AUGUST 2, 2001 01-39
Financial Audit Division
The Office of the Legislative Auditor (OLA) is a professional, nonpartisan office in the
legislative branch of Minnesota State government. Its principal responsibility is
to audit and evaluate the agencies and programs of state government (the State
Auditor audits local governments).
OLA's Financial Audit Division annually audits the state's financial statements and, on
a rotating schedule, audits agencies in the executive and judicial branches of state
government, three metropolitan agencies, and several "semi-state" organizations. The
division also investigates allegations that state resources have been used
inappropriately.
The division has a staff of approximately fifty auditors, most of whom are CPAs. The
division conducts audits in accordance with standards established by the American
Institute of Certified Public Accountants and the Comptroller General of the United States.
Consistent with OLA's mission, the Financial Audit Division works to:
· Promote Accountability, · Strengthen Legislative Oversight, and
· Support Good Financial Management.
Through its Program Evaluation Division, OLA conducts several evaluations each year
and one best practices review.
OLA is under the direction of the Legislative Auditor, who is appointed for a six-year term by the Legislative Audit Commission (LAC). The LAC is a bipartisan commission of Representatives and Senators. It annually selects topics for the Program Evaluation Division, but is generally not involved in scheduling financial audits.
All findings, conclusions, and recommendations in reports issued by the Office of the Legislative Auditor are solely the responsibility of the office and may not reflect the views of the LAC, its individual members, or other members of the Minnesota Legislature.
This document can be made available in alternative formats, such as large print, Braille, or audio tape, by calling 651-296-1727 (voice), or the Minnesota Relay Service at 651-297-5353 or 1-800-627-3529. All OLA reports are available at our Web Site: http:// www. auditor. leg. state. mn. us
If you have comments about our work, or you want to suggest an audit, investigation, evaluation, or best practices review, please contact us at 651-296-4708 or by e-mail at auditor@ state. mn. us
OFFICE OF THE LEGISLATIVE AUDITOR State of Minnesota ° James Nobles, Legislative Auditor
Senator Ann H. Rest, Chair
Legislative Audit Commission
Members of the Legislative Commission
Ms. Linda Mitchell, Superintendent
Minnesota State Academy for the Deaf
Ms. Elaine Sveen, Superintendent
Minnesota State Academy for the Blind
Board of Minnesota State Academies
We have audited the financial activities of the Minnesota State Academies for the four years ended June 30, 2000. Our audit scope included payroll, administrative expenditures, tax-sheltered annuities, resident accounts, and tuition revenues. The audit objectives and conclusions are highlighted in the individual chapters of this report.
We conducted our audit in accordance with Government Auditing Standards, as issued by the Comptroller General of the United States. Those standards require that we obtain an understanding of management controls relevant to the audit. The standards require that we design the audit to provide reasonable assurance that the Minnesota State Academies complied with provisions of laws, regulations, contracts, and grants that are significant to the audit. Management of the Minnesota State Academies is responsible for establishing and maintaining the internal control structure and complying with applicable laws, regulations, contracts, and grants.
This report is intended for the information of the Legislative Audit Commission and the management of the Minnesota State Academies. This restriction is not intended to limit the distribution of this report, which was released as a public document on August 2, 2001.
/s/ James R. Nobles /s/ Claudia J. Gudvangen
James R. Nobles Claudia J. Gudvangen, CPA
Legislative Auditor Deputy Legislative Auditor
End of Fieldwork: June 8, 2001
Report Signed On: July 30, 2001
Room 140, 658 Cedar Street, St. Paul, Minnesota 55155-1603 ° Tel: 651/ 296-4708 ° Fax: 651/ 296-4712 E-mail: auditor@ state. mn. us ° TDD Relay: 651/ 297-5353 ° Website: www. auditor. leg. state. mn. us
Minnesota State Academies
Table of Contents
Report Summary
Chapter 1. Introduction
Chapter 2. Tuition Revenue
Chapter 3. Resident Accounts
Chapter 4. Payroll and Other Administrative Expenditures
Status of Prior Audit Issues
Minnesota State Academies' Response
Audit Participation
The following members of the Office of the Legislative Auditor prepared this report:
Claudia Gudvangen, CPA Deputy Legislative Auditor
Renee Redmer, LPA Audit Manager
Sonya Johnson, CPA Auditor-in-Charge
Dave Massaglia Auditor
Kathy Fisher Auditor
Exit Conference
We discussed the audit report conclusions with the following representatives of the Minnesota
State Academies at the exit conference held on July 23, 2001:
Elaine Sveen Superintendent, Minnesota State Academy
for the Blind
Linda Mitchell Superintendent, Minnesota State Academy
for the Deaf
Tom Schoenbauer Accounting Supervisor Senior
Report Summary
Overall Conclusion:
In general, the Minnesota State Academies safeguarded its assets and accurately recorded
receipts and expenditures in the state's accounting and payroll systems. However, we noted the
following internal control and compliance areas where the academies need improvement.
