity of command suggests that a subordinate is accountable to only one supervisor, thus elimi- nating the potential for an employee to receive conflicting direction and instruction from a variety of super- visors; and the scalar principle suggests that authority and responsibility should flow in a direct vertical line from top management to the lowest level so subordinates at every level in the organization follow the chain of command and communicate only through their immediate supervisor. The result is a hierarchical division of labor as described in Principles of School Business Management. Line and Staff Authority Line authority is the relationship between supervisors and subordinates and refers to the direct line in the chain of command. For example, the normal structure FCMAT finds in school organizations is that the super- intendent has direct line authority over the assistant superintendent of business services, who has direct line authority over other staff members in the Business Services Department. Conversely, staff authority is typically advisory in nature. Staff personnel generally do not have the authority to make and implement decisions; rather, they act in support roles to organizational leadership. The organizational structure of local educational agencies typically includes both line and staff authority. As indicated above, the purpose of any organizational structure is to establish the framework for leadership and the delegation of specific duties and responsibilities for all staff members. In addition, the structure should help guide managers as they make key decisions to facilitate student learning while balancing finan- cial resources. The organizational structure should outline the management process and its specific links to the formal system of communication, authority and responsibility needed to achieve the desired goals and objectives. Authority in a public-school environment originates with the governing board, which hires Fiscal Crisis and Management Assistance Team Griffin Technology Academies 4 Findings and Recommendations Business Services Division a superintendent to oversee the organization. Through the superintendent, authority and responsibility are delegated to the administrators and staff. Management positions typically supervise employees and oversee the work of the department for which they are responsible. They must ensure that staff members understand all policies and procedures and perform their duties in a timely and accurate manner. Managers must also serve as a liaison between their department and others to identify and resolve problems and to design and modify processes and proce- dures as needed. Management positions should not typically be responsible for a department’s routine daily functions; these should be assigned to department support staff. An organizational chart shows the structure and relationship of all positions to one another and identifies the chain of command and the functional areas for which each staff member is responsible. The CMO provided FCMAT with its organizational structure for 2021-22, as shown below. The CMO’s primary busi- ness-related activities are performed in the Fiscal Services Division as identified on the left side of the chart. Griffin Technology Academies Organizational Structure, Fall 2021 GTA Board of Directors Superintendent / CEO Assistant Executive Director of Learning Superintendent/CBO Assistant Fiscal Services M E a m na p g lo e y m e e e n t Facilities Nutrition Services I T n e f c o h rm no a l t o io gy n Special Projects M Te a M c r h e S n / I o s H l l a o S n gy d Griffi M n S A / c H a S demy Direc S t e o r r v i o c f e F s iscal Hum Co a o n r d R i e n s a o t u o r r c es Plant Manager Fo S o u d p e S r e v r i v s i o c r es Coordinator A D s i s r i e s c ta to n r t , D M ir id e d ct le o / r H M ig I h T Midd D l i e re /H ct i o gh r G Sc A h ool Student Services School Accoun ( t X S 2 p ) ecialist Site Manager Cafeteria Lead Tech ( S X u 2 p ) port P A e u rs x o ili n a n ry e l Assistant Director Assistant Director MIT Middle/High GA Middle/High School School Custodial Services Cafeteria Support (X3) Certificated Staff Certificated Staff Teachers, Teachers, Counselor Counselor Classified Staff Classified Staff The above organizational structure indicates that the assistant superintendent/CBO position oversees Fiscal Services, Employee Management, Facilities, Nutrition Services, and Information Technology. Within Fiscal Services, the CMO has the responsibility of all financial reporting for the four charter schools, with each charter reporting as a separate entity. This places a large burden on the fiscal staff and assistant superintendent/CBO at each reporting period to prepare and oversee the statutory financial statements of four separate charter schools. At the time of FCMAT’s study, the director of fiscal services position was vacant, with staff indicating that one of the primary reasons for the vacancy was an overwhelming workload. As a result of the vacancy, the CMO enlisted assistance from outside consultants to prepare both the 2020-21 unaudited actuals for all four charter schools, as well as four first interim reports. The CMO requested from the authorizer, Vallejo City Unified School District, an extension of the September 15, 2021 reporting deadline for the unaudited Fiscal Crisis and Management Assistance Team Griffin Technology Academies 5 Findings and Recommendations Business Services Division actuals. The authorizer denied the request and subsequently issued a Notice of Fiscal Concerns on Sep- tember 23, 2021 regarding the late submission, stating that it expected the CMO to “initiate all necessary steps to hire qualified personnel and/or third-party contractors to address these fiscal reporting delays and unsound fiscal practices.” The assistant superintendent/CBO oversees all financial reports and manages building projects through the Facilities Department, including a sudden and unexpected mold remediation project, and the ongoing con- version of financial systems from the current system, Aptafund, to Escape Technology. Accordingly, FCMAT considered various organizational structures that could alleviate the burden on both the assistant superin- tendent/CBO and director of fiscal services positions and allow for more focused and dedicated resources in each functional area. FCMAT compared the organizational structures of school organizations of similar size. Although none are identical to the CMO’s oversight of four individual charter schools and the associated reporting require- ments, the following organizations have enrollment that is similar to the four combined charter schools at Griffin Technology Academies. The comparison districts have an average of 4.55 full-time equivalent (FTE) positions in the business office. The CMO of Griffin Technology Academies has 4.0 FTE in Fiscal Services, which is most comparable to the business departments of the organizations shown below. However, the FTE for the CMO also includes the current assistant superintendent/CBO position, which is not solely dedicated to Fiscal Services and over- sees Employee Management, Facilities, Nutrition Services, and Information Technology. Business 2020-21 District County FTE* Enrollment** Griffin Technology Academies Solano 4.0 1,337 Bishop Unified Inyo 6.0 1,969 Middletown Unified Lake 3.0 1,655 Muroc Joint Unified Kern 5.0 1,687 Pacific Grove Unified Monterey 4.75 1,899 Yosemite Unified Madera 4.0 1,680 Avg FTE 4.46 *For comparison purposes, these FTE are for the assistant superintendent of business services and other management positions, and for busi- ness functions such as accounts payable, accounts receivable, benefits, payroll, and other accounting/budget tasks. For districts that include warehouse, delivery, nutrition services, or other positions in the business department, FCMAT has excluded those positions from this analysis. Any variances in FTE are due to FCMAT’s interpretation of the information shared in its informal survey. ** Source: California Basic Educational Data System (CBEDS) Data for the above comparison was obtained from the California Department of Education’s DataQuest and Education Data Partnership websites. Although comparison data is useful, it should not be considered the only measure of correct staffing levels. Because school organizations, and especially charter CMOs, are complex and vary widely in business responsibilities and resources, careful evaluation is needed of unique circumstances and needs. Generalizations can be misleading when individual circumstances are not con- sidered. With the previously mentioned additional reporting requirements for four charter schools, the projects in the Facilities Department, and a need to train new staff in the Employee Management Department, FCMAT recommends the following adjusted organizational chart for improved efficiencies and more appropriate workloads. