Management report, Office of School Readiness, an organizational unit of the state of Georgia, year ended June 30, 2001

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OFFICE OF SCHOOL READIN!oSS MANAGl:.M[~1T REPORT - TABL[ OF CO"ITENTS -

LETTER OF TRANSMTTTAL

SECTION l

SELECTED FINANCIAL INFORMATION

EXHIBITS

A ANALYSJS OF CHANGES IN FUND BALANCE

BUDGET FUND

B SCHEDULE OF FUNDS AVAJLABLE AND EXPENDITTJRES

COMPARED TO BUDGET

BUDGET FUND

2

C RECONCILJATION OF TRAVEL

3

SECTION ll AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

SECTIONlll CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

Rl'-"'"11 \\. H1...,1ot,,,
$TATE AUDITOFI
(404)655-2174

DEPART!\IENT OF AUDITS AND ACCOUNTS
~54 \VJ,hrngtnn '\1rce1 \ W, ~uilc ~ 14 AtlJnt;J., Georgia 103.34-8400
February I. 2002

Honornble Roy E Barnes, Governor Members of the General Assembly of Georgia
and Honorable Marsha Moore, Actmg Duector Office of School Readmess
Ladies and Gentlemen
As part ofour audit ofthe statutory basis financial statements ofthe State ofGeorgia presented m the State ofGeorgia Report ofthe Stale Audi/or, the general purpose financial statements ofthe State of Georgia presented m the Stale ofGeorgia Comprehensive Annual Fcnanccal Report, and the issuance ofa Starev.,cde Single Audi/ Report pursuant to the Smgle Audit Act Amendments, as of and for the year ended June 30, 2001, we have performed certam audit procedures at the Office of School Readmess Accordmgly, the financial statements and compliance act1v1t1es of the Office of School Readiness were examined to the e""<tent considered necessary m order to express an opin10n as to the fair presentation of the financial statements contained in the foregomg documents and to issue reports on compliance and internal control as reqmred by the Single Audll Act Amendments of 1996
This Management Report contains mformauon pertinent to the financial and comphance act1v1t1es of the Office of School Readiness as of and for the year ended June 30, 2001 The particular mformatlon provided 1s enumerated m the Table of Contents
This report 1s mtended solely for the mformatlon and use of management of the Office of School Readiness and 1s not intended to be and should not be used by anyone other than these specified parties
Respectfully submitted.

RWHgp

Hmton State Auditor

SECTION! SELECTED FINANCIAL INFORMATION

OFFICE OF SCHOOL READINESS ANALYSIS OF CHANGES IN FUND BALANCE
BUDGET FUND YEAR ENDED JUNE 30. 2001
FUND BALANCE - JULY 1. 2000 Reserved
ADDITIONS AdJustments to Pnor Yea(s Accounts Payable Grants Payable Excess of Funds Available over Expenditures Exh1b1t "B" Pnor Yea(s Checks Voided Reimbursement of Pnor Yea(s Expenditures Grants Other Transfer of Fund Balance from Department of Education Reserved Unreserved
DEDUCTIONS Unreserved Fund Balance (Surplus) Returned to Office of Treasury and Fiscal Services Year Ended June 30, 2000 - Regular Year Ended June 30, 2000 - Lottery Correction of Pnor Yea(s Accounts Receivable Correct,on of Pnor Year Accounbng Errors
FUND BALANCE - JUNE 30 2001
SUMMARY OF FUND BALANCE Reserved Federal Financial Assistance Other Funds Standards of Care
Surplus Regular Lottery
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EXHIBIT "A"

$

0 00

$

315.706 92

847,497 46

2,852.231 82 187,661 51

661,916 33 47500

34,692,369 97 1,120,TT820

$ 40,678,637 21

$

23,655 52

1,097,122 68

33,331,546 67

3,152,958 52

$ 37,605,283 39

$

$ 1,650,331 48 42058 93
$ 1,692,390 41

$

42,686 67

1 338 276 74

$ 1,380,963 41

$

OFFICE OF SCHOOL READINESS SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES
COMPARED TO BUDGET BUDGET FUND
YEAR ENDED JUNE 30 2001

EXHIBIT "B"

FUNDS AVAILABLE
REVENUES
State Appropnat10n - Regular State Appropnabon - Lottery Federal Revenues Other Revenues Retained

BUDGET

ACTUAL

VARIANCEFAVORABLE (UNFAVORABLE)

s $ 1,269,256 00 $ 1,269,256 00

228,895,928 00 228,895,928 00

134,417,660 00

70,404,440 24

000

1 283 10

0 00 0 00 -64,013,219 76 1 283 10

$ 364,582,844 00 $ 300,570,907 34 $ -64,011,936 66

EXPENDITURES
Personal SeMces Regular Operabng Expenses Travel Equ:pment Computer Charges Real Estate Rentals Telecommun:callons Per D:em, Fees and Contracts Pre-Kindergarten - Grants Pre-K:ndergarten - Personal Services Pre-Klndergarten - Operabons Federal Nutrlbon Grants Standards of Care