Key Findings:
· The Minnesota State Academies did not transfer the correct amount of basic education revenue to the General Fund. During the audit period, the academies retained $167,221 more tuition revenue than provided for in the statutory formula. (Finding 1, page 6)
· The academies did not adequately segregate duties over student tuition revenue. One individual was responsible for billing school districts for tuition and also receiving the
collections. (Finding 2, page 7)
· The academies need to improve controls over resident accounts by forwarding the signed student allowance sheets to the business office to support resident withdrawals from
their accounts. (Finding 3, page 10)
· The academies input incorrect record dates for certain professional/ technical services, supplies, and equipment transactions in the statewide accounting system. (Finding 4,
page 13)
Agency Background:
The Minnesota State Academies consists of the Minnesota State Academy for the Deaf (MSAD)
and the Minnesota State Academy for the Blind (MSAB). The academies provide educational
services to meet the needs of deaf/ hard of hearing and blind/ visually impaired students. These
services include both the public school core curriculum and any required disability-specific
curriculum.
Financial Audits address internal control weaknesses and noncompliance issues found during our audits of state departments and agencies. The scope of our audit work at the Minnesota State Academies included payroll, other administrative expenditures, resident accounts, and tuition revenues for the period from July 1, 1996, through June 30, 2000.
Chapter 1. Introduction
The Minnesota State Academies consists of the Minnesota State Academy for the Deaf (MSAD)
and the Minnesota State Academy for the Blind (MSAB). The residential academies provide
educational services to meet the needs of deaf/ hard of hearing and blind/ visually impaired
students. These services include both the public school core curriculum and any required
disability-specific curriculum.
The State Board of Education directed the operations of the academies until December 1999. The Governor appointed a new, seven-member board in the spring of 2000. The Board of Minnesota State Academies currently provides governance for the academies and delegates responsibility for the day-to-day administration of the academies to the chief administrator of each school. Currently, Linda Mitchell is the MSAD superintendent and Elaine Sveen is the MSAB superintendent.
The agency receives state appropriations and student tuition to fund the general operations of the academies. Table 1-1 provides a summary of the academies' financial activities for the four fiscal years ended June 30, 2000.
Table 1-1 Sources and Uses of Funds
Fiscal Years Ended June 30, 1997, 1998, 1999, and 2000
1997 1998 1999 2000
Sources:
State Appropriations $ 8,526,000 $ 9,449,000 $ 9,486,000 $10,039,000
Less: Cancellations 4,972 0 9,135 0
Net Appropriations $ 8,521,028 $ 9,449,000 $ 9,476,865 $10,039,000
Dedicated Receipts (1) 1,154,570 1,493,013 1,912,579 1,693,696
Balance Forward In 625,614 395,656 704,958 844,652
Total Sources $10,301,212 $11,337,669 $12,094,402 $12,577,348
Uses:
Payroll $ 8,049,788 $ 8,156,065 $ 8,650,240 $ 9,048,519
Utilities and Maintenance 325,972 324,691 321,940 341,711
Consultant Services 414,032 378,811 447,507 403,014
Supplies (2) 382,084 402,999 628,821 378,821
Equipment (2) 81,024 433,316 446,235 131,902
Annuities and Pensions (3) 196,247 283,008 224,272 220,052
Resident Accounts 55,259 47,291 52,434 57,009
Other 240,950 564,657 435,381 459,824
Transfer Out 160,200 41,873 42,920 0
Balance Forward Out 395,656 704,958 844,652 1,536,496
Total Uses $10,301,212 $11,337,669 $12,094,402 $12,577,348
(1) Dedicated receipts include tuition revenue available for operations, resident accounts, payroll
deductions for tax sheltered annuity payments, and other miscellaneous receipts.