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 6 Findings and Recommendations Business Services Division The job description of the assistant superintendent/CBO (board-approved on July 14, 2020) lacks any fiscal duties, and appears to be designed as an operational position and not intended to encompass fiscal services. The proposed organizational structure removes the fiscal component from the existing assistant superintendent/CBO position and creates a stand-alone Fiscal Services Department, centralizing all core fiscal services in one division, and separating it from the operational departments of Employee Manage- ment, Facilities, and Nutrition Services. The job description of the assistant superintendent/CBO should also be revised to reflect this change, and the CMO should consider changing the title to the assistant superintendent/chief operating officer (COO) position. With the creation of a stand-alone Fiscal Services Department, the title and job description for the director of fiscal services should be modified to reflect an expanded role of chief financial officer (CFO). This change would increase the scope of the job function, providing oversight and responsibility for all budgeting and fi- nancial reporting, as well as supervision of payroll, retirement reporting, accounts payable, accounts receiv- able and purchasing. This modified position would also provide important assistance during the ongoing Escape system implementation. A modified job description and scope of responsibility may also improve the CMO’s recruiting and retention capabilities for this critical position. This position would report directly to the superintendent/CEO. To create a more manageable workload compared to that of the former director of fiscal services, a senior accountant/analyst position should be added to support the proposed CFO. This position would allow for more robust internal controls and increase departmental coverage for all functions in the division. The proposed structure also moves the Information Technology Department under the director of learning, which is a common structure in schools and charters, allowing for closer collaboration with the instructional staff to support technology needs in the classroom. Alternatively, the CMO could consider the use of a third-party service provider to handle certain critical fis- cal functions, such as financial reporting. It is common for charter schools and CMOs to outsource financial services to an external service provider, providing a cost savings by reducing the number of staff needed for various fiscal functions. Workloads can vary widely during the year, especially for a CMO handling the Fiscal Crisis and Management Assistance Team Griffin Technology Academies 7 Findings and Recommendations Business Services Division reporting functions for four charter schools. A service provider can provide a more linear workload for the CMO without the fluctuation in resources that occurs both during and in between fiscal reporting periods. Such a provider might also be considered on a temporary or interim basis while new staff members are trained in their respective job functions, and the Escape software implementation is completed. Recommendations The CMO should: 1. Establish a stand-alone fiscal services department that reports directly to the superintendent/CEO. 2. Upgrade and rename the director of fiscal services position to chief financial officer (CFO). 3. Create a new senior accountant/analyst position to support the proposed CFO, allow for more robust internal controls, and increase departmental coverage for all functions in the division. 4. Streamline the scope of the assistant superintendent/CBO position to provide more focused and dedicated resources to Employee Management, Facilities, and Nutrition Services. Modify the title to assistant superintendent/COO and revise the existing job description to reflect this change. 5. Move Information Technology to the director of learning to support the technology needs in the classroom. 6. Consider using a third-party service provider for certain fiscal services, either as a temporary or long-term support option. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 8 Findings and Recommendations Processes and Procedures Processes and Procedures Policies and Procedural Manuals Policies and procedural manuals provide an organization with the opportunity to plan and diagram internal controls and written standards for its business office, school sites and other departments. They allow read- ers to see where their duties fit into a process, who provides information, and where the information goes. Policies and procedures also provide standardization of processes and prevent individual processes from being developed that may or may not be the most accurate or efficient in accomplishing a task. Due to the lack of extended tenure of both the staff members and CMO leadership interviewed by FCMAT, the organization lacks established processes, internal controls and institutional knowledge for the function- al areas in the project scope. These procedures are under development by the CMO administrators and are a primary reason for the FCMAT study. Accordingly, the CMO and charter schools could not provide FCMAT with policies and procedural manuals authored by them for the areas under review. Some staff members indicated they use individual notes for various processes they handle, but lack formal procedures developed by the CMO. This includes a lack of desk manuals to provide step-by-step instruc- tions on the tasks performed by individual employees. This area remains under development, and inter- views determined it is a priority for the organization. To facilitate completion of comprehensive policies, procedures and desk manuals, the CMO may consider enlisting a third party to prepare them. This would help to ensure manuals are consistent in format across all sections of a department and allow staff members to dedicate resources to their assigned duties. These manuals become especially important during employee absences and for new staff. They are also a means of documenting a department’s segregation of duties for its external auditors. Recommendations The CMO should: 1. Create policies and procedural manuals for key functional areas of the Fiscal Services Department. Consider using a third party to prepare the manuals. 2. Develop desk manuals of employee duties, and ensure that each employee includes step- by-step procedures for all assigned duties. Consider using a third party to prepare the manuals. 3. Review and revise policies, procedures and desk manuals periodically, but not less than once a year. Budget Development and Monitoring Charter schools must adopt an annual budget within the statutory timelines established by Education Code Section 47604.33. Charter school budgets are not static; the estimated revenues, expenses and ending balances can change throughout the year because of items such as the state budget, enrollment and ADA, changes in personnel, and any negotiated settlements of employee bargaining agreements. Budget development is a detailed process that often begins as early as January of the preceding fiscal year. During budget development, position control is revised and updated, revenues and expenses are es- timated, and charters align their budget with their Local Control and Accountability Plan (LCAP), which prior- Fiscal Crisis and Management Assistance Team Griffin Technology Academies 9 Findings and Recommendations Processes and Procedures itizes each charter’s goals and the actions to achieve those goals. Effective budget development includes the use of a budget calendar so each staff member involved in the process knows the various deadlines and can meet them. Interviews and available documentation indicate that Griffin Technology Academies does not use a bud- get development calendar containing descriptions of budget tasks, along with dates by which those tasks should occur. It would benefit the CMO to have a detailed calendar that includes these functions, such as updating the position control system, LCAP timelines, interim reporting tasks and deadlines, and purchas- ing cutoff dates. Such a schedule should include the staff member responsible for each task as well as the required deadline. The CMO’s assistant superintendent/CBO (or CFO, as proposed) has primary responsibility for and oversight of the budget development process. The assistant superintendent/CBO (or CFO, as proposed) should create and/or oversee the enrollment projections for each charter school and use this information to prepare revenue projections for each charter. These projections should then be provided to the site and department managers, including the current year budget and allocations for the upcoming year. It should also include current year-to- date expenditures and encumbrances and/or prior year actual expenditures. This information is a helpful guide- line and tool for site and department managers to have when developing their budget projections. In addition to the budget development worksheets, site and department managers should be provided with a