Performance Audit, Ash Creek Elementary School District

              Performance Audit
Ash Creek
Elementary
School District
Division of School Audits
Debra K. Davenport
Auditor General
March • 2013
Report No. 13-02
A REPORT
TO THE
ARIZONA LEGISLATURE
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators and
five representatives. Her mission is to provide independent and impartial information and specific recommendations to improve the
operations of state and local government entities. To this end, she provides financial audits and accounting services to the State and
political subdivisions, investigates possible misuse of public monies, and conducts performance audits of school districts, state
agencies, and the programs they administer.
The Joint Legislative Audit Committee
Audit Staff
Ross Ehrick, Director
Mike Quinlan, Manager and Contact Person
Christine Medrano, Team Leader
Tammy Seilheimer
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.azauditor.gov
Representative John Allen, Vice Chair
Representative Paul Boyer
Representative Andrea Dalessandro
Representative Martin Quezada
Representative Kelly Townsend
Representative Andy Tobin (ex officio)
Senator Chester Crandell, Chair
Senator Judy Burges
Senator Rich Crandall
Senator Steve Gallardo
Senator Katie Hobbs
Senator Andy Biggs (ex officio)
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
MELANIE M. CHESNEY
DEPUTY AUDITOR GENERAL
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
March 7, 2013
Members of the Arizona Legislature
The Honorable Janice K. Brewer, Governor
Governing Board
Ash Creek Elementary School District
Ms. Sue Shepard, Principal
Ash Creek Elementary School District
Transmitted herewith is a report of the Auditor General, A Performance Audit of the Ash Creek
Elementary School District, conducted pursuant to A.R.S. §41-1279.03. I am also transmitting
within this report a copy of the Report Highlights for this audit to provide a quick summary for
your convenience.
As outlined in its response, the District agrees with all of the findings and recommendations.
My staff and I will be pleased to discuss or clarify items in the report.
Sincerely,
Debbie Davenport
Auditor General
2013
March • Report No. 13-02
Our Conclusion
REPORT HIGHLIGHTS
PERFORMANCE AUDIT
Student achievement—In fiscal
year 2011, Ash Creek ESD’s student
AIMS scores were lower than peer
districts’ and state averages. However,
for very small districts, such as Ash
Creek ESD, year-to-year changes in
student populations can greatly impact
year-to-year student AIMS scores. The
District’s school met all applicable
“Adequate Yearly Progress” objectives
for the federal No Child Left Behind Act.
District operated with high costs
primarily because of its small size—
Although Ash Creek ESD spent more per pupil in each of its nonclassroom operational
areas than peer districts, most of its operations were reasonably efficient for its size. The
District’s costs were higher per pupil primarily because it served fewer students. Although
Ash Creek ESD’s administrative costs were high per pupil, auditors did not identify any
overstaffing or unusually high salaries. Similarly, the District’s plant operations costs
were high per pupil primarily because the District maintained more square footage per
student than peer districts, but there is little the District can do to reduce the excess
square footage because it has only one
primary building. The District’s food service
costs were much higher than peer districts’;
however, in fiscal year 2012, the District
began taking steps to reduce the program’s
costs and improve recordkeeping and other
procedures. The District’s transportation
costs were mixed with similar per-mile costs
and much higher per-rider costs because
the District drove more miles per rider.
Student achievement and operational efficiency
Ash Creek
Elementary
School District
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Math Reading Writing
Ash Creek ESD Peer group State-wide
Percentage of students who met or
exceeded state standards (AIMS)
Fiscal year 2011
In fiscal year 2011, Ash Creek
Elementary School District’s
student AIMS scores were
lower than both its peer
districts’ and state averages,
and its operational efficiencies
were mixed. Although Ash
Creek ESD spent more
per pupil in each of its
nonclassroom operational
areas than peer districts,
most of its operations were
reasonably efficient for its
size. The District’s costs were
higher per pupil primarily
because it served fewer
students. The District could
have operated its food service
program more efficiently,
and to the District’s credit, it
began taking steps in fiscal
year 2012 to do so. However,
controls over the District’s
payroll and purchasing, as
well as its computer network,
should be improved. The
District also needs to improve
its transportation program’s
recordkeeping.