(2) Increase in supplies and equipment expenditures in fiscal years 1998 and 1999 are due to an
upgrade in the academies' computer technology.
(3) The academies processed payments of employee payroll deductions to various vendors for the tax
sheltered annuity program.
Source: Minnesota Accounting and Procurement System.
Chapter 2. Tuition Revenue
Chapter Conclusions
The Minnesota State Academies' internal controls provided reasonable
assurance that tuition revenue was accurately billed, timely deposited, and properly recorded in the state's accounting system. However, the academies did
not transfer the correct amount of basic education revenue to the General Fund according to state law. In addition, the academies did not adequately segregate duties over certain receipt functions.
The Minnesota State Academies (MSA) serve various school districts by providing instructional services to approximately 200 students. The school districts pay the costs incurred by those students to attend the academies. The academies collect various types of tuition revenue from the school districts, including basic education revenue, compensatory education revenue, and management aides revenue. With the exception of basic education revenue, the institution retains the revenues generated to fund general operations of the academies. State law establishes the method for allocating resident tuition to the General Fund and to the academies' general operating account.
For basic revenue, MSA bills the individual school districts for the number of days that each student attends the academies. For compensatory education revenue, which began in fiscal year 1998, the Department of Children, Families & Learning calculates the amount due from districts for special education students. Management aide revenue provides reimbursement for the staff that provides special care or services to approximately 30-40 students. Beginning in fiscal year 2000, the state funded 68 percent of the aides' gross salary. The school districts paid the remaining 32 percent of the salaries, plus all fringe benefits. Table 2-1 summarizes the revenues by type for the fiscal year ended June 30, 2000.
Table 2-1 Student Tuition Revenue by Source Fiscal Year Ended June 30, 2000
Total
Returned to
General Fund (1)
Retained for
MSA's Operations
Basic Education (1) $ 772,213 $614,875 $ 157,338
Compensatory Education 289,035 N/ A 289,035
Management Aides 649,032 N/ A 649,032
Total $1,710,280 $614,875 $1,095,405
(1) See Finding 1 regarding the calculation of basic education revenue transferred to the General Fund. Source: Minnesota Accounting and Procurement System.
Audit Objectives and Methodology
We focused our review of revenues on the following objectives:
· Did the MSA's internal controls provide reasonable assurance that tuition revenues were accurately billed, properly collected, timely deposited, and accurately reported in the
accounting records?
· Did the MSA's revenue collections comply with applicable legal provisions?
To address these objectives, we interviewed office staff to gain an understanding of the controls
in place over the processing and recording of receipts. We also performed analytical procedures
and tested a sample of transactions.
Conclusions
The Minnesota State Academies' internal controls provided reasonable assurance that tuition
revenue was accurately billed, timely deposited, and properly recorded in the state's accounting
system. However, the academies did not transfer the correct amount of basic education revenue
to the General Fund according to state law. In addition, the academies did not adequately
segregate duties over certain receipt functions.
1. The Minnesota State Academies did not transfer the correct amount of basic education revenue to the General Fund.
The MSA did not properly allocate basic education tuition revenue collected for resident students between the General Fund and the academies' operating account. State statutes establish the formula for distribution of tuition collections to the General Fund and to the academies' general operating account. The amount allocated is based on the grade level of students. The statutes provide two different allocation formulas, one for kindergarten and elementary students and one for secondary students.
Minn. Stat. Section 125A. 65, Subd. 8 provides that :
On May 1 of each year, the board of the academies shall count the actual number
of Minnesota resident kindergarten and elementary students and the actual
number of Minnesota resident secondary students enrolled and receiving
education services. The board of the academies shall deposit in the state treasury
an amount equal to all tuition received less:
1) the total number of students on May 1 less 175, times the ratio of the number of
kindergarten and elementary students, times the general education formula
allowance; plus
2) the total number of students on May 1 less 175, times the ratio of the number of
secondary students on May 1 to the number of students on May 1, times 1.3, times
the general education formula allowance.