$ 3,642,166 00 $ 2,525,907 62 $

213,283 00

181,859 33

192,864 00

98,882 04

11,528 00

4,324 48

225,693 00

86,000 00

130,500 00

86,120 80

31,724 00

31,676 57

1,286,947 00 221,444,380 00

763,16413
n 221,311.229

2,235,591 00

1,924,335 28

5,215,957 00

5,214, 158 91

129,817,711 00

65,436,266 59

134 500 00

54 750 00

1,116,258 38 31,423 67 93,981 96 7,203 52
139,693 00 44,379.20 4743
523,782 87 133,150 23 311,255 72
1,79809 64,381,444 41
79 750 00

$ 364,582.844 00 $ 297,718,675 52 $ 66,864,168 48

Excess of Funds Available over Expend:tures

$ 2,852,231 82 $ 2,852,231 82

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OFFICE OF SCHOOL READINESS RECONCILIATION OF TRAVEL YEAR ENDED JUNE 30. 2001
Total per Annual Supplement AdJustment
Wyatt, Megan Bailey

EXHIBIT "C"
$ 276,538 27 -239 45
$ 276,298 82

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SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

OFFICE OF SCHOOL READINESS AUDITEE'S RESPONSE
SU\1MARY SCHEDULE OF PRJOR YEAR Ff!\'DTNGS AND QUESTIONED COSTS YEAR El\'DED JUNE 30, 2001

PRJOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-414-00-0 I FS-414-00-02
FS-414-00-04 FS-414-00-06

Further Acl!on Not Warranted - Sec Correcl!vc Action/Responses Previously Reported Corrective Action Implemented -
See Correc!Jve Acllon/Responses Partially Resolved - See Corrective Action/Responses Previously Reported Correcl!ve Acllon Implemented -
See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

BUDGET PREPARATION/EXECUTION Overexpend1ture of Budget Umt Object Classes Fmdmg Control Number FS-414-00-01

OSR deterrnmed that there were no real dollar over-expenditures of Budget Umt Ob3ect Classes Rather, there were errors m posllng of financial transacl!ons as md1cated m findmg FS-414-00-04 These recordmg errors resulted m negal!ve object class balances OSR has taken care to review and properly record refunds from vendors to offset expenses to remedy the postmg errors OSR has taken steps to momtor budget performance on a monthly basis.

EXPENDITURES/LIABILITIBS/DISBURSEMENTS Failure to Comply With the Fair and Open Grants Act Fmdmg Control Number FS-414-00-02

OSR took correcl!ve steps to meet the December 31 deadlme and delivered the required FY 2000 mforrnal!on to the Secretary of State's Office on December 28, 2000

GENERAL LEDGER Inadequate Accountmg Procedures (Overall) Fmdmg Control Number FS-414-00-04

Add1l!onal skilled employees were added to the OSR financial staffm FY 2001 Fmancial accountmg procedures have been documented General Ledger reconc1hat1on's are current Bank signature cards are updated Bank statements are reconciled monthly All reconc1lmg items for FY 200 I were cleared Subs1d1ary ledgers and systems are reconciled to the General Ledger. Pre-K payments are now paid through the state centralized accounts payable system OSR has substantially corrected General Ledger balances OSR 1s currently workmg to process Federal Nutnllon Program payments through the centralized

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OFFICE OF SCHOOL READINESS AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AJ\'D QUESTIONED COSTS YEAR EJ\UED JUNE 30, 2001

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND OliESTIONED COSTS

CORRECTIVE ACTION/RESPONSES

GENERAL LEDGER Inadequate Accounting Procedures (Overall) Fmdmg Control Number FS-414-00-04

state accountmg system and to enhance the operatmg capability of the Nutnaon Program chnms processing subsystem Development, improvement, and refinement of financial accountmg procedures will contmue

GENERAL FIXED ASSETS/PROPERTI' MANAGEMENT

Inadequacies in Operation of Property Management System

Fmdmg Control Number FS-414-00-06



See our corrective action/responses to fmdmg number FA-414-00-01 m the Pnor Year Federal Awards Fmdmgs and Questioned Costs

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-414-00-01 FA-414-00-04

Previously Reported Corrective Achon Implemented See Corrective Action/Responses
Unresolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies m Operation of Property Management System Fmdmg Control Number FA-414-00-01

