Lompoc Unified School District Report

T Lompoc Unified School District F A ASB Review November 1, 2019 R D Michael H. Fine Chief Executive Officer November 1, 2019 Dr. John Karbula, Assistant Superintendent Lompoc Unified School District 1213 North A Street Lompoc, CA 93436 Dear Assistant Superintendent Karbula: In March 2019, the Lompoc Unified School District and the Fiscal Crisis and Management Assistance Team (FCMAT) entered into an agreement for FCMAT to conduct a review of the district’s associated student body (ASB) operations. Fieldwork and site visits were planned for May 2019. The agreement stated that FCMAT would perform the following: 1. Provide on-site technical assistance for the district, focusing on Lompoc High School and Vandenberg Middle School, evaluating Associated Student Body operations, which include policies, processes and procedures. At the conclusion of fieldwork, a management letter will be provided with written findings and recommendations. This final report contains the study team’s findings and recommendations. FCMAT appreciates the opportunity to serve the Lompoc Unified School District 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 About FCMAT ...................................................................................................ii Introduction ......................................................................................................iv Executive Summary ........................................................................................1 Findings and Recommendations................................................................2 ASB Policies and Procedures, Board Designee, Board Policies, and Internal Controls ..................................................................2 ASB Accounting Software .....................................................................................5 Student Body Accounts ..........................................................................................6 ASB Not Required ...................................................................................................10 ASB Club Budgets, Inactivity and Carryover ...................................................12 Financial Reports and Bank Reconciliations ...................................................16 Forms..........................................................................................................................18 ASB Fundraisers and Revenue Potential .........................................................20 ASB Purchase Process and Preapproval ..........................................................21 Cash Controls ..........................................................................................................25 Student Store ..........................................................................................................29 Appendix ........................................................................................................30 Study Agreement ...................................................................................................30 Fiscal Crisis and Management Assistance Team Lompoc Unified School District i 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 services are used to help local education- al 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 recommenda- tions to help resolve issues, overcome challenges and plan for the future. FCMAT has continued to make adjustments in the types of support provided based on the changing dynamics of K-14 LEAs and the implementation of major educational reforms.FCMAT also develops and provides numer- Studies by Fiscal Year 90 80 70 60 50 40 30 20 10 0 95/96 96/97 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 ous publications, software tools, workshops and professional development opportunities to help LEAs operate more effectively and fulfill their fiscal oversight and data management responsibilities. The California School In- formation Services (CSIS) division of FCMAT assists the California Department of Education with the implemen- tation 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 Califor- nia 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 obliga- tions. AB 107 in 1997 charged FCMAT with responsibility for CSIS and its statewide data management work. AB 1115 in 1999 codified CSIS’ mission. 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 responsibilities to FCMAT with regard to districts that have received emergency state loans. seidutS fo rebmuN About FCMAT Fiscal Crisis and Management Assistance Team Lompoc Unified School District ii About FCMAT In January 2006, Senate Bill 430 (charter schools) and AB 1366 (community colleges) became law and expand- ed FCMAT’s services to those types of LEAs. On September 17, 2018 AB 1840 was signed into law. This legislation changed the how fiscally insolvent districts 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 1,000 reviews for LEAs, including school districts, county offices of education, charter schools and community colleges. The Kern County Superintendent of Schools is the administrative agent for FCMAT. The team is led by Michael H. Fine, Chief Executive Officer, with funding derived through appropriations in the state budget and a modest fee schedule for charges to request- ing agencies. Fiscal Crisis and Management Assistance Team Lompoc Unified School District iii Introduction Introduction Background The Lompoc Unified School District is located in the city of Lompoc and serves approximately 10,139 students at three comprehensive high schools, two middle schools, nine elementary schools, one community day school, one adult school, and one independent study home school. The district is working to improve its operations and procedures for associated student body (ASB) funds. As a result of self-evaluation, the district recognized that more work is needed in this area and contracted with FC- MAT to review its ASB operations. Three of the most important items needed for ASB operations are board policies, administrative regulations, and detailed operating manuals. Page five of the FCMAT Associated Student Body Accounting Manual, Fraud Prevention Guide and Desk Refer- ence (FCMAT ASB Manual) states, The governing board of the school district, charter school or community college is ultimately responsible for everything that happens in the district, including the activities of student organiza- tions. Under Education Code section 48930 for K-12, and section 76060 for community colleges, the governing board has the authority to approve the formation of a student body organization within the district. This means that governing boards are not required to allow student body orga- nizations to exist. Many districts have chosen to stop student fundraising and organizations as a last resort because of continual and severe noncompliance issues, including fraud. In assuming the authority the Education Code gives them, governing boards establishes parameters for district operations through board policies and regulations. These policies and regulations must specify how the student body organization will be established, how the or- ganization’s activities will be supervised, and how the organization’s finances will be operated and managed. The district’s administration is responsible for establishing and monitoring the procedures to carry out the policies and regulations adopted by the governing board. Students are raising funds for their own benefit and are able to make decisions about the funds (with co-approval from an administrator); however, when there is a conflict, governing board poli- cies and regulations override ASB decisions because ultimately the funds are under the governing board’s authority. A comprehensive board policy is the cornerstone of sound practices in student organizations. This is most effectively achieved by establishing a comprehensive district ASB manual for all stu- dent organizations to follow, and referencing it in board policy that requires all staff to follow the manual’s guidance… [emphasis added] Page 15 of the FCMAT ASB Manual states the following in its discussion of governing board policy and adminis- tration regulations: Because most ASB operations relate directly to business management functions, the district’s chief business official should take a lead role in ensuring that the district has appropriate board policies and administrative regulations regarding the operation and management of the organi- zation’s finances. In addition, all individuals involved with the ASB should receive training at least Fiscal Crisis and Management Assistance Team Lompoc Unified School District iv Introduction every two years on ASB laws, policies, regulations, internal controls and good business practices. The district’s business office should take the lead in ensuring that this training is provided. ASBs must be made aware that district policy applies to them, and people involved in ASB must understand that district board policies and regulations are an additional set of laws that ASB organizations must follow. All district board policies that apply to general district operations apply to ASB as well, unless there is a policy stating otherwise. [emphasis added] In addition to board policies that apply to ASB operations, districts must ensure they follow each ASB club’s constitution and bylaws. Study Team The study team was composed of the following members: Michael Ammermon, CPA, CFE, CRFAC, DABFA John Lotze FCMAT Intervention Specialist FCMAT Technical Writer Study Guidelines In March 2019, the Lompoc Unified School District and the Fiscal Crisis and Management Assistance Team (FCMAT) entered into an agreement for FCMAT to conduct a review of the district’s associated student body (ASB) operations. Fieldwork and site visits were planned for May 2019. The agreement stated that FCMAT would perform the following: 1. Provide on-site technical assistance for the district, focusing on Lompoc High School and Vandenberg Middle School, evaluating Associated Student Body operations, which include policies, processes and procedures. At the conclusion of fieldwork, a management letter will be provided with written findings and recommendations. FCMAT visited the district office and two schools on May 20-22, 2019 to conduct interviews with district and school site staff, collect data and review documents. Based on fieldwork conducted, FCMAT determined that the findings and recommendations presented in this report are applicable to all schools and that each school would benefit from implementing the recommendations. Fiscal Crisis and Management Assistance Team Lompoc Unified School District v Executive Summary Executive Summary Although the district has adopted board policies and provided some training in the past related to its ASB operations, many procedures and practices can be improved. The district recognizes the issues discussed in this report and has already begun implementing many of the recommendations. The following is a summary of ASB-related practices and procedures that the district and FCMAT have found need improvement: • Various ASB-related governing board policies need to be updated and clarified. The board should consider adopting the FCMAT ASB Manual and creating and adopting a supplemental district ASB manual, guide, or list of allowable and prohibited activities as board policy and ad- ministrative