Currently, MSA serves preschool, kindergarten, elementary, and secondary students. Over the timeframe of our audit, the academies calculated that the agency should retain $595,279 of the basic education revenue for resident students. The academies incorrectly applied the basic education revenue formula to all student groups. MSA also included preschool students in the calculation of the amount of funding it could retain, even though these students are not defined in the statutory formula. These errors resulted in a loss of $167,221 to the General Fund for the audit period.
Recommendations
· MSA should follow the current statutory language to calculate the amounts allocated between the General Fund and the academies' operating account.
In addition, the MSA should consider seeking a revision of Minn. Stat. Section 125A. 65 to include preschool students in the allocation computation.
· MSA should work with the Department of Finance to resolve the $167,221 not properly transferred to the General Fund.
2. PRIOR FINDING NOT RESOLVED: The academies did not adequately segregate duties over certain tuition receipt functions.
The Minnesota State Academies did not have an adequate segregation of duties in the area of tuition billings and collections of incoming receipts. One person was responsible for generating invoices from the Minnesota Accounting and Procurement System and receiving the incoming payments before forwarding them to the person who prepares the deposit. These functions are typically incompatible and increase the risk of errors or irregularities occurring and not being detected.
Recommendation
· MSA should segregate duties over tuition receipts by having separate individuals performing the functions of billing and receiving payments.
Chapter 3. Resident Accounts
Chapter Conclusions
The Minnesota State Academies' internal controls provided reasonable
assurance that student account collections and disbursements were adequately safeguarded, accurately reported in the accounting records, and in compliance
with applicable legal provisions and management's authorization. However, the academies need to improve controls over signed allowance sheets.
Students enrolled at the Minnesota State Academy for the Deaf (MSAD) and the Minnesota State Academy for the Blind (MSAB) may deposit personal funds with the academies' business office and receive those funds either through a set weekly allowance or as needed. Personal checks and cash either come through the mail or are brought to the campus by the student. The MSAB sends checks received at its location via intercampus mail to the MSAD business office. Resident program staff delivers any cash directly to the business office upon receipt. The business office maintains individual account records for each student. All revenue and disbursement activity is recorded in the Minnesota Accounting and Procurement System. The accounting supervisor performs monthly reconciliations between the Minnesota Accounting and Procurement System and the individual student records.
The academies maintain an imprest cash account for daily cash requests and a checking account for larger withdrawals. The academies periodically request reimbursement of the imprest cash account. For the fiscal year ended June 30, 2000, resident account receipts totaled $24,868 and expenditures totaled $22,729.
Audit Objective and Methodology
We focused our review of student accounts on the following objective:
· Did the Minnesota State Academies' internal controls provide reasonable assurance that all student account collections and disbursements were adequately safeguarded,
accurately reported in the accounting records, and in compliance with applicable legal
provisions and management's authorization?
To address these objectives, we interviewed office staff to gain an understanding of the controls in place over student collections, student disbursements, and the recording of the receipts and expenditures in the accounting records. We performed analytical procedures, detailed transaction testing, and verified the completeness and accuracy of reconciliations.
Conclusions
The Minnesota State Academies' internal controls provided reasonable assurance that student
account collections and disbursements were adequately safeguarded, accurately reported in the
accounting records, and in compliance with applicable legal provisions and management's
authorization. However, the academies need to improve controls over signed allowance sheets.
3. The Minnesota State Academies need to improve controls over student allowance sheets.
The resident program staff at the academies collect the students' weekly allowance from business office staff to distribute to the students. The program staff sign allowance sheets documenting the receipt of these allowances. According to the academies' policy, the student is also required to sign the allowance sheets. The program staff are to return the allowance sheets to the business office. During the audit period, the staff was not consistently returning all of the signed allowance sheets to the business office. Inadequate documentation increases the risk that these allowances could be lost, stolen, or not properly accounted for.
Recommendation
· The Minnesota State Academies should ensure that all signed student allowance sheets are returned as outlined in the academies' policy.