Add1t1onal staff now mamtam fixed assets mventones. Fixed asset reconc1hat1ons are completed monthly A physical mventory was conducted Cycle venficat10ns ofphysical mventones are performed throughout the year

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OFFICE OF SCHOOL READINESS AUDITEE'S RESPO::,./SE
SUMMARY SCHEDULE OF PRJOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2001
PRJOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES SUBRECIPIENT MONITORJNG Subrec1p1ent Audit Reports Not Received W1thm the Requued Time Penod Fmdmg Control Number FA-414-00-04 Some audits from the State Department of Audits and other OSR subrec1p1ents were received m FY 2001 beyond the mne month due date. For FY 2002, OSR will be mvestlgatmg allowable sanctions to impose on program part1c1pants for late audit report subrmss10ns The State Department of Audits 1s planmng for FY 2002 to change their approach that will mclude a d1v1S1on ofstaff to perform audits for County School Boards. This should reduce the required audit time to allow audits to be submitted more timely
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SECTION Ill CURRENT YEAR FTh,'DINGS AND QUESTIONED COSTS

OFFICE OF SCHOOL READINESS SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30. 2001
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
GENERAL LEDGER Inadequate Accountmg Procedures (Overall) Fmdmg Control Number FS-469-01-01
Accountmg procedures of the Office of School Readmess were msuffic1ent to provide adequate mtemal controls over Revenucs/Recewables/Rece1pts, Expend1tures/L1ab1ht1es/D1sbursements, Fund Eqmt1es, and General Ledger control categones as noted below It should be noted that the Office m11iated a "balance cleanup proJect" pnor to fiscal year end and that this pro1ect contmues m fiscal year 2002
Revenues/Rece1vables/Rece1pts
I. Reconc1halions ofthe receivables and revenue accounts were provided, but balances on the reconc1halions did not agree with the general ledger balances at fiscal year end The Office of School Readmess should ensure that general ledger balances provided on the reconcihatlons equal the general ledger on the statewide Phoerux accountmg system.
2 The general ledger module did not balance with the accounts receivable (subs1d1ary) module As a result, numerous reconc1lmg items existed at June 30, 2001. This cond1t1on resulted beeause of the followmg
a There were numerous manual Journal entnes posted to the general ledger module and a correspondmg entry was not made m the accounts receivable module These reconc1lmg Items occurred because the Office used manual journal entnes, which are posted only to the general ledger, mstead of adjustment vouchers, wluch are posted directly to the modules and automatically updated on the general ledger The Office was unable to proVIde necessary documentation to support all reconc!lmg 11ems
b. Direct Journal transactions are used m mstances where 111s not necessary to first record a revenue transaction m the accounts receivable module The entry to record a drrect Journal transaction 1s to debit cash and credit revenue On numerous occasions, the Office recorded d1rect1oumal transactions directly mto the accounts receivable module, even though no receJvable existed. Th.Is practice resulted m receivables bemg reflected even though no amounts were due to the agency.
c There were reconc!lmg items between the general ledger module and the accounts receivable module dating to July 1, 1999
3 The receivable related revenue accounts for State and Federal revenue are not bemg recorded properly on the general ledger Revenue for these accounts should be recorded
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OFFICE OF SCHOOL READINESS SCHEDULE OF FINDINGS AND QUESTIONED COSTS
'{EAR ENDED JUNE 30. 2001
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
GENERAL LEDGER Inadequate Accountmg Procedures (Overall) Fmdmg Control Number. FS-469-01-01
with an mlllal accounts receivable item and then cash receipts should be apphed agamst the open receivable !lems The Office 1s recording these revenue amounts by use of d1rect Journal, which are recorded d1rectly to cash rather than through accounts receivable
Expend1tures/L1ab1l1t1es/D1sbursements
1 The general ledger module did not balance with the accounts payable (subs1d1ary) module This condition resulted because numerous manual Journal entnes were posted to the general ledger and a correspondmg entry was not made m the accounts payable module. As a result, numerous reconciling items existed at June 30, 2001 These reconcilmg items occurred because, m many cases, the Office used manual Journal vouchers, which are posted only to the general ledger, mstead of adJustrnent vouchers, which are posted d1rectly to the module and automatically updated on the general ledger. The Office was unable to provide necessary documentation to support all reconc1lmg items Certam of these items were rune months old.
2. The Office has not established an mtemal control system whereby subsuhary ledgers for the Child and Adult Care Food Program and the Summer Food Service Program properly "roll-up" mto the general ledger. Manual Journal entnes are made to the general ledger to record the acl!VIty of the subs1d1ary ledgers However, these manual entnes failed to accurately record the activity of these subs1d1ary ledgers. The Office provided numerous reconc1hat1ons between the general ledger and the subsidiary ledger, but these reconcllia!ions, more often than not, did not support amounts recorded to the
general ledger. In add1t1on, adequate supportmg documentallon for the amounts m the
subs1d1ary ledgers was not proVIded
Fund Equ1hes
1. The general ledger was not closed with the correct balances at June 30, 2001 Numerous audll adjustments, many of which were proVIded by the Office, were necessary to reflect the overall financial status of the Office The following accounts were adjusted as follows
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OFFICE OF SCHOOL READINESS SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2001