regulations. This would help define and communicate which ASB-related practices and activities are allowable and which are prohibited. • Board policy needs to specifically identify the title of the individual(s) the board has selected as designee(s) to approve fundraisers, such as the school principal(s). • The district needs to continue to improve internal controls related to ASB, and should imple- ment annual ASB training. Internal controls are needed for fundraisers, forms, purchasing and preapproval, counting and transport of funds, and keeping secure custody of cash. These mea- sures will improve the integrity of ASB processes and procedures. • A whistleblower hotline is always recommended as a way for individuals to report concerns about possible fraud. • The district could benefit from using the same ASB accounting software districtwide. • All ASB trust accounts need to be evaluated to determine if the club each belongs to meets the criteria and requirements for being part of ASB. Accounts or trusts for clubs that do not meet the criteria should be removed from the ASB and accounted for in other accounts approved by the district’s business office. • Club budgets, inactive clubs, and large and negative club cash balances need to be evaluat- ed. All clubs are required to have a budget and should not spend any funds until a budget is in place. Inactive clubs should be closed, and any club with a large or negative cash balance should be evaluated to determine whether it should continue as a club and what the disposition of its cash balance should be if it does not. • The appropriate administrator(s) need to review and sign all financial reports and bank reconcil- iations. • All schools need to use the same forms and accounting software. Consistency in this area, and the use of multicopy forms, will strengthen documentation and authorizations and should improve accountability and internal controls. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 1 Findings and Recommendations ASB Policies and Procedures, Board Designee, Board Policies, and Internal Controls Findings and Recommendations ASB Policies and Procedures, Board Designee, Board Policies, and Internal Controls To ensure successful ASB operations, school entities need the following: • Comprehensive board policies and administrative regulations for ASB operations and funds; these should include guidance that goes beyond what is in the law, including procedures, best practices and internal controls. • A comprehensive and user-friendly ASB manual that provides guidance for all individuals in- volved in day-to-day ASB activities. • A significant level of oversight and support from the district’s business office. • Annual training (internal or external) for all staff members and students who work with ASB operations. • Standard processes, procedures and forms at all schools. ASB Policies, Procedures and Manual(s) The district is aware that it needs additional guidelines and controls in this area. The district has some board policies regarding ASB funds, and it uses the 2015 FCMAT Associated Student Body Accounting Manual, Fraud Prevention Guide, and Desk Reference (FCMAT ASB Manual), which has the most up-to-date ASB policies, pro- cedures and fraud awareness tools. However, the district’s adopted board policies do not indicate that the district has adopted the FCMAT ASB Manual or created its own ASB accounting manual, guide, handbook, or list of allowable and prohibited activi- ties as part of its policies and procedures. Updating board policy to include this specificity would give staff more direction about which resources to rely on when questions arise. Suggested board policy language is as follows: The governing board adopts, on an ongoing basis, the most recent Fiscal Crisis and Management Assistance Team (FCMAT) Associated Student Body Accounting Manual, Fraud Prevention Guide, and Desk Reference and the Lompoc Unified School District ASB Manual as district ASB board policy. If any conflict occurs between the most recent FCMAT Associated Student Body Account- ing Manual, Fraud Prevention Guide, and Desk Reference and the Lompoc Unified School District ASB Manual, the policies and procedures established in the latter document will prevail. This type of language would allow the district to modify its own ASB manual, guide, handbook, or list of al- lowable and prohibited activities to include specific policies and procedures that may differ from those in the FCMAT ASB Manual. Board Policy and Designee The FCMAT ASB Manual consistently discusses use of a board designee. A board designee for ASB is the per- son the board designates to approve ASB fundraisers and activities on behalf of the board. The district’s board policies lack clear instructions and information regarding who its board designee is for ASB purposes. The district needs board policy that identifies a designee or designees for approving fundraisers Fiscal Crisis and Management Assistance Team Lompoc Unified School District 2 Findings and Recommendations ASB Policies and Procedures, Board Designee, Board Policies, and Internal Controls and activities. Without such a designee or designees, the board is responsible for approving all fundraisers for the ASB, boosters, foundations, and all other district- or school-connected organizations. Typically, a board will designate each school principal to approve ASB fundraisers and activities because the principal is most familiar with the activities and school-connected organizations at their school. Once a school principal is identified as a board designee for ASB purposes, approval and oversight become the principal’s responsibility; he or she should not further delegate that authority. Education Code Section 48932 requires that the governing board approve fundraising events as follows: The governing board of any school district may authorize any organization composed entirely of pupils attending the schools of the district to maintain such activities, including fund-raising activi- ties, as may be approved by the governing board. The governing board of any school district may, by resolution, authorize any student body organi- zation to conduct fund-raising activities on school property during school hours provided that the governing board has determined that such activities will not interfere with the normal conduct of the schools. Education Code Section 51521, Fundraising Projects, states that the governing board of the district, or the board’s designee, is responsible for approving all fundraising: No person shall solicit any other person to contribute to any fund or to purchase any item of per- sonal property, upon the representation that the money received is to be used wholly or in part for the benefit of any public school or the student body of any public school, unless such person obtains the prior written approval of either the governing board of the school district in which such solicitation is to be made or the governing board of the school district having jurisdiction over the school or student body represented to be benefited by such solicitation, or the designee of either of such boards. [emphasis added] Board policies apply to ASB; therefore, policies and administrative regulations already in place regarding awards, purchasing, travel, reimbursements and other items apply to ASB. Policies that apply to ASB should be identified and included in any ASB manual, guide, handbook, or list. Internal Controls Comprehensive board policies, ASB manuals, training and oversight are all components of a strong ASB internal control system. Internal controls begin with gaining an understanding of how processes and procedures are op- erating, and evaluating them for improvement. This report identifies processes, procedures, forms and practices that need improvement. Annual Training Annual ASB training is a best practice. Those trained should include administrators, activities directors, club advisors, coaches, athletics directors, bookkeepers, and student council members and other student lead- ers. Those trained may also include members of school-connected organizations such as booster clubs, par- ent-teacher associations, and parent-teacher organizations. Annual training is an opportunity to identify weak- nesses and practices that need improving, and for schools to keep practices aligned with one another. Whistleblower Hotline The district does not have an independent third-party whistleblower hotline or web-based fraud reporting service. Having such hotline or service can benefit any ASB and is essential to both detecting fraud and estab- Fiscal Crisis and Management Assistance Team Lompoc Unified School District 3 Findings and Recommendations ASB Policies and Procedures, Board Designee, Board Policies, and Internal Controls lishing the perception that it is likely to be detected. Fraud experts believe that people are less likely to commit fraud when they perceive a greater probability of detection. Recommendations The district should: 1. Amend its board policies to identify a board designee for approving ASB fundraisers and activities, or stipulate in board policy that the board will approval all fundraisers. If the board selects a designee or designees to approve fundraisers and activities, board policy should identify each designee by title, such as school principal. 2. Develop a districtwide ASB manual, guide, handbook, or list of allowable and prohibited ASB activities, and ensure that this document includes as an additional resource all district board policies and administrative regulations that apply to ASB. 3. Amend its board policies to indicate that the most recent FCMAT Associated Student Body Accounting Manual, Fraud Prevention Guide and Desk Reference and the Lompoc Unified School District ASB Manual (or equivalent local document) are additional governing board- approved policies and procedures. 4. Continue to provide staff with annual training regarding its ASB manual and procedures. 5. Ensure that new staff members and student council members are provided with ASB training throughout the year, and with copies of the district’s and FCMAT’s ASB manuals. 6. Establish a fraud reporting service. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 4 Findings and Recommendations ASB Accounting Software ASB Accounting Software The district does not use the same accounting software districtwide. It uses one of the newest ASB- accounting software products, ASB Works, as well as QuickBooks, to process ASB transactions. Using the same ASB accounting software districtwide would enable the district’s business office to review trans- actions and reports more easily, cross train employees so they can operate the same system at each school, and standardize accounting. It is best practice when implementing new software to do so according to a plan that considers the best time for implementation. Often this means timing implementation for completion by the beginning of the school, fiscal year, or calendar year. Recommendations The district should: 1. Identify an ASB accounting software system that will meet its needs, and adopt that software for districtwide use. 2. Ensure that the company that provides the selected software offers sufficient training for the district’s employees who will use it. 3. Develop a software implementation plan that considers the best time to implement use of the software. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 5 Findings and Recommendations Student Body Accounts Student Body Accounts Student organizations in middle schools and high schools are called organized ASBs because the students organize their activities through student clubs and a student council. Adults (certificated advisors, principals, assistant principals, and district office staff) provide oversight and assistance, but the students do the work and make the decisions. Club and Trust Criteria Each club in an organized ASB should have its own focus and organizational requirements. Students in orga- nized ASBs are responsible for their organizations: the student council and student club leaders hold formal meetings, develop budgets, plan fundraisers, decide how the funds will be spent, and approve payments. The school administrators, ASB bookkeeper and club advisor(s) assist and advise. Every club needs the following to qualify as an official club under an ASB: • A club advisor. This person must be a certificated employee at the school site who has a valid teaching credential, has agreed to serve as advisor, and is named in the club application. • Student officers • A formal application to form a club • A constitution • Official meetings • Meeting minutes that serve as the record of each meeting and the actions taken, demonstrat- ing that the student council or club has followed the ASB organization’s policies and proce- dures. • An adopted budget To become a recognized part of the student body organization, a club, like the ASB itself, must be composed entirely of students enrolled at the school. In addition, for fundraising and expenditures to be legitimate, stu- dents must be the primary authority on both, with adults co-approving. If all of these elements are not in place, then the funds do not belong in an ASB account. All clubs need to follow the regulations in the ASB constitution regarding club formation. Any group of students may apply for permission to form a club by submitting a proposed charter or application to the ASB; however, for a club to exist it must prepare a constitution and have it approved by the ASB leadership. Club bylaws are also important because they provide additional rules that the club will follow; these should also be approved along with the constitution. Some ASB clubs at the district’s schools lack ASB-approved applications, constitutions, or bylaws. Some ac- counts kept as ASB accounts are used primarily as a convenience, or it is not known if the account is for a club; the students do not decide whether to have fundraisers or how funds in these accounts are spent. ASB accounts should be established and funded from ASB club activities and fundraising, such as dance ticket sales, snack shop sales, or yearbook sales if there is a yearbook club. Students should be the primary decision makers regarding ASB funds. If the students are not the primary decision makers (i.e., adults are making the de- cisions), or if the club advisor is not a certificated instructor (e.g., a walk-on coach, classified staff or volunteer), or of there is no club constitution, then that club’s funds do not belong in the ASB and should be moved to a district business office-approved school site budget account. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 6 Findings and Recommendations Student Body Accounts Any donations from parents or others that were not generated from ASB activities or fundraising belong in a dis- trict’s donation account for a specific school, not an ASB account. It is best practice to use the school’s district budget accounts for these types of donations from parents, students and community members or groups, and to set them aside in a locally restricted resource so the funds are segregated. Only donations that are a result of club activity fundraising may be accounted for in the ASB accounting records. Athletics The district’s athletic activities are operated as part of the ASB, with funds deposited into the ASB bank ac- count. However, the ASB only holds money for the athletics’ sport trust accounts. These sports trust accounts lack the following: • ASB-approved constitutions and budgets • Minutes • A certificated instructor as the club advisor who is present at all games, practices and events (this is an Education Code Section 48933(b) requirement for an ASB club) • Students making the decisions for all activities, purchases and fundraising • Preapproved purchases for all expenditures, signed by the student representative of the club, the club advisor, and the principal All funds deposited into the ASB accounts are under the control and direction of the ASB; adult administrators coadvise, but students make the decisions. If all the rules for trust fund accounting of ASB funds cannot be fol- lowed, those funds should be moved to another district-approved non-ASB account. If athletics is not operated as club or clubs that meet the ASB criteria, the following options are available: Option 1 Remove athletics from ASB and operate it from a district-operated school budget account. This means the deposits for gate receipts and other revenue should be taken to the district office, and checks should be writ- ten through the district’s warrant system. The accounting could still be processed by the ASB bookkeeper, but would use the district’s accounting system. If this option is selected, it is best practice to develop an athletics manual or guide that specifies how funds will be accounted for, the approval processes, and all other procedures that athletics should follow. For example, purchases should always be preapproved, a budget should be prepared and approved, and funds should be counted only with a witness present. If revenue is to be shared between athletics and ASB, develop agree- ments, contracts or memoranda of understanding that describe in detail all arrangements, and ensure that these are approved by the district’s business office and agreed to and signed by both athletics and ASB. These measures help provide good business practices and internal controls that are essential to effective management of funds and accounts. Option 2 Remove athletics from ASB and operate it from its own district-approved school bank account, separate from ASB, and with its own separate accounting books. The accounting could still be done by the ASB bookkeeper using the same ASB accounting software, but athletics would have its own company file and chart of accounts. Deposits for gate receipts would be placed in this new bank checking account, which could be considered a separate trust account but not an ASB club account, and which would be subject to audit by the district’s audi- tor. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 7 Findings and Recommendations Student Body Accounts If Option 2 is selected, the district should follow the same best practices specified in the second paragraph under Option 1 above. Option 3 Leave athletics in ASB, follow all the rules and criteria for ASB clubs, and determine how athletics should be or- ganized. Athletics in ASB may be organized as one athletics club for all sports or as multiple clubs, one for each sport. Athletics Club Chapter 4 of the FCMAT ASB Manual states: For any sports revenues and expenditures to be accounted for and part of the ASB account, the sport must meet the same ASB club requirements. Each sport may be a separate club with its own constitution, certificated advisor, budget and other required elements, or multiple sports can be organized as one athletics club, with each sport having representation in the club. The athletics club must be led by enrolled students. Each sport in the athletics club should elect at least one delegate or commissioner to be a member of the club’s student leadership, thus ensuring that each sport receives representation. Each sport represented in the athletics club may then be ac- counted for in the ASB accounting record as a sub-account of the athletics club. If the athletic director of the school is a certificated employee of the district, the athletic director may serve as club advisor. Organizing as an athletics club means that there is one athletics club, and all sports are subcomponents of that club. Each sport should have a representative in the athletics club leadership. Each sport should account for its funds separately but as a component of the total club budget. The athletics club would have one constitution and one set of bylaws, at least one budget, and one set of minutes. Students would make the decisions, includ- ing preapproving purchases for the club and for each sport, and the club would have at least one certificated club advisor. However, because the club advisor must be at all activities, including all games and practices, it is acceptable to name more than one certificated club advisor in the club application and constitution to ensure a club advisor is always present. Volunteers, walk-on coaches, and other district-approved individuals are allowed to assist, but they cannot be the club advisor and cannot be left alone with the students; an official club advisor must be present. Clubs for Individual Sports If athletics is organized using a club for each sport, each sport must have its own constitution and bylaws, bud- get, and minutes. Students must make the decisions, including preapproving purchases, and the club must have at least one certificated advisor. A club advisor must be at all activities, including games and practices, so it is acceptable to name more certificated advisors in the club application and constitution to ensure an advisor is always present. Volunteers, walk-on coaches, and other district approved individuals are allowed to assist, but they cannot be considered the club advisor and cannot be left alone with the students; an official club advisor must be present. Other Non-ASB Accounts The district’s ASB accounts include accounts for a school administrator’s or teacher’s discretionary use, such as staff appreciation, computers, caps and gowns, plaques for teachers, and other such items. These types of accounts are for convenience and are considered pass-through accounts. These types of account do not belong under ASB. The only accounts that belong in ASB are club accounts, class accounts (such as class of 2021 or Fiscal Crisis and Management Assistance Team Lompoc Unified School District 8 Findings and Recommendations Student Body Accounts senior class), and ASB-approved scholarship accounts. Examples of accounts that do not belong in the ASB are library fines, exam fees, staff coffee funds, non-ASB field trips, and staff appreciation. If a school administrator or teacher is deciding how to spend funds, the account does not qualify as an ASB ac- count. ASB funds are to benefit the students, not to supplement a class or adult’s budget, nor to be spent based on an adult’s decision. The students should decide how to spend these funds. The financial statements for the district’s ASB show many accounts that may not be associated with student clubs. Because students are neither conducting activities or fundraisers to generate these funds nor making decisions about how to spend these funds, the accounts do not qualify as ASB accounts. These funds should be closed out of the ASB, and the account(s) should be removed or made inactive. If some of these accounts are meant to be clubs, proper club applications, constitutions and bylaws should be prepared and approved to establish a club. Recommendations The district should: 1. Ensure that each club meets the criteria required to be an ASB club. 2. Ensure that each club has a set of bylaws to provide additional rules the club will follow. 