Chapter 4. Payroll and Other Administrative Expenditures
Chapter Conclusions
The Minnesota State Academies' internal controls provided reasonable assurance that payroll and other administrative expenditures were accurately
reported in the accounting records and in compliance with applicable bargaining unit agreements, applicable legal provisions, and management's
authorization. However, the academies did not input the correct record date in the Minnesota Accounting and Procurement System for some transactions.
Payroll was the Minnesota State Academies' largest expenditure. In addition to payroll, the agency incurred other administrative costs for contracts, supplies, utilities/ maintenance, and equipment. Figure 4-1 shows the amount of expenditures by type for the fiscal year ended June 30, 2000.
Figure 4-1 Minnesota State Academies Expenditures by Type Fiscal Year Ended June 30, 2000
$9,048,519 85%
$403,015 4% $378,822 3% $341,711 3% $131,902 1%
$459,824 4%
$0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000
Payroll Contracts Supplies Util/
Maint
Equipment Other
Note: In addition, the MSA disbursed $220,052 to vendors for the tax shelter annuity program. Source: Minnesota Accounting and Procurement System.
Payroll
Payroll was the academies' largest expenditure, totaling $9 million in fiscal year 2000. The
Minnesota State Academies employs approximately 200 employees. A senior account clerk
inputs the biweekly payroll into the state's payroll system (SEMA4). The human resources
director handles the personnel functions for the academies.
Contracts
In fiscal year 2000, the academies expended $403,015 for contract services. The majority of the
expenditures were for the contract with the Faribault school district. Students from the
academies attended classes in the local school district and interacted with district students. This
contract pays for the cost of the students to attend classes in the school district.
Supplies and Equipment
The academies incurred $378,822 in expenditures for supplies and $131,902 for equipment expenditures in fiscal year 2000. The largest expenditures consisted of food purchases from a state contract vendor and miscellaneous computer and other supplies and equipment purchases.
Utilities/ Maintenance
The academies' utility/ building maintenance expenditures of $341,711 in fiscal year 2000
consisted primarily of expenditures related to utility billings, payments to the Department of
Corrections for steam heat provided to the academies' buildings and security services.
Annuities
Expenditures of $220,052 in fiscal year 2000 were for payments made to various vendors
selected by participants in the tax sheltered annuity program. This plan is a long-term retirement
plan which employees of public institutions can participate through payroll deduction. The
academies' employees elect to have a certain amount deducted from their payroll checks and
invested with various vendors. The academies remit the payroll deductions to the vendors that
the participants have selected.
Audit Objectives and Methodology
Our audit of payroll and other administrative expenditures focused on the following objectives:
· Did the Minnesota State Academies' internal controls provide reasonable assurance that
payroll and other administrative expenditures were accurately reported in the accounting
records and in compliance with applicable bargaining unit agreements, applicable legal
provisions, and management's authorization?
· For the items tested, did the office comply, in all material respects, with significant finance-related legal provisions concerning payroll and other administrative
expenditures?
To answer these questions, we obtained an understanding of the internal control structure over
payroll and other administrative expenditures. We analyzed employee compensation and tested
hours worked and payrate increases to ensure compliance with the terms of the applicable
bargaining unit agreements. We performed detailed transaction testing and determined whether
payments were properly documented, authorized by management, and in compliance with
applicable state policies and procedures. We reviewed selected interagency agreements and
tested tax sheltered annuity payments.
Conclusions
The Minnesota State Academies' internal controls provided reasonable assurance that payroll
and other administrative expenditures were accurately reported in the accounting records, in
compliance with applicable bargaining unit agreements, applicable legal provisions, and
management's authorization. However, the academies did not input the correct record date in the
Minnesota Accounting and Procurement System for some transactions.
4. The Minnesota State Academies did not record the correct record dates in the Minnesota Accounting and Procurement System for some transactions.
The academies did not record the correct record dates for some supplies, equipment, and professional/ technical services expenditures. The accounting system record date identifies when the goods or services were received and is used to establish dates that liabilities are incurred for financial reporting purposes. The date of record used by MSA was the date the invoice was paid, not the date that the goods or services were received. Fourteen of twenty sample items tested, totaling $735,904, had incorrect record dates in the accounting system. Incorrect record dates may cause the financial statement amounts for year-end accrued liabilities to be misstated.