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Inadequate Accountmg Procedures (Overall) Fmdmg Control Number FS-469-01-01

Per Book

Per Audit

Reserves Surplus

$ 3,824,138.23 $-409,613,887 02

$1,692,390 41 $1,380,963 41

General Ledger

I The general ledger was not closed with the correct balances at June 30, 2001. Pnor to fiscal year 2001, the Office's actJv1ty was spht between two budget funds, "A Department of Education" and ''B Lottery for Education" Effective July I, 2000, all begmrung balances and all activity should have been recorded ma new budget fund, "C Office of School Readmess" Only dunng the month of June 2001 and the closmg penod, which Phoerux designated as a "998" penod, was an attempt made to merge these begmrung balances and activity which occurred m the former budget funds The Office made numerous manual Journal entnes m the subsequent penod that should have been made pnor to closmg the general ledger at June 30, 2001. These subsequent penod entnes have been reflected m the amounts shown m the management report.

2 Numerous manual Journal entnes were made to the general ledger Without proper approval Journal entnes were made to transfer balances from the different budgets and programs without correspondmg entnes recorded m the appropnate subs1d1ary modules. As a result, the subs1d1ary modules reflected balances m the budget funds and programs that no longer are bemg used by the Office.

The Office 1s reqmred to balance subs1d1ary accounting records to the general ledger and close the fiscal year end general ledger m accordance with the Accounting Procedures Manualfor the State of Georgia as pubhshed by the State Auditor

Management's failure to ensure that transactions recorded m the subsidiary modules are correct and are m balance with the general ledger module causes mternal reports to management, generated from the subs1d1ary modules, to be maccurate and m1sleadmg. Tins condition can lead to erroneous dec1s10ns by the Office's management as well as by the State ofGeorgia's executive dec1s10n makers

To ensure accurate and timely reportmg of financial mformahon from subsidiary modules that are part of the statewide Phoenix accounting system, the Office should consider usmg adJustment vouchers rather than manual Journal entnes to the extent possible. Tins will allow the natural flow of the subs1d1ary modules mto the general ledger module to correct adJustments to the accountmg

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OFFICE OF SCHOOL READINESS SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2001
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
GENERAL LEDGER Inadequate Accounting Procedures (Overall) Finding Control Number FS-469-01-01
records that are determined to be necessary The Office should also consider implementing an electromc interface for those subs1d1ary ledgers that are manually recorded onto the general ledger Finally, the Office should develop internal accounting controls and procedures to ensure that transaclions are entered properly in the subs1d1ary modules and that adequate supporting documcntallon and approvals are mamtamed for all adjustments and reconc1hng Items
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
SUBRECIPIENT MONITORING Subrec1p1ent Audit Reports Not Received and
Not Followed-up on Deficiencies Withm the Required Time Penods Fmding Control Number FA-469-01-01
As part of our examination, we reVJewed the tracking documents used by the Office of School
Readmess to determine the status of subrec1p1ent audit reports for the year ended June 30, 2000
While trymg to obtam a trackmg document used by the Office, we received several different hsts of subrec1p1ents. Due to these different trackmg documents, we were not assured that the Office had an accurate hst ofsubrec1pients that fall under 0MB Crrcular A-133 Ofthe one-hundred-forty-seven ( I47) subrec1pients identified on the final trackmg document, e1ghty-nme (89) had not subnutted therr audits withm the nme-month penod as required byOMB Circular A-133. This noncompliance 1s due to subrec1pient audits not bemg performed m a limely manner.
A subsequent review of the status of the eighty-nine (89) audits not submitted by the due date indicated that fifteen (15) had not been submitted by January 17, 2002.
Dunng our review ofthe subrecipient audit files, it was noted that the follow-up on audit deficiencies was not always completed within six months after receipt of the audit report as reqmred by 0MB Circular A-13 3
The Office should establish the necessary internal controls to ensure that their staff 1s aware of subrec1pients who fall under 0MB Crrcular A-133, reports are submitted within the mne-month penod, and the follow-up 1s completed w1thm six months after receipt of the audit report
Ma,or Federal Programs/Awards Affected
U S. Department of Agnculture Child Nutnl!on Cluster Summer Food Service Program - CFDA IO 559 Child and Adult Food Care Program - CFDA 10.558 -4-