3. Certify that all fundraisers and expenditures are approved in advance by students. 4. Ensure that every ASB club has a formally approved application and constitution approved by ASB leadership before it begins any activities. 5. Transfer all non-ASB club accounts, including but not limited to pass-through type accounts, into another district donation account, and discontinue accounting for non-ASB activities in the ASB financial records. 6. Determine how athletics will be operated and function. If athletics will be removed from ASB, establish all of its operating details, policies and procedures. If athletics will remain part of ASB, ensure that it has all elements required to be part of ASB. 7. Ensure that any athletic program receipts that are not intended for ASB use and do not have the required elements in place are held at the district as a donation trust account or other approved account, not accounted for through the ASB. 8. Ensure that non-ASB donations from parents, students or community members or groups are deposited in the appropriate school’s district donation account, not accounted for through the ASB. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 9 Findings and Recommendations ASB Not Required ASB Not Required Not every school needs to have ASB. If students are not making the decisions, or if field trips are for the whole school rather than for a class or club, or if there is not a certificated club advisor, or if the ASB is used only as a pass-through account, then there is no need for ASB accounting. Fundraising and activities that are not for clubs and that do not meet the criteria for ASB clubs may be administered by school administrators and their funds accounted for in a district-approved school donation account. Chapter 2 of the FCMAT ASB Manual states: The governing board of the school district, charter school or community college is ultimately responsible for everything that happens in the district, including the activities of student organiza- tions. Under Education Code section 48930 for K-12, and section 76060 for community colleges, the governing board has the authority to approve the formation of a student body organization within the district. This means that governing boards are not required to allow student body orga- nizations to exist. Many districts have chosen to stop student fundraising and organizations as a last resort because of continual and severe noncompliance issues, including fraud. [emphasis added] In assuming the authority the Education Code gives them, governing boards establish parameters for district op- erations through board policies and regulations. If a district has a student body organization, these policies and regulations must specify how the student body organization will be established, how the organization’s activities will be supervised, and how the organization’s finances will be operated and managed. The district’s administra- tion is responsible for establishing and monitoring the procedures needed to carry out the policies and regula- tions adopted by the governing board. Chapter 2 of the FCMAT ASB Manual states: Students are raising funds for their own benefit and are able to make decisions about the funds (with co-approval from an administrator); however, when there is a conflict, governing board poli- cies and regulations override ASB decisions because ultimately the funds are under the governing board’s authority. A comprehensive board policy is the cornerstone of sound practices in student organizations. This is most effectively achieved by establishing a comprehensive district ASB manual for all student organizations to follow, and referencing it in board policy that requires all staff to follow the manu- al’s guidance. Some of the district’s schools have one or more of the following: • Very little ASB- or student-driven financial activity, • Most activities are for the whole school and are indistinguishable from non-student-organized school activities • Other criteria for qualifying as ASB is not met • They operate as an ASB mostly because they are simply following past practice. Not every school must have an ASB. If the standards and criteria for being an ASB are not in place or followed, then closing the ASB is an option. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 10 Findings and Recommendations ASB Not Required Recommendations The district should: 1. Determine whether there should be an ASB at each school. If the determination is made that there should not be an ASB and the district decides to close an ASB, have the students vote on and approve the closure, and transfer the funds to a district business office-approved school account. If the district decides to keep the ASB, improve the operations and internal controls needed so they meet the criteria for an ASB. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 11 Findings and Recommendations ASB Club Budgets, Inactivity and Carryover ASB Club Budgets, Inactivity and Carryover Budgets Some of the district’s student clubs do not prepare annual budgets. To qualify as an ASB account, every club, including the main ASB through the student council, must have an annual budget that is monitored and updated as the year proceeds. A budget is a financial plan for a specific period of time; it allows the ASB to estimate at the beginning of the fiscal year what its financial situation will be at the end of the year. The student council and each individual club need to develop a budget for each fiscal year. The budget docu- ment should include the club’s or council’s annual goals and a plan for achieving those goals by deciding the following: • Estimated revenues: What fundraisers will the club or council have, and how much revenue do they expect each to produce? • Estimated expenses: What will the fundraisers cost to hold? • Estimated ending balance and club carryover: Is there enough left over to accomplish the goals outlined? A budget allows students to estimate whether they will raise enough funds during the year to cover their an- ticipated expenses. One of the benefits of an ASB organization is that it gives students an opportunity to learn about business operations, including preparing a budget. During budget development, the club advisor should ensure that the students prepare a balanced budget. If the club had significant carryover of funds from the prior fiscal year, it is acceptable for the expenses to exceed the revenues by the amount of the prior year’s carryover. Funds should be carried over only when there is a defined plan and purpose for their use, such as long-term projects or events that span multiple years, or events that occur early in the next fiscal year. The budget for the next year’s activities may be prepared before the end of the current fiscal year or at the beginning of the new fiscal year. Budgeting can be as simple as the students deciding what they want to do next year and developing estimated costs for each activity so the club members know how much money they need to raise. The students should prepare the budget with the guidance of the club advisor and activities director. Basing a budget for the subsequent year on the previous year’s actual accounting information is also a good way for students to learn budgeting. The budget process does not have to be perfect; students should prepare each club’s budget and learn from their budget estimates. The guiding principle is that students are to do these tasks, not adults. After the budget is adopted and the year begins, more accurate information will be obtained. Because budgets change, they need to be monitored continually throughout the year. Monitoring involves comparing the budget to the actual revenues and expenses at a point in time to determine whether revenues are coming in as project- ed and whether expenses are within the amounts authorized in the budget. The students and the advisor should monitor the budget at least monthly so there is enough time to adjust plans if the budget is not realistic or if the planned goals will not be met because of lower-than-projected revenue or higher-than-projected expenses. If budget monitoring detects variances in revenues or expenses, the students can revise the budget to include more accurate estimates. Students should do this whenever the estimated revenues or expenses change signifi- cantly. The advisor and/or school administrator should review and approve all revisions to the budget. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 12 Findings and Recommendations ASB Club Budgets, Inactivity and Carryover Many school districts formally prohibit a club from spending any funds until there is an approved budget in place. This helps ensure that all clubs have established budgets, and it would benefit the district to adopt such a policy. FCMAT’s review of the district’s ASB trial balances revealed clubs with both negative balances and excessively high balances. Effective budget monitoring can help clubs ensure that balances are not too high or too low, and thus avoid a large carryover balance or a negative balance. ASB club balances can sometimes be negative for a short time because of the timing of planned fundraisers, deposits and check disbursements; however, if a bud- get is monitored regularly and revised as needed, this should not occur often. Inactive Clubs A lack of ongoing financial activity may be an indicator that a club has become inactive. Monitoring club balanc- es can help ensure that a club and its account are closed properly and its remaining balance transferred into the general ASB account so the funds do not remain unspent. A negative balance combined with no financial activity indicates that a club has become inactive after spend- ing more money than it earned. This can be problematic because when a negative club balance is closed and transferred into the general ASB account, the general ASB student body account subsidizes the inactive club’s overspending, which reduces the funds available to the general student body. The district’s ASB accounts include a number of inactive club and non-ASB accounts with either positive or negative cash balances. It is best practice to have a district policy that states what is to be done with clubs that have inactive accounts. This can be defined in board policy, or in the ASB constitution and/or bylaws. For exam- ple, one or more of these documents could state that, because all trust accounts are part of the general ASB, if a club becomes inactive or all students in the club graduate, the club’s funds will be transferred to the general ASB account unless the club’s constitution, bylaws, or a decision made by students before the club became inactive provides other instruction. The ASB bylaws or guidelines in the constitution should also contain a definition of an inactive club. For exam- ple, as the FCMAT ASB Manual discusses, a club could be deemed inactive if it has had no financial activity for more than 18 months. Large Club Balances Cash balances that carry forward from year to year without any plan for their use means that students have been fundraising without a defined purpose. The purpose of fundraising in any