Recommendation
· The Minnesota State Academies should ensure that the record date recorded in the accounting system is the date that the goods or services were received.
Status of Prior Audit Issues As of June 12, 2001
Most Recent Audit Legislative Audit Report 96-38, issued in September 1996, covered the five fiscal years ended June 30, 1996. The scope of this audit included tuition, federal grants, payroll, professional/ technical services, and resident accounts. There were four written issues related to revenues, the academies' operations, and resident accounts. All of the findings were implemented with the exception of the lack of segregation of duties over receipt billing and collection functions, which we have repeated in this report.
State of Minnesota Audit Follow-Up Process
The Department of Finance, on behalf of the Governor, maintains a quarterly process for following up on issues
cited in financial audit reports issued by the Legislative Auditor. The process consists of an exchange of written
correspondence that documents the status of audit findings. The follow-up process continues until Finance is
satisfied that the issues have been resolved. It covers entities headed by gubernatorial appointees, including most
state agencies, boards, commissions, and Minnesota state colleges and universities. It is not applied to audits of the
University of Minnesota, any quasi-state organizations, such as metropolitan agencies or the State Agricultural
Society, the state constitutional officers, or the judicial branch.
MINNESOTA STATE ACADEMIES MN STATE ACADEMY FOR THE BLIND MN STATE ACADEMY FOR THE DEAF
400 S. E. 6 th Ave., P. O. Box 68 615 Olof Hanson Dr., P. O. Box 308 Faribault, MN 55021-0068 Faribault, MN 55021-0308
Elaine Sveen, Superintendent Linda Mitchell, Superintendent E-Mail: esveen@ msab. state. mn. us E-Mail: lmitchell@ msad. state. mn. us
(507) 333-4800 ° (507) 333-4825 Fax (507) 332-5400 V/ TTY Fax (507) 332-5528 (800) 657-3996 V/ TTY
July 27, 2001
Mr. James Nobles, Legislative Auditor
Office of the Legislative Auditor
Centennial Building
658 Cedar Street
St. Paul, Mn. 55155
Dear Mr. Nobles:
Enclosed are our responses regarding the recent audit conducted at the Minnesota State
Academy for the Deaf and the Minnesota State Academy for the Blind. The audit report,
the findings and recommendations were discussed with agency administrators in an exit
conference on July 23, 2001.
The agency has already implemented three of the recommendations and intends to act on the final recommendation as well.
We would like to thank the Office of the Legislative Auditor for the manner in which the audit was conducted. We appreciated working with your audit team.
Sincerely,
/s/ Linda Mitchell /s/ Elaine Sveen
Linda Mitchell Elaine Sveen
MSAD Superintendent MSAB Superintendent
Recommendation # 1:
MSA should follow the current statutory language to calculate the amounts allocated
between the General Fund and the academies' operating account. In addition, the MSA
should consider seeking a revision of Minn. Stat. Section 125A. 65 to include preschool
students in the allocation computation.
MSA should work with the Department of Finance to resolve the $167,221 not properly transferred to the General Fund.
Response to # 1:
MSA will pursue statutory changes to reflect current practice. Until such time statutory
changes are finalized, MSA will follow current law.
MSA will work with the Department of Finance to resolve the $167,221 not properly transferred to the General Fund.
Recommendation # 2:
MSA should segregate duties over tuition receipts by having separate individuals
performing the functions of billing and receiving payments.
Response to # 2:
The above recommendation was implemented during the audit visit, with the Account
Clerk Senior being responsible for the processing of all billings, and the Personnel Aide
responsible for the receipt and deposit of all monies collected.
Recommendation # 3:
The Minnesota State Academies should ensure that all signed student allowance sheets
are returned as outlined in the academies' policy.
Response to # 3:
The Central Services Administrative Specialist Principal will be responsible for the
collection of all signed student allowance sheets. This is effective with the beginning of
the upcoming school year.
Recommendation # 4:
The Minnesota State Academies should ensure that the record date recorded in the
accounting system is the date that the goods or services were received.
Response to # 4:
This recommendation was also implemented during the audit visit. The Account Clerk
Senior was instructed in properly coding the record date for all goods or services
received.