position control report that includes a list of all employees charged to their respective budgets. The report should include each employee’s name, position, hours per day, and the funding source for the posi- tion. This report should be provided to sites and departments at budget development and at each interim reporting period. Site and department managers should review the report for accuracy and immediately report any inconsistencies to the assistant superintendent/CBO (or CFO, as proposed) and/or Employee Management at the CMO. This process helps to verify the data used to develop and maintain position con- trol, which, in turn, affects the budget reports. School administrators at each charter should be an integral part of budget development and monitoring at each reporting period and throughout the year. These key individuals should be the most knowledgeable regarding the budgetary needs of their schools and sites and can provide valuable information regarding any necessary budget adjustments. Business office staff should meet with the charter school principals each spring to review enrollment and staffing projections and preliminary budget allocations for the up- coming year. Interviews indicated that charter school administrators are not regularly provided with budget reports or information unless specifically requested. After budget development is completed, the required reporting forms should be prepared. Those forms and a budget narrative should be included in the board agenda materials, and the assistant superintendent/ CBO (or CFO, as proposed) should prepare a presentation for the board meeting. Similar documents should also be provided to the board at each interim reporting period. FCMAT’s review of the CMO’s 2021-22 ad- opted budget documents did not indicate whether any narrative and detailed assumptions were presented to the board; however, basic fiscal assumptions, such as cost-of-living adjustments (COLAs) and average daily attendance (ADA) projections, were included in the summary. All key assumptions used for each finan- cial reporting period should be included in a narrative document that is clear to all those affected. Documentation provided by the CMO, as well as staff and consultant interviews, indicated that budget re- visions have not been completed regularly throughout the year. Revisions should follow a standard request procedure and should be recorded at least at each reporting period, and ideally monthly. At the time of fieldwork, the budget process was handled strictly by the assistant superintendent/CBO, with assistance from the fiscal consultants. Interviews did not indicate any considerable involvement from other supporting staff members or sites. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 10 Findings and Recommendations Processes and Procedures Interviews also indicated that salaries and benefits are not encumbered in the AptaFund system. It is critical that all salaries and benefits be encumbered to avoid any overspending of budgeted funds. The implemen- tation of the Escape financial system will allow for salary and benefit encumbrances; however, this would likely need to be recorded manually if the third-party payroll processor continues to handle most payroll functions. Without the encumbrances, funds that are needed for employee compensation costs may oth- erwise be inadvertently redirected during the year, leaving the CMO with insufficient funds to meet payroll obligations. A best practice is to monitor budgets regularly during the year to ensure revenues received are not mate- rially different than budgeted revenue, and that appropriations are not overspent. It is therefore important that the CMO record all revenue upon receipt, rather than only at the various fiscal reporting periods. Documentation and interviews indicated that the site staff at each charter are not trained on effective bud- get monitoring techniques, although they are provided with a monthly budget report for review. Site staff responsible for monitoring and maintaining each site budget should receive training in how to review the reports, as well as how to run reports in the financial system whenever necessary, and without assistance from the CMO. This will allow more frequent and effective monitoring of budgets, and permit a more proac- tive approach in identifying the need for budget adjustments. The ongoing implementation of the Escape financial system should be used to initiate training and process improvements. Recommendations The CMO should: 1. Develop a budget calendar that includes all budget development and interim reporting tasks, and the due date and employee or department responsible for completing each task. Distribute the budget calendar to all who are responsible for completing the listed tasks, including the site administrator each charter school. 2. Include current year and historical expenditure information on the budget development worksheets provided to site and department managers. 3. Provide all key assumptions used at each financial reporting period in a narrative document for the governing board and charter school stakeholders. 4. Monitor all budgets regularly and closely throughout the year to ensure accounts do not exceed the budget, and make adjusting entries in a timely manner. 5. Provide budget-to-actual reports monthly to the governing board to strengthen budget monitoring. 6. Encumber all salaries and benefits in the CMO’s financial system at the beginning of each fiscal year, and ensure the encumbrances remain accurate throughout the year. 7. As the school year progresses, provide all charter sites with the remainder of their total budget allocation available when various supporting data, such as student enrollment, becomes available. 8. Provide training to all staff involved in budget development and monitoring, including site administrators. Consider conducting budget study sessions with the governing board so they may gain a better understanding of the budget and financial condition of the four charter schools and CMO. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 11 Findings and Recommendations Processes and Procedures Position Control One of the most critical elements in budgeting for expenditures is accurately projecting employee salary and benefit costs. These costs are the largest part of a typical school’s unrestricted general fund budget. To ensure accuracy in budgeting, an effective position control system is necessary. Position control is a system of tracking information based on positions rather than employees. It is a frame- work of positions for all jobs in the organization regardless of whether there is an incumbent in a specific position. Position control includes the creation, maintenance, and monitoring of positions and the budgets for them. In school districts and charter schools, position control should be managed collaboratively be- tween the Human Resources and Business Services departments. A reliable position control system establishes positions by site or department and helps prevent overstaff- ing. To be effective, the position control system must be integrated with other financial modules such as budget and payroll. Position control functions must also be separated to ensure proper internal controls. The controls must ensure that only board-authorized positions are entered in the system, that Human Resources hires only employees for authorized positions, and that payroll pays only employees hired for authorized positions. The proper separation of duties is a key factor in creating strong internal controls and a reliable position control system. As noted above, position control is normally divided between the Business Services and Human Resources departments, and no one individual holds a position with position control as its primary definition/function. Currently, the position control system in use by the CMO consists of a spreadsheet maintained by the assis- tant superintendent/CBO. At the time of FCMAT’s fieldwork, there was no involvement from the Employee Management Department in position control, although this was partly due to a new employee who had not yet received training on proper processes and procedures. Interviews indicated that position control was previously maintained by the director of fiscal services, but this position was vacant during FCMAT’s field- work. FCMAT recommends that position control oversight and monitoring be handled primarily by the CFO position, as proposed. During recent reporting periods, the financial consultants compared positions on the position control spreadsheet to budgeted positions and found them to be accurate. However, interviews indicated that a regular reconciliation of the position control spreadsheet to payroll and the budgeted positions is not oc- curring. Such a reconciliation should be done at least at budget adoption and the interim reporting periods, and ideally performed monthly. Strong internal controls help ensure efficient operations, reliable financial information and legal compliance. They also help protect the organization from material weaknesses, serious errors and fraud. These con- trols should be part of any position control system. The following table provides a suggested distribution of labor between the Business Services and Human Resources departments to help provide the necessary internal control structure for position control. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 12 Findings and Recommendations Processes and Procedures Task Responsibility Approve or authorize position Governing Board Enter approved position into position control, with estimated salary/bud- Business Services department get. Each position is given a unique number. Enter demographic data in the main demographic screen, including: Employee name Employee address Social Security number Human Resources department Credential (if applicable) Classification Salary schedule placement Annual review of employee assignment Update employee benefits Business Services or Human Resources department Update employee step and/or column placements Human Resources department Review and update employee work calendars Annually review and update salary schedules. This may need to be completed more frequently such as in the case of collective bargaining Business Services department settlements. Account codes Budget development Budget projection Business Services department Multiyear projections Salary projections FCMAT was not provided with any position control procedures or forms in use by the CMO, although inter- views indicated the process was under development. Following board approval of any new or replacement position, the CMO should use a Personnel Requisition/Authorization form for employee actions, such as adding a new position, staffing replacements, changes in funding, etc. Such a form should include a posi- tion control number unique to each position to avoid overhiring. The CMO is implementing the Escape financial system, which includes a position control module. Assuming the module is implemented and used by the CMO, it could replace the existing spreadsheet and provide a more seamless and accurate connection to both payroll and the budgets of each charter school. The cur- rent, manual process of compiling and maintaining a spreadsheet leaves the CMO vulnerable to inaccura- cies, especially when the spreadsheet is maintained by one position. A comprehensive position control sys- tem, connected to both budget and payroll, maintains key information in a centralized manner, and includes health and welfare benefit costs, as well as for substitutes, overtime and extra duty pay. The cumbersome manual process to produce and maintain the CMO’s position control spreadsheet, and subsequently use it to obtain budgetary data, is less efficient and accurate than a fully functioning position control system in which data is updated regularly as position changes are made, and which users can query the system to obtain necessary information quickly. Additionally, it allows for a more efficient process to reconcile position control, budget and payroll. Such a process is necessary to ensure that the information produced for bud- get development, interim reports, multiyear projections and payroll is reliable and accurate. Recommendations The CMO should: 1. Establish a process to coordinate the input, updating and reconciling of the position control system between Human Resources and Business Services. 2. Implement Escape’s position control system that integrates budgeting, payroll and Human Resources with position control, reducing the potential for inaccuracies and improving Fiscal Crisis and Management Assistance Team Griffin Technology Academies 13 Findings and Recommendations Processes and Procedures position control efficiency. Consider using outside consultants or Escape Technology for the initial system setup to reduce the burden on CMO office staff and ensure the system is properly designed to meet the needs of the CMO and its four charter schools. 3. Ensure that the position control module is reconciled at least at adopted budget and the interim reporting periods, and ideally monthly. 4. Review and revise job descriptions and reassign duties as necessary to establish adequate internal controls to maintain the position control system. Internal Controls Internal controls are the foundation of sound financial management and allow organizations to fulfill their mission while helping to ensure efficient operations, reliable financial information, and legal compliance. To build an effective internal control structure, organizations should apply basic concepts and procedures to support transactions and reporting processes including, but not limited to, the following: • System of checks and balances - Formal procedures should be implemented to initiate, approve, execute, record, and reconcile transactions. The procedures should identify the employee responsible for each step and the time for completion. Key areas of checks and balances include accounts payable, purchasing, cash receipts, and payroll. • Separation of duties - Adequate internal accounting procedures should be implemented, and necessary changes made to separate job duties and protect the organization’s assets. No single employee should handle a transaction from initiation to reconciliation or have custody of an asset (such as cash or inventory) and maintain the records of related transac- tions. • Staff cross-training - More than one employee should be able to perform each job. All staff members should be required to use accrued vacation time, and another staff member should be able to perform those duties. Inadequate cross-training is a common problem, even in larger organizations. • Use of prenumbered documents - Checks, sales and cash receipts, purchase orders, re- ceiving reports, and event tickets should be preprinted. Physical controls should be main- tained over check stock, cash, receipt books, and tickets. It is not sufficient to simply use prenumbered documents; a log of the documents and numbers should be maintained, and reconciliations performed periodically. • Asset security - Cash should be deposited according to adopted procedures (at least week- ly), computer equipment secured, and access to supplies/stores, food stock, tools, and gasoline restricted to designated employees. • Timely reconciliations - An employee not involved in the original transaction and recording process should reconcile bank statements and account balances monthly. For example, the employee who reconciles the revolving checking account should not maintain the check stock. As detailed in the following sections of this report, the CMO lacks many of the elements needed to create and sustain a strong system of internal controls. The continuing lack of 1) expertise and stability in fiscal services staff and leadership, 2) adequate fiscal policies and procedures, and 3) effective internal controls to detect errors and prevent fraud, places the organization and its charter schools at risk for significant negative consequences up to and including revocation or non-renewal by the authorizing district and/or closure due to financial failure. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 14 Findings and Recommendations Processes and Procedures Accounts Payable Accounts payable is the business function for accurately tracking amounts owed to vendors, ensuring vendor payments are properly approved, and processing timely vendor payments. The accounts payable process originates when a purchase is made to obtain supplies or services from a vendor. Due to the nature and volume of the work, accounts payable and purchasing functions are at high risk for fraud. Effective accounts payable processes and procedures include activities to ensure that only legitimate and accurate invoices are authorized and paid in a timely manner. Accounts Payable Staffing The CMO’s account specialist job description describes one of the position’s primary functions as perform- ing accounts payable activities. Specifically, the job description includes the following related duties: • Verify purchase requisitions for budgeted appropriation prior to purchase. • Receive, sort, match, and file invoices and purchase orders in preparation for payment. • Process purchase requisitions and payments to vendors. • Prepare and verify coding on accounts payable invoices against budget. • Submit accounts payable invoices through accounting software and revolving checking accounts. • Maintain and monitor the revolving cash fund account; write checks and prepare recap sheets. • Issue purchase orders against budget. • Track purchase orders through payment cycle. • Maintain vendor files. Interviews and further assignment documentation indicates the two account specialists split accounts pay- able duties according to vendor name and school site. In addition, each position is designated as the lead for specific activities, such as credit card payments and positive pay*, with the other position acting as the back-up. * Positive pay is a fraud prevention system offered by most