ASB organization is to benefit students by providing funds to spend on extras and fun activities, or for other needs they may have. One of the district’s schools has an ASB savings account with a balance of more than $41,000, which means many students have spent time fundraising over the years but did not spend that money for their own and other students’ benefit while they were students. Chapter 6 of the FCMAT ASB Manual states the following regarding carryover: The governing board should include a limit on carryover in its ASB board policy. Some districts include this limit in their own district-generated ASB manual or request that it be included in the clubs’ constitutions. If a district has already provided guidance about this issue, that guidance should be followed. However, if a district’s board and/or administration has not included language regarding carryover balances, it is suggested that this issue be brought to their attention. A good rule of thumb guideline could be something like the following: “No student club or organization may carry over more than 20 percent of the total amount raised in a given school year without a spending plan that has been approved by the district’s business office.” Under this rule, for exam- Fiscal Crisis and Management Assistance Team Lompoc Unified School District 13 Findings and Recommendations ASB Club Budgets, Inactivity and Carryover ple, if the total club revenues were $4,000 in a given year, the club could carry over up to $800 without an approved plan. There may be circumstances in which it would be appropriate for a club to carry over more than 20 percent of the funds raised that year. For example, if the club wants to participate in a band competition and parade festival overseas, it could take them two years or more to raise the funds. If the club has voted for this project, and the advisor and the school principal or other adminis- trator have approved it, it may be appropriate for the business office to approve the carryover of funds. The Budget Carryover Request form is the form that the student club (organized ASB) or school principal or other administrator (unorganized ASB) should submit to the district business office in April or May of each school year to request approval to carry over more than the allowed district amount (e.g. 20 percent). Negative Balances The district’s ASB accounting records have negative team account balances, including a negative $40,659.72 fund balance as of May 17, 2019. When accounts are negative, it means other club accounts or general ASB accounts may end up subsidizing the account that has been allowed to become negative. The monthly financial reporting package review process should identify nega- tive balances and include immediate research and reconciliation to correct any negative accounts. Chapter 6 of the FCMAT ASB Manual states the following regarding negative balances: A budget should never be approved with a negative ending fund balance. The student council or club (depending on whose budget it is) should vote on the budget and include that vote in their meeting minutes before submitting the budget to the student council/leadership class. The stu- dent council/leadership class should approve all submitted budgets for each club. Recommendations The district should: 1. Require all ASB clubs to have formally approved budgets for the upcoming school year that students have participated in preparing, and to submit and have these budgets approved by the student representative and the club advisor by the end of May of the current school year. 2. Prohibit any ASB club from spending any funds until its budget has been completed and approved. 3. Ensure that each club’s budget document includes the club’s annual goals and a plan for achieving those goals. 4. Ensure that clubs monitor and revise their budgets as needed by comparing estimates to actual receipts and expenditures. 5. Identify all inactive clubs with account balances, close these clubs and their associated accounts, and transfer these fund balances to the general ASB account. 6. Establish a board policy regarding inactive clubs; consider including in it the following language: Fiscal Crisis and Management Assistance Team Lompoc Unified School District 14 Findings and Recommendations ASB Club Budgets, Inactivity and Carryover The district governing board policy regarding inactive ASB clubs is that if an ASB club has no financial activity for more than 18 months, the club is considered inactive. An inactive club’s cash balances shall be transferred to the general ASB account as soon as it has been determined the club is inactive when there has been no financial activity for 18 months, unless the club’s constitution or a decision made by students before the club became inactive provides specific instructions to do otherwise. 7. Review all ASB account balances for large balance and negative amounts, and have the students develop a plan to spend any such excess funds and correct negative balances. 8. Establish a board policy that limits carryover of funds, or ensure that each club’s bylaws set a limit on carryover, stated as either a dollar amount or a percentage of annual expenditures (e.g., 20%) depending on each club’s circumstances and financial needs. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 15 Findings and Recommendations Financial Reports and Bank Reconciliations Financial Reports and Bank Reconciliations Financial Reports Financial reports are the most effective instruments for monitoring and determining an entity’s fiscal position. For school administrators, ASB advisors and students to understand the ASB’s financial position, the ASB book- keeper must prepare periodic financial statements. The type and frequency of financial reports often depend on the size of an ASB’s operations and the students’ grade level, and are sometimes determined by governing board policy. For organized ASBs, it is best practice to review the financial status monthly; in no case should it be reviewed less than quarterly. A monthly reporting requirement is most common. Issuing monthly financial reports that identify detailed transaction activity for each ASB club is critical to ensur- ing proper internal controls. It is best practice to provide such a report to each club monthly, and for the club advisor and club leaders to review the report. The school principal or assistant principal, and the district office, should also receive monthly financial reports, bank statements and bank statement reconciliations from the ASB bookkeeper. Even if an ASB club advisor insists that the club does not need a financial report, the ASB bookkeeper should provide the report so that no club can later claim it was not aware of its own account transactions. It is best prac- tice for the ASB club, ASB student leadership team, school principal or administrator, club advisor, ASB activities director, and district business office staff to be responsible for reviewing detailed monthly ASB financial reports. The district issues financial reports but does not require signatures or dates on those reports. It is best practice to require that reports be signed and dated when they are produced and reviewed. Bank Reconciliations Timely and accurate bank account reconciliations and reviews are prudent and necessary. The district prepares bank reconciliations, but in some months copies of the cancelled checks are not kept, were not available, or the bank discontinued providing copies of cancelled checks. For all accounts maintained by student organizations, it is best practice to reconcile the financial institution’s account balance with the student organization’s records for every period for which a statement is received. Establishing internal controls can help ensure that bank reconcil- iations are performed on time and accurately, and that sufficient separation of duties exists. The school administrator or ASB advisor needs to ensure that each bank statement is reconciled within two weeks after it arrives. When each month’s reconciliation, is completed, the ASB bookkeeper should sign and date it. The activities director, the school principal or designee, and the district office should review the monthly ASB financial statement, bank reconciliation and any accompanying report, and sign and date these documents to indicate their review and approval. Bank reconciliations for the previous month should be completed within two weeks of receiving them, but this does not always occur. Reconciliation procedures are vital to ensuring cash controls. If the bank reconciliation is not completed within two weeks of receipt, the activities director, school principal and district office should immediately ask why it is late and document this issue and how it is resolved. The district’s bank reconciliations lack signatures and dates. It is best practice to require that bank reconcilia- tions be signed and dated when they are produced and reviewed. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 16 Findings and Recommendations Financial Reports and Bank Reconciliations The financial reports and bank reconciliations should be combined as one financial report, signed and dated by the bookkeeper as the preparer, and signed and dated by all those who review the reports (activities director, school principal, and the district office). This establishes a record of the review. Recommendations The district should: 1. Require that the ASB bookkeeper issue monthly ASB financial reports, and that they be reviewed by all ASB club and ASB student leaders as well as by the district’s business office, school principal, and ASB activities director. 2. Require that all ASB clubs retain monthly financial reports, identify in their meeting minutes that the club has received and reviewed the monthly financial report, and approve the report either immediately or after any questions or discrepancies are resolved. 3. Ensure that the ASB bookkeeper signs completed monthly ASB financial reports and bank reconciliations and provides copies to the ASB activities director, school principal or principal’s designee, and the district office. 4. Ensure that the ASB activities director, school principal or principal’s designee, and district office sign and date the monthly ASB financial reports and bank reconciliations when they receive them to indicate their review and approval. 5. Ensure that all clubs that have financial activity in a given quarter receive a monthly financial report. For clubs that have no financial activity in a given quarter, consider creating a policy that allows them to receive a financial report quarterly rather than monthly 6. Document late bank reconciliations and their resolution. 7. Ensure that all cancelled checks are kept, along with the bank statement reconciliation and bank statements. If the bank discontinued providing copies of canceled checks, ask the bank to begin providing them. