TEAM SUCCESS A SCHOOL OF EXCELLENCE, INC.Non-Profit

When the school was starting and much smaller, there was one individual who primarily worked in the accounting department under the oversight of the principal and the Board of Governance. This is not unusual for small governments and nonprofit organizations to have limited resources to hire enough employees for proper separation of duties. Therefore, the school reviewed their internal control policies and applied mitigating factors to attempt to minimize the risks. For example, all check disbursements required two signatures and approved by the Director. Over the last couple of years, the school has successfully expanded requiring additional employees to be included in the accounting department. Management took action in 2019 with hiring additional accounting personnel to create more segregation of duties and implemented new internal controls. In addition, new policies and procedures were initiated such as signature stamps to avoid any delay of school activities. Although the controller was not authorized to sign checks, another member of the accounting department was assigned a stamp for signing checks. It appears that the stamp may have been used by someone other than the person authorized to use it. This action could potentially reduce the role of separation of duties. There were material misappropriation of assets discovered in September of 2019. These potential amounts were quantified by management to be approximately $103,074 during the fiscal year 2018/2019. Inherently, small organizations need to improve the documentation and review of the separation of duties as the school changes. Additionally, a recommendation to document and write down these new procedures

2018-001

The prior controller who was responsible for most of the accounting duties and many approvals, overrode internal control procedures to possibly misappropriate funds. These possible actions may have included altering checks after signed and approved by the Director, using a signature stamp that did not include her name and potentially creating fictitious entities and bank accounts. It is possible that the misappropriation of assets was caused by Management override of internal controls approved by the Board of Governance. Management engaged other independent professionals to conduct an internal investigation. Based on that report and our review, the amount of the potential loss associated with the school for fiscal year 2019 in the amount of approximately $103,000 which is recorded in these financial statements. As discussed, additional proper separation of duties were recommended to be implemented in the middle of 2019. These policies should mitigate or reduce this risk. We recommend the board review the new policies annually.

2018-002

During fiscal year 2019, our disbursement testing of the general fund expenditures resulted in a lack of documentation or support for expenditures that occurred in the beginning of the year. In the beginning of the year, the prior controller, who had oversight responsibility for the accounting process including requests, approvals and remittance of payment, allegedly did not comply with the internal control procedures to possibly misappropriate funds. For example, the board has designated that two signatures would be on all checks. The controller was appropriately not an authorized signature. However, after an internal investigation, management engaged other independent professionals to conduct an internal investigation. Based on that report and our review, the amount of the potential loss associated with the school for fiscal year 2019 has been recorded in these financial statements. We recommend that any signature stamps not be used when issuing checks or as approval on any support. We recommend the Board adopt a policy that any disbursements over $10,000 has to be reviewed and approved by the Board except for recurring items such as rent. We also recommend the internal controls for separation of duties should be reviewed and changed to accommodate the activities and the size of the school as it changes.

2018-003

During our review and test work in fiscal year 2019, we noted there were numerous credit cards with high available credit to several members of management for use to operate the school. This practice had grown over the years due to the growth of the school. Based on our review of several months of credit cards, most all of the charges had support such as receipts attached to the statement for review before approval. However, it was not always clear the purpose of the purchase. These purchases could have been for school or personal use but was not always specified on the support. Although most of these items were small, aggregately they were material. During the internal and independent investigation, this fact was taken into consideration when determining the amount of misappropriation of assets. Based on that report and our review, the amount of the potential loss associated with the school for fiscal year 2019 has been recorded in these financial statements. We recommend the Board of Governance develop policies surrounding the use of any credit cards including reduction of credit, minimizing the number of payers as well as recipients of the cards. In addition, they should review and establish specific proper documentation. In addition, they should review and establish specific required documentation.

2018-004

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