Comparison of per-pupil expenditures
by operational area
Fiscal year 2011
Ash Creek ESD
Table 1: Comparison of Per-Pupil Expenditures FY 2011
HIGHLIGHTS:
Spending
Ash
Creek
ESD
Peer
group
average
State
average
Total per pupil $18,9 57 $12,8 21 $7,4 85
Classroom dollars 6,330 6,280 4,098
Nonclassroom
dollars
Administration 5,272 2,505 728
Plant operations 2,998 1,681 927
Food service 1,605 764 375
Transportation 1,466 743 352
Student support 769 456 571
Instructional
support 517 392 434
Operational area
Ash
Creek
ESD
Peer
group
average
Administration $5,2 72 $2,5 05
Plant operations 2,998 1,681
Food service 1,605 764
Transportation 1,466 743
District working to address its high food service costs and
poor procedures
In fiscal year 2011, Ash Creek ESD’s food service costs per pupil and per meal were
more than double the peer district average. These high costs contributed to the
District’s need to subsidize over one-half of its food service program’s costs with
approximately $37,000 that otherwise potentially could have been spent in the
classroom. Additionally, the District had poor food service recordkeeping and
procedures. For example, the District did not maintain documentation supporting the
number of meals served, likely under-reported the number of meals served for federal
reimbursement, lost revenues because of unpaid meal balances, lacked adequate
controls over food service cash collections, and prepared specialized meals for
employees that were likely costly.
Inadequate accounting and computer controls increased risk of errors and
fraud
In fiscal year 2011, Ash Creek ESD lacked adequate controls over payroll and purchasing and its computer
network and applications. More specifically, the District did not separate payroll and personnel functions and
allowed one district employee, with little or no supervisory review, to complete all purchasing functions. The
District also granted one employee full access to all accounting system functions, did not accurately report its
costs, and did not always pay employees correct amounts. Lastly, the District’s password requirements were
weak, lacking complexity and requiring only annual changes.
The District should:
••Implement proper controls over payroll and purchasing.
••Require an independent review and approval for all purchases.
••Limit employee access to the accounting system so that one employee cannot complete transactions
without independent review.
••Classify all transactions in accordance with the Uniform Chart of Accounts for school districts.
••Establish procedures to review employee pay to help ensure that employees are paid correctly.
••Implement and enforce stronger password controls.
Recommendations
Improvements needed for transportation program recordkeeping
Ash Creek ESD did not maintain records to show that its reported number of miles traveled and students
transported were accurate for state transportation funding purposes. Additionally, the District did not
maintain documentation to show that bus drivers performed pre-trip bus inspections or that bus preventative
maintenance was performed.
The District should:
••Maintain records supporting the reported number of riders transported and miles driven.
••Ensure that pre-trip inspections and bus preventative maintenance are conducted and documented.
Recommendations
Ash Creek
Elementary
School District
REPORT HIGHLIGHTS
PERFORMANCE AUDIT
March 2013 • Report No. 13-02
A copy of the full report is available at:
www.azauditor.gov
Contact person:
Mike Quinlan (602) 553-0333
Steps taken to reduce need for subsidy—In fiscal year 2012, the District began taking steps to reduce its
food service costs and increase its revenues. The District replaced its full-time food service employee with a
part-time employee at a lower salary and increased meal prices.
Improved food service recordkeeping and procedures—In fiscal year 2012, the District began taking steps
to improve its recordkeeping and procedures. The District purchased a software program to better track meals,
stopped allowing meals to be charged, improved its controls over food service cash collections, and stopped
preparing specialized meals for employees.
The District should continue monitoring its food service program to identify and implement additional cost-saving
measures.
Recommendation
TABLE OF CONTENTS
continued
page i
Office of the Auditor General
1
Student achievement 1
District operated with high costs primarily because of its small size and has taken
steps to reduce some costs 1
Finding 1: District working to address its high food service costs and
3
District has taken steps to decrease high food service costs and increase revenues 3
District has improved recordkeeping and procedures 3
5
Finding 2: Inadequate accounting and computer controls increased
7
Payroll and purchasing controls inadequate 7
Inadequate computer and network controls 8
District did not accurately report its costs 9
9
Finding 3: Improvements needed for transportation program
11
Student transportation mileage and rider documentation not maintained 11
Required bus pre-trip inspections and preventative maintenance not documented 11
12
TABLE OF CONTENTS
concluded
page ii
State of Arizona
13
District may be able to improve efficiency and lower costs through the use of
cooperative agreements 13
13
Appendix
Objectives, Scope, and Methodology a-1
District Response
Table
1 Comparison of per-pupil expenditures by operational area
2
Figure
1 Percentage of students who met or exceeded state standards (AIMS)
1
DISTRICT OVERVIEW
page 1
Office of the Auditor General
Ash Creek Elementary School District is a very small, rural district located about 100 miles southeast
of Tucson, in Cochise County. In fiscal year 2011, the District served 40 students in kindergarten
through 8th grade at its one school. Between fiscal years 2004 and 2011, the District’s student
enrollment fluctuated from a low of 29 students in fiscal year 2009 to a high of 43 students in fiscal
year 2006. District officials reported another large fluctuation in August 2012, with student enrollment
decreasing to just 20 students.