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 17 Findings and Recommendations Forms Forms The district’s schools do not use the same forms districtwide, and the number of forms used at each location varies. In other instances, some club advisors have their own procedures and do not use any of the forms pro- vided by the ASB bookkeeper. The district’s website shows eight different ASB forms available; however, over time, schools have developed and use different forms, and the district does not have a list that identifies which forms are recommended and which are required. It would benefit the district to standardize and require the use of the following ASB forms: • Cash count form, which includes startup cash (multicopy) • Fundraiser approval form (multicopy) • Revenue potential (multicopy) • Ticket control form, also called the report on ticket sales form (multicopy) • Purchase order (multicopy, or two copies printed from accounting software, or at least copied when the signatures are obtained) These five forms help provide vital cash controls. In the district’s case, these forms are not multicopy forms, but it is best practice to make these forms multicopy because this helps give both the club advisor and ASB book- keeper supporting documents and chain of custody protection in the event of a discrepancy. For example, a multicopy ASB cash count form offers the best chain of custody protection for documenting de- posits. Without a copy of this form, the following are likely to occur: • The ASB bookkeeper retains the final and only ASB cash count form. • The only evidence the ASB advisor has of an ASB club’s deposit is the ASB cash count form for the deposit, which the advisor submits to the ASB accounting bookkeeper. Thus, all control and risk of the deposit rests with the ASB bookkeeper. • If the security of the ASB office or ASB accounting software is compromised, or if the ASB or other another individual removes the only cash count form from the office, the ASB clubs have no backup documents that would allow them to reconstruct a club’s revenue-producing activi- ties. • Because the club advisor has no duplicate form, there is no way to prove that the ASB book- keeper did not alter the deposit amounts for personal gain. Having multicopy forms does the following: • Gives both the ASB club advisor and the ASB bookkeeper a complete duplicate record of the deposit information. • Adds accountability and helps protect both the ASB club advisor and the ASB bookkeeper. The district does not fully use the five forms above, and the forms the district does use are not used consistent- ly districtwide, are not multicopy, and are not always filled out completely. Because the five forms listed above provide vital financial information, it is best practice to ensure they remain in a district-prescribed and multicopy format, and not be modified. These forms should always be filled out completely because they are necessary to ASB functions. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 18 Findings and Recommendations Forms The FCMAT ASB Manual and the FCMAT website (www.fcmat.org) contain numerous sample and editable forms that the district can use to update its current forms and identify other forms that will help improve internal con- trols. Over the years, the district’s schools have added forms, combined the content of some forms (e.g., the request for payment and check request forms), and altered the items on many forms, including the required signatures to approve a transaction. The Education Code requires approval of all ASB purchases before any spending takes place. Preapproval requires the signatures of the student representative, club advisor, and principal. Regardless of the title of the form used for preapproval of an expenditure (e.g., Purchase Order, or ASB Approval for Ex- penses), only that form is required to authorize an ASB purchase, but it must contain all of the required signa- tures. Check Request The district uses a check request or similar form (e.g., approval for expenses form, reimbursement form, requi- sition for purchase order form, request for disbursement form, payment approval request form) for purchases, often without an ASB purchase order. An ASB purchase order’s purpose is to document preapproval of ASB expenditures. Even though the purchase order is the governing document that authorizes spending, many districts also use a check request as part of their additional procedures. This is allowable as long as a purchase order has been completed to provide preap- proval. However, under no circumstances should a check request or similar form be used as a substitute for, or without, an ASB purchase order. An ASB purchase order documents that a proposed ASB expenditure has been preapproved by the student rep- resentative, club advisor, and school administrator/principal. If one of these required signatures is missing from the purchase order, even if it is on another form such as a check request, the ASB purchase is not considered preapproved. The preapproval process is discussed further below. Recommendations The district should: 1. Adopt a standard set of ASB forms and indicate that these forms are to be used by each student body organization. 2. Identify certain forms as required and provide them to all ASB accounting technicians in multicopy format. 3. Establish a policy requiring that all of these required forms be filled out completely. 4. Ensure that any portion of a form that is not applicable is identified as such by the individual or individuals completing the form rather than left blank. 5. Compare all existing district forms with the FCMAT ASB Manual forms and add forms as needed. 6. Ensure that all forms have the required signatures as indicated on the FCMAT ASB Manual forms. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 19 Findings and Recommendations ASB Fundraisers and Revenue Potential ASB Fundraisers and Revenue Potential Fundraising generates most revenue for ASB clubs. California Education Code Section 48932 allows the govern- ing board to authorize K-12 student body organizations to conduct fundraising activities. All fundraising activities need to be approved and need to have revenue projections in advance of the event. A fundraiser approval form should describe the fundraiser, its purpose and any necessary background information, and will have the proper signature approvals. The revenue potential form is a financial document that is used from the beginning to the end of a fundraiser. The revenue potential document has three columns — budget, actual, and difference — and thus helps compare the estimated or budgeted revenue and expenses to the actual results of the fundraiser. Completing ASB fundraiser approval and revenue projection forms with estimated revenue and expense infor- mation can help student organizations have internal controls over their fundraising events and evaluate the cost effectiveness of the events. The fundraiser approval form describes the event, and the revenue projection form serves as a sales plan that includes expected sales levels, sale prices per unit, expected cost, and net income. This is then compared to the actual results of the fundraiser. Thus these forms help an ASB club plan, budget, and compare the actual results of the fundraiser to learn how it performed. Because the Education Code requires that a district’s governing board approve fundraising events, a fundraiser approval form and revenue potential form can also be submitted to the board or the board’s designee for ap- proval of the event (in the district, these forms are named Request for Fundraising Activity and Revenue Poten- tial/Fund Raiser Recap, Request for Fundraiser, or Fundraiser Sales Analysis). In addition, the revenue projection form can serve as an internal control standard for revenue reconciliation, because most external auditing firms will indicate audit findings if some type of revenue reconciliation is not performed for each fundraiser. The reve- nue projection form can also be used to ensure that the school administrator is informed of and has approved a fundraising activity at the school. The district’s fundraising and revenue potential forms vary and do not include fields for all of the necessary information. For example, FCMAT reviewed a drama club fundraiser form for a fundraiser in which the student or staff member with the most votes or dollars collected has a pie pressed into their face. Because this fundraiser has a money-raising component, how the money is raised and the terms under which a pie in the face occurs should be detailed in the fundraiser form. Also, because of the nature of this specific fundraiser, it needs to have confirmation that district’s risk management and board policy allow it. Fundraising revenue projections and approvals for all fundraising activities are needed to safeguard student funds. It is acceptable to combine a fundraiser approval and revenue projection form; however, all elements of both forms need to be present in the combined form. Chapter 8 of the FCMAT ASB Manual discusses fundrais- ing events in detail and includes many examples of fundraising approval and tracking forms. Recommendation The district should: 1. Create, adopt and require the use of a standard fundraising approval form and a revenue potential form, or a form that combines these two. Ensure that any form or forms adopted are multicopy and contain all required signature elements, and determine if any other forms currently used may be of value as supplemental forms. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 20 Findings and Recommendations ASB Purchase Process and Preapproval ASB Purchase Process and Preapproval FCMAT’s review of the district’s ASB purchases identified many that occurred before approval was received, which means purchases were not preapproved. Education Code Section 48933(b) requires approval of all ASB purchases before any spending takes place. Preapproval requires the signatures of the student representative, club advisor, and principal/administrator. Regardless of the title of the form used for preapproval of an expen- diture (e.g., Purchase Order or Check Request), only a purchase order form that includes all the required signa- tures meets the requirements for authorizing an ASB purchase. The district’s schools use many different forms to document purchases, including an ASB Approval For Expens- es or Purchase Order. The district’s website’s Purchase Order form and its Approval for Expenses form are missing the signature line for the school principal. The simplest way for the district to improve its purchasing process would be to have a single purchase order form for preapproval of purchases that is modeled after the FCMAT ASB Manual sample purchase order, which contains all of the correct fields for authorizing signatures and other necessary informa- tion. If an ASB purchase order has been preapproved and the district prefers to require additional authorization to issue a check, a check request form is allowable. However, as indicated above, under no circumstances should a check request or similar form be used without an ASB purchase order. Chapter 6 of the FCMAT ASB Manual describes the Education Code requirement for preapproval of ASB pur- chases as follows: All club members, teachers, advisors and other staff must understand that they cannot obligate ASB funds until a purchase order is prepared and approved by the student club representative, a certificated employee of the district (who is the advisor), and a school principal or other adminis- trator or other board designee before the purchase is made. These three required signatures are listed in Education Code section 48933(b) for K-12 and section 76063 for community colleges, and they must be obtained for an expenditure to be considered preapproved. The only way to prove that this Education Code is followed is by having a