commercial banks to clients to protect them against forged, altered, and counterfeit checks. Banks use positive pay to match the checks an organization issues with those presented for payment. The director of fiscal services job description includes language providing for the review of all purchase requisitions for budget classification and fund balance. In general, FCMAT found the job descriptions in the Fiscal Services department insufficient to define essen- tial accounts payable functions. Examples of missing essential duties include 1099 form preparation and processing, Employment Development Department (EDD) independent contractor reporting, Department of Industrial Relations (DIR) contract reporting, and payment reviews and approvals according to board-adopt- ed fiscal policies and procedures. Purchasing and Bidding The organization’s current size does not support a dedicated purchasing department; therefore, all purchas- ing responsibilities are decentralized throughout the organization. Employees are responsible for deter- mining the items and services needed and researching related pricing, terms, and conditions for purchase. The CMO did not provide FCMAT with any policies, procedures, or documentation guiding employees on Fiscal Crisis and Management Assistance Team Griffin Technology Academies 15 Findings and Recommendations Processes and Procedures purchasing requirements. Consequently, FCMAT could not adequately evaluate its processes and proce- dures to make specific recommendations for improvements. Staff interviews indicated the CMO uses a purchase order process to organize, authorize, and fulfill its purchasing function. After finalizing the details of a purchase, employees complete a paper purchase order form, which is signed by the employee, employee’s supervisor, the superintendent or assistant superinten- dent/CBO, and director of fiscal services. The information is then entered into the Aptafund financial system as a purchase requisition for additional review by the Fiscal Services department to generate a purchase order and initiate the transaction with the vendor. At the time of FCMAT’s fieldwork, the CMO reported it had started to transition away from the paper process to the system’s electronic routing for purchase requi- sition approvals. Employees complete an Employee Expense/Mileage Claim form for mileage and expense reimbursements, which is signed by the employee, employee’s supervisor, Superintendent / assistant superintendent/CBO, and director of fiscal services. FCMAT noted the form was last revised in August 2020, and therefore had not been updated with the most current IRS mileage reimbursement rate. Accounts Payable Process The two account technicians process invoices for payments approximately once a week in the Aptafund system. Payments are organized into batches. Detailed information on each batch, such as the vendor name, payment amount, and funding account(s), are exported into a spreadsheet from the Aptafund sys- tem and provided to the assistant superintendent/CBO for review and approval. Payments are approved and posted in Aptafund when check printing starts and checks are printed with electronic signatures. The account specialists prepare and deliver payment checks to the post office for mailing. Finally, the governing board approves check payments monthly via a consent agenda item at its regular meetings. Although the Aptafund system has user-defined roles supporting separation of duties in every functional area, interviews indicated the two account technicians can process every step of a purchase in the system, from creating a vendor, to processing a purchase order, and ultimately approving, printing, and mailing a payment. The organization’s compensating control consists of creating a spreadsheet for the assistant su- perintendent/CBO’s review and approval. However, this process is weak, and could easily be manipulated to allow for fraudulent payments. Petty Cash and Credit Cards Staff interviews indicated the CMO maintains a petty cash account at each school site and the CMO. Petty cash accounts usually provide a small amount of readily accessible money (between $100 and $500) for paying small expenses such as office supplies, postage, and reimbursing an employee for small work-re- lated expenses. The use of petty cash can circumvent internal controls; without proper policies and proce- dures, it is vulnerable to theft and misuse, and needs to be monitored closely and reconciled often (at least monthly). The use and acceptance of credit cards has virtually eliminated the need for petty cash in most local edu- cational agencies (LEAs). Staff interviews indicated all management positions and some clerical positions have been issued a credit card for purchasing. The CMO could not provide FCMAT with any documented policies and procedures for its petty cash or credit card use. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 16 Findings and Recommendations Processes and Procedures Year-End Closing At the end of each fiscal year, the organization should review all outstanding purchase orders in the finan- cial system to determine if goods or services were received or provided by June 30. Purchases received or provided by that date should be posted as an accounts payable liability item in that fiscal year’s unaudited financial statements. During the next year, as those items are paid, entries should reduce the accounts payable balances to avoid duplicate expense items in multiple years. In addition, all balance sheet liability accounts should be reconciled at least at each interim reporting period and at year-end close. FCMAT requested the balance sheet accounts for each charter school and the CMO for the periods ending June 30, 2021, and October 31, 2021 (the period coinciding with the 2021-22 first interim reporting peri- od). The CMO did not produce a separate balance sheet account statement for each charter school in the Aptafund system due to the structure of its chart of accounts. The combined reports provided show several accounts payable liability account balances, such as accrued salaries for summer pay, direct deposit, state disability, federal withholdings, state unemployment insurance, and Medicare/OASDI, did not change from the period ending June 30, 2021 to the period ending October 31, 2021. This indicates the organization had not fully reconciled its accounts payable balances by the end of the first interim reporting period. The CMO lacks policies and procedures to support its year-end closing processes, including the use of a purchase order cutoff date. Most LEAs establish a cutoff date for all purchases charged against the current year budget. The reasons for this deadline are as follows: 1. To ensure goods and services are received in the current fiscal year (before June 30) if paid from current year funds. 2. To ensure accurate ending fund balance estimates for use in budget development for the subsequent fiscal year. 3. To reduce the number of payables created during the year-end close process to facilitate a timely and accurate closing. The CMO’s current lack of sound internal controls, including separation of duties, adequate policies and procedures, staff cross-training, and timely reconciliations relating to accounts payable and purchasing activities, increases the organization’s risk for material weaknesses, serious errors and fraud. Recommendations The CMO should: 1. Revise the Fiscal Services job descriptions to include all accounts payable duties as applicable. Ensure essential duties are assigned so they support a strong system of internal controls, including separation of duties and supervision of work. 2. Develop detailed policies and procedures to support the organization’s accounts payable functions so they ensure the CMO and its charter schools are protected from material weaknesses, serious errors, and fraud, including, but not limited to, the following: a. Segregate duties to create, review, approve, print, receive and distribute commercial checks so that the same employee cannot initiate, process, and mail warrants to vendors; consider using Aptafund-defined user roles to strengthen internal controls. b. Establish board-approved purchasing requirements, including detailed guidance on ap- proval limits, travel and expense reimbursements, credit card usage, new vendor creation, and independent contractor hiring. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 17 Findings and Recommendations Processes and Procedures c. Clarify the approvals needed for various purchasing actions and the process for approval. d. Provide for a credit card acceptable use policy that specifies the consequences if a card- holder violates the requirements, including prohibiting the use of organization credit cards to pay for personal expenses. e. Review credit card limits periodically to determine if the limit for any position should be increased or decreased. f. Provide clear guidance on the CMO’s and charter school’s use of petty cash. Consider eliminating petty cash use due to the prevalence of credit cards in the organization. g. Ensure that purchase orders and contracts are created and approved before the pur- chase of goods or services, and that all employees are held accountable for following this procedure. h. Ensure that the Fiscal Services Department audits all invoices, mileage, and travel and expense reimbursements. Ensure sufficient information is included with each reimburse- ment request, such as the employee name and business purpose of the expense, to meet IRS regulations. i. Ensure that certain assets, such as check stock, are placed in a fireproof safe and re- moved only when needed. j. Address stale-dated checks to ensure that items older than a specific number of months (but not older than a year) are investigated, resolved and removed from bank reconcilia- tions on a timely basis. 3. Ensure that all prior year accounts payable entries are cleared in a reasonable time, typically within 90 days after the books are closed. Develop a procedure to ensure that all balance sheet liability accounts, including accounts payable balances, are reconciled at least at each interim reporting period and at year-end, and that balances are reduced to zero immediately before commencing the following year’s accounts payable posting activities. 4. Continue efforts to route purchase requisitions electronically for approval in the organization’s financial system to improve efficiency and accessibility. 5. Provide annual training to all school personnel involved in purchasing to ensure they follow the correct procedures in processing purchases and accounts payable transactions. 6. Assess the technical skills of the Fiscal Services Department staff and establish an ongoing training program to increase and maintain each employee’s technical knowledge and expertise in accounts payable duties. 7. Create a guide of commonly used account codes, helping to standardize coding on regular purchase activities. This will help reduce coding errors and the need to generate corrective journal entries. This guide will also help establish the appropriate and consistent use of object codes. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 18 Findings and Recommendations Processes and Procedures Accounts Receivable Accounts receivable is the business function for organizing and processing funds owed to an organization from other entities. For charter schools, activities include creating and sending invoices, collecting cash receipts, depositing receipts into bank accounts, recording deposits in the financial system, reconciling cash accounts, setting up accruals and accounts receivable, and tracking federal, state, and local payment schedules. Effective accounts receivable policies and procedures ensure revenue accounts are updated and monitored regularly to provide an accurate accounting of the assets for the four charter schools. The CMO maintains several accounts in multiple banks and the Solano County Treasury (to organize and process funds for its charter schools). Specifically, the organization maintains one bank account to process all operating payments (including payroll and vendor payments), one bank account to manage Proposition 51 construction funds, one bank account to process ASB transactions, and five separate accounts in the county treasury to receive state and federal apportionments and process California State Teachers’ Retire- ment System (CalSTRS) and California Public Employees’ Retirement System (CalPERS) payments (one for each charter school and one for the CMO). Most of the organization’s funds are held in the county treasury, and the CMO periodically transfers funds from those accounts to its primary operating account to cover day-to-day operating cash needs. Accounts Receivable Staffing Even in a small organization with limited staffing, adequate separation of duties and oversight of essential functions are key factors in creating a strong internal control system. FCMAT reviewed job descriptions for the Fiscal Services Department to determine the positions responsible for accounts receivable activities and found them insufficient to define essential duties relating to accounts receivable functions; only the ac- count specialist job description (dated May 19, 2021, and marked as “Draft”) included any accounts receiv- able duties, specifically the following: • Receive cash from students/others, prepare daily cash count sheets, make bank deposits, and complete entry level accounting tasks such as inputting data, ordering, and filing. The director of fiscal services job description (dated October 21, 2021, and marked as “pending BOD [board of directors] approval”) includes language regarding the monthly reconciliation of county revenue and expenditure reports. This position was vacant during FCMAT’s fieldwork. Interviews suggested this position had been responsible for all other accounts receivable activities, including bank account reconciliations. Bank Account Reconciliations Bank account reconciliations are an essential internal control to prevent and detect errors and fraud. A sound internal control structure would include a procedure that bank statements and account balances are reconciled monthly by a person independent from the original transaction and recording process. That process should also identify the person performing the reconciliation and the person reviewing the work, along with their respective signatures, and date the work was completed on the reconciliation documenta- tion. FCMAT requested a copy of a bank statement and reconciliation for all the organization’s accounts, includ- ing the county treasury accounts. The CMO provided a statement for each account, but only a copy of the September 2021 operating account reconciliation. FCMAT’s review of that reconciliation found it was incom- plete, with an unreconciled balance of $289,152. In addition, the CMO did not provide any documentation regarding who completed and reviewed the work. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 19 Findings and Recommendations Processes and Procedures Cash Receipts Procedures Interviews indicated cash and checks are collected at school sites for student activities. The best practice would be to have sites perform a dual cash count, meaning two people are present, with each counting the cash and reconciling any differences. The organization’s Cash Count Receipt form showing coins, dollars, and checks received should be completed and signed by the two people who counted the funds. Copies of any checks received should be made and filed with the deposit’s supporting documentation at the CMO. All cash and checks pending deposit should be kept in a sealed, tamper-proof deposit bag with a deposit slip reconciling to the form, and locked in a safe at the school site (or CMO) until transported to the bank by an armored car (preferred) or by two staff members. This should occur at least weekly, depending on the volume and frequency of cash collections. Although the job description indicated the account specialists were responsible for making bank deposits, interviews indicated school site staff had been allowed and/or directed to make their own bank deposits and received little or no training on proper cash handling procedures. One staff member reported a cash deposit that had been taken home and not yet deposited at the bank, providing FCMAT with supporting visual evidence of the deposit during the interview. In October 2021, the governing board adopted a comprehensive policy for student organizations (ASBs), including a provision that “management of student funds be in accordance with sound business practic- es, including budgetary and accounting procedures.” FCMAT requested a copy of the fiscal policies and procedures supporting its business practices, but none were provided. Interviews indicated these remain under development. Year-End Closing At the end of each fiscal year, the organization should review its revenue accounts to determine if funds are outstanding that need to be posted to accounts receivable in that fiscal year’s unaudited financial state- ments. During the following year, as those funds are received, entries should be made to reduce the ac- counts receivable balances to zero before beginning the following year’s closing activities. Due to the lack of supporting documentation and limited knowledge of the Fiscal Services staff employed during FCMAT’s fieldwork, FCMAT could not determine and evaluate the CMO’s accounts receivable practices. At a mini- mum, accounts receivable balances should be reconciled at each interim reporting period and at year-end close and should be at or near zero within 90 days of the closing process. FCMAT requested the balance sheet accounts for each charter school and the CMO for the periods ending June 30, 2021 and October 31, 2021. The CMO did not produce a separate balance sheet account state- ment for each charter school in the Aptafund system due to the structure of its chart of accounts. Howev- er, per the combined reports provided, the total accounts receivable