Ash Creek ESD’s fiscal year 2011 student test scores on Arizona’s Instrument to Measure Standards
(AIMS) were lower than both peer district and state averages, and its operational efficiencies were
mixed.1 Although all of the District’s nonclassroom areas operated with higher per-pupil costs than
peer districts’, most of its operations were reasonably efficient for its size. However, auditors identified
some areas for improvement, as well as potential opportunities for greater efficiency.
Student achievement
In fiscal year 2011, 14 percent of the District’s students
met or exceeded state standards in math, 67 percent in
reading, and 42 percent in writing. As shown in Figure 1,
these scores were lower than state and peer district
averages. However, for very small districts, such as Ash
Creek ESD, year-to-year changes in student populations
can greatly impact year-to-year student AIMS scores.
The District’s school met all applicable “Adequate Yearly
Progress” objectives for the federal No Child Left Behind
Act in fiscal year 2011.2
District operated with high costs
primarily because of its small size and has taken steps to reduce
some costs
As shown in Table 1 on page 2, in fiscal year 2011, Ash Creek ESD spent 48 percent more per pupil
than the $12,821 peer district average and spent more per pupil in every operational area. Although
1 Auditors developed two peer groups for comparative purposes. See page a-1 of this report’s Appendix for further explanation of the peer groups.
2 The Arizona Department of Education published the A-F Letter Grade Accountability System for the first time in fiscal year 2011. However,
letter grades were not published for small schools that tested fewer than a combined 125 students in math and reading, like Ash Creek ESD.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Math Reading Writing
Ash Creek ESD
Peer group
State-wide
Figure 1: Percentage of students who met or
exceeded state standards (AIMS)
Fiscal year 2011
(Unaudited)
Source: Auditor General staff analysis of fiscal year 2011 test results
on Arizona’s Instrument to Measure Standards (AIMS).
page 2
State of Arizona
all of the District’s nonclassroom areas operated with higher per-pupil
costs than peer districts’, most of its operations were
reasonably efficient for its size. The District’s costs were higher per
pupil primarily because it served fewer students—40 students in
fiscal year 2011 compared to the peer group average of 77 students.
However, the District’s food service program could have operated
more efficiently, and to the District’s credit, it began taking steps in
fiscal year 2012 to do so.
High administrative costs but not inefficient—The
District’s $5,272 administrative cost per pupil was much higher than
the $2,505 peer district average primarily because it had fewer
students. Auditors observed the District’s administrative operations
and did not identify any overstaffing or unusually high salaries.
However, the District needs to strengthen controls over payroll and
purchasing, as well as its computer network (see Finding 2, page 7).
High plant operations costs—Compared to peer districts’,
Ash Creek ESD’s plant operations costs were similar per square
foot, but much higher per pupil. The District’s per-pupil plant
operations costs were 78 percent higher than peer districts’ because it maintained 65 percent
more square feet per pupil than the peer districts. Ash Creek ESD maintained 542 square feet per
student while the peers averaged 329 square feet per student. However, there is little the District
can do to reduce the excess square footage because it has only one primary building that
contains the classrooms, gymnasium, and cafeteria. To help reduce its electricity costs, in fiscal
year 2012, the District obtained a solar power system through the federal American Recovery and
Reinvestment Act administered by the Arizona School Facilities Board at no cost to the District.
The District’s electricity usage and costs were about 20 percent lower in the first 9 months of fiscal
year 2012 than in the similar time frame of fiscal year 2011.
High food service program costs—In fiscal year 2011, Ash Creek ESD’s food service costs
were much higher than peer districts’, on average. The District spent $1,605 per pupil for its food
service program, more than double the peer districts’ average of $764 per pupil, and its $8
approximate cost per meal was much higher than the peer districts’ $3.88 cost per meal. In part
because of these high costs, the District had to subsidize over one-half of the food service
program’s costs with approximately $37,000 that otherwise potentially could have been spent in
the classroom. In fiscal year 2012, the District began taking steps to reduce its food service
program costs and improve recordkeeping and other procedures (see Finding 1, page 3).
Mixed transportation costs—Ash Creek ESD’s transportation program’s $1.87 cost per mile
was 9 percent lower than the peer districts’ $2.06 average. However, the District’s $1,932 cost per
rider was 58 percent higher than peer districts’, on average. The District’s higher cost per rider
was the result of the District’s driving 62 percent more miles per rider than peer districts, on
average. However, there was little the District could do to reduce its mileage. Auditors noted that
the District’s two bus routes operated in different areas of the District and could not be combined
despite having adequate space on both buses to do so. However, one transportation area in
which the District needs to improve is recordkeeping (see Finding 3, page 11).
