Audit Report on the Oversight of the Financial Operations of South Bronx Charter School for International Cultures and the Arts

EXECUTIVE SUMMARY

The objectives of the audit were to determine whether South Bronx Charter School for International Cultures and the Arts (the School) exercised adequate oversight over its fiscal affairs; whether the School maintained a system of internal controls sufficient to ensure that funds were appropriately expended, authorized, valid, and reasonable; whether transactions were accurately recorded and reported; and if potential conflicts of interest and related party transactions were adequately disclosed and approved.

The School is a dual-language school that offers classes in English and Spanish for students in kindergarten through 5th grade.  During school year 2012-2013 (also referred to as Fiscal Year “FY” 2013), the School enrolled an average of 390 students.  At that time, the School shared space with traditional public schools operated directly by the New York City (the City) Department of Education (DOE) at two locations, 383 East 139th Street and 577 East 139th Street in the Bronx.  In the 2013-14 school year (also referred to as Fiscal Year “FY” 2014), the School enrolled an average of 385 students in kindergarten through 5th grade, and operated in the same two locations as in the prior year.

According to the School’s certified financial statements for FY 13 (July 1, 2012 through June 30, 2013) and FY 14 (July 1, 2013 through June 30, 2014), the School reported total revenue in the amounts of $5,762,130 and $5,673,722, respectively.  The majority of the revenue ($5,237,829 in FY 13 and $5,212,061 in FY 14) was provided by the DOE.  The School also received funds from New York State (State), local, and federal grants and other contributions totaling $524,301 in FY13 and $461,661 in FY14.  The School reported expenses in the amount of $4,842,687 and $4,203,589 for FY 13 and FY 14, respectively.  In FY13, program expenses totaled $3,804,619 and management and general expenses totaled $1,038,068.  Similarly, in FY14, program expenses totaled $3,396,915 and management and general expenses totaled $806,674.

Audit Findings and Conclusion

Our audit found that although the School has generally reported its revenue and expenses accurately and has correctly reported student enrollment to DOE, it did not consistently follow its established internal control procedures to ensure the proper oversight of all its financial activities.   Consequently, the School failed to maintain adequate internal controls over certain areas of its financial operations and specifically failed to properly segregate financial responsibilities, appropriately authorize financial transactions, properly document certain expenditures, and maintain an adequate inventory of assets.

As a result of these deficiencies, we found that out of the sample of $876,016 in operating expenditures that we reviewed, $104,915 were inadequately documented, and an additional $31,151 were not properly authorized, together comprising 15 percent of our sample.  We also found that the School could not provide documentation to account for $16,000 in Metro Cards that were recorded as having been purchased for distribution to parents.  In addition, we found that the School’s principal may have been overpaid $23,340 for her work related to an after school program.  Further, the School incurred $5,374 in interest and penalties related to Internal Revenue Service (IRS) payroll withholding tax filings.  Finally, we found that the School employed a greater number of uncertified teachers than permitted under its charter agreement.

Audit Recommendations

To address these issues, we make nine recommendations including that the School should:

• Update its written policies and procedures and ensure that the internal control weaknesses identified in this report are addressed.

• Ensure that all expenditures are documented and invoices are properly approved prior to payment.

• Refer the principal’s after school payments to the School’s Board of Trustees (the Board) for review and recoupment of any overpayments, if necessary.

• Continue efforts to assist teachers to obtain certifications so that the School complies with its renewal agreement with DOE.

Agency Response

School officials generally agreed with the report’s recommendations and represented that the School has accordingly improved its internal controls and accounting procedures.  Further, they reported that the Board recognized the need for improved controls in 2013 and began to revise its Accounting and Finance Manual, which is currently under review by the finance committee and should be approved by the end of the fiscal year.  However, School officials did not specifically address the report’s findings, except stating that the Board was aware of and previously approved the Principal’s after school earnings.