asset balance for the CMO and its charter schools for the period ending June 30, 2021, was $4,489,641. The balance sheet provided for the period ending October 31, 2021, which coincides with the 2021-22 first interim reporting period, showed a total accounts receivable asset balance of $913,677, indicating the organization had not fully reconciled its accounts receivable balances by the end of the first interim reporting period. Both the 2018-19 and 2019-20 audit reports included several findings related to material weaknesses in internal controls, including those relating to year-end closing. According to the 2019-20 audit report, the organization did not prepare period ending reconciliations on its major general ledger accounts and lacked adequate accounting policies and procedures to ensure financial records and statements were prepared and maintained in accordance with Generally Accepted Accounting Principles (GAAP). These weaknesses resulted in delays in completing the organization’s unaudited actual financial statements for the 2018-19 and 2019-20 fiscal years. Consequently, the authorizing district issued related notices of concerns, and the Fiscal Crisis and Management Assistance Team Griffin Technology Academies 20 Findings and Recommendations Processes and Procedures organization submitted both the 2018-19 and 2019-20 audit reports after the statutory deadlines. The CMO indicated these findings were the result of turnover of key personnel and lack of staff training and knowl- edge. FCMAT’s review did not identify substantial evidence to suggest the organization had implemented any corrective actions to mitigate the audit findings at the time of the study. The CMO has continued to experi- ence significant turnover in key personnel, having filled all management positions as recently as the current year. In addition, the organization did not complete its 2020-21 unaudited actual financial statements by the September 15 statutory deadline. The continuing lack of expertise and stability in fiscal services staff and leadership, adequate fiscal policies and procedures, and effective internal controls to detect errors and prevent fraud, places the organization and its charter schools at risk for significant negative consequences up to and including revocation or non- renewal by the authorizing district and/or closure due to financial failure. Recommendations The CMO should: 1. Revise Fiscal Services job descriptions to include all accounts receivable duties as applicable. Ensure essential duties are assigned so they support a robust system of internal controls, including separation of duties and supervision of work. The following activities should be defined in the department job descriptions. Suggested positions are noted in parentheses below. a. Counting cash (account specialist/school site staff). b. Preparing bank deposits; making deposits at the bank and/or county treasury (account specialist). c. Recording bank deposits in the financial system (senior accountant/analyst, as proposed). d. Reconciling and reviewing bank and county treasury accounts monthly (senior accoun- tant/analyst or CFO, as proposed). e. Preparing and reviewing income statement activity monthly (senior accountant/analyst or CFO, as proposed). f. Presenting income, balance sheet, and cash flow statements for each charter school and the CMO to the governing board for review and approval monthly (CFO, as proposed). g. Monitoring state, federal, and local payment schedules; preparing and updating cash flow projections accordingly (senior accountant/analyst, as proposed). h. Creating accounts in the financial system to record revenues accurately (senior accoun- tant/analyst, as proposed). i. Processing journal entries to record receipts and revenues accurately (account specialist or senior accountant/analyst, as proposed). j. Reviewing and approving journal entries to record receipts and revenues accurately (se- nior accountant/analyst and/or CFO, as proposed). k. Creating, reviewing, and sending invoices to outside parties for payment (account special- ist or senior accountant/analyst, as proposed). l. Creating and clearing accruals and accounts receivables (senior accountant/analyst, as Fiscal Crisis and Management Assistance Team Griffin Technology Academies 21 Findings and Recommendations Processes and Procedures proposed). m. Training school site staff on proper cash handling procedures (CFO, as proposed). n. Preparing and approving cash transfers from the county treasury to bank accounts (senior accountant/analyst or CFO, as proposed). o. Preparing and maintaining policies and procedures for accounts receivable activities (CFO, as proposed and/or governing board) p. Reviewing and approving all accounts receivable activities (senior accountant/analyst or CFO, as proposed). 2. Develop detailed policies and procedures to support the organization’s accounts receivable functions to ensure financial records and statements are prepared and maintained in accordance with GAAP, including but not limited to, the following: a. Implement a system of checks and balances to ensure no single employee handles a transaction from initiation to reconciliation, and no single employee has custody of an asset and maintains the records for the related transactions. b. Establish how bank accounts are opened and closed, and who is authorized to sign checks and process electronic fund transfers on behalf of the organization and its charter schools. c. Create and implement cash collection and deposit procedures, including requirements that cash be secured in a fireproof safe until safely transported and deposited with a banking institution at least weekly. Establish a frequency, such as weekly, at which depos- its are made regardless of any established timelines for deposit. Ensure that two people always count cash, that those performing the cash count document on a form the coins, bills and checks collected with two signatures, and that cash is placed in a sealed, tam- per-proof bank bag. Ensure processes for deposits include copies of any checks received so the organization has a complete record of all items included in its deposits. d. Support a monthly, quarterly, and year-end closing process to provide accurate and timely financial reporting to the governing board, authorizing school district, and other interested parties. Ensure the financial system reflects up-to-date accurate information in real time, including all revenue postings, for each charter school and the CMO. e. Ensure bank reconciliations are done monthly for all accounts, including those in the county treasury, preferably within two weeks of the statement date or at the end of each month, and that any discrepancies between the general ledger and bank account balance are investigated thoroughly. Create and use a reconciliation form to document the work’s completion, review, and approval, including the printed name, signature, and date the work was performed, for both the preparer and reviewer. 3. Restructure the organization’s chart of accounts to ensure all budgets and accounts can be monitored and reported separately for each charter school and the CMO. Consider establishing a unique general fund for each charter school and the CMO, and use the school account code to classify spending by specific program and department (e.g., English learners, LCAP goals, math, health services, attendance, operations, specific departments, etc.). 4. Ensure that all prior year accounts receivable entries are cleared in a reasonable amount of time, typically within 90 days after the books are closed. Develop a procedure to ensure that accounts receivable account balances are at zero immediately before starting the Fiscal Crisis and Management Assistance Team Griffin Technology Academies 22 Findings and Recommendations Processes and Procedures following year’s accounts receivable posting activities. If any remaining accounts receivable entries remain for which funds have not been received, investigate whether those funds are still collectible and if they should continue to be recognized on the books. Accounts receivable balances should be tracked separately in the financial system for each charter school and the CMO. 5. Provide annual training to all school personnel who handle receipts to ensure they follow correct procedures in processing accounts receivable transactions. 