Ash Creek ESD
Table 1: Comparison of Per-Pupil Expenditures by Operational Area
FY 2011
HIGHLIGHTS:
Spending
Ash
Creek
ESD
Peer
group
average
State
average
Total per pupil $18,9 57 $12,8 21 $7,4 85
Classroom dollars 6,330 6,280 4,098
Nonclassroom
dollars
Administration 5,272 2,505 728
Plant operations 2,998 1,681 927
Food service 1,605 764 375
Transportation 1,466 743 352
Student support 769 456 571
Instructional
support 517 392 434
Operational area
Ash
Creek
ESD
Peer
group
average
Administration $5,2 72 $2,5 05
Plant operations 2,998 1,681
Food service 1,605 764
Transportation 1,466 743
Table 1: Comparison of per-pupil
expenditures by operational area
Fiscal year 2011
(Unaudited)
Source: Auditor General staff analysis of fiscal year 2011 Arizona
Department of Education student membership data and
district-reported accounting data.
page 3
Office of the Auditor General
FINDING 1
District working to address its high food service costs and
poor procedures
In fiscal year 2011, Ash Creek ESD’s food service costs were much higher than peer districts’, on
average. Additionally, the District did not maintain documentation supporting the number of meals
served, likely under-reported the number of meals served for federal reimbursement, lost revenues
because of unpaid meal balances, lacked adequate controls over food service cash collections, and
prepared specialized meals for employees that were likely costly. However, the District began taking
steps during fiscal year 2012 to address its high food service costs and poor procedures.
District has taken steps to decrease high food service costs and
increase revenues
In fiscal year 2011, Ash Creek ESD spent $1,605 per pupil on its food service program compared to
$764 per pupil for peer districts. Additionally, its $8 approximate cost per meal was much higher than
the peer districts’ $3.88 average. In part because of these high costs, the District had to subsidize
over one-half of the food service program’s costs with approximately $37,000 that otherwise
potentially could have been spent in the classroom. However, the District has taken steps to help its
food service program work toward reducing costs and becoming self-sufficient. In fiscal year 2012,
the District replaced its full-time food service employee with a part-time employee at a lower salary.
Additionally, the District raised meal prices by $0.25 per breakfast and $0.75 per lunch for students
who do not qualify for free or reduced-priced meals. The District also changed other procedures that
will impact its costs and revenues as discussed below.
District has improved recordkeeping and procedures
In fiscal year 2011, the District did not maintain documentation supporting the number of meals
served, likely claimed an inaccurate number of meals for reimbursement from the National School
Lunch Program, lost revenue because it allowed students to accumulate large unpaid meal balances,
had inadequate controls over cash collected from meal sales, and prepared specialized meals for
employees that were likely costly. In fiscal year 2012, the District began making important changes
to improve its recordkeeping and procedures.
page 4
State of Arizona
Meal claim reporting improved—School districts that participate in the National School
Lunch Program receive federal reimbursement for eligible meals served to students. In order
to receive the reimbursement, districts report the number of meals served each month.
However, in fiscal year 2011, the number of meals reported by Ash Creek ESD were
unsupported and likely inaccurate. As a result, the District may not have received the correct
reimbursement amount. Because the District did not maintain records of meals served in fiscal
year 2011, the exact number of meals that should have been claimed could not be determined.
However, as an example of likely errors in the District’s reporting that year, the District claimed
only 95 meals for September 2010, but claimed over 1,000 meals, on average, for other
months with a similar number of school days. In fiscal year 2012, the District purchased a
software program to help track meals. Auditors’ review of meals served and claimed for 9
months of fiscal year 2012 showed accurate meal claim procedures.
Large unpaid meal balances no longer allowed to accumulate—Ash Creek ESD
has had a written policy that allows students to charge up to $2 in meal purchases to their
individual meal accounts. However, in fiscal year 2011, Ash Creek ESD allowed students to
charge meals far in excess of its $2 limit and also allowed employees to charge meal
purchases. Overall, eight students, approximately one-fifth of the District’s students, and four
staff members had negative meal account balances ranging from $1 to $304, for a total of
$905 owed to the District at the end of the 2010-2011 school year. According to district
officials, the District was unable to collect any of the monies owed by students. In fiscal year
2012, the District stopped allowing meals to be charged, and at the end of the fiscal year, the
District did not have any students or staff with unpaid meal balances.
Improved controls over food service cash handling—In fiscal year 2011, the District
did not adequately separate cash-handling and recordkeeping responsibilities for food
services cash collections. Additionally, the District did not maintain documentation to support
the amount of money that was collected or that should have been deposited. Failure to
adequately separate these duties and to maintain proper records of cash collections left these
monies susceptible to loss, theft, or misuse. Beginning in fiscal year 2012, the District changed
this process by having another employee perform cash collections and also began maintaining
proper cash records to support the amount of money collected and deposited.
No longer preparing special meals for employees—Likely contributing to its high
food service costs in fiscal year 2011, the District prepared special meals for employees rather
than serving them the same meal that was available to students. According to district officials,
employees would place orders for specialized meals that were likely much more expensive to
prepare than student meals and also much more expensive than the $3 employee meal price.