purchase order or other expenditure approval form containing all three signatures. Chapter 18 of the FCMAT ASB Manual describes 23 steps in the internal controls disbursement process for or- ganized ASBs (that is, ASBs in which the students make the decisions, typically those in middle schools or high schools) as follows: The operations of the ASBs at secondary schools and community colleges are usually more complex and therefore require more elaborate internal controls. At high schools and community colleges, the ASB bookkeeper will be responsible for keeping records for several different clubs. For instance, the ASB bookkeeper at a large high school could maintain the records for more than 50 clubs, writing checks for each club and ensuring that the amount is recorded as a deduction from the appropriate club account. It is important to remember that the ASB is not obligated to pay for an expenditure ordered by a teacher, other staff member, student or other person who has not received approval using a purchase order prior to purchase. The following are good internal controls for schools with organized ASBs: 1. The principal/school administrator needs to ensure that all club members, teachers and advisors understand that they cannot obligate ASB funds until a purchase order is prepared and approved by the student club representative, advisor, and principal/school Fiscal Crisis and Management Assistance Team Lompoc Unified School District 21 Findings and Recommendations ASB Purchase Process and Preapproval administrator or other board designee prior to the purchase. For example, if a teacher places an order or goes shopping for materials without a purchase order that has the appropriate signatures, the teacher is responsible for paying for the goods. 2. Each school should have a purchase order form for use when ordering goods for the various clubs and for employees who use their own funds to purchase items and then request reimbursement. The purchase order form demonstrates that the proposed purchase has been approved by all of the appropriate staff members and students. A sample purchase order form is provided at the end of this chapter. Some districts use an expenditure approval form rather than a purchase order. This is acceptable if it has the correct preapproval signatures in compliance with the Education Code. A sample Expenditure Approval form is included at the end of this chapter. 3. When the purchase orders are printed, they should be numbered or assigned a sequential number that is recorded in a purchase order log to track each document and transaction. Multiple copies of each purchase order should be printed and distributed as follows: • The first copy is retained by the club requesting the goods. • The second copy is for the club or advisor to acknowledge the receipt of the goods. Whoever will physically receive the goods should keep this copy and upon receipt confirm its accuracy, note the date/time the goods were received, sign the copy, and forward it to the ASB bookkeeper. • The third copy is sent to the vendor (if applicable). • The fourth copy is retained by the ASB bookkeeper and attached to the receiving report when the ordered items are received. 4. At a minimum, the purchase order should include the following: • The name of the student club or organization requesting the materials. This is the group that the ASB bookkeeper will charge for the goods. • The name and address of the vendor, or of the employee making the purchase with their own money. • The quantity of goods, including a description and the cost. The requestor should also estimate the sales tax and shipping charges. • Three required signatures. These three signatures meet the requirements for approval in Education Code section 48933(b) for K-12 and section 76063 for com- munity colleges. These signatures must include a student representative, a board designee (principal/school administrator) and a certificated advisor. Because the purchase order has the three required approvals, the check only needs to have two signatures. 5. Before any club makes a commitment to purchase goods, it must prepare a purchase order and obtain all of the required approvals. This is the proof that appropriate prior approval was obtained. 6. If the vendor will not take a purchase order but requires payment by check, the purchase order form should be used as part of the process to request a check and to obtain and document prior approval. A check request is not the same as a purchase order; most check requests are completed after the purchase, not before. The ASB bookkeeper could Fiscal Crisis and Management Assistance Team Lompoc Unified School District 22 Findings and Recommendations ASB Purchase Process and Preapproval maintain a pending purchases file as a reminder to obtain an original receipt after payment is made. 7. The students submit the completed purchase order to the ASB bookkeeper after all of the approvals are obtained. 8. The students record the issuance and approval of the purchase order in the club’s minutes. This approval can be given after the purchase or before depending on the district’s requirements. The Education Code does not require the club’s approval prior to purchase but does require the approval of the three individuals mentioned in the fourth bullet under item 4 above. 9. The students retain two copies of the purchase order. One copy is saved as a permanent record of the order and the other copy is used as a receiving copy. 10. The ASB bookkeeper verifies that the club has sufficient funds to pay for the goods before the order is sent to the vendor or to the employee who will purchase the goods with their own money and subsequently request reimbursement. If the club does not have sufficient funds, the bookkeeper should return the purchase order to the club with a request for a budget revision or a plan for how the item will be paid for. 11. Depending on the policy at the school, the ASB bookkeeper or the club advisor may open and formally receive the goods. 12. The designated receiver (this could be either the ASB bookkeeper or the club advisor) will open the shipment and compare the shipped items to the packing slip. 13. After all of the items have been compared to the packing slip, the receiver will sign the receiving copy of the purchase order. 14. If the advisor is receiving the goods, the advisor should provide the ASB bookkeeper with the signed receiving report (copy of the purchase order) and the packing slip. 15. When the ASB bookkeeper is ready to pay bills, usually once a week, the bookkeeper matches the original purchase order to the invoice and the receiving copy of the purchase order. When all three documents are matched, the ASB bookkeeper will prepare a check to pay the invoice. 16. Two signatures are required on all checks written from ASB funds. One signature is usually the principal/school administrator or designee and the other is a staff member from the school (e.g., the student council advisor) or from the district office. Students should never sign checks. 17. 17. When the checks are presented for signatures, the ASB bookkeeper should also provide all of the documents for review. This allows the signers to review the invoices and purchase orders before signing the check. 18. After the check has both signatures, the ASB bookkeeper mails the check. 19. The check is then recorded in the accounting records for the club. 20. The invoice is marked paid and the check number is written on the invoice. 21. The ASB bookkeeper stores the paid invoices with the receiving report. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 23 Findings and Recommendations ASB Purchase Process and Preapproval 22. The invoice may be slightly higher or lower than the original purchase order. The district should have a policy regarding the amount by which a purchase order may be exceeded and still be paid without further approval. For example, if the invoice exceeds the original purchase order by more than 10%, the ASB bookkeeper should obtain approval from the three individuals who approved the original purchase order. 23. The ASB bookkeeper should maintain a list or log of all purchase orders issued and the dates when the goods or services were received and the invoices were paid. This allows the bookkeeper to determine easily at any time whether there are goods that have been ordered and not received, or goods that have been delivered but not processed for payment. Some financial information systems create such a log automatically. [emphasis added] The 23-step process described above does not require a check request because the purchase order is the for- mal required approval for the purchase. Although not required, a check request may be used as a supplemental form or additional layer of authorization. However, under no circumstances should a check request or other nonconforming purchasing form be used as a substitute for an ASB purchase order. It is best and common practice to use a single, uniform, multicopy purchase order form that includes the proper disclosures, notifications, certifications, and fields for the required approval signatures (club student representa- tive, certificated club advisor, and school administrator/board designee). The district could streamline its pro- cess by adopting this practice. The purpose of a purchase order is to obtain approval in advance from the appropriate individuals and thus to confirm that approval was obtained before the funds were spent. Check requests do not accomplish this be- cause they are completed after a purchase has been made. Any and all purchases, expenditures, or other methods used to obtain goods or services, including reimburse- ment of an individual, need to go through the preapproval process and be documented using an ASB purchase order. Recommendations The district should: 1. Ensure that it follows the requirements of Education Code Section 48933(b) for purchases. 2. Require use of the purchase order form and the process to authorize purchases before any check is processed or any order is placed. Train all school administrators and ASB staff regarding the need to obtain approval in advance 3. Design, approve and use a single, uniform, multicopy ASB purchase order form that meets all purchase preapproval requirements. 4. If an approval for expense form is also used, ensure that this form also meets all the purchase preapproval requirements and is a multicopy form. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 24 Findings and Recommendations Cash Controls Cash Controls Cash Counts and Verification In any school district, cash counting is one of the points at which internal controls are most needed. To record cash counting, the district uses an ASB Deposit Slip or a Coin and Currency Count form that shows checks and cash; it does not use a cash count form. The district considers its ASB Deposit Slip to be a cash count form, but both the Coin and Currency Count form and Deposit Slip form lack many signature and date lines and a start-up cash section. FCMAT reviewed the district’s forms and found that those counting funds at the event and at the bookkeeping office are not signing and dating the cash count form as witnesses. All funds should be dual counted at the event and again when delivered to the bookkeeper. No funds of any kind, including checks, should be counted by only one person. The purpose of having a witness is to attest that all funds, regardless of type or form, have been properly and accurately received, counted, and presented to the bank. Chapter 13 of the FCMAT ASB Manual includes a good example of a two-page cash count form that contains all the elements needed; the manual also lists the support- ing documentation that must accompany the multicopy form. The most important component of the cash process is dual counting (in ASB, the term ‘cash’ includes cash, checks, coins, and any other form of payment). This means always counting all cash with a witness present throughout, and ensuring that both individuals sign the form indicating that the amount of the funds matches their count. Subsequently, when the funds are returned to the bookkeeper, they are once again counted by two individuals and the form is signed by both. The two signers who counted the funds initially at the fundraiser can also subsequently count the funds with the bookkeeper, or the bookkeeper can be one of the counters and can sign. The important internal control element is that there are always at least two or more witnesses that also sign. A student can also help count money and can be one of the two or more signers of the cash count form. It is best practice to ensure that all cash receipts are counted twice and signed for and dated by two individuals so there is a witness and a record whenever cash changes hands before the funds are deposited. This includes counting cash when tickets are sold. Some of the district’s schools use a ticket tally or ticket control form, but there is no evidence that the funds are counted by two individuals at the fundraiser and again when submitted to the bookkeeper, and the form has no preprinted signature lines to indicate that a signature is required. Chap- ter 13 of the FCMAT ASB Manual includes a good example of a ticket sales form that includes signature lines. The district has no ASB policy that identifies the ASB bookkeeper’s procedure for handling discrepancies in cash counts when making deposits. The district’s ASB bookkeeper is put in an unfavorable situation when a cash count discrepancy exists. In most cases, this occurs when the ASB bookkeeper identifies a difference between the bookkeeping office’s cash count and the club’s cash count. The ASB bookkeeper is often able to resolve the difference with the witness present at the time of the cash counting; however, the outcome depends on the size of the discrepancy: some discrepancies may require further examination. The district needs to establish a procedure for the ASB bookkeeper to follow when there is a significant dis- crepancy between the ASB bookkeeping office’s cash count and that of a club. All discrepancies, regardless of amount, should be reported immediately to the school administrator, and the ASB club should also be noti- fied. Good communication is necessary but is not in itself sufficient to protect the ASB bookkeeper from being accused of removing cash if a shortage is identified. This is another reason it is vital to ensure that a witness is present whenever money is counted. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 25 Findings and Recommendations Cash Controls Startup Cash and Cash or Change Boxes Startup cash is needed to make change at events. At the district, the startup cash is often not counted, and there is no form with signatures indicating that the amount received matches the amount in the startup cash box. Whenever cash is issued or received (including startup cash and cash returned from an event), the cash should be dual counted and both parties should sign the appropriate form. For example, if $200 is put into the cash box as startup cash, the bookkeeper should sign and date the form, indicating that the startup funds counted are $200. When the cash box is received, the individual(s) who obtained the box should recount the cash and also sign and date the form. The startup cash count form can be separate or can be a line item on the cash count form as long as it includes fields for the startup cash amount, signatures of at least two individuals who counted it, and date. The district’s ticket control forms include a field for a startup cash amount titled “Less Change Issued,” but no accompanying fields for verification signatures and dates. Because dual counting and documentation should take place when tickets are sold, the forms need these fields. Regardless of the specific form used, dual counting of startup cash is necessary and is a vital internal control. Chapter 19 of the FCMAT ASB Manual describes startup cash as one of the processes that can create vulnerabil- ities if sufficient internal controls are not in place: Some events require a cash box containing startup cash to make change. For example, if the ASB bookkeeper has the person sign a form that acknowledges receipt of the startup cash for change and that states the amount (e.g. $400) but does not require them to count the money at that time in their presence, the person could end up with less money than stated on the form (e.g. $300), and as a result be held accountable (i.e. be blamed) for the difference. If the bookkeeper places startup money in the cash box but fails to document it with a cash count form signed by both parties and cash is subsequently stolen or miscounted for any reason, or the individual receiving the startup funds incorrectly identifies a smaller amount than was actually provided, the club will receive less revenue than expected. Some ASB bookkeepers keep a startup cash log and require everyone who receives startup cash to sign it signifying that they have counted the startup cash together with the ASB bookkeeper and that they agree regarding the amount. Failure to keep such a log creates the potential for simple errors that can result in allegations of wrongdoing. Recommended Preventive Measures: Always have both the ASB bookkeeper and the person receiving the startup cash count the money, and document this count with signatures signifying agreement regarding the amount. Cash Custody: Tamper-Proof Bank Bags and Transporting Cash Tamper-Proof Bank Bags The district has tamper-proof plastic bank bags to secure cash; however, fundraising money is often returned in zipper bags or envelopes. Plastic tamper-proof bank bags are used by banks, and once sealed they cannot be opened without cutting or mutilating the bag. This means the funds are secure in the bag and cannot be removed without detection unless the bag is replaced. Tamper-proof plastic bank bags should be used at every stage in the cash handling process. This means sealing cash in the bag at the fundraiser and sealing cash in a new bag when counted by the bookkeeper. Many banks provide these bags free of charge. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 26 Findings and Recommendations Cash Controls Transporting Cash and Bank Deposits The district’s practices do not include taking money to the bank with a witness. Just as cash should not be counted alone, cash should not be transported to the bank alone, not only for security but because if a car acci- dent or other mishap occurs and the funds are taken there is no witness to the event. Cancelled Check Copies FCMAT reviewed the district’s ASB bank reconciliations and cancelled checks and found that copies of only the fronts of checks are available. Both the front and back of each cancelled check are needed to identify who endorsed the back of a check. Receipt Books The district’s receipt books make only two copies of each receipt. A three-copy receipt book is best practice because the white copy can be provided as the receipt, the yellow copy can be torn out and placed with the deposit, and the pink copy can remain in the receipt book. Recommendations The district should: 1. Require that funds always be dual counted and that both individuals counting sign and date the deposit so there are always two signatures affirming the deposit amount. 2. Emphasize to staff that any ASB representative (including an ASB club advisor, district office ASB bookkeeper, or school ASB accounting technician) who counts ASB funds alone or does not obtain a witness signature for the cash counted can easily become a target for wrongful accusations that they have misappropriated student funds. 3. Review all district ASB forms that have to do with receiving funds, and ensure that each of them includes fields for additional witness signatures and dates. 4. Ensure that the ASB bookkeeper counts any cash received in the presence of one or more witnesses who can confirm that the count is accurate. 5. Establish an approved ASB cash count discrepancy amount (such as $5, $25, $50 or even $100), at or above which a second count with a witness is required. 6. Ensure that all discrepancies are reported immediately to the school administrator and the affected club. 7. Change its ASB cash count form to include fields for the amount of startup cash received, the signatures of the ASB bookkeeper and the individual who receives the startup cash, and the dates of each individual’s count. 8. Require that the individual who receives startup cash sign and date the ticket sales form or cash count form to indicate that they have counted and agree regarding the amount of the startup cash. 9. Change both its ASB cash count form and its ticket sales form to include the amount of funds counted and to include signature and date fields for two individuals so there is a witness to the amount counted. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 27 Findings and Recommendations Cash Controls Or, review and compare the FCMAT ASB Manual cash count form, ticket count form, and all other cash handling forms to those it uses, and update or replace its forms as needed with those prepared by FCMAT. 10. Use tamper-proof bank bags at every stage to transport funds for deposit. 11. Remind all staff that ASB funds should be taken to the bank by two individuals to ensure there is a witness. 12. If no individual is available to accompany a depositor to the bank, consider hiring a company to pick up the deposits from the schools rather than having one individual make the deposit. 13. Ask its bank to provide copies of both the front and back of every check. 14. Use a three-copy receipt book. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 28 Findings and Recommendations Student Store Student Store A student store presents an opportunity for students to learn more about running a business. Currently, the dis- trict’s student store sales are accounted for manually using sales slips. This method is acceptable; however, an electronic point of sale system with a cash register would provide additional learning opportunities. Recommendation The district should: 1. Consider upgrading its student store to an electronic point of sale system. Fiscal Crisis and Management Assistance Team Lompoc Unified School District 29 Appendix Study Agreement Appendix Study Agreement Fiscal Crisis and Management Assistance Team Lompoc Unified School District 30 Appendix Study Agreement Fiscal Crisis and Management Assistance Team Lompoc Unified School District 31 Appendix Study Agreement Fiscal Crisis and Management Assistance Team Lompoc Unified School District 32 Appendix Study Agreement Fiscal Crisis and Management Assistance Team Lompoc Unified School District 33 Appendix Study Agreement Fiscal Crisis and Management Assistance Team Lompoc Unified School District 34