6. Assess the technical skills of the Fiscal Services department staff and establish an ongoing training program to increase and maintain each employee’s technical knowledge and expertise in accounts receivable duties. Payroll Compensating employees accurately and on time for their skills and contributions to an organization is one of the most important factors influencing employee morale and demonstrating accountabil- ity and trust in the employee/employer relationship. Duties that carry a high level of responsibility, such as payroll, should be conducted by trained and experienced professionals. The payroll function includes the following activities: • Establishing a payroll calendar with pay periods, pay dates, and deadlines for processing. • Reviewing employee time cards and work calendars to ensure pay is accurate. • Entering and auditing employee work hours and pay in the payroll system. • Recording and monitoring employee leave balances. • Processing wage garnishments and other employee/employer deductions. • Paying and reporting state and federal payroll taxes. • Distributing payroll checks and processing direct deposit files with a banking institution. • Calculating and processing STRS and PERS payments and reports. • Preparing W-2 and 1095 forms. • Assisting employees with payroll-related inquiries. Griffin Technology Academies pays approximately 100 employees at its four charter schools and the CMO twice a month (on or around the 5th and 20th day of each month). The official employer for all employees is Mare Island Technology Academy. Third-Party Provider The CMO’s financial system, Aptafund, is a fully integrated financial and human resources (HR) system with both payroll and position control function. However, the organization does not use the system for HR or payroll purposes. Instead, the CMO contracts with a third-party provider, Paycom, for online payroll and HR software solutions. Although using outside parties to perform day-to-day business operations is common practice for many charter schools, the organization is still responsi- ble for ensuring payroll processing is complete, accurate, and timely, and for responding to employ- ee inquiries regarding payroll issues. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 23 Findings and Recommendations Processes and Procedures FCMAT could not properly evaluate the CMO’s payroll processes and procedures to make specific recom- mendations for improvements due to a lack of supporting documentation and knowledge in the organiza- tion. Payroll Staffing FCMAT reviewed job descriptions for the business services department and noted the HR coordinator is the only position with documented payroll-related responsibilities. The job description (dated August 11, 2009) includes the following duties: • Prepares necessary paperwork (Personnel Action Form) to establish new employees on payroll, including substitute and student employees; verify appropriate salary level for classified and certificated personnel, including increment and/or longevity; code personnel forms according to established procedures. • Notifies payroll of changes in personnel status affecting salaries; processes timesheets for payroll weekly. • Monitors leaves of absences; notifies supervisors as required. At the time of FCMAT’s review, the HR coordinator position had been recently vacated and a replacement had assumed the position several days prior to fieldwork. Staff interviews and other documentation on job responsibilities indicated one of the two account specialists had recently assumed payroll responsibilities due to the turnover in the HR coordinator position. As noted, the account specialist job description (dated May 19, 2021, and marked as “Draft”) did not include any essential duties relating to payroll. The account specialist designated as the “lead payroll specialist” was new to the organization and had no expertise or significant payroll experience. This individual also received no training before assuming the du- ties, other than spending a few hours with the prior HR coordinator and reviewing training materials avail- able online from the third-party provider. Adequate separation of duties, staff cross-training, and oversight of essential functions such as payroll are key factors in creating a strong internal control system. Based on the limited information available to FCMAT, em- ployees appeared to enter time and attendance directly into Paycom’s employee service portal. The HR coor- dinator position had been responsible for reviewing, approving, and coordinating all payroll processing with Paycom. This coordinator also completed all necessary data entry relating to new and current employees and their respective pay in the Paycom system, as well as recording employee enrollments in benefit programs, and the organization’s STRS and PERS retirement reporting. FCMAT received no information to support the existence of any compensating internal controls in payroll processing. Payroll errors can be costly for both the organization and its employees. The severe lack of payroll ex- pertise and internal controls places the CMO at high risk of payroll errors, late payments, inaccurate ac- counting, and potential fraud resulting from a lack of checks and balances, separation of duties, and staff cross-training. Recommendations The CMO should: 1. Revise job descriptions in Fiscal Services and Employee Management to include all payroll duties as applicable. Ensure essential duties are assigned so they support a robust system of internal controls, including separation of duties and supervision of work. The following Fiscal Crisis and Management Assistance Team Griffin Technology Academies 24 Findings and Recommendations Processes and Procedures activities should be defined in the department job descriptions. Suggested positions are noted in parentheses below. a. Establishing a payroll calendar, with pay periods, pay dates, and related deadlines for processing (CFO, as proposed). b. Establishing a work year calendar for each position; issuing annual employment con- tracts; verifying annual salary schedule placement and pay rates (Employee Manage- ment). c. Reviewing employee timecards and work calendars to ensure pay is accurate (depart- ment direct supervisors/managers). d. Entering and auditing employee work hours and pay in the payroll system (account specialist). e. Recording and monitoring employee leave balances (Employee Management). f. Processing wage garnishments and other employee/employer deductions (account specialist). g. Paying and reporting state and federal payroll taxes (senior accountant/analyst, as proposed). h. Distributing payroll checks; processing direct deposit files with the applicable banking institution (senior accountant/analyst, as proposed). i. Completing positive pay reporting and verification procedures with banking institution (account specialist). j. Processing payroll liability payments (e.g., garnishments, voluntary benefits, 403b con- tributions, union dues, etc.) (account specialist). k. Calculating and processing STRS and PERS payments and reports (senior accountant/ analyst, as proposed). l. Preparing W-2 and 1095 forms (senior accountant/analyst, as proposed). m. Recording payroll-related journal entries in the financial system (senior accountant/ analyst, as proposed). n. Assisting employees with payroll-related inquiries (account specialist). o. Enrolling and auditing employees in benefit programs (Employee Management). p. Reconciling benefit program billings (Employee Management). q. Processing benefit program billing payments (account specialist). r. Reviewing and approving all payroll activities (CFO, as proposed). 2. Establish detailed policies and procedures to clearly define the distribution of responsibilities and accountability for payroll processing between the organization and its third-party provider. Include procedures to ensure that if the organization makes an error on employee payroll, a corrected payment is made as soon as possible but no later than five working days following discovery of the error. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 25 Findings and Recommendations Processes and Procedures 3. Provide annual training to all department staff who complete and review timesheets, extra work agreements or any other monthly payroll-related documents. Focus on compliance, procedural requirements, and the application of information provided in the payroll process. 4. Establish a payroll user guide for internal department use; specify document needs, audit processes, and input guidelines. Use this guide to help enable a smooth transition when staff change positions, and to assist in cross-training between positions. 5. Assess the technical skills of the staff in the Fiscal Services and Employee Management departments and establish an ongoing training program to increase and maintain each employee’s technical knowledge and expertise in payroll duties. 6. Determine which employee is responsible for PERS and STRS reporting and provide that person with appropriate training. Fiscal Crisis and Management Assistance Team Griffin Technology Academies 26 Appendix Appendix A. Study Agreement Fiscal Crisis and Management Assistance Team Griffin Technology Academies 27 Appendix Appendix A - Study Agreement Fiscal Crisis and Management Assistance Team Griffin Technology Academies 28 Appendix Fiscal Crisis and Management Assistance Team Griffin Technology Academies 29 Appendix Fiscal Crisis and Management Assistance Team Griffin Technology Academies 30 appendix Fiscal Crisis and Management Assistance Team Griffin Technology Academies 31 Appendix 9/29/21 Fiscal Crisis and Management Assistance Team Griffin Technology Academies 32