Beginning in fiscal year 2012, the District stopped this practice, and began requiring
employees who want to purchase a meal from the cafeteria to purchase the same meal that
is prepared for students.
page 5
Office of the Auditor General
Recommendation
The District should continue to closely monitor its food service program to identify and implement
additional cost-saving measures.
page 6
State of Arizona
page 7
Office of the Auditor General
FINDING 2
Inadequate accounting and computer controls increased
risk of errors and fraud
In fiscal year 2011, Ash Creek ESD lacked adequate controls over payroll and purchasing and its
computer network and applications. Although no improper transactions were detected in the items
auditors reviewed, these poor controls exposed the District to an increased risk of errors, fraud, and
misuse of sensitive information. Additionally, the District did not accurately report its costs on its
Annual Financial Report.
Payroll and purchasing controls inadequate
Ash Creek ESD’s procedures for processing payroll and purchasing were inadequate. Specifically,
auditors observed the following:
Payroll and purchasing lacked proper separation of responsibilities—The District
had an increased risk of errors and fraud, such as processing false time sheets and modifying
employee pay rates, because it did not sufficiently review or separate the payroll and personnel
functions. Additionally, one district employee, with little or no supervisory review, was responsible
for completing all purchasing functions. This increased the risk of having false invoices processed
or nonexistent vendors added to the District’s system. Although the District’s administrative staff
numbers were small, there was opportunity to separate these duties or use compensating controls
and thereby ensure that proper controls were in place.
Employees paid incorrect amounts—In fiscal year 2011, the District paid an incorrect stipend
amount to 1 of its 13 employees and incorrectly calculated the number of hours worked by at least
2 employees. Auditors reviewed all 13 employees’ files and found that 1 employee should have
received a $1,000 stipend for extra duty, but received only $500. Additionally, auditors reviewed 8
employees’ time sheets for one pay period in fiscal year 2011 and found that for 2 of the 8
employees, the District incorrectly calculated the number of hours worked resulting in employees’
being underpaid. The District had no review process in place to help ensure the accuracy of its
payroll. The high percentage of mistakes found in the small sample auditors reviewed suggests
that the problem may have been widespread.
page 8
State of Arizona
Some purchases lacked proper approval—The District also had an increased risk of
errors and fraud because it did not always require proper approval prior to purchases being
made. For 19 of 30 fiscal year 2011 purchases examined, auditors found that items or services
were purchased without prior approval. Although no inappropriate transactions were detected,
the District should ensure that all purchases are approved by an authorized employee prior to
ordering goods or services, as required by the Uniform System of Financial Records for Arizona
School Districts. This helps ensure that purchases are appropriate and that the District has
adequate budget capacity prior to ordering goods and services.
Inadequate computer and network controls
Ash Creek ESD lacks adequate controls over its accounting system and lacks an agreement
with the County for housing its accounting system. Although no improper transactions were
detected, these poor controls expose the District to an increased risk of errors, fraud, and
misuse of information.
Broad access to accounting system—Auditors reviewed the District’s user access
report for all three users with access to the accounting system and found that 1 district
employee has full access to all accounting system functions. Full access in the accounting
system provides an employee the ability to add new vendors, create and approve purchase
orders, and pay vendors without independent review. It also provides the ability to add new
employees, set employee pay rates, and process payroll payments. Although no improper
transactions were detected in the payments to the 13 employees and 30 purchases auditors
reviewed, such broad access exposes the District to a greater risk of errors, fraud, and
misuse, such as processing false invoices or adding and paying nonexistent vendors or
employees. Although the District had a limited number of staff, there were still opportunities to
separate access in the accounting system or create other compensating controls.
Weak password requirements—The District needs stronger controls over its computer
passwords. Although users develop their own passwords, they are required to change the
passwords only annually. Additionally, the District’s passwords lack a complexity requirement—
that is, passwords can be short and need not contain numbers and symbols. Passwords
should be user-defined based on specific composition requirements, known only to the user,
and changed regularly. Common practice requires passwords to be at least eight characters,
contain a combination of alphabetic and numeric characters, and be changed every 90 days.
These practices would decrease the risk of unauthorized persons’ gaining access to the
systems.
No written agreement for maintaining district accounting system—Like many
small districts within Cochise County, Ash Creek ESD’s accounting system resides at the
Cochise County School Superintendent’s Office, and the District accesses the system
remotely from its offices. However, the District does not have a written agreement that
page 9
Office of the Auditor General
stipulates each party’s responsibilities. An agreement should specify responsibilities such as
software licensing; establishing and maintaining user access; ensuring the security of data; data
backup, storage, and recovery; and removal of terminated employees’ access. Lack of clearly
defined responsibilities increases the potential for such essential tasks and controls to be
ineffectively performed or missing altogether.
