State audit reveals accounting issue at county school system

Published 8:59 am Monday, February 8, 2016

Carter County
An annual state audit revealed an accounting issue with the Carter County School System’s accounts that manage employee insurance benefits but Director of Schools Dr. Kevin Ward said the issue has already been addressed and corrected.
The Tennessee Comptroller’s Office released the report for the county’s audit for fiscal year 2014-15 on Thursday, noting a total of three findings, one of which was an “accounting deficiency” in the school system.
Ward said the school system has two accounts which are used for employee insurance — a primary account for the school system’s regular employees and a “liability” account for the employees who work in federally subsidized programs like food services, Head Start and Career Technical Education.
As school officials worked with auditors in late October and early November, Ward said the auditors found there was more money in the primary account than was needed and not enough money in the liability account to cover the expenditures.
According to the audit, because one account was over-funded while the other was under-funded, the balances in both accounts failed to reconcile with accounting ledgers recording the employee payroll deduction and school system contributions for the employee health insurance program.
The audit determined no funds were missing but that funds had been placed into the wrong account.
“No money is missing,” Ward said. “No money has changed hands and no money went through this office.”
The employee payroll deductions and school system contributions for insurance are all deposited into the accounts electronically. The state then makes an electronic bank deduction and removes money from those accounts to pay for the insurance through the state’s insurance benefit program.
“Everything is done electronically,” Ward said. “It was an accounting line item problem.”
During the meetings with auditors, Ward said they provided several suggestions to the school system on ways to correct the issue and to keep it from happening again. Ward said the school system has already implemented those changes and the issue had been corrected before the Comptroller’s Office released the audit report.
“There were four or five suggestions they had and those have all been implemented,” Ward said. “It was an accounting practices issue so they had to list it as a finding.”
One of the suggestions was a segregation of duties for the school system’s financial administrative staff. Ward said previously a bookkeeper had been tasked with making the payroll deductions and school system contributions for the insurance program along with the bookkeeper duties.
“We segregated the duties of those two positions,” Ward said. “We now have one person who administers the insurance.”
The Comptroller’s audit report classified the accounting issue as a “material weakness,” which it said resulted from a lack of management oversight.
“Sound business practices dictate that employee payroll deductions and the employer’s contributions for the benefits be reconciled monthly with billings and balances in the employee health insurance bank clearing account be reconciled with amounts due the insurance administrator monthly,” the audit report said. “Also, sound business practices dictate that duties be segregated adequately among employees. These deficiencies increase the risk that errors will not be discovered in a timely manner.”
In the school system’s response to the audit report, the system notes that the system began compiling monthly reconciliation reports on the insurance accounts and had segregated the duties of the insurance program.

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