‘STATE OF DELAWARE
OFFICE OF AUDITOR OF ACCOUNTS:
[R.THOMAS WAGNER, JR. CFE, CGFM, CICA,
"AUDITOR OF ACCOUNTS
‘302-739-5055
THOMAS. WAGNER@STATE.DE.US
June 30, 2016
Dr. Nick T. Manolakos
Headmaster
Odyssey Charter Schoo!
Barley Mill Plaza, Building #22
4319 Lancaster Pike
Wilmington, DE 19805
Dear lakos
‘As you know, my office began reviewing the use of petty cash accounts at various charter schools earlier
this year. Overall, we found that these charter schools were not following the State's petty cash policy
a set forth in the State of Delaware’s Budget and Accounting Manual (BAM).
Petty Cash Account Approvals
The Division of Accounting must approve the establishment of a petty cash fund and the Office of
the State Treasurer must approve the opening of the bank account used.' ‘The names and signatures
of the authorized petty cash check signers must be on record with the Secretary of Finance.
We found no evidence that Odyssey Charter School’s petty cash account was properly approved by
any of these entities.
Petty Cash Account Management Compliance
Petty cash, by definition, is a small amount of money kept in an office to pay for small value items.”
Itcan be maintained in the form of cash or a checking account. Petty cash allows the processing and
payment of expenditures to occur outside the normal accounting environment. However, while the
use of such an account is convenient, it is important to recognize that the overuse of petty cash
minimizes public transparency and increases the risk of control overrides, inaccurate accounting, and
misappropriation of funds.
"BAM, Section 7.12.1, v4.26
? BAM, Section 7.12.2, v.4.26(5)
> Per http://www. merriam-webster.com/dictionary/Petty%20cash, on March 2, 2016.
401 FEDERAL STREET * TOWNSEND BUILDING * SUITE ONE * DOVER, DE 19901
MAIN OFFICE: 302-739-4241 FRAUD HOTLINE: 1-80055-FRAUD
‘Vist OUR WEBSITE TO VIEW, DOWNLOAD. OR PRINT AUDIT REPORTS AND OTHER INFORMATION
'HITP“/ / AUDITOR DELAWARE.GOVDr. Manolakos
Page 2
June 30, 2016
Per the BAM, organizations’ may use petty cash when acquiring and paying for small value
purchases. Generally, the maximum authorization is not greater than $2,000; however, amounts not
exceeding $5,000 may be requested where exceptional circumstances exist.’ Section 7.12 of the
BAM also sets forth additional guidelines for the operation of petty cash accounts within the State,
including that all petty cash receipts and supporting documentation must be kept by the organization
for audit purposes.°
‘The following table summarizes Odyssey Charter School's compliance with thes
during the Fiscal Year ended June 30, 2015 (Fiscal Year 2015).
requirements
Odyssey Charter School
Petty Cash Account Management Compliance
Written Policies and Procedures for Petty Cash
Checks were drawn in consecutive numerical order
(BAM, Section 7.12.2.1, v4.26)
Account reconciliations were performed by the Account Custodian [eee
(BAM, Section 7.12.24, v4.26)
Checks were signed by two employees
(the Account Custodian may not be a check signer)
(BAM, Section 7.12.2.2, v.4.26)
Checks were signed by two Board Members.
No petty cash checks were drawn in excess oF $500.00.
(BAM, Section 7.12.28, v4.26)
The school processed 53 checks, totaling $303,451.65, that were in excess of
the $500.00 threshold. There were also 57 other debit transactions over this
threshold, totaling $326,574.05, for items such as loan payments and
transfers 10 other Odyssey Charter School accounts i
Maintained a Petty Cash account within the $5,000 limit throughout the period
(BAM, Section 7.12, v4.26) :
The average monthly balance was $88,979.83, with an ending balance of
$51,748.99 on June 30, 2015.
“The BAM defines “organization” as State of Delaware agencies (both merit and non-mert), school districts, charter schools,
and higher education, BAM, Section 1,7, v.29
’ BAM, Section 7.12, v.4.26
BAM, Section 7.12.3, v4.26Dr. Manolakos
Page 3
June 30, 2016
We also identified a blank check for $44,010 that was processed in December 2014. While this
check was ultimately used to purchase a cashier's check to pay New Castle County for legitimate
schoo! by carrying around a signed check with a blank payee carries significant risk.
In previous communications with my office, you stated that Odyssey Charter School “...never
considered the...account as a petty cash account. It was set up to collect receipts for the food service
and after-school care programs.” However, we considered this a petty cash account since it was also
used for ongoing operational items, such as for postal services and loan payments, during Fiscal Year
2015.
Odyssey Charter School’s petty cash account was the most voluminous of the charter school accounts
we reviewed at this time. As stated above, we caution the school’s overuse of a petty cash account since
these accounts may be viewed as a way of transferring funds from the State into external bank accounts,
that lack continual State oversight. The petty cash restrictions in the BAM are meant to reduce the
various risks associated with the use of petty cash, and users of the State’s accounting system must abide
by these restrictions, in addition to developing and implementing entity-specific petty cash controls.
While AOA recognizes that some charter school accounts may have been operating prior to the
implementation of these BAM guidelines, we encourage all charter schools to periodically review the
BAM to ensure compliance with all of its financial processes. We also recommend using a State-issued
procurement card (PCard) or direct claim through First State Financials when possible. Regardless of
the method of payment, supporting documentation must be maintained for all transactions,
Please feel free to contact me at (302) 739-5055 with any further questions you may have.
R. Thomas Wagner, Jr., CGFM, CICA, CFE
State Auditor
cc: Dr. Steven H. Godowsky, Secretary, Department of Education
Mr. George Chambers, President of the Board of Directors