District did not accurately report its costs
Ash Creek ESD did not always classify its fiscal year 2011 expenditures in accordance with the
Uniform Chart of Accounts for school districts. As a result, its Annual Financial Report did not
accurately reflect its costs, including both classroom and nonclassroom expenditures. Auditors
identified errors totaling approximately $114,000 of the District’s total $749,000 in current spending.
When corrected, these changes decreased the District’s reported instructional expenditures by
about $35,000, or 4.5 percentage points. The dollar amounts shown in the tables in this report reflect
the necessary adjustments.
Recommendations
1. The District should implement proper controls over its payroll and purchasing to ensure
adequate separation of duties or alternatively establish an appropriate review process as a
compensating control.
2. The District should establish and implement procedures to review employee pay to help ensure
that employees are paid correctly.
3. The District should ensure that it requires an independent review and approval for all of its
purchases prior to the purchases being made.
4. The District should limit employee access to the accounting system so that one employee
cannot complete transactions without independent review.
5. The District should implement and enforce stronger password controls, requiring its employees
to regularly change their passwords and require more complex passwords.
6. The District should establish a written agreement with the Cochise County School
Superintendent’s Office that outlines each party’s responsibilities for its accounting system.
7. The District should classify all transactions in accordance with the Uniform Chart of Accounts
for school districts.
page 10
State of Arizona
page 11
Office of the Auditor General
FINDING 3
Improvements needed for transportation program
recordkeeping
In fiscal year 2011, Ash Creek ESD did not maintain documentation for state funding purposes for
its transportation program and did not meet certain state requirements because it did not maintain
documentation of bus pre-trip operations checks, preventative maintenance, and repairs.
Student transportation mileage and rider documentation not
maintained
For state transportation funding, school districts are required to report to the Arizona Department of
Education actual miles driven to transport students to and from school and the number of eligible
students transported, and districts are required to maintain the related records to document that they
have reported this information accurately. However, in fiscal year 2011, Ash Creek ESD did not
maintain records documenting the number of miles traveled or students transported as required by
the Arizona State Library, Archives, and Public Records retention schedule. Auditors were able to use
alternative documentation, including annual district vehicle reports and route maps showing bus
stops and student riders, to determine that the number of miles and riders reported appeared
reasonable.
Required bus pre-trip inspections and preventative maintenance
not documented
According to the State’s Minimum Standards for School Buses and School Bus Drivers (Minimum
Standards), districts must demonstrate that its school bus drivers perform pre-trip inspections of
each school bus before it is operated for the first time each day. Additionally, districts must
demonstrate that their school buses receive systematic preventative maintenance, which includes
items such as periodic oil changes, tire and brake inspections, and inspections of safety signals and
emergency exits. These standards are designed to help ensure the safety and welfare of school bus
passengers, as well as extend the useful life of buses. Ash Creek ESD did not maintain documentation
to show that such inspections and preventative maintenance were performed.
page 12
State of Arizona
Recommendations
1. The District should maintain its records supporting the reported number of eligible riders
transported and actual miles driven as required by the Arizona State Library, Archives, and
Public Records retention schedule.
2. The District should ensure that pre-trip inspections and bus preventative maintenance are
conducted and documented as specified in the Minimum Standards.
OTHER FINDINGS
page 13
Office of the Auditor General
In addition to the three main findings presented in this report, auditors identified one other less
significant area of concern that requires district action.
District may be able to improve efficiency and lower costs through
the use of cooperative agreements
Very small districts generally have inherently higher costs because they are not able to benefit from
the economies of scale like larger districts and their cost measures are more negatively impacted by
fixed costs. However, there may be an opportunity for very small districts, such as Ash Creek ESD,
to improve operational efficiency through the use of cooperative agreements with nearby school
districts or the local county school superintendent’s office. For example, some districts have been
able to control costs by:
•• Sharing superintendents, principals, business staff, and plant maintenance employees.
•• Participating in county school superintendent cooperative programs where the superintendent’s
office performs many of the primary business functions for the district, such as processing
payments and payroll, and preparing budgets and expenditure reports.
•• Combining food service programs and preparing meals at one site and delivering them to
multiple schools and districts.
•• Combining transportation services and transporting students to two different school districts on
the same buses.
Recommendation
The District should continue to look for ways to improve efficiency and lower costs, including the
possibility of cooperatively providing services with other school districts or the County School
Superintendent’s Office.
page 14
State of Arizona
APPENDIX
page a-1
Office of the Auditor General
Objectives, Scope, and Methodology
The Office of the Auditor General has conducted a performance audit of the Ash Creek Elementary
School District pursuant to A.R.S. §41-1279.03(A)(9). Based in part on their effect on classroom
dollars, as previously reported in the Auditor General’s annual report, Arizona School District
Spending (Classroom Dollars report), this audit focused on the District’s efficiency and effectiveness
in four operational areas: administration, plant operations and maintenance, food service, and
student transportation. To evaluate costs in each of these areas, only current expenditures, primarily
for fiscal year 2011, were considered.1 Further, because of the underlying law initiating these
performance audits, auditors also reviewed the District’s use of Proposition 301 sales tax monies and
how it accounted for dollars spent in the classroom.
For very small districts, such as Ash Creek ESD, increasing or decreasing student enrollment by just
five or ten students, or employing even one additional part-time position can dramatically impact the
district’s costs per pupil in any given year. As a result and as noted in the Classroom Dollars report,
spending patterns of very small districts are highly variable and result in less meaningful group
averages. Therefore, in evaluating the efficiency of Ash Creek ESD’s operations, less weight was
given to various cost measures and more weight was given to auditors’ observations made both at
Ash Creek ESD and at five other very small districts also being audited for fiscal year 2011 operations.
In conducting this audit, auditors used a variety of methods, including examining various records,
such as available fiscal year 2011 summary accounting data for all districts and Ash Creek ESD’s
fiscal year 2011 detailed accounting data, contracts, and other district documents; reviewing district
policies, procedures, and related internal controls; reviewing applicable statutes; and interviewing
district administrators and staff.
To analyze Ash Creek ESD’s operational efficiency, auditors selected a group of peer districts based
on their similarities in district size, type, and location. This operational peer group includes Ash Creek
ESD and the five other elementary school districts that also served fewer than 200 students and were
located in towns/rural areas in Cochise County that were being audited for their fiscal year 2011
operations. To compare districts’ academic indicators, auditors developed a separate student
achievement peer group using poverty as the primary factor because poverty has been shown to be
associated with student achievement. Auditors also used secondary factors such as district type,
size, and location to further refine these groups. Ash Creek ESD’s student achievement peer group
includes Ash Creek ESD and the five other elementary districts that also served student populations
with poverty rates greater than 46 percent. Additionally:
1 Current expenditures are those incurred for the District’s day-to-day operations. They exclude costs associated with repaying debt, capital
outlay (such as purchasing land, buildings, and equipment), and programs such as adult education and community service that are outside
the scope of preschool through grade-12 education.
page a-2
State of Arizona
•• To assess the District’s student achievement, auditors reviewed the Arizona’s Instrument to
Measure Standards’ (AIMS) passing rates and “Adequate Yearly Progress” for the federal
No Child Left Behind Act. AIMS passing rates were compared to the state-wide average
and the average of the student achievement peer districts.
•• To assess whether the District’s food service program was managed appropriately and
functioned efficiently, auditors reviewed fiscal year 2011 food service revenues and
expenditures, including labor and food costs, compared costs to peer districts’, reviewed
the Arizona Department of Education’s food service monitoring reports, and observed food
service operations.
•• To assess the District’s financial accounting data, auditors evaluated the District’s internal
controls related to expenditure processing and scanned all fiscal year 2011 payroll and
accounts payable transactions for proper account classification and reasonableness.
Additionally, auditors reviewed detailed payroll and personnel records for the 13 employees
who were paid at least $2,000 and reviewed supporting documentation for 30 of 742
accounts payable transactions. After adjusting transactions for proper account classification,
auditors reviewed fiscal year 2011 spending and prior years’ spending trends across
operational areas. Auditors also evaluated other internal controls that were considered
significant to the audit objectives.
•• To assess the District’s computer information systems and network, auditors evaluated
certain controls over its logical and physical security, including user access to sensitive data
and critical system, and the security of servers that house the data and systems. Auditors
also evaluated certain district policies over the system such as data sensitivity, backup, and
recovery.
•• To assess whether the District’s transportation program was managed appropriately and
functioned efficiently, auditors reviewed and evaluated required transportation reports,
driver files, bus maintenance and safety records, and bus routing. Auditors also reviewed
fiscal year 2011 transportation costs and compared them to peer districts’.
•• To assess whether the District’s administration effectively and efficiently managed district
operations, auditors evaluated administrative procedures and controls at the district and
school level, including reviewing personnel files and other pertinent documents and
interviewing district and school administrators about their duties. Auditors also reviewed
and evaluated fiscal year 2011 administration costs and staffing levels and compared these
to peer districts’.
•• To assess whether the District’s plant operations and maintenance function was managed
appropriately and functioned efficiently, auditors reviewed and evaluated fiscal year 2011
plant operations and maintenance costs and district building space, and compared these
costs and capacities to peer districts’.
•• To assess whether the District was in compliance with Proposition 301’s Classroom Site
Fund requirements, auditors reviewed fiscal year 2011 expenditures to determine whether
they were appropriate, and the District properly accounted for them. Auditors also reviewed
the District’s performance pay plan and analyzed how performance pay was being
distributed. No issues of noncompliance were identified.
We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
page a-3
Office of the Auditor General
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.
The Auditor General and her staff express their appreciation to the Ash Creek Elementary School
District’s board members, superintendent, and staff for their cooperation and assistance throughout
the audit.
DISTRICT RESPONSE
DISTRICT RESPONSE
Ash Creek Elementary School
6460 East Highway 181
Pearce, AZ 85625
(520) 824-3340 Fax (520) 824-3410
January 21, 2013
State of Arizona
Office of the Auditor General
C/o Debbie Davenport, Auditor General
2910 N. 44th Street Suite 410
Phoenix, Arizona 85018
RE: Response to Ash Creek Elementary School District’s Performance Audit
Ms. Davenport:
Ash Creek Elementary School District respectfully submits its response to the
Performance Audit of fiscal year 2010-2011, which was conducted pursuant to Arizona
Revised Statutes (A.R.S.) 41-1279.03.
Attached is the response to each of the findings and recommendations, and the District’s
plan to implement the recommendations.
Ash Creek Elementary School is committed to operating efficiently and strives to direct
dollars to the classroom. The District appreciated the professionalism of the audit team.
We value the data and findings, presented in the report.
Sincerely,
Sue Shepard
Principal
Ash Creek Elementary School
6460 East Highway 181
Pearce, AZ 85625
(520) 824-3340 Fax (520) 824-3410
Responses to Performance Audit Findings
Finding 1: District working to address its high food service costs and poor procedures.
The District agrees with the finding and will implement the recommendations.
Recommendation 1 The District should continue to closely monitor its food service
program to identify and implement additional cost-saving measures.
Response: The District has been making changes to improve its record keeping and
procedures, implementing Meal Time computer program, purchasing more commodities.
Finding 2: Inadequate accounting and computer controls increased risk of errors and
fraud.
The District agrees with the finding and will implement the recommendations.
Recommendation 1 The District should implement proper controls over its payroll and
purchasing to ensure adequate separation of duties or alternatively establish an
appropriate review process as a compensating control.
Response: The District has implemented controls over payroll and purchasing. This is
overseen by an independent company and Cochise County School Superintendent’s
Office.
Recommendation 2 The District should establish and implement procedures to review
employees pay to help ensure employees are paid correctly.
Response: The District will implement procedures to review employees pay. This will
be overseen by an independent company ADI Business Solutions.
Recommendation 3 The District should ensure that it requires an independent review
and approval of all of its purchases prior to the purchase being made.
Ash Creek Elementary School
6460 East Highway 181
Pearce, AZ 85625
(520) 824-3340 Fax (520) 824-3410
Response: The District will review various accounting practices to ensure established
procedures are being followed.
Recommendation 4 The District should limit employee access to the accounting system
so that one employee cannot complete transactions without independent review.
Response: The District has restricted access to our accounting system and hired an
independent company, ADI Business Solutions which reviews our accounting system.
Recommendation 5 The District should implement and enforce stronger password
controls, requiring employees to regularly change their passwords and require more
complex passwords.
Response: The District is in the process of requiring more secure passwords and having
passwords changed on a regular basic.
Recommendation 6 The District should establish a written agreement with the Cochise
County School Superintendent’s Office that outlines each party’s responsibilities for its
accounting system.
Response: The District will work with Cochise County School Superintendent Office to
implement a written agreement.
Recommendation 7 The District should classify all transactions in accordance with the
Uniform Chart of Accounts for school districts.
Response: The District is working with an independent company to insure all
transactions are coded in accordance with the Uniform Chart of Accounts for school
districts.
Finding 3 Improvement needed for transportation program recordkeeping.
The District agrees with the finding and will implement the recommendations.
Ash Creek Elementary School
6460 East Highway 181
Pearce, AZ 85625
(520) 824-3340 Fax (520) 824-3410
Recommendation 1 The District should maintain its records supporting the reported
number of eligible riders transported and actual miles driven as required by the Arizona
State Library, Archives, and Public Records retention schedule.
Response: The District has begun ensuring that log records are being kept.
Recommendation 2 The District should ensure that pre-trip inspections and bus
preventative maintenance are conducted and documented as specified in the Minimum
Standards.
Response: The District in now ensuring that pre-trip inspections and bus preventative
maintenance is conducted and recorded in log books.
Other Findings: District may be able to improve efficiency and lower costs through the
use of cooperative agreements.
Recommendation The District should continue to look for ways to improve efficiency
and lower costs, including the possibly of cooperatively providing services with other
school districts or the County School Superintendent’s Office.
Response: The District will continue to look for ways to improve efficiency and lower
costs.